Ahold USA: House Building With a Strong Foundation

MICHAEL GARRY

After years of dealing with accounting irregularities, divesting some divisions and restructuring its remaining operating companies, Ahold USA has begun putting its information technology house in order.

Following sound architectural principles, Ahold USA, Quincy, Mass. — the U.S. operating unit of Amsterdam-based Royal Ahold — is starting with a strong new foundation. In building this foundation, it is making major investments in a cross-section of tools, notably a retail management system from Oracle, a product information management (PIM) system from GXS and an integration tool from Tibco that will tie everything together.

The foundation will support a three-year technology overhaul that Ahold USA is calling its “NextGen Business Systems Program.” This project is aimed at nothing less than reinventing the way its two operating companies — Stop& Shop/Giant Food-Landover, Md., and Giant Food Stores-Carlisle, Pa. — use technology to support their business objectives across more than 700 stores. It will support the company's Value Improvement Program, which includes systematically cutting prices at the Stop & Shop/Giant division.

“We're taking a logical, architected approach, vs. running out and pulling in more technology into an already complicated legacy environment,” said Sheel Kishore, vice president, IT strategy, Ahold USA. The upshot is that “we're re-engineering our business processes,” noted Dave McNally, Ahold's global chief information officer and CIO of Ahold USA.

Both Kishore and McNally emphasize that technology is only an “enabler” in what is really a “business transformation” initiative. “This strategy will not work without business ownership, discipline and business-IT alignment,” Kishore said.

Ahold USA's sweeping IT initiative has earned it SN's 2008 Technology Excellence Award in the chain retailer category.

ERP APPROACH

Perhaps the biggest piece of Ahold USA's new IT infrastructure is the Oracle Retail Management System (ORMS) implementation that it announced last October. It encompasses a broad suite of applications, including allocation, category management, demand forecasting, item planning, invoice matching, merchandising, merchandise financial planning, price management, sales auditing, trade management and store inventory management.

The Oracle applications will run on computers at Ahold USA's data center in Greenville, S.C., but will be implemented at its Stop & Shop/Giant Food and Giant Food Stores subsidiaries. McNally said last fall that the technology is expected to help bring better stock conditions to stores, fresher produce, better sales forecasts and better assortments based on a more thorough knowledge of consumers.

This comprehensive, single-vendor approach to business software is generally known as an enterprise resource planning (ERP) strategy. In grocery retailing, most companies have favored the contrasting best-of-breed approach to IT, stitching together applications from a variety of vendors. But the challenge of integrating and maintaining best-of-breed applications is leading some retailers to pursue ERP systems from providers like Oracle and SAP. (See “Ahold, Brookshire Take ERP Approach to IT, SN, Oct. 8, 2007.)

At the Grocery Manufacturers Association's Information Systems/Logistics Distribution (IS/LD) Conference last month in Palm Springs, Calif., Kishore outlined many of the problems Ahold USA faced with a legacy IT infrastructure made up of diverse business systems. He said business functions and processes were “fragmented and inefficient.” Moreover, the “poor integration, data inconsistency and technology obsolescence” that marked the company's current IT architecture “impede business agility.” Finally, he described sharing data within the organization as “difficult” and doing so with external partners “even more problematic.”

Ahold executives expect the Oracle applications to bring order and integration to this unwieldy scenario. A more integrated IT infrastructure will ultimately help “deliver a consistent experience to our customers,” said McNally. Delivering a “consistent, holistic experience” to customers is the “philosophical underpinning of what we're doing,” he said.

The two initial Oracle applications that Ahold USA will implement this year, beginning next month, are the demand forecasting and merchandise financial planning pieces. In concert with those applications, the retailer is adopting the PIM system this year “so we have a clean set of product data,” said Kishore. The two Oracle applications and the PIM represent the “foundation pieces we put in before layering on other [Oracle] capabilities” over the following two years.

While the demand forecasting system is designed to help Ahold USA improve its buying and promotion planning, the merchandise financial planning tool aims to link weekly store and department forecasts and results to the overall business plan. “You start the year with a business goal to increase certain departments by a certain share,” said Kishore. The merchandise financial planning tool “translates that all the way to the store department level by week, and you can rapidly adjust it.”

McNally said he expects the two initial Oracle systems to “bring an immediate return.”

In its effort to improve the customer experience, Ahold USA has introduced innovative technology at the store level. Most notably, its Stop & Shop division rolled out EasyShop devices, supplied by Motorola and Modiv Media, to 90 stores last year. The device allows shoppers to scan and bag as they shop, eliminating those tasks from the checkout process, which only requires payment. The devices also display a dozen offers targeted to the individual shopper. “It lets the customer tailor their shopping experience to what they're comfortable with,” said McNally. (See “Growing Pains,” SN, March 10, 2008.)

Ahold USA has also deployed scan-only shopping devices at its Giant-Carlisle stores. The Ahold company first offered shoppers portable scanning devices at its Albert Heijn stores in The Netherlands. “We can adopt innovation [in the U.S.] by leveraging the larger Ahold relationship,” said McNally.

Another notable piece of in-store technology deployed in about 200 Stop & Shop stores is the DeliVision system from Modiv Media. The system combines queue optimization and kiosk deli ordering.

Ahold USA has also been helping the food retailing industry prepare for changes in coupon bar codes through its participation on the Joint Industry Coupon Committee. The company's own chains began assessing their scanning hardware this year to see if it is compatible with the GS1 DataBar, which will be used exclusively on coupons in 2010.

MASTER DATA

Ahold USA's PIM implementation will support is adoption of data synchronization with around 70 suppliers, using SA2 Worldsync (formerly Agentrics) as a data pool. As with shopper handheld devices, Ahold USA is leveraging what has been done with data synchronization by Ahold's European divisions.

Rather than try to sync data with a larger number of suppliers, Ahold USA has been focusing on the “quality” of the relationship with its existing suppliers, said McNally.

The combination of the PIM and data sync implementations will constitute what Ahold USA calls its Master Data Management system, or a “single version of the truth,” for such key data entities as products, suppliers, locations and customers; this is in contrast to the disparate sources of data under which the company has heretofore operated.

Another key part of Ahold USA's IT overhaul is its use, begun last year, of an enterprise service bus (ESB) from Tibco, Palo Alto, Calif., to link applications. “Our strategy is to use [the] Tibco bus [to connect] anything across the enterprise,” said Kishore. The ESB also delivers data elements to participating applications.

The Tibco technology will be used to support what's known as a service-oriented architecture (SOA), a concept that is beginning to find adherents in the retailing industry. Under SOA, applications take on a much more flexible quality, becoming “Web services” that can be arranged to support business processes. This is the direction Ahold USA is heading in two to three years, said Kishore.

“We're moving from taking software, and just dropping it into the environment, to a more thoughtful, architected view,” he said. “Everything will fit into a blueprint that will allow our applications to be a lot more flexible. We'll be able to expose services to the Tibco bus and rapidly compose applications almost on the fly.”

Other third-party applications employed by Ahold USA include price optimization from DemandTec, which has been used by the Giant-Carlisle chain for two years. A space planning system from JDA Software “will be integrated into Oracle retail using the Tibco system,” said McNally. Ahold USA is also building a data warehouse and business intelligence architecture that consists of technology from Oracle as well as from other sources.

McNally declined to enumerate the substantial investment Ahold USA has made in the Oracle, Tibco and GXS systems. ERP systems alone are known to be seven-figure investments. “We concluded it was an attractive business case based on an analysis of where we thought it would change the business,” he said.