SURVEY FINDS INFRASTRUCTURE NEEDS UPGRADING

JOHN KAROLEFSKI

WASHINGTON -- A new study for the Grocery Manufacturers of America finds that the industry's information technology is rapidly becoming obsolete.

In addition, the study found that use of electronic data interchange is very limited, and the integration of technology among trading partners has been slow.

"The survey shows clearly that grocery manufacturers must move quickly to get their information technology house in order so they can deal effectively with such issues as changing consumer needs, increasing customer demands, global competition and industry overcapacity," said Rick Glover, vice president of information systems at DowBrands and chairman of GMA Information Systems Committee. The study surveyed the chief information officers of 42 GMA-member companies that represent $200 billion -- or more than half of domestic grocery manufacturing revenues. A.T. Kearney, a Chicago-based consulting firm, conducted the study for GMA. "Much of the current information technology infrastructure is focused on internal reporting and accounting activities that add no direct value to customers or consumers," said Richard Miskewicz, the A.T. Kearney principal who conducted the study. "Much of this infrastructure is now 10 to 20 years old and has been modified and patched numerous times. It is technologically obsolete and will be expensive to replace," he said. Miskewicz presented the results of the study last month in Scottsdale, Ariz., at the GMA information systems and logistics- distribution conference. Here are the key results, along with comments that Miskewicz made during his presentation:

· Many technical applications are now obsolete, or soon will be. "For many companies, it has been difficult to build the business case for replacing older applications, and management has not yet accepted value-added applications as competitive necessities rather than just another capital investment," said Miskewicz. "As a result, significant cost and resources are being spent maintaining existing applications that in many cases have outlived their usefulness."

He said the situation is serious because 16% of companies with obsolete applications, and 35% with aging applications have no plans to upgrade systems.

· Electronic data interchange is still quite limited in use. "Recognizing the importance this and other technologies play in successfully integrating the supply chain, it is surprising that the overall use of EDI continues at a low level," said Miskewicz.

Although almost 70% of companies use EDI to some degree with customers, only 26% of available transaction sets are widely in use, he said. "The reality is sobering. The results suggest some of the largest, most successful and most respected companies in the industry are not realizing potential benefits," he said. · The proliferation of information technology users has made control and setting priorities difficult. "What is lacking in many organizations is a consistent architecture and enterprise guidelines for the effective use of technology," said Miskewicz. The survey indicated that about half of the information systems resources that are dispersed throughout a company do not report to the information systems organization, according to Miskewicz. In most cases, their costs are hidden in the departments that they serve, he added.

· The integration of technology and processes among trading partners has been slow. "The lack of EDI interface among trading partners is one manifestation of the problem. The general lack of synchronized data bases -- item, product movement, adjustments, deals-promotions -- among all trading partners is another. Increasing distributor sophistication and a multitude of customer requests are severely challenging the abilities of information systems organizations, and responding to these requests has put a significant strain on IT resources," he said.

· The role of information technology in business process re-engineering is unclear. "The challenge for chief information officers is to eliminate the 'back office' perception of information technology in many organizations," he said. "And one way they believe this can be accomplished is to play a leadership role in business re-engineering efforts." According to Miskewicz, in many companies the IT organization is still most comfortable focusing on improving efficiency and struggling to improve effectiveness. "Re-engineering is not simply putting in new systems," he said. "It is about improving effectiveness. Successful re-engineering efforts are driven by senior management, enabled with information technology and implemented by all. IT has an important role to play -- an enabling role, a partner role."

Miskewicz said the purpose of the research was to gain an understanding of what approaches companies are taking to manage their supply chains more effectively. The percentage of companies that have truly begun integrating their supply chain is relatively low, he added.

He recommended five criteria for successful integration: an efficient functional foundation, effective internal cross-functional processes, streamlined front-end interfaces with other supply chain participants, seamless flows of information and products with key participants and aligned supply chain key business processes with strategic partners. "The common enabler which weaves each of these together is information technology," he said.