Cutting the Cord

By Edward Cone  |  Posted 2003-06-01 Print this article Print

Retailing is getting cutthroat. In major metropolitan areas, direct rivals are opening up shop across the street, daring the other to blink and pull up stakes. Among neighborhood pharmacy chains, Eckerd is now in a fight for its life, as Walgreens threate

Cutting the Cord

When Petersen ended the deal with Big Blue, he was committed to rebuilding the technology department nearly from scratch.

"It wasn't just insourcing technology, it was insourcing a business," says James Garoutsos, director of systems architecture at Eckerd. He was one of several technology managers Petersen brought in from Penney to help organize the new department. That core team in turn faced a big job just with writing job descriptions for all the programmers, network administrators, database administrators and other specialists who had to be hired. They also had to figure out just exactly what IBM had been doing and how well it met Eckerd's needs.

"Discovery was huge, figuring out what IBM was doing to support the business," Garoutsos says. "We needed to go through a whole lot of knowledge-transfer over the space of six months." In some cases, the way IBM had been doing things turned out to be inefficient, and Eckerd managers had to figure out how to improve those operations.

For example, the process of reorganizing the data warehouse in response to common events like the addition of an important new product line had been taking six weeks to plan and requiring another week of data warehouse downtime. That was a week in which merchandising managers were left "flying blind," as Petersen puts it, because they did not have access to sales-tracking applications built on the data warehouse. The new internal staff was able to cut the planning time required to one week and limited downtime to less than a day (see story at www.baseline.mag/jun03).

Meanwhile, keeping Quantum Leap on track was complicated by the fact that IBM staffers assigned to the project suddenly were worried they might not have jobs when the contract ended. But offering jobs at Eckerd was also tricky, says Todd Hale, the former Eckerd liaison to IBM who now serves as Quantum Leap's project manager. "IBM didn't want me to run off with all their project managers, either."

Other technology managers were going through the same process. "Every month, we'd tally the headcounts, look at how many people we have, and say, 'Oh my God, we're not going to make it,'" Garoutsos says.

The task became easier as the information technology job market went into a nosedive, making talent easier to come by. Still, the outcome wasn't obvious in the beginning. "When I did this, the I.T. job market was still tight," Petersen says. "This was gut-wrenching."

Eckerd had to work hard to build up its 800-person department. Hundreds of programmers and systems administrators came on board in the six months before the contract ended. Recruiting enough people from IBM and elsewhere to create a new I.T. organization in just two quarters was so critical that Eckerd CEO Harris personally participated (see "Roadblock," p. 58).

Keeping operations running was a triumph in itself, but it was only the beginning. The real test is still whether Eckerd can use technology to get ahead.

Will Quantum Leap, built on off-the-shelf software from retail-systems specialist Retek, be enough to catch up to Walgreens' proprietary systems?

"We don't know what Walgreens has," admits Petersen. He reads press accounts and public disclosures about his competitor, but that's of limited use. For Quantum Leap, Petersen's strategy is to build on a commercial software package. "Could Walgreen have evolved homegrown systems to that level? Sure, it could have. But what we have is the best available in the market," Petersen says.

Still, while Eckerd plays catch-up, Walgreens plans to invest about $1 billion in technology and supply-chain improvements this year. Technology is a key to the company's expansion plans, said chief operating officer Jeffrey A. Rein at Walgreens' annual meeting in January.

As it grows, Walgreens can no longer depend on each store having an experienced manager with a gut instinct for what to order throughout the year. So it is enhancing its systems not only to replenish inventory but predict future needs. "Now the system can understand the forecast and order what the customer needs," Rein said. So an Iowan newly installed as the manager of a beach location ought to be able to stock the right variety of suntan lotions come summer with the help of a system that remembers the pattern from past years—much like a manager with years of experience at that location.

Walgreens is doing a much better job of keeping stores in stock, while lowering the average number of days a product sits on the shelf, Rein says. "That's pretty much all [the result of] technology."

Meeting customer expectations is critical in the world of corner-to-corner competition.

At the Coconut Creek Eckerd's, customer Carrie Rogers says this particular store has tested her patience in the past by being out-of-stock on the items promoted in its circular. This time, Eckerd had the discount toilet paper it had advertised. "I walked in saying, 'If they don't have this particular thing today, I'm never coming back here,'" Rogers says. "Walgreens is a little more reliable, I think."

Eckerd can't afford to have that kind of reputation.

Most retailers run out of advertised items at least occasionally. But information technology can support practices such as perpetual inventory, in which the system automatically reorders products when they dip below a minimum number of bottles or packages on the shelves.

"That's something that's been available for decades, but it's never been in place at Eckerd," laments Petersen. Perpetual inventory is part of the current Quantum Leap deployment, and a future upgrade will focus on helping ensure sufficient inventory to meet the demand generated by ads and coupons.

Quantum Leap had only reached about 100 stores this spring, and the Coconut Creek location won't take the leap until summer. Petersen acknowledges "it may take two years or three years to put it in 3,000 stores. You don't just deploy it in your enterprise in a month."

As of late May, however, Eckerd was projecting it would have Quantum Leap fully implemented at 25% of its stores, and at least partially implemented at 50%, by the end of 2003.

Even getting to a hundred stores is an accomplishment, given that Eckerd was building not just a new companywide information system but a new technology team and infrastructure at the same time. For months, Hale had to delegate most of his project-management duties while he concentrated on interviewing and hiring.

Senior Writer and author of the Know It All blog

Ed Cone has worked as a contributing editor at Wired, a staff writer at Forbes, a senior writer for Ziff Davis with Baseline and Interactive Week, and as a freelancer based in Paris and then North Carolina for a wide variety of magazines and papers including the International Herald Tribune, Texas Monthly, and Playboy. He writes an opinion column in his hometown paper, the Greensboro News & Record, and publishes the semi-popular EdCone.com weblog. He lives in North Carolina with his wife, Lisa, two kids, and a dog.

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