KROGER VP EMPHASIZES IS LINK TO BOTTOM LINE

MARC MILLSTEIN

CHICAGO -- The link between information systems initiatives and the ultimate goal of any business -- generating higher product sales at the front-end -- cannot be overemphasized.

Decisions about which IS initiatives to pursue and what their scope should be must be made within the context of the programs' effect on store operations and bottom-line results, said Michael Heschel, executive vice president and chief information officer at Kroger, Cincinnati.

"In the retail grocery industry, all this [IS] stuff at distribution centers, manufacturing, debit and credit transactions, happens to support the store. That is what makes us money. Nothing happens until that product goes across the scanner," Heschel said during his keynote address at the Retail Systems '95 convention here.

Heschel outlined a number of IS initiatives Kroger has undertaken to boost customer service, hike sales and improve the bottom line.

One example he cited was automated labor scheduling. Although the bottom-line implications of moving to a computerized scheduling program may seem minimal when viewed in the context of each store separately, the financial effect chainwide can be enormous.

"Let us say that automated labor scheduling can save the salaries of two people per store on average. Well, you might say that is not much. But two times 1,250 [stores] is 2,500, times $20,000 [per employee], and you have some real dollars. So there is tremendous leverage in focusing on the store level," Heschel said.

Another IS priority at Kroger has been moving to a satellite-based communications system involving nearly all aspects of the chain's business, from manufacturing through front-end scanning.

"All our facilities are now

hooked into Kroger's dedicated communications network comprised of satellite and land-line communications," Heschel said.

"Satellite is utilized by all our stores, manufacturing plants and select distribution centers. All other communication involves high-speed lines, which are economical and provide terrestrial back-up to the satellite."

The move to a satellite system, which took three years, was not easy. Hooking up old point-of-sale equipment and computers, much of which operated on outdated protocols, was a major task.

"But it has been worth it, because what we have now is a private network that virtually connects everything within our company to a totally dedicated system in a very cost-effective manner," Heschel said.

"Everything is interconnected, which is absolutely key. This is the first thing we did [when I came on board]. We knew that whatever we were going to do with our suppliers, whatever applications we wanted to run, we needed a network to tie everything together."

Kroger's IS efforts today are focused on logistics, such as transportation, merchandising, including category management, administration and electronic data interchange.

Heschel singled out EDI and the goal of moving to a paperless environment, in particular, as a top priority for the chain in the next two years.

"We are very serious about EDI. We have a goal of being paperless by the end of 1997. It will not only save a lot of clerical time, but also provide information [for better managing] inventory. It is a goal that we, in combination with our suppliers, feel we can achieve," he said.

Heschel also stressed that IS lessons learned in one situation can be applied to the food industry.

"You can leverage these types of [IS lessons] from industry to industry. I've found that 80%-plus of everything you learn in systems, whatever the industry, is completely transferable" to other industries, Heschel said.

"How often have you heard, 'We can't do it that way, because retailing is unique.' Retailing is business-process based, just like all other industries. All businesses are just a collection of processes that provide an end product," he said.

"Examples of these processes are ordering, warehousing, transportation and billing. These are the critical factors in developing IS systems that can provide a competitive impact for your business."