From the Rafters to the Cloud
As a child, Philip Abraham ran away from home to live in friend’s garage. Today he’s a pioneer in using the cloud to bring down health care costs.
>> Fiber optics Phil Abraham, chairman of CloudFace in Northville Township, inside a secure server room at 123Net’s headquarters in Southfield. The latter company provides high-speed fiber internet connections for businesses and organizations throughout the region and state.
The implausible career of Philip Abraham, a cyber space technology pioneer who lives in Northville Township, took root in the sixth grade when he ran away from home and lived for a couple of years in the rafters of a two-car garage at a schoolmate’s home.
At that young age, the future software-writing wizard yearned for a disciplined and orderly routine that was impossible to find at home. His parents had divorced and his father, who had custody of Abraham and his three siblings, married a woman with six children of her own. Overnight, young Philip found himself sharing his home with nine active siblings.
“It was total chaos and I couldn’t deal with it, so I left,” Abraham says, shrugging off his life-changing moment as he discussed a career filled with dramatic twists worthy of a movie script.
Abraham began designing software programs before computers became common in the workplace. Early in his career he found himself working covertly; developing programs for some of the largest companies in the country.
As a student at Eastern Michigan University in Ypsilanti, he designed software for Kmart Corp. that revolutionized the Troy-based company’s retail supply chain operations. At the time, the company was the No. 2 retailer in America behind Sears, Roebuck & Co (which since acquired Kmart). That program was the genesis for a business that would later become a $200 million a year enterprise.
For that bit of genius, Joseph Antonini, Kmart’s CEO at the time, rewarded him with a $50 company gift certificate and a signed plaque. While at Kmart, Abraham was recruited by Domino’s Pizza founder and CEO Tom Monaghan, who charged him with a secret, yearlong assignment to reinvent the company’s global supply chain.
Another assignment, commissioned by General Motors Corp., saw Abraham leading a team of experts working on a project to create an online platform aimed at reducing costs and simplifying automotive supply chain management. That program would later become the basis of Covisint Corp., once valued at $460 million.
Moving on from retail, pizza, and autos, Abraham in recent years was tapped by Ascension Health, the nation’s largest nonprofit Catholic hospital group, and the Loma Linda University Medical Center in California, to rein in their diverse software programs and wring out millions of dollars in cost savings from the hospitals’ supply chain and billing operations.
Three years ago, Abraham founded CloudFace, a health care information technology company focused on reducing heath care supply costs in the $3 trillion per year industry.
Abraham says because of recent mergers of major health care providers, hospitals and clinics operate with a plethora of disconnected software programs that don’t communicate with each other. As a result, health care executives often rely on flawed data that undermines their attempts to rein in the spiraling costs plaguing the industry.
Abraham says his CloudFace applications, used successfully at Ascension, Loma Linda, and other health care operations, create an opaque volume of critical data transparent to health care decision-makers.
“I found a way to connect disparate, if not extremely, disparate systems. Thirty years ago there wasn’t a lot of technology, but that platform I developed at Kmart is embedded in my CloudFace solution now,” Abraham says. “I can get software to do things it wasn’t originally designed to do. I can get at data before anyone else can, and I can get at data that’s hidden in disparate systems — even an organization with, say, 5,000 off-the-shelf software systems in it. That’s what’s happening in health care. Everyone is (taking over) other companies and, as a result, you have a lot of disparity in software programs out there. So to be able to get all this data before anyone else is very powerful.”
Abraham’s time spent in the rafters above his school buddy’s Westland garage seems a fitting precursor to his current professional residence, a less-traveled, more secure layer of the internet where very few software technology experts in the country.
In the seven-layer conceptual model that characterizes and standardizes the communication functions of a computing system — called the Open System Interconnection model, or OSI — the internet operates via a seven-layer platform. The lowest level is referred to as the physical layer (all of the hardware equipment such as digital processors that today are the data warehouses that make up the cloud), and above that is the data link (the wires that connect the processors and other equipment), followed by the network (connecting all of the data links). Layers four through seven provide for the reliable transmission of data from data processors and the network to the application and presentation of a website, for example.
Most of the business world operates in levels four through seven (as do hackers), Abraham explains. “No one understands how to make revenue moving (data) from three through seven to two, and that’s my area in the biggest of biggest ways. Layer two has been my life’s work.”
He says layer two is where the most accurate data can be found on the internet, unadulterated from software systems and individuals.
As a child, he says he craved linear order instead of the chaos of his crowded home life. He found that clairvoyance in the garage, where he would remain from nightfall until morning, after his friend’s parents drove off to work. Then he emerged to take a shower, eat breakfast, and head off to school with his friend.
The arrangement continued unabated until Theresa Wilson, the mother of one of Abraham’s friends who lived down the street, noticed her son kept removing large amounts of food from the fridge. Once she learned of Abraham’s living situation, she and her husband took the youngster into their home. With the blessing of his father, Abraham lived with Carlton and Theresa Wilson until he completed high school and went off to college.
At the time, Theresa Wilson worked as an assistant to Bernard J. Fauber, chairman of Troy-based Kmart Corp. On occasion, she would take young Phil to work with her.
“It was this great, big, impressive office, and I noticed that every time I was there, I never saw a piece of paper or anything on Mr. Fauber’s desk,” he recalls. “One day I asked Mr. Fauber why there was never any paperwork on his desk. And he said, ‘I’ve got Mrs. Wilson, and she does such a good job I don’t need to have paperwork on my desk,’ ” Abraham says. “That got me thinking — how could anyone run a company as big as Kmart with nothing on his desk?”
Abraham received further insight into company management from the times his dad took him to the office. “My dad was in sales in the food management industry and coached football. He used to take me to work and he would coach me on what was going to happen in a staff meeting: what needed to be done, what his strategy and plan was, and how to win in those kind of complex organizations,” he says. “He would take me to these meetings and I would watch my dad’s plan rolling out and then be implemented perfectly. A few years later I’m sitting in Mr. Fauber’s office, looking at his desk, and I’m saying to myself, ‘This isn’t making sense to me, something is wrong here.’ ”
Following high school, he enrolled at Eastern Michigan University where he learned the basics of computer science from Ron Westrum, a professor who Abraham says jump-started him on majoring in complex organizations and technology.
From there, Theresa Wilson helped Abraham land a job unloading railcars and trucks, and driving forklifts, at a Kmart distribution center in Canton Township. A couple of years later, he was promoted to a job in the traffic department, where he was given what Abraham describes as an impossible job — manually routing and batching thousands of cases of boxes for delivery to stores in metro Detroit and beyond (the retailer operated large distribution centers in major markets nationwide).
“It was the heartbeat of the company, but all the mathematicals were done manually, with pencil, paper, and calculators. Because of the complexities and the variables, if you ever made a mistake, it had biblical implications,” he says. “If you were supposed to send 500 cubic feet of freight down one dock and you made a mistake and sent 5,000 cubic feet, it would shut the whole system down. The whole thing was an exercise in mathematics, and you’re under the gun to do it quickly, so you’re going to make mistakes.”
Abraham says he threw himself into the assignment using his math and organizational skills to “circumvent the system” and be better, faster, and quicker than his peers doing the same job in centers around the country. Over a period of a few months, he reduced his completion time to one hour when the company average was between seven and eight hours.
It was still a nerve-racking manual process, however, and Abraham began exploring more sophisticated and less strenuous ways to do the work.
Computers were almost nonexistent at Kmart — or anywhere else — back in the early 1980s, so Abraham devised an early type of software program that could be displayed on a television screen that tied Kmart stores and warehouses together by location.
From there, he created algorithms to match barcodes on merchandise to the trucks used to transport boxes of goods to each store. He also included in his program the telephone numbers of store managers, in case someone needed to double check to see whether a manager had ordered 35 or 350 barbecue grills. His creation cut the batching and routing process for the Canton Township warehouse from hours to minutes.
Abraham says when he showed his creation to his boss, the supervisor reluctantly passed it up the management chain. Executives in the front office, where in- and out-boxes still adorned every desk, rejected it.
“They mockingly said I should go see the company nurse,” Abraham says. “As a young guy, I was scratching my head and thinking, ‘Why would someone say that to me?’ Then I remembered Mr. Fauber sitting at his desk with no paperwork on it, and I thought, ‘What is wrong with this company? There’s something in the DNA of this company that’s wrong.’ ”
Dave Carlson, another Kmart internet pioneer who years later would lead Kmart’s technology revolution that introduced remote computer systems and merchandise scanners at the check-out lanes of hundreds of stores, was intimately familiar with the obstacles Abraham was up against.
“It was a time where the Kmart culture of, ‘If you can run a store you can run anything’ prevailed, so the warehouse managers were ex-store managers, as were the front office people,” says Carlson, who came to Kmart in 1985 with advanced degrees in mathematics and industrial administration, and a Ph.D. in engineering from the University of Michigan. “It was John Henry the steel-driving man versus automation in those days.”
Abraham vented to an Italian friend who owned a trucking company that was doing business with Kmart. The man volunteered to take Abraham’s project to Kmart’s vice president for global supply, Tony Moro, who also was Italian.
Moro, whom Carlson described as the first professional logistics person to run distribution for Kmart, was receptive to Abraham’s proposal and greenlighted Abraham to develop it for stores in metro Detroit from the distribution center in Canton Township.
With the program in place and working well, Abraham says he turned his attention to Kmart’s two dozen other distribution centers around the country that pumped out millions of boxes for delivery to stores every day. But his boss wasn’t enthused about Abraham attempting to replicate the program nationally.
“Absolutely not,” his apoplectic boss responded. “You will shut the goddammed company down if you mess up.”
Disappointed yet not discouraged, Abraham continued working on his software model — called Kmart Schedule Manager, or KSM — and eventually programmed every warehouse and Kmart store in the United States into his system. He had also created an option where he could run the program in a mock format without affecting the actual operations of any of the stores.
“In hindsight, I really was a little out of line,” Abraham says. “Knowing what we know today about what happens when software systems run amok, and now that I’m older, he was right.”
Still, for two weeks, Abraham quietly kept running the program, flawlessly routing and batching nearly every product in the supply chain in seconds. When he broke the news to his boss, Abraham says the man nearly passed out. Fortunately, Abraham had printouts of all the activity for the centers and stores around the country that his boss could see and comprehend.
“Don’t worry, sir, I did it only in mock form; no harm, no foul,” he says he reassured his boss. “That brought his (anger) down a little bit, but the way he was looking at me, if he had a stick he would have beaten me. And again, now that I’m older, I can see where he should have. At the time, I couldn’t understand why I was getting this reaction. I had virtually eliminated the manual routing and batching process for Kmart across the entire country.”
Abraham says he believes it was the first-ever cloud migration project in the nation. “When you think about it, I moved an extremely complex, manual process for the second-largest retailer in the world to the cloud 35 years ago,” he says. “We moved manual store-ordering into my tool that was housed far, far away. One of the definitions of the cloud is housing information at some other location. This was a large cloud migration plan before people were doing cloud migration plans.”
It was a pretty heady time for a young man still taking night classes in math and computer science at EMU.
With Moro’s backing, Kmart’s front office responded by hiring two Harvard University graduates with doctorate degrees in mathematics and computer science to team with Abraham. The trio was dispatched to a hotel in Fort Wayne, Ind., where they holed up for six months perfecting the software program.
That KSM program transformed Kmart into the leader in supply chain operations among all retailers nationwide. In addition to the gift certificate and plaque from Kmart’s management team, the KSM program earned Abraham a promotion to transportation manager and a transfer to the retailer’s giant distribution center in Ocala, Fla.
Abraham, who was now married with three children, was content living in Florida until he received a call from Domino’s Pizza in Ann Arbor Township in 1994. He was offered a job as national director of global logistics, with a pay raise that doubled his Kmart salary.
After 16 years with Kmart, he moved to Domino’s. Soon after, working from a third-floor office at the sprawling headquarters facility, he was summoned to the office of company founder, chairman, and CEO Tom Monaghan.
Monaghan told him he wished to sell the pizza business, and he believed he could increase its value by 30 percent if he could improve the supply chain delivery system. Monaghan told Abraham to spend the next year researching all of the computer software programs and come back with recommendations.
Asked to keep the assignment a secret, Abraham and a co-worker named it the “Buffalo Project,” a name they adopted while looking out a window at buffalo roaming the Domino’s Farms property. “Even though I was working 10 hours a day, I couldn’t find any one software program on the market I felt comfortable recommending to Mr. Monaghan,” Abraham recalls.
The new recruit decided he needed to do more extensive research and enrolled in grad school with his EMU mentor, Dr. Westrum, as his adviser.
A year later, he apprehensively walked into Monaghan’s office and gave him the bad news. No one program he had examined could do what Monaghan wanted. Instead, Abraham produced four software programs and suggested to a flummoxed Monaghan that he should pick one.
Instead, Monaghan ordered Abraham to go back and compile all the pros and cons of the four programs and pick the best option.
“We put together a massive document and brought the four companies in and interviewed (the principals) until we found one software system that could fit over all the company’s programs,” he says. With that global technology platform in place, Monaghan’s vision of a 30 percent increase in value was realized when Bain Capital bought him out for $1.1 billion in 1998.
During his stint at Domino’s, Abraham experienced a brush with his past. One day, as he sat in on a sales pitch from a woman offering to sell a program for managing supply services, it dawned on him that she was selling his old KSM program, repackaged and renamed under a new company name, Manugistics. The company recorded annual sales of $200 million in 30 countries.
Abraham’s next adventure, one he describes as a once-in-a-lifetime opportunity, began in 1998 when a letter arrived that was written on General Motors stationery and signed by Harry J. Pearce, instructing Abraham to call his office for an appointment to see him.
Abraham, who wasn’t aware that Pearce was the vice chairman of GM at the time, showed the letter to Dr. Westrum, who said it had to be a fake and was probably some sort of a prank. Westrum told Abraham he could never get in to see Pearce on such short notice because his calendar was scheduled months in advance.
Abraham, curious, called the phone number listed on the letter and Pearce’s secretary answered. Mr. Pearce has been awaiting your call, she said, and asked when Abraham could come in to see the vice chairman. Fearing he might be getting into something over his head, Abraham tried to get out of it by suggesting 7 a.m. the next day.
Bright and early the next morning, Abraham found himself ushered into a large conference room on the 39th floor of Tower 400 at GM’s Renaissance Center headquarters in downtown Detroit. About a dozen men in suits sat across from each other at a long table, with the impressive white-haired Pearce at the far end.
“I had on my best J.C. Penney suit, but I didn’t look like those guys, and I kept thinking, ‘I’m just a guy from Eastern Michigan, what am I doing here?’ ” Abraham recalls. Pearce asked Dennis Mishler, then director of global supply chain, to explain GM’s supply system. After Mishler’s presentation, Pearce asked Abraham what he’d recommend.
“I’d fire that guy,” Abraham responded, thinking his smart-aleck answer would end the surreal drama that had enveloped him. Rather than being fired, Mishler went on to complete a distinguished 40-year career at the automaker; as for Abraham, Pearce offered him a job and told him to report the next day to Mishler.
Abraham was stunned, as Pearce brushed off his protests that he already had a job at Domino’s. Later that morning, when Abraham told his boss at Domino’s what had occurred, the man suggested he work for both companies — an arrangement that lasted for a year, until he left the pizza giant.
Abraham discovered he had come to Pearce’s attention after the automaker read his EMU thesis, brazenly titled: Running Companies Without Software to Disrupt Complex Organizations and Eliminate IT Departments.
Abraham says he was assigned to head a team to look at every GM process, practice, and procedure worldwide. GM doubled his salary to $120,000 and gave him a $15,000 signing bonus and a car.
Because Pearce wanted to keep the project secret, Abraham and a dozen other people assigned to it worked under tight security in the 12-story Argonaut Building on Milwaukee Street in Detroit’s New Center area.
The assignment, Abraham says, took on even more mystique when Pearce called him on the phone and told him to work at home to avoid “snipers” in the company. Snipers, Pearce explained, were employees who would feed Abraham bad information and data to make him fail.
That bit of inside intelligence resonated with Abraham. While discussing the GM offer with Westrum, the professor had warned him that, “GM is not a company, it’s a country.”
Abraham spent three years working for GM with a team that created a program that moved the entire global General Motors supply chain operation to the cloud. That effort was the basis for the creation of Covisint Corp., which was founded in 2000.
When GM began foundering in 2004, Covisint was sold to Detroit-based Compuware Corp. for $7 million. In 2014, Compuware was broken up and sold to a New York hedge fund, while Covisint was spun off and today operates as an independent entity based in Southfield.
Seeing how his computer work was being used by others with no financial windfall other than an annual salary, Abraham began to focus on the health care industry, where he believes unreliable, disparate software within hospitals is creating faulty data that’s stalling efforts to bring down costs.
“The big issue is that the supply chain within the health care industry isn’t just broken, because that implies that it worked at one point. It’s totally dysfunctional,” says Carlson, who recently joined Abraham’s CloudFace team. “As CloudFace (via the cloud) positions itself to add visibility to the flow of materials that are moving from suppliers all the way through to the operating room, this is extremely valuable data for a patient-outcome standpoint, primarily; secondarily, (it) offers a substantial expense reduction.”
Abraham’s first foray into health care carried the same covert cache as his assignment with GM.
He was hired by Ascension Health System, the country’s largest nonprofit Catholic health care system, to improve its supply chain and technology network to drive down costs. For more than two years Abraham, his team, and peers from the health system worked in secret in a basement office under Brick’s restaurant and sports bar on Main Street in downtown Northville.
“We had the windows papered over so no one could see in, and we kept everything quiet,” Abraham says. “We looked at and improved their systems from end to end. From the manufacturers to distributors, to the GPOs (group purchasing organizations) to the hospitals, it was a complete re-engineering of the process.”
The work Abraham and his CloudFace team did led not only to substantial savings, but it created a separate and very profitable subsidiary supply chain company called the Resource Group. That company was recently ranked 12th among 182 other health care supply chain organizations, as it services not only Catholic hospitals but non-Catholic organizations, as well.
Next up was Loma Linda University Medical Center in San Bernardino, Calif., where Abraham was hired in 2010 to streamline the hospital’s supply chain while boosting efficiency.
“People that are in health care … get blind to other ways of doing things and thinking outside the box. We believe we’re thinking outside the box, but we’re not,” says Dr. Paul Norris, executive director of pharmacy services at Loma Linda. “With Phil’s background, he was able to come in and teach us a different perspective about how to look at things — not just in our particular world, but how we can make things work better throughout the whole system, meaning from the manufacturer to the patient.”
>> black box Phil Abraham, chairman of CloudFace in Northville Township, with the black box he invented to connect disparate software systems and access accurate data from the internet.
Targeting Loma Linda’s pharmacy and medical-surgical operations, Abraham applied his CloudFace technology to connect the hospital’s various software systems to get a true picture of what supplies were coming in and at what cost. Over a two-year period, he re-engineered or rewrote the hospital’s processes, practices, and procedures, creating a new cloud-based platform for the operation (using what he calls his black box).
“We (reworked) the contracts for suppliers and vendors, and, as a result, we were able to not only save the hospital money, we helped improve patient outcomes,” Abraham says. “That was important to the hospital because improved patient outcomes means they can gain greater reimbursement for that care.”
The result was a savings of 20 percent to 80 percent per year — or about $40 million, depending on the department — which translated into $40 million, Abraham says.
As a favor to Dr. Norris, Abraham says he agreed to spend a day looking at Loma Linda’s huge patient billing office. “I wound up spending six months on it, writing a blueprint to move it to the cloud,” Abraham says. “We didn’t migrate it to the cloud, but I handed them the blueprint to do it.”
Norris says Abraham ranks at the top of any list of consultants he has retained at Loma Linda.
“I think he learned a lot about health care after he got here, but as for his expertise in supply chain management, I would put him up there with any of the other experts in that field,” he says.