L**'- *s

WINDOW ON ORGANIZATIONS
Pnonucr Ltpn CvcLE
MANAGEMENT Svsrtnrs;

\l
Chaptef

,i,lirrilt,.rtrUn

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tntCrprrse

5l

Fhsrrn Pnooucrs,Fesrrn pnocrssrs

mySAP PLM to definc the mc'chanical, electrical, and software components of its products.
Waters designersbegin with a concept and move through the engineering design phases to a prelirninar,v version of the product. After additional testing and de"igrr work, the product is moved to prereleasc/preproduction status.'lhe mySAp pLM software moves all supporting dccuments and bills of material for thc product from one stage to another. It also introduces product data to manufacturin& e ngineers and other specialists as product data and configurations are being create<i. As these ccnfigurations and data stabilize, marketing staff can vievr them to'see ,.ihat data and configurations will be introduceci inro the marketplace.

What if there were a way to determine automatically the fea-

sibility of a new product's design? What if all the information

related to that product-thc marketing plan, design criteria, product specifications, testing data, and packaging data_ rvere immediately availablc to make sure that design could be easily manufactured and sold? What if this information were instantly avai.lable to designers, engineers, suppliers, market_ ing staff, and anyone else involved in thc development and rollout of a new product? Enter product life rycle managentent (PLM) systen-rs. Nissan l)iesel Motor Company, established in 1950, manu_ facturcs trucks and buses. Its product line includes a wide range of light-, medium-, and heary-duty vehicles, buses, and
bus chassis, engines, vehicle componentr, and special-purpose engines. The company has distributors in nearly 60 countries

-'

around the world.

Devcloping a truck model involves more components and ccmplex assembly combinations than developing passenger
cars,

genel3tin&ylM9{lrcf
I

data to manage. Like other

truck manufacturers, Nissan Diesel Motor Company faced a

--.ttgll9-I,ggr",kggplqgjbr! comp ex p rod uct data o rgan ized. -i"fred

fostens, known for its custom high school ciass rings, graduation announcements, and yearbooks, adopted UGS C<lrporation's PLM sof.r,r'are to lieip it manage its vast array of product details. The company signs abrout 5,000 to 10,000 new agreements to produce dass rings for schools each year. Each school har a sp*ecificmascot and other features that have to be !gr_igl.4 rgtg1Lre ryfi3s. Onie thosc parts of the rings aredesigned, students select additional feat"ues thiy want, such.as an etching of an activity tley participate in. That means many thousands of customized rings mustbe cleveloped and tracked. The UGS PLM software reduces the time ,"quir.d to produce the molds for rhe rings. Loewen, a Canadian specia.lty wood window manufacturer
based in Steinbach, Manitoba, has standard products that, when combined with special features and desigrrs, create more than 4.3 trillion potential options. fo.-qp:{ gp aesign and prod,9g[on, the company needed to find a bittiiwiy tii.ry1gg1 :qt +ryl l ! -9! prod uct d ata. PIr"t so ftware g!ggy.q-[t
e

to rsM

anab;"rtt slot.--JENovtA pr"d"..

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

ik-

lt

is developed from -u_eb,Sle {gg[n1g mqr-u{u.turing-vu-_'-.-.'-simulates Nissan Diesel's manufacturing process"s, so the compan), can detect errors during early stages of production

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

product information throughout the entire development cycle. This configuration management system has shortened Nissan's cycle time for creating a y_ghlcldru$rye0

pianning. This tool also manages truck components so that engineers can easily search for and work on parrs. ENOVIA linla product data and processes so that each Nissan develop_ rnent team member can share comprehensive and up.to_date

-' {etglmings the feasit itiry of a new productlqlesign and--' enables multiple designers to work simulun*uiiy on the same
diiid'infor;ationGtlipotiniial
groups .an cusromers. the data
,.rse

project and share

p;t{na-

.The system enables engineers to know automaticlq)/_y_l!:b

company introduces several new prodacts each year. Waters irnplemented mySAp product Lifecycle Management software to help those involved in designing, maintainilg,_4ld

instrumentation, thermll anaiysis, and mass spectrometry products that provide fundamental data on the composition of natural products and synthetic chemical rnixtures, as well as the physical properties of materials. f.he

-, Waters C,orporation is a leading supplier of trigh_performance liquid chromatography

pg$lqttqge_tlgr,while produaion

to achieve savings by conso[dating materials and orders. Loewen hopes tiat PLM will increase produaivity by 30 percent 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," Informarton
l{eelc, August 9,2004,

and'pr*uo

facturing

proa"ct irr"ii inr"imaiion

;";.;fii.

11r.a,ng_

D,"cult Systems, "Nissan Dicscl Dcvelops Vehicle Configuration Management System with pLM Solutions from IBM and Dassault Systems,'fuly 12,2@4.
WeeE lul,f 19, 2004; and

Upi lnformation

16.-Cycle Management Market Famps

Waters had maintained data separately for product develop_ 1qe_nt and p1odu4!o4, making it difficult to find out marerials costs early in the development cycle. The company migrated i 20,000 different files and pieces of data fromlts old systems to

To Think About How do project life cycle management q/stems provide value for these companies? Should every conF pany that manufactures products use this soft\.,are? Explain your answer.

Chapter

Inlornratroir \1.sten.

- t-., :-':':

se

59

WINDOW ON TECHNOLOCY
Ilewonrn Ovnnruurc Suppw Cuew Mexeenunxr
,: i..,i ,r' .1j ..:1,.,.
I
I

Hawolthr lncorpo. fqte4 headquartered in Holland, Michigan, i! .' .:; 'i'; , .The.Transportation Management Sptem (TMS) uses opti- : :; the world's s"conl largest designer and manufacturer of officc mir:tion and carrier communication software from ir{anugistics f,iyniture and workspaces. The company offers a full range of Group in Rodwille, Maryland.'lhe sptem ocamines customer {urnigure know.rr for its.innovative design including {esks, orden, hctory schedules, carrier rates and availabiliq', aad shipchairs, tablegpaftitiohsj and siorage products. Haworth operping costs tb pmduce optimal lowest-cost delivery plans Thcse

in more thgn 12.0 countries, with 9,000 employees, 40 manufacturirig locations, 60 showrooms, and more than 600 independent dealers around the world.
ates

plans are generated daily and updated every

l5 minutes TMS has

di".tg.9-t4f,1,fiillllrnent ftom multiple distribution centers from all of its manufacturing facilitieg t*ith p.rg$.tlik t fte {iSt{i,Pn$bn 's.rys! needed to communicate more effeccgntgrs tively mangfacturing facilities tci better plan the pro1pf5,..irders.

Haworth was particularly successfi,rl during the booming TMS maps oqg g-or.gq.i.nt ioutes ttrrt -ini-;r. "t.t -tt *economy of the late 1990s, which stimulated demand for new t-.U*alrnip-.nt" *?6mage to i,;ods.-----ofifices and office space. But the company was hit hard when TMS also electronically seniKcarriers "tenders," which are manydot-coms went under because these companies glutted requests to bid on a shipment. These tenders are transmitted the market with their slighdy used Haworth products. over a pri\ate network or the Web, and carriers transmit bids To bring co.sts i" line with declining revenue, Haworth back automaticaliy. In the past, that process required fwo "bg.k started ui'amUitiotii overhaul of its supply chain management phone calls; lf a carrier doesn't reply within a specified timc, systems iii:2001,:fiayvorth's 15 North American manufacturing ' the system automatically contacts another carrier. facilities aie located in North Carolina, Arkansas, Michigan, ; . I Both lfMS and WMS run on server computers from Missiqsrppj;Te*4si'Oi',t"rio, Alb.rta, and Quebec. These 6cili- ' ttrewlett-Packard using the Unix operating system. They rylt ties supplf.invciitory to distribution centers in Michigan, 'face nrith trvo sets of order entry manufacturing planning, and Pennsylvania, Georgia, and Arkansas. Haworth needed to coor, sffiing sfit.tdm-;tan.e"6vb different n riture markets..
:'
'

an automated intcrfacc that enables Haworth to negotiate delir.eries with its carriers. To fi"d-ltg -gqn4 fr.l6!111o!t&1 rlqlileria,

:'

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

To tie these applications, Haworth uses special "middleware? , .+, software from SeeBepnd Technology in Monrovia; gaqforn!4.;;,i

tt i receirtng:noik i$;'":l.i"I fidiigdd;dili the shipping dock.without being chqcked'idto the syrtem andi .l+:i 'i: ' : ;- ',.; pickedftomiqrvgntory. . I .' '' ;'f".'1.1i+f,l damaged goods in transit
,' r'l:

specifi;tiis'iffi

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68

Part

one

(Jrlldr)i,rd1lur|5, Marraqt,rteirr,

arrrilht'

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1,r1,,

popular snacks. ln 2002, Snyder,s posted revenues of-$16_4 mjllio_n, trailing o1ly.n9ld cqf-d,lne ielgning cham_ pron of the pretzel industry. ln addition to manufacturing its complete line of snack foods, inyder,s distributes its own products, as well qs those of other snack food compa_ 40 distribution iacili_ ties all over the United Slates and Europe, over 4,500 products, and over l5O product lines, the home office in
Ha

Harry.V. Warelrirne ltcgarr ternpting rhe taste buds of southern pertrrsylvarians with his llarrover Olde Tynre pretzels in 1909. Since then, Srryder,s of Hanover, as the corrpany cante to be known, has expanded its business beyond any scope that its fourrder ntight have dared to imagine. Snyder s of Hanover remains a family-owned and farnily_ run company, but rt has become the world's _secorrd largest pretzel maker, witlr lZ I percent of tlre pretzel mar_ ket- Snyder's pretzel and chip varieties irrclude Old Tynre pretzels, Jalapeno Pieces, Butter Snaps, and EatSmart All Natural Veggie Crisps, as well as other

hunran factor made d_q!p:gil{y- ,I.lir, =!qLq:_e

c_g=!rc.ern.

same way at tlre errd of each fiscal quarter arrd the end of each year. The overwhelnring presence of the
tf a

needed to update its data with last_ minute inforrnation after submitting its spreadsheet to the main office, tie head analyst had to return the origi_ nal spreadsheet, and then wait foithe department to resubmit its data, before finally entering the updated data 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 thaljnlpartant dgle lrltlpjy-wer:e not auaiiable as often as they were needed. Snyder,s lacked the ability to react to sudden trends and unpredictable events because the data were supplied too

d;p*ril;l

was ttme to leap forward to a more rnodern approach in which the company could react to data immediately. ln late 2002, Snyder's of Hanover solicited the help of Satori Croup, a provider of business performance management solutions to the consumer packaged goods industry that is headquartered in Conshohocken, Pennsylvania. Satori Group demon_ strated how Snyder,s could imple_ ment its proCube software to gather beter s-a_les and marketing datla and,
the?efore,
sions. -Pro!ube

mike better U"lt""i, a".i would automate

crea t|

Slyclgr's
i

s -ug!Ig!s.lslesal!!!&lea!

"@llgDloceiibs,

i!gt,

"'

Tasry :i": :u:h asWith Baking Company,s Tastykakes.

lqte !q -adjust shippingsrhedu[es, pricing schedules, or delivery counts.

CEO Michael Warehirne and his management team could track the gross profits of business units but not

marketing analysis so thai Snyder,s could evaluate the viability of each of its individual brands and products. Such analytical power was just what Snyder's would need to compete with Rold Cold, which is backed by the corporate powerhouses of Friio-Lay

l5ges,_9ldjctujlg_!ryd,S,;i prod u ct

{
j

nover, Pennsylva nia,.hes a cqn5id-_.

were harvested and consolidated the

Excel spreadsheet, w_hklr wquld_serve as the compuny'r montnty profit_andtoss statement. The frrrancial data

epbl-c_a-mqulr of dara ro.m-a"ege'.spreadsheet-based system lacked the lf thereGii,r,e"last vestige of old- detail to show whether a specific fashioned business left at Sn"yder,s, it snack product such as Souidough was the company's method of man_ Hard Pretzels or pumpernickel d aging a.nd analyzing data. Although Onion Sticks was actually making or Snyder's sells more than 7g million losing money. For a business foc"used bags. o.f pretzels, chips, and organic on both production and distribution, snack items each year, some of its this was a hindrance to growth. core systems were still heavily manual Additionally, the spreadsheets and paper-based. could not reveal which distribution Snyder's financial department was routes were worthwhile and which usin g gl-gctrotrjg rpreadsh ee-ts fo r were cutting into the company,s profit rnuch of its da.ta-gathering and report_ margin. Under these circumstances, rng. Lois Stambaugh, Hanover,s finan_ Snyder's could only use the sales data cral analyst, would spend the entire it collected to make rough predictions trnal week of each month collecting about how much of a product should Excel spreadsheets from the headi f be manufactured and how quickly a more than 50 departments world_ product run shpurld be repeated on a wide. Then she would consolidate particular distribution route. Snyder,s and reenter all the data into another ma rk.e.t sfug_[a-d bgelgrowing
srepdily ulJil 2002, ry[qj s_udden-ty.s&lleg its annual sales growth, whiih had outpaced the indusiry,s for years, was then no better than average. lt

4,500-plus products and over 150 product lines. For example, the

the performance of each of Snyder,s

and PepsiCo.

company's existing iffirmation sys_ tems. ProCube enables Snyder,s department heads to continue using Microsoft Excel spreadsheets to col-lect sales and returns data. These data are collected in a large data repository where they are consolidated and organized before being used by proCube reporting software for analy_ sis. The proCube software also uses manufacturing data from Snyder,s enterprise system.
Snyder's financial department gey{.

. What Snyder's found so appealing about proCube was the ease with which it could be irrtegrated with the

jJ

{ {

rt

spgnds a cg,uple of days preparing-. those same monthly, quarterly, and yearly statements that used to devour weeks'worth of productivity. This is only the first step in what Snyder,s hopes is a chain of improvements that will result in new growth. The next step is to add new levels of detail to the profit and loss data that Snyder's can collect and report so that the company can track and'

I I

Chapter

product. The system will also Snyder;s has also managers to project sales for improved lT into other ;; unit for the next quarter or next year. business. r" zoor, such a system requires additional ce-lco^Trade work to implement' Dave TMS Passport soluTion ior its Snyder's director of information tech- promotion runa, runug";ment. Again, nology' noted that to achieve snyder's found an ri ,oirtion desired level of detail in its .orta U"-irpi;;;";"d ;rickly analysis' the company must study out sacrificing po*a. L"-t.o,s of its business processe.s. A compr:e- passport promises. hensive review wi'enabre snyder's investment (Ror) for a competitively determinewhattvpesof

assess the profitability of indrvidual department heads and executives eye towaid rocketing to the top of tlie products' Managenrent could then with eqJ]er acgqs-s-to tur",1lpy,-q:j'd ui"",'n. question renrains wirether use the procube software to find out .JLrlrlbl,:9ritrfritn" n-i;iGJr*r-_ ;;;;lly organization information s'ch as how many bags Jt,ser t,,enJiy web ,nlJrtace "*"ed through ;";; ;; compete with rrajor can conBBQ Pretzel Pieces were corpo_ of Honey which ma'ag.rr.un r"tri"u" t"yJ3tu, ..i" piiy",, in an industry that has yet in Michigan last week, or which as tlrey r"qri. ,t,"r. sold ;;"" 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,,,

enable their

Thomas.

Eosctine Maqozine, i".;;;;;:;;;""'' for lht' consr:nrt'r Ja.uary 2ooa;isotutions Packaged coods tndusrry,, .;# ," i"yd;;.;;; ffi1,:tlilj"?l'll',;lTi;ji!"]::l,T:i::1, tr-"#.""t croup's it, o.rro",, sorution,,,wwwgercorrade.com, trade o.."rr"J np,ir s, 2004; ,.snydcr,s of Hanover

the data all

from their business processes and ihe package r"utrrurJrni runugul- r. Assess 5nyder,s competitive standwhich data they actually want to use' menl auar.tion r."us"."",, pu1,- ing in the pretzel and snack food These 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 }luJ,,un,ia,ror this company? Iar products iTmoitlmmediately, iather 3. How well did snyder's information ro,. y"urc to come, u""" than having to wait for an end-of-the"r';:;r;":' systems support its business? ness continues to expand month report' Likewise, production and Explain. ihe Rmerican consumer has conshipping of ress popurar products can tinued to increase i , inrur,u of pret- o. be curbed' ln other*otdt. snyder's fory much did procube improve will .uit ou.,. the last a".uJ", ina ti" snyder's systems? which managebe able change its business model trom i"..t r""a industry as a whole conment, organizational, and techone dependent on forecasts to one tinues to.boom. snyder's faces stiff nology issues did it address? How that'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 new tmplementation c'iiled?, piiie tag of industry iy.l utz, reriogg's, and approximately a quaitei-mltti"o air- irurt rooar. nt"i u"ryi"u'rt, Snyder,s systems on tle way it runs its busitn" ness lars. The-next pha3e introJuced acor_ nu-r'rnua" a sincere unurno, to trans_ muchand its business moder. How porate porFlto'piovide snyder', do these systems improve its rom irrTrri."*

dataresult pricedandr.utu6t";f,*;;:;;:1.;". cASL slrjIi./ (,fr-,Es1oNS

to

th.t" withTMS qri.k;;r;;;"

April s, zroo,t;,,snacks: The Nexr ceneration,,, \,,\.&,,vv.consumerreports.org, March 2oo4;and

company profire,,, biz yahoo.corrr, accessed

www.snydersofhanover.com, accessed March zooa

li,

ii,n,,rs,{,qfr:ru'}',i,T;,il'"r"

fl"lffll;::if:t*lln:,.Jf", '

o,#i,"."J,r,rn

."

comperitive position?

_l
Chapter

lntonltdltolt Sysl.nrs, ( )rgalru alrons, Mdit,iflctlent,

,rnC

5tralcgy I 09

r/

his employees. By approaching business strategy on these two fronts, Super Saver Foods. Johnston hopes to distance Albertsons' marketing vow is to Albertsons from competitors such as "Make Life Easier for Our Customersl' Kroger and Safeway and catch up to This credo plays a large part in another rndustry leader Wal-Mart. of the company's priorities, which is to Albertsons earmarked half a billion make Albertsons the number one glo dollars for technology advancements cer in ihEnnlted States. Wal-Mart in 2004. One goal of this jnvestment currently holds that distinction with is to-improve fhe-company's profit mar$56 million in annual revenue from its gin. Profit margins are razor-thin in grocery departments. Albertsons the supermarket business, averaging stands in third place, $20 million glgg!d.one cent per dollar of sales. behind Wal-Mart in revenueCu rre ntly, Al bertsons _e-1!!l_1,4 !gnls Wal-Mart has been selling groceries for every dollar of merchandise that it for a mere l6 years, making it a relasells. Wal-Mart is famous for keeping tive newcomer in the industry comthe prices of its merchandise low, but pared to most of its competitors. Of still manages to earn more than i cents course, Wal-Mart does have vast retail for every dollar of sales. RlSerGoni* experience, massive purchasing must close that margin if it is to power, and leading-edge systems to become the number one grocer in apply to its grocery business to catathe United States. Working against pult it ahead of the competition. Wal- Albertsons is the fact that its merMart's supply chain management sys- chandise sells for 20 to 25 percent tems are extremely quick and more on average than Wal-Mart's efficient. They keep inventory down to product offerings. Albertsons has a the necessary minimums and operatwide gap to overcome. ing costs low so that overhead takes a The technology strategies put forth much smaller chunk out of the comby Larry Johnston cover a wide range pany's sales revenue. Wal-Mart's of the company's operations. Retail Link network pulls in point-ofAlbertsons has begun to install selfsale data from its retail stores every service checkout l5 minutes, giving suppliers incredibly lis stoier rrreii-ititionr eniblb cusup-to-date information on how their to=me1i'lo scan the items they are products are selling. Other retailers buying to create a sales bill and pay capture sales data only once or twice for the items by swiping a credit or each day. debit card, all without the intervenTo move up to the top rung of the tion of a cashier. Using a handheld ladder, Albertsons has borrowed a sca n n e r, qgstome maygp !.thetr page from Wal-Mart's book and writp_U$glplas they plg_ce thgl-in their ten a few new pages of its own. The shopping cart, re_sulilng in a chqclo*ut author of these efforts is CEO and process that may take only a few secpresident Larry Johnston. Johnston onds. Not having to wait in line to pay came to Albertsons from a highly suc- at the supermarket can be a major

states, With 2,305 retail stores in Albertsons is one of the largest retail food and drug chains in the world. Among these retail stores are 1,151 combination {ood-drug stores, 707 standalone drugstores, and 247 conventional and warehouse stores. Stores flying the Albertsons flag. include Albertsons, Albertsons Express, Albertsons-Osco, AlbertsonsSav-on, Jewel, Jewel-Osco, Acme, Sav, on Drugs, Osco Drug, Max Foods, and

ll

cess{ul corporate environment, having worked under Jack Welch during the peak of his tenure at Ceneral Electric. Johnston wants to use information technology to keep prices competitive while making the shopping experience more compelling. He also wants to bolster the company's leadership with the best minds available and use motrvational techniques to invigorate

draw for customers. Albertsons views this improvement to the shopping experience as exactly the type of change it wants to implement to keep its current customers happy, bring in new customers, and thereby increase
sales revenue.

cofise,.self-service checkout stations provide Albertsons with another benefit: They cut personnel costs. The stations enable Albertsons to replace human cashiers with machines that do not earn wages. Cutting payroll is a critical aspect of the company's repositioning, especially when you compare wage numbers with Wal-Mart. The average WalMart worker earns about $8.50 per hour. Albertsons pays its average worker in the neighborhood of $l j

'-OT

psllrgUr ln addition, Albertsoniextends benefits to its empioyees, including health irrsurance and retirement packages that, in some cases, nearly double the value of the employee's tota! compensation. The company line says that installing selfservice checkout facilities is rntended solely to create a better shopping experience for the customer. Retail analysts seem to think otherwise, saying that such claims are transparent; eliminating cashier positions could gloduce sivings in excess of itoo million for Albertsons. Larry Johnston's plans for technology-enabled grocery stores include a completely digital shopping experience that begins in the home and involves the lnternet and Clobal Positioning System satellite technology. Customers would be able to set

statioliEffi

up their shopping lists from home through an lnternet portal that is connected to their local Albertsons store. They could also add information to their accounts such as allergies and dietary restrictions. When customers
arrive at the store, they would use a customer loyalty card to obtain a handheld device. The device would download the shopping list and any other important information, and then sync up with the store's inventory. The

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'.'ith
loyalty card systems, and using advanced technology to analyze data. The supply chain management team has been stocked with technologY pioneers 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 WalMart, but the benefits of a first-rate staff have been slow to materialize. The question remains whether a massive investment in technologY and intellect will be enough for Albertsons to reach the top of the industry. WalMart is a moving target and it continues to move faster and fartherJohnston has saved Albertsons approximately $500 nl'!!i.n already, bui sales haveh't increTsed significantly. Meanwhile, Wal-Mart's grocery sales continue to Srow steadilY. Also worrisome is the introduction of Wal-Mart's Neighborhood Markets. Wal-Mart is traditionally known for its Supercenters, big-box stores that cover expansive square footage and offer extensi've Product selection. The Neighborhood Markets are significantly smaller and are intended to reach the local markets that aren't always covered by a Wal-Mart big-box store. ln many cases, these markets contain the customers that Albertsons has targeted as crucial to its success. Albertsons has already lost significant market shares to Wal-Mart Supercenters in various parts of the country, including Boise, where Albertsons headquarters are located. Between 20O0, when Wal-Mart came to Boise, and 20O4, Albertsons saw its market share droP from 65 to 39 Per cent, with nearly all of the loss benefiting Wal-Mart. Wal-Mart's f'teighborhood Markets are strengthened by the same low Prices and powerful supply chain that make the iompany's Supercenters a seemingly unstoppable force. Other than selfservice checkout stations, the Neighborhood Markets are decidedly no-frills in comparison to the average

device would guide customers through the store on the most efficient 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 system, a customer account could be linked to a credit card and checkout would be reduced to passing through

such a goal is cataloging and analyzing purchase data. Albertsons invested $50 million in anNCR sI91ed9!q-War3-h9$e !9 exami ne cu 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

an 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-service checkout, as well as Johnston's grander vision of a wired supermarket, Albertsons will have to persuade two important grouPs of people that such changes are a good idea- The company will have to convince its store employees that a more independent customer is good for business. At the same time, the emPloYees know that some of their services will be rendered unnecessary thou-

when they buy it. Analytics software f rom KhiMetrics of Scottsdale, Arizona, enables Albertsons to determine, for exantple, whether lowering the Price of a box of Wheaties by l5 cents will bring in more profits by increasing sales than

would increasing the Price bY l5

cents. The software

will also tell wlrich products, such as Albertsons milk and bread, need lower Prices to

prevent 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 its stores can offer prices that are more competitive with Wal-Mart's prices' Johnston has consolidated distribution centers and is using the Web to coordinate shipments and to reduce billing and invoicing costs. The company has also upgraded its core corporate systems, moving financial their colleagues have lost sands of applications to software from Oracle jobs already, and they have run their and its human resources manageinto strong resistance in their pursuit ment to PeopleSoft software. of higher salaries and better benefits. Chief Technology Officer Bob Dunst The attitude of the employees is critical to the success of the company and intends to overhaul 90 percent of the company's apPlications bY 2007. ln there are no assurances of cooperaaddition to the Oracle and PeopleSoft reduce tion with a vision that could adoptions, he has also uPgraded the their role. enough of a con- company's high-speed network infraAs if that weren't structure. Albertsons had already cern, Albertsons' customers also added electronic data interchange would have to buY into Johnston's vision for high-tech shopping. Michael (EDl) capabilities, which enable better processing of transactions with supLenz, a retail supply-chain analyst for pliers. However, Albertsons does not the Canadian firm Thinking CrouP, yet have a system comparable to Walnotes, "You're going to the store for Mart for sharing sales data with supbread, milk, and eggs. lt might be a pliers and for automatically placing little overwhelming for some folks." orders in reaction to sales that are keep techWal-Mart explicitly tries to taking place in the field. to keeP nology in the background Albertsons will not be relying solely customer shopping experiences simon computing Power in its pursuit ol ple. On the other hand, if Johnston's Wal-Mart. CEO Johnston believes that futuristic store proves to be successbrain power is just as critical to the ful, Albertsons would gain a signifisuccess of his company as technology cant edge over Wal-Mart. is. Johnston scoured corPorate Another Albertsons goal is simPlY America for the most talented and to have current customers buY more respected executives in retail and when they visit the store. The key to

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Albertsons store, which often has its own butcher, baker, and gourmet cofIeebar. Albertsorts is betting that a specialized, customized, and technologically advanced shopping experience will be appealing enough to
keep customers from the allure of Wal'Mart's lower prices and simple presentation. lt is not a sure bet. Albertsons may not be able to beal Wal-Mart consistently on price but it must come closer than in the past. Albertsons can also use its loyalty card program to obtain more precise information about individual iustomers and offer products that they might not find on Wal-Mart shelves. Albertsons has the financial backing to continue investing heavily in

Mart in requiring (by April 2005) its suppliers to use radio-frequency identificatiorr (RFID) tags on all product shipnrents. The use of RFID will increase Albertsons' ability to mdnage its supply chain more precisely. Additionally, Albertsons stores have fared well in urban markets where Wal-Mart has struggled. Overall, however, Wal-Mart has set the bar very high. Albertsons remains convinced that it can soar to greater heights.
Sources: Mel Duvall and Kim S. Nash, "Albertson's: A Shot at the Crown," Mel Duvall, "Roadblock: lnternal Resistance,' David F. Carr, "Cotclra! The Problems w,ith Self Service Checkout Systems," and Todd Spangler, "Teradata: Too Rich for Your Elcod?" Boseline Mogozine, February l, 2004; Jonathan Collins,'Albertsons Announces Mandate," RFID lournol, March 2004; Associated Press,'Albertsons to Test Handheld Crocery Scanners," IJSA Todoy, March 29, 2004.

cASE STUDY QUESTI0NS

l.

Analyze Albertsons using the value chain and competitive forces models.

2. What role do information systems play in Albertsons' business strategy? How do systems provide value for Albertsons?

3. Compare Albertsons to Wal-Mart in

terms of business strategy, current success, and future success. 4. Which management, organization, and technology factors hinder Albertsons from achieving the goals of its business strategy? Which management, organization, and technology factors help Albertsons achieve its goals?

advanced information technology, and it is fortified by strong chains of drug stores, which tend to see greater profit margins than grocery stores. The company has recently joined Wal-

5,

5. Do you think Albertsons' business strategy will work? Why or why not?

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