Emerging technology became a shining star that many in the food distribution business invested in heavily for survival against the best in the business like Wal-Mart.
Events of the last year, however, have taken some of the shine off that star, acknowledged participants in an informal SN discussion forum on investing in new technologies going forward. The discussion was conducted by SN prior to the upcoming Food Marketing Institute's Marketechnics, Feb. 3 to 5, in San Diego.
Participants included Bruce Cross, senior vice president, business transformation, Nash Finch, Minneapolis; Jim Mills, owner, Snyder's IGA Supermarkets, Edmond, Okla.; Lisa Piron, director of management information systems, Green Hills Farms, Syracuse, N.Y.; Ken Fobes, chairman Business Strategy Group, Ponte Vedre Beach, Fla. and Judy Sprieser, chief executive officer, Transora, Chicago.
Transora is one of the three major electronic exchanges serving the food industry.
Last year began with healthy projections on just how much money was going to be spent on business-to-business technology infrastructure.
Jupiter Research, New York, projected B2B spending would grow to $80.9 billion a year by 2005, from a mere $2.1 billion in 2000.
However, as the economy continued to worsen and the unemployment rate kept rising, to its current level of just under 6%, a number of retailers took a second look at just how much they really should be spending on technology.
In April, just a few months after the Jupiter report, another technology spending report issued by the Advantage Group, Worthington, Ohio, indicated the technology fever that fed the creation of the Internet bubble was moderating.
"Technology drove the initial high level of interest, but now comes the hard part: making it work for us," said Douglas Rossiter, president of the Advantage Group. "Some retailers and wholesalers are concerned about return on investment, and manufacturers have become more cautious about spending on technology."
As this year gets under way, much remains uncertain, said forum participants. The economy hasn't improved, the much-anticipated "tech-rebound" certainly isn't here yet and the tragic events of Sept. 11 still linger.
Most information technology executives readily admit that the days of overwhelming optimism concerning technology initiatives now seem like a distant memory.
The mood and sentiment expressed by the group of participants was most certainly much more somber.
"The focus going forward is and will continue to be on more pragmatic applications," said Cross.
Others agreed that those more pragmatic applications have less to do with the bells and whistles of fancy software applications used on the front end of the retail side and more to do with using technology to reduce expenses in the distribution center and take excesses out of the supply chain at the back end.
"Particularly during this period of economic uncertainty, retailers and their suppliers are eager to reduce overhead expenses," noted Sprieser.
"What we have seen is a 'return to sanity' in terms of the Internet, as companies with poor business foundations and unsound practices have gone under," commented Fobes.
However, while the forum was more moderate in tone, it also remains quite clear that the wheels of technology will not stop turning.
A report issued earlier this month by the IHL Consulting Group, Franklin, Tenn., revealed that retailers will continue to invest in supply chain hardware, software systems and point-of-sale systems in the coming year. In fact, the report indicates that current low interest rates may make it a favorable environment for technology spending in these areas.
Here is what forum participants had to say. Part two of this discussion on how technology impacts customer service and profitability will be published Feb. 4.
SN: A lot has changed since the Internet bubble burst, and the entire technology movement slowed along with it. Where are we now and where are we headed in the next 12 to 18 months?
CROSS: In the past, there had been a great deal of emphasis placed on "glossy" Internet solutions that did not deliver promised results. The focus going forward is and will continue to be on more pragmatic, simple, proven applications for the Internet, with the thought process that the Internet is a tool to move data rather than process data.
SPRIESER: Particularly during this period of economic uncertainty, retailers and their suppliers are eager to reduce overhead expenses. Collaborative commerce solutions are an easy and cost-efficient way to reduce supply chain costs while enhancing business relationships among trading partners.
Over the next year or so, organizations will continue to build collaborative technology solutions into their business strategies. We will likely see the term "e-business" fade away as technology-enabled collaborative trade simply becomes part of the fabric of doing business. The real leaders are building foundational capabilities today that will enable new levels of collaboration with greater speed and accuracy -- and they are doing it in a shared infrastructure model that ultimately enhances shareholder value.
FOBES: What we have seen is a "return to sanity" in terms of the Internet, as companies with poor business foundations and unsound business practices have gone under.
MILLS: The Internet will continue to grow and become an even more valuable tool for business. The adoption of the Internet by business will grow quickly, as more managers see the value of the tool. Continuing technology growth and use will be essential for businesses to prosper in the future.
PIRON: For the future, I do see a use for Internet ordering of groceries combined with store pickup, used as an added value for existing customers. In addition, I think it will be necessary to integrate our Web site with our customer database to report loyalty program-reward information and to distribute targeted offers.
SN: Obviously, retailers are a lot more cautious about spending money for technology initiatives right now. Keeping that in mind, where do you see spending efforts on technology heading in the next 12 to 18 months?
SPRIESER: Reducing excess inventory, cutting transportation costs and improving sales forecasts will become mandatory for retailers in the face of weakened sales expectations.
While some of these efforts require internal systems integration, many of these services, offered by Transora, offer benefits to retailers at little to no incremental cost.
FOBES: We are seeing more emphasis being placed on ROI. Much has been made about the supply chain efficiencies gain in the '90s. However, in most chains, only 35% to 40% of the chainwide inventory is in the DCs. The rest is in the stores. We see expenditures focusing on operational improvements and savings at store-specific level, as chains begin to get greater demand-chain efficiencies in their operations. The "hot" systems in the next few years will be focused on store-level inventory optimization to reduce inventory costs in the stores and improve sales.
MILLS: With the recession, business has to be cautious about spending in the short term. This recession will end in 2002 and we will see a resumption of spending on technology that has a good payback to business. Strategically, business has to pursue its technology use and growth to keep competitive.
PIRON: I think the most important spending right now will be in the integration of current systems. For Green Hills, our major goal is to try to integrate all of our current back-office systems with our customer database. By developing this capability, I feel we will be able to offer our managers better decision-making tools, which will further increase great customer service.
SN: Are retailers more concerned about ROI before deciding on any technological initiatives now than they were 18 months ago?
CROSS: Our CEO Ron Marshall and our executive team consider shareholder value paramount in everything we do and our technology initiatives are no different. We scrutinize all initiatives for ROI, business value and long-term strategic importance. And, we review our corporate initiatives on a scheduled basis to validate business cases, costs and benefits during and after the product life cycle.
SPRIESER: Today's economy has placed a healthy emphasis on getting sound, predictable returns on capital deployed. Implementing the flavor of the month is no longer an option. Fortunately, the consolidation among technology suppliers is helping to clarify which solutions are superior, mitigating the risk of obsolescence to some extent. Understanding what systems are being successfully implemented by suppliers can also help retailers select the appropriate technology solutions to enhance their trading relationships.
Rather than spending directly on technology, we see a growing number of retailers collaborating with their suppliers to identify and efficiently source key functionality. One example is Collaborative, Planning, Forecasting and Replenishment. Retailers are looking to suppliers to do the "heavy lifting" required to make CPFR work, while they benefit from the insight it provides. It's effectively an immediate ROI, and ultimately improves the consumer's shopping experience.
FOBES: In our estimation, ROI on IT investments has never been accurately measured. There is usually an exercise to determine ROI during the IT approval process, but this is very rarely measured after the fact to determine the actual ROI achieved. Many chains simply amass ROI figures to justify their IT expenditures and this is one reason many chief executives do not feel that they are getting a reasonable return on these expenditures.
MILLS: Retailers have to meet their financial objectives of sales and profits. When things tighten up, they tend to retract from activities that do not contribute immediately to sales and profits objectives. Certainly, ROI is an important factor in their decision-making process, and it becomes even more important in tough times because there is less margin for error if a poor decision is made.
PIRON: Being a single-store, independent retailer, ROI on any technology initiative has always been a major concern. I don't see a lot of change for us, but if some of the larger companies cut back, I'm afraid we may see a decrease in the advent of new applications in our industry.