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Collaboration is the watchword for grocers when it comes to investing in technology. Not collaboration as in CPFR, though that may well be a solution chosen for investment, but collaboration among various divisions within the retail company itself.
As the following four case studies demonstrate, making the decision to buy new hardware or software is not solely the province of the information technology division. Indeed, in many cases the decision has moved outside the realm of IT and into the business units that will be affected by the technology, with IT involved only in determining whether it can support the investment. At each of the companies profiled, the bottom line for technology investments is, well, the bottom line. If it doesn't contribute, then it's out.
At Eden Prairie, Minn.-based Supervalu, for example, it is the business unit managers who get the technology innovation ball rolling, before bringing in IT to back them up in terms of its ability to provide support. Even then, most IT investments require a successful pilot before they are allowed to move forward company-wide. And the capital comes from
the business units involved, not from IT.
At Panamanian supermarket chain Supermercados Rey, although technology recommendations come from the IT side, a presentation must be made to a committee consisting of executives representing each of the company's business units. But it doesn't stop there. If the executive committee approves, the investment still must win the nod of the board of directors to get final sign-off.
At Vadnais Heights, Minn.-based Knowlan's Super Markets, Inc., the c.f.o. and the director of retail technology work side by side throughout the entire process of scouting, evaluating, and implementing new technology.
At Price Chopper, in Schenectady, N.Y., a recent investment in POS printers with digital check-imaging technology was, interestingly, championed solely by the company's former v.p. of finance.
Although each of these companies has different means of justifying technology investments, all share something in common: The technology was scrutinized from every angle possible-how it fit the overall company strategy, tangible and intangible benefits, integration with existing systems, and future implications/additions to the technology.
There's also a look at a new software suite from solution provider Alinean, which developed the package to help companies determine the return on investment from technology and technology-related projects, taking all of the above factors into consideration.
Alinean's c.e.o./president and co-founder, Thomas Pisello, in his e-book Return on Investment for Information Technology Providers, sums up the ROI issue this way:
"A company that spends wisely-even if sparsely-on IT will see its performance enhanced. A company that spends indiscriminately on IT will see its performance diminished, because IT will merely amplify its poor business practices."
Running the gauntlet
It takes a lot to get the IT investment nod from Supermercados Rey, but once a company does, the growing Panamanian chain is a partner for the long haul.
Supermercados Rey c.e.o. Nicholas Psychoyos is a big believer in technology investment. But don't think that makes it easier for v.p. of information technology Alvaro Gonzalez to grab any technology solution that catches his attention.
When he's looking to implement a technology solution for the Panamanian grocery chain, Gonzalez must get approval from an executive committee, which includes Psychoyos, the c.f.o., and executives from human resources, operations, and the commercial division. Once he gets approval from the executive committee, there is still one more nod that Gonzalez needs-from the board of directors.
The benefit of having to run a gauntlet like this is that, once Gonzalez and the vendor successfully make it through, they know that the entire company is behind them. "When a company makes this type of purchase decision, it's not just buying a product," says Psychoyos. "It is committing to an ongoing personal relationship with the company's representatives."
Such was the case with Rey's recent decision to invest in TCI Solutions' RetailSuite software as its foundation enterprise application.
Gonzalez was looking to replace his legacy system and had three key objectives: to improve price management, standardize purchasing and receiving processes, and improve customer service at the point of sale and throughout the store. All of this was to be integrated into the financials. "We were looking to consolidate the information within our various systems into one large system that could improve executive decisions," says Gonzalez. "We also wanted to improve the operational efficiencies of the stores."
To prepare for his search for a technology vendor, Gonzalez drafted an internal document that identified the key areas he sought to improve, specifying the improvements he expects the new system to deliver, how it must interface with other systems in the company, and who the target users are. He then developed a list of criteria with which to evaluate vendors. "Out of that document, I pick out what are the most difficult requirements and try to eliminate the obvious alternatives," he says. "I narrow it down to two, maybe three, vendors and study those real hard against my set of requirements."
Finding the right tool for the job wasn't easy, Gonzalez says, because of the unique requirements of Central American businesses and the lack of retail technology vendors in the region. "Business in Latin America is a little different than business in the United States," he says. "Since Panama does not have a large industry, most of our goods are imported. We end up dealing with a tremendous amount of vendors, and managing the vendor relationships can be tough.
"Plus, in Panama-and in the region in general-vendors make deliveries with invoices. If there are any discrepancies on delivery, you still have an invoice in between that is an obligation to pay. You are not paying based on what you are receiving, but what you are invoiced for. This makes a big difference in how we handle our receiving, and it is not easy to find a system that can accommodate for these differences in Latin America."
And if that wasn't enough, Supermercados Rey opened 12 new smaller-format stores under the name Mr. Precio in January, and has plans to expand to 60 Mr. Precio stores within the next three years. The Mr. Precio units occupy only 500 square meters and carry 2,000 SKUs, compared to the 2,000 square meters and 35,000 SKUs of a typical Supermercados Rey store. The two formats have different pricing policies and business rules, but they have to operate in one technological environment. "There are different business decisions involved in each one," says Gonzalez. "TCI's RetailSuite allows us to have everything operational in one environment, while leaving the executives of each chain the ability to manage based on their own priorities."
TCI matched about 90 percent of Gonzalez's requirements, and he worked closely with the company to put together information to present to the executive committee. A case was made for how the TCI RetailSuite would benefit each division represented on the committee-how it aligns with the c.e.o.'s strategy, saves on maintenance costs, and reduces labor.
However, Gonzalez points out, when he refers to labor savings, it is not about reducing headcount. "Our wages are so different in Panama that a savings in headcount hardly makes the case for a return," he says. "Minimum salary in Panama is around $300 a month, so how many people are you really going to replace?"
Instead, he focuses on how technology will transform the way the employees work. "If the technology allows us to increase the amount of time our employees dedicate to our customers instead of doing administrative and operational work, that is important for us."
Gonzalez had to make three presentations to the executive committee before getting its approval. Each time, he worked with TCI to make adjustments in the proposal to fit the committee's specific needs.
Once the executive committee approved the proposal, Gonzalez and Psychoyos presented the case to the board of directors. That presentation is not so much about the technology as it is about the vendor delivering it. "The board of directors focuses on the vendor company itself," says Gonzalez. "They focus on how financially stable they are, who are the owners-if it is private-or else how the stock is performing. TCI was very helpful in providing information to this point."
The effort paid off. The solution went live on Jan. 15 in the 12 Mr. Precio stores, and is to be live company-wide in May. If all goes as scheduled, it will be the fastest implementation of TCI's RetailSuite to date.
**Additional case studies are included in the print version of Progressive Grocer. Order the February 1 issue today by calling the VNU Bookstore at (646) 654-4501.
Contributing editor Joseph Tarnowski can be reached at [email protected].