FLEMING CEO DETAILS PROGRESS IN RETOOLING

GLEN A. BERES

WHITE SULPHUR SPRINGS, W.Va. -- Nine months into an ambitious reengineering program, Fleming Cos., Oklahoma City, has already retooled 11 of 35 distribution facilities and expects to complete the process companywide in about 18 months.

The distributor plans to reengineer four more food divisions this year, another 17 in 1996 and the remaining three locations in early 1997, Robert E. Stauth, chairman and chief executive officer, said last week at the National-American Wholesale Grocers' Association's Midyear Executive Conference here. He spoke during a session entitled "Reengineering for Success -- Ongoing Case Studies for Change."

In a separate panel discussion, Stauth said 24 manufacturers have completely realigned their organizational structure to make themselves more compatible to the new Fleming, and the company is continually working with retailers and brokers to help them adapt to the changes.

"It all has to come together for the reengineering to work," he said. "What we have experienced so far tells us we're on track. The process is very expensive and complex, but we believe it will be worth the effort."

Stauth offered a guide to other companies as he discussed the progress and challenges Fleming has faced, and continues to face, while it reinvents itself under the previously reported Vision 2000 project.

One of the key elements of Vision 2000 is the flexible marketing plan, which separates the cost of products from the cost of services to the retail customer. The program was first implemented in Portland, Ore., in January and is being rolled out eastward.

Also speaking at the session was Robert R. Higgins, vice president of U.S. consumer sales for Scott Paper Co., Philadelphia. Higgins detailed how Scott -- facing several years of flat sales, heavy debt and increased overseas

competition -- transformed itself into a leaner, meaner competitor.

Under the guidance of Albert J. Dunlap, who was elected chairman and CEO of the company in April 1994, Scott shed non-core businesses, cut its worldwide work force by one-third and reshaped its management team and business strategy. Over a 13-month period, the company slashed debt from $2.7 billion to $300 million and increased value for shareholders by $4.5 million, Higgins said.

According to Stauth, the genesis of Fleming's reengineering program came about shortly after he added the CEO title in 1993. Stauth and the rest of the executive team decided that Fleming needed to change the way it did business to rejuvenate stagnant earnings and address emerging trends.

Those trends included the manufacturing sector's shift to every day low costing; rapid expansion of alternative formats such as supercenters; declining market share for independent retailers; increasing difficulty in making a "fair return on our value-added activities"; a risk/reward system associated with retailer financing that had grown out of proportion; a lack of incentives in Fleming's pricing structure to encourage retailers to work with the company more efficiently; flat food inflation over a five-year period, which dampened sales gains, and under-utilization of Fleming's size and capacity to offer benefits to its retail customers.

"We wanted to increase our financial fitness as we grew the business," Stauth recalled. "At stake [was] the survival of independent retailers and public shareholder interest in Fleming."

Developing a plan to revamp the company was especially challenging, he recalled, due to Fleming's acquisition of Scrivner, Oklahoma City, last year.

"The [Scrivner] fit was perfect, the timing was terrible," he acknowledged. "But we decided we could do both [reengineer and acquire Scrivner] and, one year later, we have substantially completed the integration of Scrivner into Fleming.

"Between the Scrivner acquisition, consolidations and reengineering efforts, we've gone through more change in this past year than we've ever experienced in the company's 80-year history. And we have a lot more ahead."

With transformation come new technologies, Stauth said, and implementing them can be difficult because of huge installation costs and deciding what you'll need to take you forward.

But perhaps the most critical issue facing companies that are reinventing themselves, Stauth observed, is "people's ability to change." Employee concerns about where they will fit into the new company can generate a great deal of anxiety, particularly when they see others restructured out of jobs, he said.

"We had to make a major paradigm shift in how we operated -- and what individuals' roles and responsibilities were," Stauth said. "It was tough to tell 52 division presidents their positions would be eliminated.

"We had to squarely address that ['What about me?'] question if we were to get people committed to creating the new Fleming."

Communicating with employees about what is happening and why is crucial to the reengineering process, as is a positive, confident attitude from management about the changes, according to Stauth.

Fleming has prepared its associates for change through such measures as conducting reengineering classes at each site six weeks before the new system is implemented; being as candid as possible about each step of the process; creating "The Journey," a newsletter regularly sent to all Fleming locations; delivering monthly live satellite broadcasts featuring senior executives with updates on the retooling; and adding a director of change management for focused, dedicated support.

This emphasis on communication was extended to retail customers, vendors and the financial community as well, through targeted programs, Stauth said.

One-third of the way into the transition, Stauth said, the project has already yielded tangible results. "We've lost no major customers," he said. "In fact, we had a new customer come to us specifically because of the reengineering. He saw the flexible marketing plan as an important way for his 15-store chain to compete more successfully in his markets.

"Recently, we conducted a customer survey in the first four locations that were reengineered and asked our customers what they thought. Three-quarters of them gave us a satisfactory or better overall score."