Without technology, retailing would still be confined to the traditional brick and mortar store rather than the in-store, online and catalog sales model that exists today. According to Paula Rosenblum of Aberdeen Group, savvy retailers have learned to use computing power and telecommunications to provide an environment of "customer centricity". Office Depot is an excellent case in point. "We make sure we're managing IT like a business," says Tim Toews, SVP and CIO. "From the start, we integrated technology to deliver orders to customers across the company." Learn how Office Depot uses Oracle Retail Merchandise Operations Management along with proprietary planogramming software to provide its managers with the information they need.

As Published In November 2005

Integrate and Conquer
By Alan Joch

Office Depot connects diverse retail channels to fuel expansion plans.

Retailing has grown beyond the time when gut feelings and instincts determined what products would inhabit store shelves and where shoppers would physically encounter the items during their in-store experience. Yet the industry is still struggling to hone its decision-making abilities to ensure that the right products are in stores at the right time and in the right quantities to satisfy consumer demands.

The classic way to accomplish this optimized inventory was to rely on a "Merchant Prince," a person or small group of people who would almost single-handedly make buying decisions. But in an age of national and international retailing chains, this approach has become outdated, even if the people in control happen to be talented. "The 'prince' may change his mind about a product delivery timeline and not always do the best job of informing other parts of the organization about it," says Paula Rosenblum, director of retail research for Aberdeen Group, in Boston. "There's still a cultural challenge in most retailers where the princes don't necessarily work and play well with teams. So you end up with lumpy delivery schedules, surprises for store personnel, surprises for distribution center personnel, and financial surprises."

In contrast, the best retailing organizations are those most savvy about using technology to integrate the planning and forecasting processes that span multiple disciplines, like ordering and sales. Integration allows retailers to measure the combined success of each of the disciplines rather than the success of the individual parts. One of these organizations is Office Depot. The Delray Beach, Florida, office supplies retailer is in the middle of a growth spurt in sales and geographical locations. The chain reached nearly US$14 billion in sales last year through its worldwide operations, which includes 1,011 retail stores in the U.S. and Canada. Office Depot expects to expand its U.S. retail outlets over the next year. The company conducts business in 23 countries and is continuing a major European expansion on the heels of its acquisition of Guilbert, the U.K.-based contract office-supply company.

Part of Office Depot's sales strategy is its Web presence at www.officedepot.com. Today, the site boasts US$3.1 billion in annual global online sales, which places it among the top-three e-business retailers.

Although Office Depot defines "retail" in different ways—whether in-store sales, Web business, or catalog orders—the underlying technology strategy is to keep all the pieces fully integrated through an infrastructure that manages what products the company stocks, when to offer the products, and how to price them. The receipt plan, the sales plan, and the pricing plan are all executed as part of a collective team effort.

"We are a multichannel company, and many of our customers shop with us in different channels at different times," says Tim Toews, Office Depot senior vice president and chief information officer. "So we try to present as unified and consistent a message as possible to ensure a positive customer experience no matter the channel."

Snapshot Office Depot www.officedepot.com Location: Delray Beach, Florida Annual revenues: US$14 billion Employees: 47,000 Oracle products: Oracle Database; Oracle's PeopleSoft Human Capital Management; Oracle Retail Merchandise Operations Management Other products: ACNielsen SPACEMAN (space management)

Office Depot uses a merchandising system based on Oracle Retail Merchandise Operations Management to provide retail store managers with consolidated information about products, pricing, and sales trends. The application connects to the company's planogramming software, the technology that helps retailers decide where and how to place specific merchandise within their stores. "The planogram is a road map. When shoppers walk into a store, there's a chance for the company to grab their eyeballs," Toews explains. "You want to have the right things in the right place at the right time."

Office Depot increases efficiency in its store operations by integrating data from the merchandising system with the planogramming software. "It helps us in the inventory side in our facilities and drives down the amount of inventory we have to carry," Toews says. "Better merchandising information means smarter purchasing decisions. It's the classic issue of making sure you're not selling snow shovels in Florida. You clearly want to have your product assortment be appropriately localized."

But localization is a balancing act for a chain that runs more than 1,000 stores, Toews admits. "You don't necessarily want 1,000 store managers taking their best shot at deciding what to sell, especially when you have a centralized team of well-qualified merchants at headquarters who have years of experience in the dynamics of merchandising," Toews says.

The overriding strategy Toews applies to his technology decisions is enterprisewide applicability. "In terms of technology, we believe that we can provide systems that are channel-agnostic," he says. "The IT team spends a lot of time on things like architecture and road maps, and we're working to deploy systems that reinforce the fact that we're a multi-channel company that sometimes serves the same customer in different channels. So customers have the same basic Office Depot experience wherever they shop. Customers are going to choose how and when they interact with us. We want to be there for those customers, and we don't want to surprise them because some bit of our architecture builds up walls between customers or the various places they choose to shop with us."

From an IT perspective, this means building systems that aren't customized for any one channel, whether it's the retail stores or the Web site. Instead, Office Depot worked to leverage as many common capabilities and technologies as possible for use among all the various channels. "When you build a system, you should build it not for a specific instance but in a general way, so that as the company evolves, it can take advantage of the system without a lot of rework," Toews asserts.

This approach grew out of the first efforts to design the Office Depot Web site in 1998. "A lot of traditional bricks-and-mortar companies were trying to figure out how to get to the Web and how to touch customers in this emerging channel. We decided from Day One that a Web customer would not see fundamental differences in how they interacted with us than if they had chosen to call one of our call centers or fax us an order," Toews explains.

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To accomplish this, the Web site from the start gave customers a real-time view of inventories and the status of accounts. Furthermore, if the customer placed an order via the Web site and then phoned the call center a minute later with a follow-up question, the Office Depot service rep would see a full history of the customer, including the most recent Web order. "That may be commonplace today, but at the time, many companies were doing e-commerce as a standalone unit disconnected from the main enterprise," Toews recalls. "From the start, we integrated the technology to deliver orders to customers all across the country."

Office Depot's IT and business departments meet each week to work out future technology initiatives and, after gathering the necessary technical and financial facts, present their recommendations to the executive committee for approval. Is the source of new initiatives typically the technology side or the business side? "It's a little bit of both," Toews says. "We are certainly partners in that discussion. The business will often raise a project with us and we'll kick around some ideas. Sometimes the idea gets modified, sometimes it doesn't. Our technology strategy is really about how we manage the business of IT. There's a cost dimension and a business dimension to our strategy. We need to make sure we're managing IT like a business. So we ask hard business questions like, 'What's this going to cost the company in terms of pennies per share? What's the ROI? What project should we be working on? How do we work with the business to determine the priority, given a set of projects?'" Questions like these are all part of Office Depot's success in forging new business, technology, and cultural strategies that leave entrenched notions like the "Merchant Prince" far behind.

Q&A Paula Rosenblum of Aberdeen Group: The End of 'Business as Usual' How do retailer chains prosper in an age of "over-retailed environments" and global-ization? Paula Rosenblum, director of retail research for Aberdeen Group, talks about how technology-savvy companies carve out competitive advantages. PROFIT: In what areas have retailers traditionally used technology to successfully address business problems? ROSENBLUM: Certainly, retail chains weren't able to expand to the sizes that they have without computer systems that would at least help them react to trends in far-flung geographic locations. Technology has allowed retailers to expand geographically to levels that were previously thought impossible, because they can gather information together, punch up overnight results, and by the next morning, evaluate what their next move should be. PROFIT: What developments have made this possible? ROSENBLUM: Moore's Law has really worked to retailers' advantage, because advanced analytics that previously could only be done on supercomputers can now be done on a desktop or low-priced server. This is important because as retailers have expanded geographically—and as Wall Street demands square footage growth—pretty soon many companies have found themselves in an over-retailed environment. So now they have to differentiate themselves in ways besides just pricing. They need to hone forecasts better to improve their in-stock position. Most recently, retailers have been using computing power and telecommunications for real-time connectivity to their stores to create an environment of customer centricity, as well. PROFIT: Can you give us an example of what customer centricity can do? ROSENBLUM: Companies can go back and look at the customer's history and find out what they've bought in the past and offer cross sales and up sales right at the point of service. PROFIT: Looking at the other side of the retail equation, how are back-end operations in retailing changing? ROSENBLUM: As we've moved to more and more offshore sourcing, supply chain visibility becomes more and more important in order for retailers to understand where goods are at various points in their preproduction and production lifecycles. In turn, supply chain optimization among today's leading-edge retailers enables them to hold off on production until they receive demand signals sent back that help them optimize the whole supply chain network. PROFIT: For just-in-time delivery? ROSENBLUM: More accurately, for just-in-time production. For example, say you've got your laundry detergent product sitting in vats and the question is, "Do I set up production for 16-ounce, 32-ounce, or my 48-ounce containers?" Demand signals can help you postpone those kinds of decisions until you can make the most-informed decision. PROFIT: You've talked about where retail chains have gotten a boost from technology, but are there areas where the industry has struggled with technology and not seen perhaps the ROIs companies expected? ROSENBLUM: Oddly enough, in merchandise planning, which is a very mature application area. That's because there's still a culture in most retailers where the merchants don't necessarily work and play well with the other teams. By contrast, the best-in-class retailers work as an integrated team. No computer is ever going to replace the art of picking products, but technology can manage how much of the product a company buys, when it brings the product to market, and how to price it. Technology can control the receipt plan, the sales plan, and the pricing plan. And all of this can be done in a collective team with logistics people. The logistics team really needs a seat at the table because of the hidden costs associated with distribution and store personnel having to handle products that arrive without warning. That really creates a drag on the whole enterprise. So you've got to have the logistics team, the store team, the field team, the merchants, and the finance team all sitting at the table collectively making decisions. The technology has been in place, one would argue, for almost 20 years. It really is a cultural challenge. PROFIT: Why do you think there's been some progress recently in this cultural struggle? ROSENBLUM: Our data tells us that the heads of these companies are recognizing that times have changed. They can't run their merchandising by gut feel; they can't operate as lone rangers, and they're willing to bring in people from outside of retailing to help make that change. We did a study back in December, and across all merchandising tiers we got a consistent answer: Retailers said, "Times have changed, and we can't do things the same old way anymore. We've got to get past the 'this is how we've always done it' syndrome."