SageTree Inc.’s Jeffrey Erle seems to get a morbid thrill from product failures,whether they involve his company’s parent, Irvine disk-drive maker Western Digital Corp., or tire producer Bridgestone/Firestone Inc.
That’s because in a way, failure is what SageTree is all about.
The year-old software maker aims to improve the manufacturing process by tracking the individual components that go into a product and linking them to data from suppliers and business partners.
The result, Erle contends, is a better way to anticipate and avoid problems,and identify and contain them when they occur.
Product recalls in recent months from technology companies and automobile makers,the markets SageTree has targeted first,are giving Erle reason for optimism.
His company is looking for a $30 million round of financing as it emerges from Western Digital’s shadow and gears up for a planned initial public offering.
Though Western Digital still owns 70% of SageTree, that stake stands to be diluted through additional financing. And Erle, SageTree’s chief executive, insists that psychologically the two companies aren’t even remotely related.
“We’re not Western Digital,” says the 42-year-old New Jersey native, a longtime Southern California resident and former Litton Industries Inc. executive appointed to his post a few months ago. “We’re not going to help them sell hard drives. We’re purely an equity play for them.” At the risk of begrudging his corporate parent, Erle said he wants to generate a start-up atmosphere for the spin-off, and that means separating the operation as much as possible from Western Digital’s staid, established culture. Western Digital also is fighting to stem losses and sagging market share.
In an effort to take the edge off of lagging fortunes in the disk drive market, Western Digital hopes to incubate companies and spin them off into separate businesses.
In addition to SageTree, the drive maker is betting on a subsidiary called Connex Inc. that makes high-speed storage systems for corporate networks. Western Digital also has an unnamed dot-com under its wings that’s expected to announce itself soon.
Tracking Problem Parts
SageTree began as an internal Western Digital project initiated three years ago by former chairman and chief executive Charles Haggerty to improve the company’s production line. Jerry Hill, a longtime manager for Western Digital and now SageTree’s chief operating officer, headed the project.
Haggerty, now SageTree’s chairman, figured that if Western Digital could keep track of the individual parts used in its drives during manufacturing and even after they shipped, it could more easily target and correct any problems.
If Western Digital received an alert from a supplier about defective parts, for instance, it could identify affected drives. From there, the drives could be isolated and repaired without stopping the entire production line. Or the system could find patterns in customer complaints, recognizing, say, that failing drives shared a component sent to Western Digital on a certain date or in a particular batch.
Data warehousing systems have promised some of the same things for years, but SageTree officials contend their system offers a new level of analysis and the ability to scrutinize data on the fly with instant reports. (Data warehousing company NCR Corp. has invested $10 million in SageTree and provides servers in a San Diego data center.)
Still, SageTree isn’t the only company making such claims. Competitors include Palo Alto-based SeeCommerce and San Jose-based Datasweep Inc. And bigger threats such as SAP AG are considering entering the market.
SageTree’s system got its first real-life test about a year ago, when Western Digital had to recall some of its new WD Caviar hard drives because of a faulty chip. Using the system, the company located 80% of the defective drives before they left the factory and could trace the rest to individual resellers for replacement,all without stopping the production line.
Auto Industry Targeted
Erle, who headed a division of Automatic Data Processing Inc. focused on automobile dealers, says SageTree could have done the same thing for Ford Motor Co. and Bridgestone/Firestone.
Though Ford and Bridgestone/Firestone apparently had internal data and insurance statistics pointing to a problem, the information resided in separate databases and were not linked. That made it hard to recognize patterns in the customer complaints or narrow the problem to a certain batch of tires.
“We could have saved them a lot of money,” Erle said.
SageTree’s Hill, speaking from personal experience, agreed. He said three sport utility vehicles he recently purchased were included in better-safe-than-sorry recalls that required him to take the vehicles to the dealer, only to find that his vehicles were defect-free.
As expected, Western Digital already is using the system, and Informatica Corp., a Palo Alto company that sells data-analysis systems to businesses, has signed a $4 million licensing deal to use the system with its customers.
Sales in the so-called supply chain management market are expected to grow from about $3.8 billion in 1999 to $20.3 billion in 2004, according to AMR Research.
Hill said he and Erle plan to eventually target additional markets such as pharmaceuticals and aerospace, but added that those expansions are at least a year away. Hill’s experience with Western Digital and Erle’s history with automobile dealers make high-tech and automotive the most obvious markets to start, Hill said.
Other SageTree executives include vice president of sales and marketing Ken Chatfield, a Western Digital veteran; vice president of application development Tom Crump, a former senior manager with KPMG Consulting; vice president of professional services Cheryl Wiebe, another KPMG refuge; and chief scientist Bruce Aldridge.
“Not a lot of green and purple hair on the management team,” Erle quips. “This is not a startup that requires adult supervision.” n
