RE-ENGINEERING AT WORK: TWO EXAMPLES

CATHY COHN

PALM SPRINGS, Calif. -- Business process re-engineering is a lot more than a buzzword. And if the experiences of two major operators, Fred Meyer Inc. and Spartan Stores, are any indication, more companies should take a closer look at how they are structured and operated.

Spartan Stores, for its part, "began a re-engineering program 18 months ago, and it will continue to be the major focus for us for the next two to three years," said David Couch, director of management information systems at the Grand Rapids, Mich., wholesaler.

Couch and other executives presented their companies' re-engineering strategies and successes at the IBM Retail Executive Conference here.

Spartan implemented the program in response to flat profits, challenges to expand, and major changes in retailer-wholesaler-vendor relationships, Couch said.

A number of the steps the wholesaler took involved considerable expense initially, especially in terms of giving up "inefficient" business practices.

For instance, the wholesaler eliminated forward buying and product diverting as a standard practice, said Steve Biondo, Spartan's director of organizational development. "The whole process has been expensive," Biondo said. "But the alternatives [to making that investment] were not good at all."

According to Biondo, the wholesaler was only able to make some of the changes it did with the cooperation of its major trading partners. In one instance he cited, cooperative efforts with Procter & Gamble resulted in inventory turns jumping from 11 to 14, and distribution costs dropping substantially, Biondo said.

Spartan is also undergoing a complete overhaul in the area of computer systems and technology, he said.

Beginning with an aging billing system, the wholesaler plans to completely upgrade its computer systems to allow integration throughout the company. The company plans to eliminate its mainframe and operate a new network with greater communications capabilities, Biondo said.

Basic changes in Spartan's structure also have been an important factor in the re-engineering, Biondo said. The previous organizational structure was dismantled, and a new model, involving self-directed work teams, was put into place. Fred Meyer Inc., Portland, Ore., also has been involved in an extensive re-engineering program, said Ron McEvoy, chief information officer. The effort began in 1991, and has had major effects on the company's success.

According to McEvoy, the re-engineering program is one key reason Fred Meyer has seen a 25% increase in sales over the last four years and has witnessed its earnings increase from $33 million to $68 million and its stock price triple.

Mary Sammons, senior vice president of the general merchandise division, said the re-engineering program was launched in the apparel area in late 1992. At that time, the chain implemented a computer-assisted replenishment system to streamline its inventory distribution system.

"The system has been extraordinarily successful," Sammons said.

Fred Meyer currently has 10,000 items in the system, and has seen up to 75% sales increases on some of the items. "These are great financial results," McEvoy added.

Fred Meyer also is planning to open a new soft goods distribution center in about 12 months, partly as a result of the company's re-engineering and distribution changes.

Denny Thiel, vice president of information services, said the entire Fred Meyer operation was broken down, with existing positions and equipment "effectively" eliminated. The structure was then rebuilt under new guidelines. Considerable investment in computer and advanced technology systems was made at that time also.

The group declined to pinpoint just how much capital has been invested in the program. "We're spending as much as we need to and as little as we can get away with," McEvoy said.

He did say that MIS expenses as a percentage of sales has increased by 0.75% since 1991, bringing the total to almost double what was spent previously.