KMART EMPLOYS TECHNOLOGY TO PLEASE SHOPPERS

DENISE POWER

TROY, Mich. -- Having completed the conversion to the Big K format, a $1.1 billion facelift that ushered in expanded grocery departments, Kmart here is now turning to technology to enhance the shopper experience.

The company will spend $328 million this year - more than double last year's technology investment -- on an ambitious series of enhancements designed to improve in-store operations and in-stock levels.

"When we looked at our in-store shopping experience, we knew the thing to do was to minimize the time standing in line and to get customers out of the store, happy," said Joe Osbourn, Kmart's chief information officer.

Although the blueprint was laid out prior to the May 30 arrival of Kmart's new chairman and CEO, Charles Conaway, who succeeded Floyd Hall, the new executive's vision for technology investments were in sync with the technology initiatives.

"When he talked about his priorities, he came back to the same two things: customer experience was the number one thing he was looking for and in-stocks was next," Osbourn said of Conaway.

To that end, Kmart is installing new scanning technology chainwide. Several hundred stores are already equipped and all 2,170 stores will be outfitted by the end of October, Osbourn said.

Because the new ultra-sensitive scanners are capable of reading a product's bar code at nearly any angle and cashiers are not required to pass it through the "sweet spot" -- a very limited spatial zone -- fewer rescans will be needed, speeding the checkout process.

That's just the start. While Kmart is upgrading point-of-sale operations for greater transaction processing speed, including additional enhancements at its 300 highest-volume stores, it is simultaneously investing in supply chain management technologies.

To Osbourn, the front-end overhaul for store systems and back-end upgrades at headquarters and distribution centers dovetail nicely to achieve the same goal: to improve the customer experience.

"The $328 million in capital expenditures covers a lot of projects in the systems area for 2000, but clearly, in-store technology is the biggest piece by far. We're doing a couple of really big things," he said.

In response to the "why now" question -- this year's technology budget exceeds 1999's investment by nearly $200 million -- Osbourn said it was the time was ripe. "The next logical step was to continue that customer focus, to use and leverage technology to improve the customer experience."

New scanning systems from NCR, Dayton, Ohio, combined with new point-of-sale hardware from IBM, Armonk, N.Y., are expected to speed checkout time by 20% "and that's conservative," Osbourn said.

The new point-of-sale hardware, featuring color, touch-screen monitors that both the cashier and shopper can view, will be installed first in Kmart's 300 highest-volume stores. The hardware rollout will continue next year, he added, with all stores eventually receiving new POS hardware by 2002.

"New POS registers are going into our 300 highest-volume stores first to impact the most people first, the fastest. Then we'll accelerate the rollout in 2001 to cover more stores, and eventually all of them," Osbourn said.

All Kmart's POS systems are running on software from IBM, installed last year as part of year 2000 remediation efforts.

Supply chain upgrades, designed to improve in-stock levels so shoppers leave the store "happy," as Osbourn put it, involve the Kmart Merchant Workbench application. The Web-based, decision support tool, based on analytical software from Microstrategy, Vienna, Va., and customized for the retailer's specific needs, is now being rolled out to the chain's largest vendors.

The tool is designed to provide the retailer and its vendors with timely information about sales performance and other metrics so the two business partners can manage inventory in a collaborative manner and execute inventory planning with greater finesse.

"The idea is you can look at the same data with a different set of eyes. With the retailer and vendor working together, we can optimize inventory levels and increase sales," Osbourn said.

The chain is also moving forward on the collaborative planning, forecasting and replenishment (CPFR) front, and the Workbench tool will play an integral role in that endeavor, he said. Today the chain is already working on training programs with 250 key vendors so they can be using the decision support tool in July.

Already, Kmart has piloted CPFR with 20 vendors and hopes to expand that roster to include an additional 125 vendors this year.

Osbourn said the retailer initially had planned on moving forward on CPFR more aggressively, until it became a founding member of the Worldwide Retail Exchange. The consortium of retailers is working to develop a retail network to optimize on-line business-to-business trading and Kmart wants to ensure its CPFR efforts are in concert with that larger industry initiative.

"We want to be sure what we do was consistent with what [the Worldwide Retail Exchange] was doing," he said.

Another key supply chain initiative under way is installation of a new warehouse management system, from EXE Technologies, Dallas, but like the Workbench tool, it's also been customized to meet Kmart's needs.

Osbourn said Kmart will also deploy new dual-sorter materials handling equipment to its distribution centers, highly automated technologies that will speed up that process.

"The way I look at it, is that these are all very exciting things to be doing. We are able to leap forward. It's not often you get to take a huge leap like this, not only to enhance the in-store experience but to do so indirectly, because we'll have a better percentage of items in-stock."