Major Benefits Derived From Use Of I.T. - But Ceo Stresses Need To Be Cautious Of High Tech Hype

Great marketing plans, competitive prices and top class promotions are, on their own, not enough to increase market share. Electronic data systems and the ability to turn transactions around quickly are the key.

That, at least, is the forceful view Mr Chris Phillips, Managing Director of leading office products manufacturer and distributor, Esselte Australia. An organization which is a member of the global Esselte AB Group, headquartered in the UK, and whose substantial local operations are served by its national distribution centre, in the outer Sydney suburb of Wetherill Park.

However, while Mr Phillips readily concedes that both he and his company could well be said to have "a real thirst for practical technology", he is also quick to offer strong words of warning to any organization currently thinking about adopting major new IT solutions.  

Here, he particularly stresses the need for CEOs to remain fully involved in the acquisition and implementation of any new systems that are going to be 'mission critical' to their company's day-today operations. And, in such a context, he cautions that: " It is very easy for a company to buy the hype and theory of information technology. But it is much, much harder to buy real practicality".

Such positive yet pragmatic support for IT is, in fact, common throughout the Esselte Group. In early 1999, for example, a decision by the company's shareholders, paved the way for a major restructuring program that now sees its total dedication to the office products market.

Information technology was viewed as an integral part of this restructuring, with Chairman & CEO, Mr Jan Kvarnstrom, noting at the time that a key corporate strategy was "to increase efficiency throughout the global supply chain and achieve a competitive cost base and excellent support systems with well thought out solutions based on information technology".

It is to meet such imperatives, that the company's focus on systems can best be viewed and which, as Chris Phillips puts it, "is all about customer care and delivery efficiency and which, at day's end, is all about turning transactions around quickly and accurately."

Translating such objectives into day-to-day practice is a responsibility that largely fails to key individuals such as Esselte's Distribution Manager Roger Jones.

For him, one of the major challenges of recent times flowed from the marked changes that were emerging in customer order patterns.

"As for many other distributors, the mid 90s saw a trend in our business towards much greater order frequency, but with substantially decreasing volumes for each order.

"Also like many others, we saw our market becoming more and more concentrated into a small number of major retail groups. These highly influential customers were increasingly demanding that we managed their orders in very specific ways. A modus operandi which was very different to our traditional methods of operation. And which, for example, called for a total rethink in the ways that we were performing in such basic areas as picking and despatch.

"Effectively responding to those requirements had the potential to be a very complex thing to achieve. And, of course, if the very specific requirements of

these large customers are not met, one can be financially penalized, at best, and lose substantial business at worst.

"For instance, one major customer had requested weekly replenishment for all of their stores. That, in turn, meant that we needed to pick fully for each store every seven days and then be able to deliver to each retail outlet within a rigidly specified time window. That, quite obviously, presented a huge weekly spike in workload. "At the same time, we remained fully committed to the requirements of our small customers. These organizations – often working with very low stocks and very tight margins – may well need to place an order on us at, say, 5pm today, for collection first thing tomorrow. "Such orders could have a highly disruptive effect on any warehouse not adequately streamlined and organized. In the extreme, you could have the whole DC looking for a single box of product while your customer was waiting out the front to collect their urgent order.

"For either of these extremes, there can be an enormous overhead to do the job that is required. And that overhead is all the greater when both extremes have to be accommodated at one and the same time.

It was against such a background, that Esselte quickly sought to identify operational and IT solutions that would help to effectively mange these changes

in customer order patterns. An evaluation that led to the implementation of the PULSE Warehouse Management System (WMS) at the company's Wetherill Park national distribution centre.

As Roger Jones notes, "quite simply, no one could manage a warehouse in the way that we now need to without having a WMS working for them".

Within Esselte's 200,000 square foot DC, the PULSE WMS now manages some 7,000 active product lines and a further 20,000 slow moving item. For these, customer requirements mean that Esselte will pick and deliver product in pallets, retail packs, cases, inners and also eaches. In the extreme, a single order may require a pick of just six erasers, or a box of coloured paper or a single board for an art supply company, for example.

Such a large and diverse SKU range means that specialisation of materials handling equipment is very difficult. And as such, a variety of equipment is used; some 17 units in all and which comprise, gas forklifts for despatch, high level order pickers, high level reach trucks and BT low level order pickers.

Such diversity, when married to the increased number of small orders, was also the single most significant motivation behind the company's WMS decision. Indeed as Roger Jones succinctly puts it: "The main reason for going WMS was picking. It's as basic as that.

"With a multitude of small orders there would obviously have been a very large number of trips out to the warehouse if we were going to go on doing everything in single picks. The clear solution was to implement a system that would facilitate multi order picks which is, of course, a fairly fundamental function of WMS. The alternative would have been to flood the warehouse floor with masses of people. But aside from its sheer cost, such an option would have been operationally chaotic.

While WMS was the obvious solution for Esselte's requirements, Roger Jones stresses that the company also recognized that introducing such a system would demand something of a cultural change within its operations. As such, Esselte made the decision to opt for a gradual implementation of PULSE. Picking was assigned the obvious priority. But here the choice was initially to only implement a paper based version of the WMS. With that successfully in place, and with staff fully conversant and comfortable with the new technology, the full radio frequency (RF) based operations of the system were then phased in over a period of about six to eight months.   As a result, today's current workloads of some 2,200-3,300 picks daily, are now all totally RF driven. While making the general observation that Esselte could not run its DC, in the way that it needs to, without a WMS, Roger Jones also notes some more specific outcomes that have resulted from the deployment of PULSE.

"As our most basic objective, our aim is always to get 100 percent of orders turned around and out of the warehouse within 24 hours of placement. Our system helps to ensure that this is achieved, while also delivering productivity gains in the order of 35 percent.

"With the WMS also effectively managing pickface replenishment, we are now picking less than four percent of orders from reserve stock. Which is substantially down from our traditional levels of 10 percent plus.

"Late last year we also received approval from our auditors to implement

six- monthly cycle counting of stock. Traditional stocktakes had been costing us as much as $70,000 to $100,000. And the fact that we needed to close down our operations for up to three days, while the stocktake was being carried out, had caused major disruptions in order processing, with the inevitable loss of some business. With cycle counting, that is now all changed. We are saving hard dollars and have no disruptions to optimum customer service levels."

While its WMS has now been operational for some time, Esselte's ongoing focus on advanced IT solutions currently sees it reviewing the application of e-business to its operations.

Here, Chris Phillips is personally working on an industry steering committee that is specifying the detailed requirements for a common office products sector e-business platform.

As always, his pragmatic view of IT is again more than evident. Thus he is quick to dismiss 'technical' hype, as he puts it, and to stress what e-business can be expected to do as well as what it cannot. "What we are really looking at from

e- business is improved accuracy. In the short term, there is unlikely to be any real dollar benefit. The savings are simply not there.

"The real challenge is to get all customers trading with us in this way. That will give knock-on effects that may well go on to then deliver a dollar benefit." And just as he would caution for any other IT system, Chris Phillips warns fellow CEOs that they need to realise "the overriding challenge is ensuring that what you want has been precisely understood by the system's supplier. Their interpretation of what is wanted is the real issue. And here, nothing can get monosyllabic enough when it comes down to defining requirements and expectations in IT. Never believe you understand all the issues. You can never check and re-check too much".

He also advised that "during implementation, it is imperative for the CEO to remain involved; to be far more 'hands on' than they might otherwise imagine. The CEO must have their own personal feeling of how things are going and not just be told by others. Implementing a large and extensive system can be a big job. And what the MD needs to know is are we still a little way off or are we a long way off. It takes some very special experience to let you know this."