FRED MEYER PRESCRIBING NEW SYSTEM FOR PHONES

CHAPIN CLARK

PORTLAND, Ore. -- Looking to cut labor costs and keep pace with volume, Fred Meyer Inc. here is installing an interactive voice response telephone system for prescription refills at a number of its pharmacies.

Dave Schulberg, vice president and director of pharmacy, announced the rollout during a presentation at the Food Marketing Institute's Supermarket Pharmacy Conference in Seattle late last month. The IVR system will be up and running in the next couple of months, he said.

"We're growing fairly rapidly, and if there's one thing that will make a difference in labor in our pharmacies, it's IVR," he said. "If we're going to use technology, it has to free us up. What we're really going to save is pharmacist hours -- we're using pharmacists today to do technicians' work."

Fred Meyer will also be testing an automated prescription-dispensing machine in at least one store.

IVR allows a pharmacy to handle refills without any intervention by the staff. The IVR system interfaces with the pharmacy's computer software, sending phoned-in information directly to the pharmacy's refill queue. "It will be totally seamless," Schulberg said.

Participating in the presentation "Pharmacy Technology: Assessing the Options," Schulberg gave a model showing costs associated with installing IVR in 50 pharmacies, as well as return-on-investment rates and man-hour savings. The model was not identical to the one he used in pitching IVR to Fred Meyer's senior management, but it was approximate, he said.

According to the model, the cost of purchasing and installing the system in 50 stores was $185,000, which Schulberg described as "inexpensive." That investment, the model indicated, would be recouped in less than six months. The system was projected to save 20 hours of technician time a week per store, for a total of 52,000 hours for all 50 stores over the course of a year.

With pharmacy technicians now making $16 an hour, according to the model, the IVR installation would result in total first-year savings of $832,000 in technician labor. Factoring in an annual pay-inflation rate of 3%, over five years IVR would save $4.4 million.

In his comments, however, Schulberg was even more optimistic. "I've committed to a 2% improvement in labor over what we budgeted for," he said in response to a question from the audience.

Accounting for depreciation, taxes and cash flow, the total return-on-investment in the first year of operation would be 277.8%, according to the model.

To handle refills, Fred Meyer pharmacies have used a more primitive voice-mail system for about two years, Schulberg said. He said customers have not been alienated by the impersonal nature of the system and have enjoyed the convenience it offers.

"We have not experienced any kind of negative reaction from our customers."

According to Schulberg's model for the automated dispensing system, purchase and installation of the machine at one store would run $110,000, with the retailer recovering that cost in a little more than two years.

The model projected savings of 40 technician hours and 20 pharmacist hours a week, or 2,080 hours and 1,040 hours a year, respectively. At $16 an hour for technicians and $35 an hour for pharmacists, total first-year savings in labor would come to $68,680. Over five years, including annual pay inflation of 3%, the total would be in excess of $360,000.

Return-on-investment for the first year of operation would be 46%, according to the model.