Staples Inc. is the worlds largest retailer of office supplies, having grown to $13 billion in sales since its founding in 1985. With the advent of Web sales through Staples.com and StaplesLink.com in the 1990s, the company developed a multichannel approach to retailing that encompasses online, catalog and retail-store sales. Now the company is seeking to consolidate its IT architecture across all three channels. The company is also expanding internationally through acquisitions.
Scott Floeck, who became CIO in February, having previously been senior vice president of retail and corporate information systems development, discussed his plans for leading Staples IT organization as it addresses these strategic corporate goals with eWEEK Executive Editor Stan Gibson in an interview at Staples corporate headquarters in Framingham, Mass.
You took over the CIO position in February. What has been at the top of your agenda?
Were a multichannel retailer. Traditionally, IS has been aligned along different sales channels. That served us well, but our new technology strategy is moving toward a services-based architecture, so the lines between our channels have been getting blurry—you want to know what the inventory is across all the different businesses. So we reorganized, putting application development all in one group, with one head of application development, Dave Kistler.
You reorganized three IT divisions into one?
Yes. That allows us to have a single strategy across all our different business units. We also changed the role and scope of our technology strategy and architecture team under Mike Ragunas. Anyone who has been involved in building systems knows that its pretty easy to build an application on top of a solid architecture. But we were lacking a vision for all of our business units globally. So their responsibility has expanded to include providing and maintaining a three-year vision for all our different business units.
Theres one coherent IT architecture for all retail channels? How would you describe that architecture?
Its based around a services-oriented architecture, which supports both data and functional services. It will allow us to integrate our new and existing systems. It separates the front end from the back end. The front end doesnt need to know anything about the back end because it goes through middleware. That gives us a lot of flexibility in terms of how we migrate our applications.
What kind of middleware are you using?
What about Microsoft [Corp.s] .Net?
We went with J2EE [Java 2 Platform, Enterprise Edition].
When was that decision made?
Probably within the last year. Our dot-com platform, Staples. com, was built on Microsoft technology. We didnt find that it was as easy to manage or as flexible as wed want. And we had built out our contract Web site [StaplesLink.com] on IBMs WebSphere and found that to be a much easier technology. So were in the process right now, which well deliver in November, of replatforming the Staples.com Web site to WebSphere.
Can you describe the applications more specifically?
We have a project, called Summit internally, which is an initiative to improve our supply chain. Our merchandise management system—MMS—is how we actually accelerate the process work of Summit. It encompasses the planning function, the core merchandising system, and product information and replenishment. MMS is building out some new capabilities and replacing our legacy merchandising system; its creating a centralized repository for product information and then replacing our replenishment systems. All of this will be built out in our new architecture that integrates everything. One of the challenges we have is having content all over the company, without a central way to manage it.
Whats an example of the kind of content you mean?
Pictures of products, product information like pricing. It shows up in a number of different formats, like a flier you would get at your house and the Web site.
Lets look at each of those three components of MMS. What about the planning component?
Planning is a new capability for us, including item planning, financial planning and promotional planning. It includes distribution facilities, how they supply the stores and how to coordinate with suppliers. The middle piece is kind of an item repository for content management. In a traditional merchandising system, thats where you control inventory and purchase- order management.
On what database?
Its Oracle [Corp.] today, but its going to move to DB2 later this year. The whole stack is going to be built on IBM products.
And the third component?
The third component is replenishment, both of the distribution facilities and the stores. A lot of retailers look at movement out of their warehouses versus movement in the stores—POS [point-of-sale] movement versus shipment out of the warehouse. This looks at both components and formulates how we should forecast and replenish our demand.
Using what technologies?
The underlying technology is WebSphere. Summit is actually a three-way partnership between a company called Evant [Inc.], which has a product for planning and replenishment, IBM and ourselves. We think were building out a next-generation merchandising and supply chain system. Office Depot [Inc.] is building a system based on technology from Retek [Inc.]. We think we will provide a leading-edge capability for significantly less than what Office Depot is spending. Retek is a solid company with solid technology but not next-generation technology.
How is the work being done? In-house? Outsourced? In the United States? Offshore?
Its predominantly being done in the U.S., but weve been offshoring development work for a number of years. It has grown every year. Weve found that the offshore providers can provide us with high-quality resources at relatively low prices. We established four vendors as our primary vendors offshore. We do project work with them. The model is not mature enough for support and maintenance. There are a lot of security issues. The challenge with offshore providers is theyre not really good on the requirements side of things. So thats a trade-off. You need to leverage what they bring to the table, which is their deep resource pool for development.
What about data warehousing? Is that something that would factor into replenishment?
We built a data warehouse with IBM technology about three years ago. It sits off to the side and provides us with operational metrics and data around how our business is going and is used for planning and analytics.
When talk turns to tracking inventory, RFID [radio-frequency identification] always comes up. What about RFID?
Interesting technology. Our Opinion is that the technology is immature, there are conflicting standards, there are limitations with the technology with respect to range or materials. For instance, ink is in a foil bag, and the technology cant penetrate the foil. And the bottom line is that costs are too high for us to jump into it right now. Thats not to say its not a valid technology. It will have its place, but we just dont think now is the time to do it. Youre going to pay a premium to be an early adopter.
Staples recently bought Globus Office World [plc.] in the U.K. How is the IT integration process going?
We just got approval from the U.K. office of fair trade, so we havent actually started. Its interesting you mention that. One of the things I talk to my team about is that Staples will grow earnings around 20 percent and sales around 10 percent [annually]. Were not going to do that organically. We intend to be a global company. A lot of the growth will be through acquisitions, and Office World is a good example. My team has to think of how we enable integration. Its a matter of converting stores to Staples stores and getting them up on our system and feeding them into our back end.
Which countries look the most ripe for expansion?
You might tune in to our earnings report on Aug. 17.
Lets shift gears and talk about point-of-sale systems.
Our vendor is NSB [Retail Systems plc.]. We actually have relatively new systems, installed in 99 to 2000 or so. The system is built on Microsoft tools, and it has been a good move for us. A lot of competitors are on proprietary POS systems. In that same time frame, we had a big initiative to integrate our dot-com and retail business, so we put kiosks in our stores. The point of integration was the POS. You could place your order at the kiosk and pick it up at the point of sale, making whatever form of payment you chose.
Are there any upgrade plans for those systems?
As I mentioned earlier, were actually replatforming the Web site. At every turn, we look at ourselves as a multichannel retailer. Were leveraging our dot-com platform with knowledge tools. The kiosk will prompt you, say, that youll need a USB [Universal Serial Bus] cable or how long your ink cartridge will last.
Were also leveraging customer intimacy through our loyalty program by making that information available to the customer. You can look at what youve purchased in the past or create a reorder list of frequently purchased items. Were also creating targeted offers through e-mail and direct mail. Customer experience is how were going to differentiate ourselves going forward. You need to offer the customer something more than just good price.
Staples acquired Quill.com a few years back. Its still a separate Web site. How does it factor into Staples strategy?
Its a different brand, but we have a common development group and a common infrastructure. Our technology strategy is to provide the core platform for the different business units to use. We have a lot of different brands, and they interact with their customers differently, depending on where theyre located or how theyre positioned in the market.