Associated Grocers of Florida: Brave New World

MICHAEL GARRY

Some companies have a history of technology excellence. For others, a commitment to using state-of-the-art technology comes later, when legacy systems can no longer be tolerated. But then the commitment becomes intense.

Associated Grocers of Florida, Pompano Beach, falls into the latter group. Until three years ago, the cooperative wholesaler, which generates about $600 million in revenue serving more than 2,000 independent stores in Florida and 45 countries, was content to use the same Data General hardware and Unix-based, homegrown applications it had in place for 25 years.

“Finally, there was the recognition that we'd better do something, because the hardware was going to break and the software was outdated,” said Chuck Palazzo, vice president of information technology for AG of Florida, which runs a warehouse at its headquarters as well as in Ocala, Fla., and is building an international import/export business in Freeport, Bahamas.

So the co-op's board of directors, consisting of retail members of the cooperative, approved a major investment in new technology that through its first phase has cost $15 million to $20 million. Palazzo, who oversees a 28-person IT staff, was hired in 2004 to “get us out of the legacy world.”

The initial phase has focused on replacing legacy systems with new “foundational” applications, including a warehouse management system (WMS), an enterprise resource planning (ERP) system, a demand forecasting system and a retail pricing system.

The new applications are built on Microsoft platforms such as Windows, the SQL database and the .NET framework

Two years in the making and about 60% implemented, the initial phase should be completed by early next year, said Palazzo. His vision for the next phase includes leveraging retail POS and distribution data in support of collaboration with stores, as well as using advanced logistics and transportation management. “But we need to first get the foundation done before we can get excited about the real ROI and the real sexy stuff,” he said.

Even so, AG of Florida is already seeing marked improvements from the application of the new technology, including better service levels to stores and a reduction of out-of-stocks at the warehouse and store levels. And the company has set in motion the massive cultural change required to wean employees from the old to the new way of operating.

For its willingness to change direction and replace entrenched legacy systems with major new systems, AG of Florida has been chosen to receive SN's 2007 Technology Excellence Award in the Wholesaler category.

Giant Leap

AG of Florida has made substantial progress implementing its ERP system, Microsoft Dynamics GP (formerly Microsoft Great Plains). So far, the financial reporting application has been running for 18 months, and the general ledger and accounts payable modules have been in place for a year, with accounts receivable next in line. Later this year, the final pieces — sales order processing and purchase order processing — will be deployed.

The ERP system represents a giant leap from the co-op's legacy financial system, which relied on Lotus spreadsheets to produce monthly financial statements.

The new WMS — the Priya system from Motek, Beverly Hills, Calif. — is being installed at the 800,000-square-foot Pompano Beach warehouse, where, said Palazzo, AG of Florida is consolidating all of its warehousing activity. The Ocala warehouse, which has served stores in central and northern Florida, will be used as a public warehouse.

So far, the WMS rollout covers all of the wholesaler's inbound dry grocery deliveries and half of its outbound grocery deliveries to stores. Perishable goods will follow.

One of the key differences in the new WMS is its use of voice-directed picking, from Vocollect, Pittsburgh, for outbound shipments, and wireless Symbol handheld scanners for inbound deliveries into the warehouse. The voice system, which tells selectors which products to pick, replaced a manual system whereby selectors were guided by case labels. “We went from a totally manual process to a state-of-the-art automated method,” Palazzo said.

The upshot is that “inventory accuracy has gotten incredibly better,” he said. “It's translated into more accurate and more on-time deliveries. And we've eliminated shortages and reduced credits.”

Hurricane Planning

Another major piece of the wholesaler's new IT foundation is the Voyager forecasting engine, from Atlanta-based Logility, which went live a year ago. The system analyzes two years of sales history for each of 30,000 items, as well as current inventory and orders, and advises AG of Florida's 10 buyers on how much they should order to meet demand at retailers' stores. This replaced a “seat-of-the-pants” approach that reacted to empty warehouse slots or pressure from manufacturers.

Mitch Herman, the cooperative's Logility forecaster, devised a way to use the system to specifically forecast what stores will need in anticipation and in the aftermath of hurricanes, which have buffeted Florida many times in recent years. (See “Hurricane Planner,” SN, Oct. 9, 2006.)

AG of Florida's effective use of the Logility system was recognized last month by the vendor, which selected the wholesaler as one of four winners of the 2007 Logility Leadership Award. Logility noted that AG of Florida experienced “a 47% decrease in obsolete inventory over the past six months, lower inventory carrying costs, reduction in overhead and the ability to maximize labor and physical resources.” Palazzo also credits the Logility system with reducing out-of-stocks at the warehouse and at stores.

AG of Florida is still installing the last foundational piece, a retail pricing system from BRdata, Melville, N.Y., that handles pricing, prints shelf tags and posts prices at stores. “It's much more automated than what we have today,” said Palazzo.

By far the biggest challenge for Palazzo is managing change for the hundreds of employees, some of whom have been with the company for decades, who were impacted by the new technology. “It was tough to sell,” he acknowledged. “There's been a lot of handholding, psychology, politics, you name it.” But the process goes forward. “I present a status report to the board every month,” he said.