\lL**'- *s Chaptef 2 ,i,lirrilt,.rtrUn )\:lcrlt\ [] !lrr tntCrprrse 5l

WINDOW ON ORGANIZATIONSPnonucr Ltpn CvcLE MANAGEMENT Svsrtnrs; Fhsrrn Pnooucrs,Fesrrn pnocrssrs

What if there were a way to determine automatically the fea-sibility of a new product's design? What if all the informationrelated to that product-thc marketing plan, design criteria,product specifications, testing data, and packaging data_rvere immediately availablc to make sure that design could beeasily manufactured and sold? What if this information wereinstantly avai.lable to designers, engineers, suppliers, market_ing staff, and anyone else involved in thc development androllout of a new product? Enter product life rycle manage-ntent (PLM) systen-rs.

Nissan l)iesel Motor Company, established in 1950, manu_facturcs trucks and buses. Its product line includes a widerange of light-, medium-, and heary-duty vehicles, buses, andbus chassis, engines, vehicle componentr, and special-purposeengines. The company has distributors in nearly 60 countriesaround the world.

Devcloping a truck model involves more components andccmplex assembly combinations than developing passengercars, genel3tin&y€lM9{lrcf data to manage. Like othertruck manufacturers, Nissan Diesel Motor Company faced a

--.ttgll9-I,ggr",kggplqgjbr! comp I ex p rod uct data o rgan ized. lt-i"fred to rsM anab;"rtt slot.--JENovtA pr"d".. ik-

Cycle Management product for a solutionNissan Diesel used ENOVIAs Digital Mock-Up (DMU)

Navigator t"*1!gggr111{ 9onn1g!,tr!ck colnp,onent data as a

-u_eb,Sle is developed from {gg[n1g mqr-u{u.turing-vu-_'-.-.'--

"

simulates Nissan Diesel's manufacturing process"s, so thecompan), can detect errors during early stages of productionpianning. This tool also manages truck components so thatengineers can easily search for and work on parrs. ENOVIAlinla product data and processes so that each Nissan develop_rnent team member can share comprehensive and up.to_dateproduct information throughout the entire development cycle.This configuration management system has shortened Nissan'scycle time for creating a y_ghlcldru$rye0 p;t{na--, Waters C,orporation is a leading supplier of trigh_performanceliquid chromatography instrumentation, thermll anaiysis, andmass spectrometry products that provide fundamental data onthe composition of natural products and synthetic chemicalrnixtures, as well as the physical properties of materials. f.hecompany introduces several new prodacts each year. Watersirnplemented mySAp product Lifecycle Management softwareto help those involved in designing, maintainilg,_4ld 11r.a,ng_facturing a proa"ct irr"ii inr"imaiion ;";.;fii.

Waters had maintained data separately for product develop_1qe_nt and p1odu4!o4, making it difficult to find out marerialscosts early in the development cycle. The company migratedi 20,000 different files and pieces of data fromlts old systems to

mySAP PLM to definc the mc'chanical, electrical, and softwarecomponents of its products.

Waters designersbegin with a concept and move through theengineering design phases to a prelirninar,v version of the prod-uct. After additional testing and de"igrr work, the product is-' moved to prereleasc/preproduction status.'lhe mySAp pLM soft-ware moves all supporting dccuments and bills of material forthc product from one stage to another. It also introduces productdata to manufacturin& e ngineers and other specialists as productdata and configurations are being create<i. As these ccnfigurationsand data stabilize, marketing staff can vievr them to'see ,.ihat dataand configurations will be introduceci inro the marketplace.

fostens, known for its custom high school ciass rings,graduation announcements, and yearbooks, adopted UGSC<lrporation's PLM sof.r,r'are to lieip it manage its vast array ofproduct details. The company signs abrout 5,000 to 10,000 newagreements to produce dass rings for schools each year. Eachschool har a sp*ecificmascot and other features that have to be

!gr_igl.4 rgtg1Lre ryfi3s. Onie thosc parts of the rings are-designed, students select additional feat"ues thiy want, such.asan etching of an activity tley participate in. That means manythousands of customized rings mustbe cleveloped and tracked.The UGS PLM software reduces the time ,"quir.d to producethe molds for rhe rings.

Loewen, a Canadian specia.lty wood window manufacturerbased in Steinbach, Manitoba, has standard products that,when combined with special features and desigrrs, create morethan 4.3 trillion potential options. fo.-qp:{ gp aesign and pro-d,9g[on, the company needed to find a bittiiwiy tii.ry1gg1

$ :qt +ryl l ! -9! prod uct d ata. PIr"t so ftware e g!ggy.q-[t

{etglmings the feasit itiry of a new productlqlesign and--' - '

enables multiple designers to work simulun*uiiy on the sameproject and share diiid'infor;ationGtlipotiniial cusromers..The system enables engineers to know automaticlq)/_y_l!:bpg$lqttqge_tlgr,while produaion groups .an ,.rse the datato achieve savings by conso[dating materials and orders.Loewen hopes tiat PLM will increase produaivity by 30 per-cent while saving as much as $150,000 per year.

Sources: Debra DfAgostino,'pLM: The Means of production,. el4leck,February 7, 2Q04; Beth Bacheldor, 'Deeper Than Designs," Informartonl{eelc, August 9,2004, and'pr*uo 16.-Cycle Management Market FampsUpi lnformation WeeE lul,f 19, 2004; and D,"cult Systems, "Nissan DicsclDcvelops Vehicle Configuration Management System with pLM Solutionsfrom IBM and Dassault Systems,'fuly 12,2@4.

To Think About How do project life cycle management q/s-tems provide value for these companies? Should every conFpany that manufactures products use this soft\.,are? Explain youranswer.

WINDOW ON TECHNOLOCY

Ilewonrn Ovnnruurc Suppw Cuew Mexeenunxr,: i..,i ,r' .1j ..:1,.,.

Hawolthr lncorpo. fqte4 headquartered in Holland, Michigan, i! .' .:;

the world's s"conl largest designer and manufacturer of officcf,iyniture and workspaces. The company offers a full range of{urnigure know.rr for its.innovative design including {esks,chairs, tablegpaftitiohsj and siorage products. Haworth oper-ates in more thgn 12.0 countries, with 9,000 employees,40 manufacturirig locations, 60 showrooms, and more than600 independent dealers around the world.

Haworth was particularly successfi,rl during the boomingeconomy of the late 1990s, which stimulated demand for newofifices and office space. But the company was hit hard whenmanydot-coms went under because these companies gluttedthe market with their slighdy used Haworth products.

To bring co.sts "bg.k

i" line with declining revenue, Haworthstarted ui'amUitiotii overhaul of its supply chain managementsystems iii:2001,:fiayvorth's 15 North American manufacturing '

facilities aie located in North Carolina, Arkansas, Michigan, ;

Missiqsrppj;Te*4si'Oi',t"rio, Alb.rta, and Quebec. These 6cili- '

ties supplf.invciitory to distribution centers in Michigan,Pennsylvania, Georgia, and Arkansas. Haworth needed to coor-di".tg.9-t4f,1,fiillllrnent ftom multiple distribution centers

t*ith p.rg$.tlik t 's.rys!

from all of its manufacturing facilitieg :'

fte {iSt{i,Pn$bn cgntgrs needed to communicate more effec-tively

Chapter 2 Inlornratroir \1.sten. - t-., :-':': . se 59

'i'; , .The.Transportation Management Sptem (TMS) uses opti- : :; I

mir:tion and carrier communication software from ir{anugisticsGroup in Rodwille, Maryland.'lhe sptem ocamines customerorden, hctory schedules, carrier rates and availabiliq', aad ship-ping costs tb pmduce optimal lowest-cost delivery plans Thcseplans are generated daily and updated every l5 minutes TMS has

an automated intcrfacc that enables Haworth to negotiate delir.er-ies with its carriers. To fi"d-ltg -gqn4 fr.l6!111o!t&1 rlqlileria,TMS maps oqg g-or.gq.i.nt ioutes ttrrt -ini-;r. "t.t -tt *-t-.U*alrnip-.nt" *?6mage to i,;ods.------

TMS also electronically seniKcarriers "tenders," which arerequests to bid on a shipment. These tenders are transmittedover a pri\ate network or the Web, and carriers transmit bidsback automaticaliy. In the past, that process required fwophone calls; lf a carrier doesn't reply within a specified timc,the system automatically contacts another carrier.

. I Both lfMS and WMS run on server computers fromttrewlett-Packard using the Unix operating system. They rylt'face nrith trvo sets of order entry manufacturing planning, and

, sffiing sfit.tdm-;tan.e"6vb different n riture markets.. :'

To tie these applications, Haworth uses special "middleware? , .+,

software from SeeBepnd Technology in Monrovia; gaqforn!4.;;,i' The middleware prysq customer orders, shipping plans, sna. j:, .shipping notifications among the applications. .l I ',.,. ri

Aicbrding to Jim Rohrer, a business applications prccess

fidiigdd;dili

damaged goods in transit

I

mangfacturing facilities tci better plan the pro-

1pf5,..irders.

specifi;tiis'iffi fi{ffiEd;il-' fr* tt i receirtng:noik i$;'":l.i"Ithe shipping dock.without being chqcked'idto the syrtem andi .l+:ipickedftomiqrvgntory. . I .' '' 'i: ' : ;- ',.; ;'f".'1.1i+f,l

fora

i TXl.leniented ",*,ff;''.,' r'l:

andidt arry-c

ir$;1. i. !

tooli ,ti":'ii'j,

68 Part one (Jrlldr)i,rd1lur|5, Marraqt,rteirr, arrrilht' Nctrryrlr k.ri 1 .,t,r 1,r1,,

Harry.V. Warelrirne ltcgarr ternpting rhetaste buds of southern pertrrsylvarianswith his llarrover Olde Tynre pretzels in1909. Since then, Srryder,s of Hanover,as the corrpany cante to be known,has expanded its business beyond anyscope that its fourrder ntight havedared to imagine. Snyder s of Hanoverremains a family-owned and farnily_run company, but rt has become theworld's _secorrd largest pretzel maker,witlr lZ I percent of tlre pretzel mar_ket- Snyder's pretzel and chip varietiesirrclude Old Tynre pretzels, JalapenoPieces, Butter Snaps, and EatSmart AllNatural Veggie Crisps, as well as otherpopular snacks. ln 2002, Snyder,sposted revenues of-$16_4 mjllio_n, trail-ing o1ly.n9ld cqf-d,lne ielgning cham_pron of the pretzel industry.

ln addition to manufacturing itscomplete line of snack foods, inyder,sdistributes its own products, as wellqs those of other snack food compa_

:i": :u:h as Tasry Baking Company,sTastykakes. With 40 distribution iacili_ties all over the United Slates andEurope, over 4,500 products, and overl5O product lines, the home office inHa nover, Pennsylva nia,.hes a cqn5id-_.epbl-c_a-mqulr of dara ro.m-a"ege'.-

lf thereGii,r,e"last vestige of old-fashioned business left at Sn"yder,s, itwas the company's method of man_aging a.nd analyzing data. AlthoughSnyder's sells more than 7g millionbags. o.f pretzels, chips, and organicsnack items each year, some of itscore systems were still heavily manualand paper-based.

Snyder's financial department wasusin g gl-gctrotrjg rpreadsh ee-ts fo rrnuch of its da.ta-gathering and report_rng. Lois Stambaugh, Hanover,s finan_cral analyst, would spend the entiretrnal week of each month collectingExcel spreadsheets from the headi fmore than 50 departments world_wide. Then she would consolidateand reenter all the data into anotherExcel spreadsheet, w_hklr wquld_serveas the compuny'r montnty profit_and-toss statement. The frrrancial datawere harvested and consolidated the

same way at tlre errd of each fiscalquarter arrd the end of each year.

The overwhelnring presence of thehunran factor made d_q!p:gil{y- ,I.lir,!qLq:_e c_g=!rc.ern. tf a d;p*ril;l =-

needed to update its data with last_minute inforrnation after submittingits spreadsheet to the main office, tiehead analyst had to return the origi_nal spreadsheet, and then wait foithedepartment to resubmit its data,before finally entering the updateddata in the consolid.iied documerrt.

Perhaps most important, this sys_tem of gathering the company,s finan_cial statistics at regular, but inire_quent, intervals meant thaljnlpartantdgle lrltlpjy-wer:e not auaiiable asoften as they were needed. Snyder,slacked the ability to react to suddentrends and unpredictable eventsbecause the data were supplied toolqte !q -adjust shippingsrhedu[es,pricing schedules, or delivery counts.

CEO Michael Warehirne and hismanagement team could track thegross profits of business units but notthe performance of each of Snyder,s4,500-plus products and over 150product lines. For example, thespreadsheet-based system lacked thedetail to show whether a specificsnack product such as SouidoughHard Pretzels or pumpernickel dOnion Sticks was actually making orlosing money. For a business foc"usedon both production and distribution,this was a hindrance to growth.

Additionally, the spreadsheetscould not reveal which distributionroutes were worthwhile and whichwere cutting into the company,s profitmargin. Under these circumstances,Snyder's could only use the sales data

was ttme to leap forward to a morernodern approach in which the com-pany could react to data immediately.

ln late 2002, Snyder's of Hanoversolicited the help of Satori Croup, aprovider of business performancemanagement solutions to the con-sumer packaged goods industry thatis headquartered in Conshohocken,Pennsylvania. Satori Group demon_strated how Snyder,s could imple_ment its proCube software to gatherbeter s-a_les and marketing datla and,the?efore, mike better U"lt""i, a".isions. -Pro!ube would automateSlyclgr's b

"@llgDloceiibs, crea t-i n s -ug!Ig!s.lslesal!!!&lea! | i!gt,

"'

l5ges,_9ldjctujlg_!ryd,S,;i prod u ctmarketing analysis so thai Snyder,scould evaluate the viability of each ofits individual brands and products.Such analytical power was just whatSnyder's would need to compete withRold Cold, which is backed by thecorporate powerhouses of Friio-Layand PepsiCo.

. What Snyder's found so appealingabout proCube was the ease withwhich it could be irrtegrated with thecompany's existing iffirmation sys_tems. ProCube enables Snyder,sdepartment heads to continue usingMicrosoft Excel spreadsheets to col--lect sales and returns data. These dataare collected in a large data reposi-tory where they are consolidated andorganized before being used byproCube reporting software for analy_sis. The proCube software also usesmanufacturing data from Snyder,senterprise system.

Snyder's financial department gey{.spgnds a cg,uple of days preparing-.those same monthly, quarterly, andyearly statements that used to devourweeks'worth of productivity. This isonly the first step in what Snyder,shopes is a chain of improvementsthat will result in new growth.

The next step is to add new levelsof detail to the profit and loss datathat Snyder's can collect and report sothat the company can track and'

{j

:

1

jJ

rt{{

it collected to make rough predictionsabout how much of a product shouldbe manufactured and how quickly aproduct run shpurld be repeated on aparticular distribution route. Snyder,sma rk.e.t sfug_[a-d bgelgrowingsrepdily ulJil 2002, ry[qj s_udden-ty-

.s&lleg its annual sales growth, whiihhad outpaced the indusiry,s for years,was then no better than average. lt

I

II Chapter 2

assess the profitability of indrvidual department heads and executives eye towaid rocketing to the top of tlieproducts' Managenrent could then with eqJ]er acgqs-s-to tur",1lpy,-q:j'd ui"",'n. question renrains wiretheruse the procube software to find out .JLrlrlbl,:9ritrfritn" n-i;iGJr*r-_ ;;;;lly "*"ed organization can con-information s'ch as how many bags Jt,ser t,,enJiy web ,nlJrtace through ;";; ;; compete with rrajor corpo_of Honey BBQ Pretzel Pieces were which ma'ag.rr.un r"tri"u" t"yJ3tu, ..i" piiy",, in an industry that has yetsold in Michigan last week, or which as tlrey r"qri. ,t,"r. ;;"" cornpre- to hii its ceiring.stores and delivery routes are best tion, the cost of tne enii"e venture

servicing customers who like this should approach .-r-.,.ri-n-.,iri." io'l,ur, sources: l.arry Barrelr, ,,Twistcd Logic,,,

product. The system will also enable Snyder;s has also i".;;;;;:;;;""'' Eosctine Maqozine, Ja.uary 2ooa;isotutionsmanagers to project sales for their improved lT into other .;# ;; ," for lht' consr:nrt'r Packaged coods tndusrry,,unit for the next quarter or next year. business. r" zoor, i"yd;;.;;; ffi1,:tlilj"?l'll',;lTi;ji!"]::l,T:i::1,such a system requires additional ce-lco^Trade tr-"#.""t croup's it, o.rro",, sorution,,,wwwgercorrade.com,work to implement' Dave Thomas. TMS Passport soluTion ior its trade o.."rr"J np,ir s, 2004; ,.snydcr,s

of HanoverSnyder's director of information tech- promotion runa, runug";ment. Again, company profire,,, biz yahoo.corrr, accessednology' noted that to achieve the snyder's found an ri ,oirtion th.t" April s, zroo,t;,,snacks: The Nexr ceneration,,,desired level of detail in its data .orta U"-irpi;;;";"d ;rickly with- \,,\.&,,vv.consumerreports.org, March 2oo4;andanalysis' the company must study all out sacrificing po*a. L"-t.o,s TMS www.snydersofhanover.com, accessedof its business processe.s. A compr:e- passport promises. qri.k;;r;;;" March li, zooahensive review wi'enabre snyder's to investment (Ror) for a competitivelydeterminewhattvpesof dataresult pricedandr.utu6t";f,*;;:;;:1.;". cASL slrjIi./ (,fr-,Es1oNSfrom their business processes and ihe package r"utrrurJrni runugul- r. Assess 5nyder,s competitive stand-which data they actually want to use' menl auar.tion r."us"."",, pu1,- ing in the pretzel and snack foodThese system enhancements will ,unlr:..u.nd analysis anl ,eporting industry.eventually provide information enabling capabilities. ," 1r.jrn, i"Va"a; is cJnti ,. *i., ,r'"s of information sysrems

ii,n,,rs,{,qfr:ru'}',i,T;,il'"r" fl"lffll;::if:t*lln:,.Jf", ' }luJ,,un,ia,ror this company?Iar products iTmoitlmmediately, iather ro,. y"urc to come, u""" "r';:;r;":'

3. How well did snyder's informationthan having to wait for an end-of-the- ness continues to expand systems support its business?month report' Likewise, production and ihe Rmerican consumer has con- Explain.shipping of ress popurar products can tinued to increase i , inrur,u of pret- o. fory much did procube improvebe curbed' ln other*otdt. snyder's will .uit ou.,. the last a".uJ", ina ti" snyder's systems? which manage-be able change its business model trom i"..t r""a industry as a whole con- ment, organizational, and tech-one dependent on forecasts to one tinues to.boom. snyder's faces stiff nology issues did it address? Howthat's more demand-driven' coripetition from rivar riito-ray ana does it provide value?The firsl lntq phases of*the procube oit,u, .uio.. players in trre snact rooa 5. Assess the impact of snyder,s newtmplementation c'iiled?, piiie tag of industry iy.l "i utz, reriogg's, and systems on tle way it runs its busi-approximately a quaitei-mltti"o air- irurt rooar. nt tn" u"ryi"u'rt, Snyder,s ness and its business moder. Howlars. The-next pha3e introJuced acor_ nu-r'rnua" a sincere unurno, to trans_ much do these systems improve itsporate porFlto'piovide snyder', rom irrTrri."* o,#i,"."J,r,rn ." comperitive position?

_l

Chapter J lntonltdltolt Sysl.nrs, ( )rgalru alrons, Mdit,iflctlent, ,rnC 5tralcgy I 09

r/ With 2,305 retail stores in ll states,

Albertsons is one of the largest retailfood and drug chains in the world.Among these retail stores are 1,151

combination {ood-drug stores, 707

standalone drugstores, and 247 con-ventional and warehouse stores.Stores flying the Albertsons flag.

include Albertsons, AlbertsonsExpress, Albertsons-Osco, Albertsons-Sav-on, Jewel, Jewel-Osco, Acme, Sav,on Drugs, Osco Drug, Max Foods, andSuper Saver Foods.

Albertsons' marketing vow is to"Make Life Easier for Our Customersl'This credo plays a large part in anotherof the company's priorities, which is tomake Albertsons the number one glocer in ihEnnlted States. Wal-Martcurrently holds that distinction with$56 million in annual revenue from itsgrocery departments. Albertsonsstands in third place, $20 millionbehind Wal-Mart in revenue-

Wal-Mart has been selling groceriesfor a mere l6 years, making it a rela-tive newcomer in the industry com-pared to most of its competitors. Ofcourse, Wal-Mart does have vast retailexperience, massive purchasingpower, and leading-edge systems toapply to its grocery business to cata-pult it ahead of the competition. Wal-Mart's supply chain management sys-tems are extremely quick andefficient. They keep inventory down tothe necessary minimums and operat-ing costs low so that overhead takes amuch smaller chunk out of the com-pany's sales revenue. Wal-Mart'sRetail Link network pulls in point-of-sale data from its retail stores everyl5 minutes, giving suppliers incrediblyup-to-date information on how theirproducts are selling. Other retailerscapture sales data only once or twiceeach day.

To move up to the top rung of theladder, Albertsons has borrowed apage from Wal-Mart's book and writ-ten a few new pages of its own. Theauthor of these efforts is CEO andpresident Larry Johnston. Johnstoncame to Albertsons from a highly suc-

cess{ul corporate environment, havingworked under Jack Welch during thepeak of his tenure at Ceneral Electric.Johnston wants to use informationtechnology to keep prices competitivewhile making the shopping experi-ence more compelling. He also wantsto bolster the company's leadershipwith the best minds available and usemotrvational techniques to invigoratehis employees. By approaching busi-ness strategy on these two fronts,Johnston hopes to distanceAlbertsons from competitors such asKroger and Safeway and catch up torndustry leader Wal-Mart.

Albertsons earmarked half a billiondollars for technology advancementsin 2004. One goal of this jnvestmentis to-improve fhe-company's profit mar-gin. Profit margins are razor-thin inthe supermarket business, averagingglgg!d.one cent per dollar of sales.Cu rre ntly, Al bertsons _e-1!!l_1,4 !gnlsfor every dollar of merchandise that itsells. Wal-Mart is famous for keepingthe prices of its merchandise low, butstill manages to earn more than i centsfor every dollar of sales. RlSerGoni*must close that margin if it is tobecome the number one grocer inthe United States. Working againstAlbertsons is the fact that its mer-chandise sells for 20 to 25 percentmore on average than Wal-Mart'sproduct offerings. Albertsons has awide gap to overcome.

The technology strategies put forthby Larry Johnston cover a wide rangeof the company's operations.Albertsons has begun to install self-service checkout statioliEffilis stoier rrreii-ititionr eniblb cus-to=me1i'lo scan the items they arebuying to create a sales bill and payfor the items by swiping a credit ordebit card, all without the interven-tion of a cashier. Using a handheldsca n n e r, qgstome€ maygp !.thetrp_U$glplas they plg_ce thgl-in theirshopping cart, re_sulilng in a chqclo*utprocess that may take only a few sec-onds. Not having to wait in line to payat the supermarket can be a major

draw for customers. Albertsons viewsthis improvement to the shoppingexperience as exactly the type ofchange it wants to implement to keepits current customers happy, bring innew customers, and thereby increasesales revenue.'-OT

cofise,.self-service checkoutstations provide Albertsons withanother benefit: They cut personnelcosts. The stations enable Albertsonsto replace human cashiers withmachines that do not earn wages.Cutting payroll is a critical aspect ofthe company's repositioning, espe-cially when you compare wage num-bers with Wal-Mart. The average Wal-Mart worker earns about $8.50 perhour. Albertsons pays its averageworker in the neighborhood of $l jpsllrgUr ln addition, Albertsoni-extends benefits to its empioyees,including health irrsurance and retire-ment packages that, in some cases,nearly double the value of theemployee's tota! compensation. Thecompany line says that installing self-service checkout facilities is rntendedsolely to create a better shoppingexperience for the customer. Retailanalysts seem to think otherwise, say-ing that such claims are transparent;eliminating cashier positions couldgloduce sivings in excess of itoomillion for Albertsons.

Larry Johnston's plans fortechnology-enabled grocery storesinclude a completely digital shoppingexperience that begins in the homeand involves the lnternet and ClobalPositioning System satellite technol-ogy. Customers would be able to setup their shopping lists from homethrough an lnternet portal that is con-nected to their local Albertsons store.They could also add information totheir accounts such as allergies anddietary restrictions. When customersarrive at the store, they would use acustomer loyalty card to obtain a

handheld device. The device woulddownload the shopping list and anyother important information, and thensync up with the store's inventory. The

I lo Part One Organtzattclts, fuianagemei:' ;r'j -'t :':'i1":

other industries. He h rec CTC Dunsl

away from competitor Safan ay" whetq

Dunst had 25 years of exPerience

developing applications, working l'.'ithloyalty card systems, and using

advanced technology to analyze data.

The supply chain management team

has been stocked with technologYpioneers and top guns who bring

their expertise from such companies

as PepsiCo, Dell, and even Wal-Mart.Analysts are imPressed with the

crew that Johnston has assembled

and believe that he is taking the right

approach to comPeting with Wal-

Mart, but the benefits of a first-rate

staff have been slow to materialize.

The question remains whether a mas-

sive investment in technologY and

intellect will be enough for Albertsons

to reach the top of the industry. Wal-

Mart is a moving target and it contin-ues to move faster and farther-

Johnston has saved Albertsonsapproximately $500 nl'!!i.n already,

bui sales haveh't increTsed signifi-

cantly. Meanwhile, Wal-Mart's grocery

sales continue to Srow steadilY.

Also worrisome is the introductionof Wal-Mart's Neighborhood Markets.

Wal-Mart is traditionally known for its

device would guide customersthrough the store on the most effi-

cient path to gather and scan all of

their items. ln addition, customers

could receive text messages notifying

them about special offers, photos and

prescriptions ready for pickup, and

ionflicts between scanned items and

the customer's Preset dietary or

allergy restrictions. Under such a sys-

tem, a customer account could be

linked to a credit card and checkout

would be reduced to passing throughan electronic gate.

lntroducing such a radical change

in shopping habits will not be easy.

For now, Albertsons has dePloYed

handheld scanning devices in only a

few stores. To roll out widespread use

of the scanners and self-servicecheckout, as well as Johnston'sgrander vision of a wired supermar-ket, Albertsons will have to persuade

two important grouPs of people thatsuch changes are a good idea- The

company will have to convince its

store employees that a more inde-pendent customer is good for busi-

ness. At the same time, the emPloY-

ees know that some of their services

will be rendered unnecessary thou-sands of their colleagues have lost

their jobs already, and they have run

into strong resistance in their pursuitof higher salaries and better benefits.The attitude of the employees is criti-

cal to the success of the company and

there are no assurances of coopera-tion with a vision that could reduce

their role.As if that weren't enough of a con-

cern, Albertsons' customers alsowould have to buY into Johnston'svision for high-tech shopping. Michael

Lenz, a retail supply-chain analyst forthe Canadian firm Thinking CrouP,notes, "You're going to the store forbread, milk, and eggs. lt might be a

little overwhelming for some folks."

Wal-Mart explicitly tries to keep tech-

nology in the background to keeP

customer shopping experiences sim-ple. On the other hand, if Johnston'sfuturistic store proves to be success-

ful, Albertsons would gain a signifi-

cant edge over Wal-Mart.Another Albertsons goal is simPlY

to have current customers buY more

when they visit the store. The key to

such a goal is cataloging and analyz-

ing purchase data. Albertsonsinvested $50 million in anNCR

I91ed9!q-War3-h9$e !9 exami ne cu s-

iomer uuving tr;SttrGipro;aing -

cuitomeiiiiyiliy- ii rds, Al be rtsons ca n

give loyal customers special offers

and track exactly what theY buY and

when they buy it.Analytics software f rom KhiMetrics

of Scottsdale, Arizona, enablesAlbertsons to determine, for exantple,whether lowering the Price of a box

of Wheaties by l5 cents will bring inmore profits by increasing sales than

would increasing the Price bY l5cents. The software will also tellAlbertsons wlrich products, such as

milk and bread, need lower Prices toprevent shoppers from defecting to

Wal-Mart and which items aren't so

critical.Albertsons is working to reduce

costs in its supply chain so that itsstores can offer prices that are more

competitive with Wal-Mart's prices'

Johnston has consolidated distribu-tion centers and is using the Web to

coordinate shipments and to reduce

billing and invoicing costs. The com-pany has also upgraded its core cor-

porate systems, moving financial

applications to software from Oracle

and its human resources manage-

ment to PeopleSoft software.Chief Technology Officer Bob Dunst

intends to overhaul 90 percent of the

company's apPlications bY 2007. ln

addition to the Oracle and PeopleSoft

adoptions, he has also uPgraded the

company's high-speed network infra-

structure. Albertsons had alreadyadded electronic data interchange(EDl) capabilities, which enable betterprocessing of transactions with sup-pliers. However, Albertsons does not

yet have a system comparable to Wal-

Mart for sharing sales data with sup-

pliers and for automatically placing

orders in reaction to sales that are

taking place in the field.Albertsons will not be relying solely

on computing Power in its pursuit olWal-Mart. CEO Johnston believes thatbrain power is just as critical to the

success of his company as technologyis. Johnston scoured corPorateAmerica for the most talented and

respected executives in retail and

Supercenters, big-box stores thatcover expansive square footage and

offer extensi've Product selection. The

Neighborhood Markets are signifi-

cantly smaller and are intended toreach the local markets that aren'talways covered by a Wal-Mart big-boxstore. ln many cases, these markets

contain the customers that Albertsons

has targeted as crucial to its success.

Albertsons has already lost signifi-cant market shares to Wal-Mart

Supercenters in various parts of the

country, including Boise, whereAlbertsons headquarters are located.

Between 20O0, when Wal-Mart came

to Boise, and 20O4, Albertsons saw its

market share droP from 65 to 39 Percent, with nearly all of the loss bene-

fiting Wal-Mart. Wal-Mart'sf'teighborhood Markets are strength-ened by the same low Prices andpowerful supply chain that make the

iompany's Supercenters a seeminglyunstoppable force. Other than self-

service checkout stations, theNeighborhood Markets are decidedlyno-frills in comparison to the average

1

JChapter J lrrl'r'i,ti,o, 5ystentr. Orgartrzalrorrs, Marrogernent. dnd Strdtegy I I I

Albertsons store, which often has its

own butcher, baker, and gourmet cof-Ieebar. Albertsorts is betting that a

specialized, customized, and techno-logically advanced shopping experi-ence will be appealing enough tokeep customers from the allure ofWal'Mart's lower prices and simplepresentation. lt is not a sure bet.

Albertsons may not be able to bealWal-Mart consistently on price but itmust come closer than in the past.Albertsons can also use its loyaltycard program to obtain more preciseinformation about individual ius-tomers and offer products that theymight not find on Wal-Mart shelves.Albertsons has the financial backingto continue investing heavily inadvanced information technology,and it is fortified by strong chains ofdrug stores, which tend to see greaterprofit margins than grocery stores.The company has recently joined Wal-

Mart in requiring (by April 2005) itssuppliers to use radio-frequency iden-tificatiorr (RFID) tags on all productshipnrents. The use of RFID willincrease Albertsons' ability to mdnageits supply chain more precisely.Additionally, Albertsons stores havefared well in urban markets whereWal-Mart has struggled. Overall, how-ever, Wal-Mart has set the bar veryhigh. Albertsons remains convincedthat it can soar to greater heights.

Sources: Mel Duvall and Kim S. Nash,"Albertson's: A Shot at the Crown," MelDuvall, "Roadblock: lnternal Resistance,'David F. Carr, "Cotclra! The Problems w,ithSelf Service Checkout Systems," and ToddSpangler, "Teradata: Too Rich for YourElcod?" Boseline Mogozine, February l,2004; Jonathan Collins,'AlbertsonsAnnounces Mandate," RFID lournol, March 5,

2004; Associated Press,'Albertsons to TestHandheld Crocery Scanners," IJSA Todoy,March 29, 2004.

cASE STUDY QUESTI0NSl. Analyze Albertsons using the value

chain and competitive forcesmodels.

2. What role do information systemsplay in Albertsons' business strat-egy? How do systems providevalue for Albertsons?

3. Compare Albertsons to Wal-Mart interms of business strategy, currentsuccess, and future success.

4. Which management, organization,and technology factors hinderAlbertsons from achieving thegoals of its business strategy?Which management, organization,and technology factors helpAlbertsons achieve its goals?

5. Do you think Albertsons' busi-ness strategy will work? Why orwhy not?

'' :l;':,

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