How lots of kinks get ironed out of business cycle Computer enables strangers to make a distant factory hum

THE BALTIMORE SUN

It's 3 p.m. on a Friday, and Home Paramount Pest Control in Harford County is running low on office supplies.

Vice President Nancy Tilley faxes an order: four bottles of correction fluid, 200 clasp envelopes, eight boxes of file folders, seven boxes of fax paper and a package of sticky yellow Post-it sheets.

Forty miles away, at Office Depot Inc.'s big warehouse in Savage, the order lands on Melanie Hancock's desk. She types it into Office Depot's computer.

She pushes the tan "Enter" button, prompting a complex, computerized chain reaction that ripples through the warehouse and beyond. The result is that several business organizations around the country know that Mrs. Tilley needs Post-it notes, file folders and envelopes not long after she does.

Such operations are quietly transforming the American economy.

If the economy has made a "soft landing" this year, don't give Alan Greenspan all the credit. Give some of it to the likes of Melanie Hancock and Office Depot's ES9000 IBM computer.

By spreading sales information among stores, warehouses and factories with speed and sophistication unseen even five years ago, systems like Office Depot's are ironing out many of the kinks and fits of the business cycle.

Specifically, they're helping to prevent the crippling pileups of unsold goods that for centuries have triggered or aggravated economic recessions.

Until fairly recently, it wasn't unusual for three or four months' supply of finished products to stack up in various warehouses before managers would figure out that demand had dropped.

To buy time to work through the clot, factories would shut down. Their laid-off workers would stop spending. The economy would sink.

Now, prompted by the desire for lean, "just-in-time" inventories, factories and wholesalers increasingly receive daily updates on product sales -- sometimes from thousands of stores run by totally separate companies.

When the supermarket clerk aims a laser at your potato-chip bag, the sale may be noted not only by the grocer's computer but by the wholesaler's computer, the chip factory's computer and the bag-maker's computer, too.

"Information technology is allowing distributors to have information about markets more accurately and more quickly than ever before," said Ron Schreibman, executive director of the Distribution Research and Education Foundation in Washington. "If there's a slowdown in the economy now, you don't get an inventory overhang situation in which production comes to a halt."

Computers, without which this change would be impossible, let factories tuneproduction in harmony with demand. If sales are weak, a plugged-in plant knows soon and can trim to, say, 30 hours a week for a few months instead of shutting down entirely later on. If sales pick up, it can make sure that store shelves are stocked.

"That's the trick. It's a series of small adjustments," said Paul W. Boltz, chief economist for T. Rowe Price Associates Inc., the Baltimore-based mutual fund company.

Computer technology's boost to business productivity -- making more things with fewer people -- is well known. But its other profound economic effect -- soothing the business cycle -- is not. The effect is significant even though making, moving and selling goods is a smaller part of U.S. commerce than it was once.

To understand the economy of years past, imagine a human body whose adrenal glands keep firing long after danger has passed, whose marrow churns out white blood cells in the absence of infection, whose working muscles take minutes, not seconds, to signal the lungs that they need more oxygen. The body works, but not well.

In America, the organs of commerce are growing new neurons and faster reflexes. A look at Office Depot shows how.

Four hours after Home Paramount faxed its order last month, Office Depot's computer system went into action.

It put Mrs. Tilley's Post-it pads and thousands of other items on a list for Monday delivery. It told workers how to find the items with the fewest trips around the warehouse's orange and green racks. It printed delivery slips for drivers.

More important, it kept count. It kept count of staplers and computers and coffee filters. And Post-it pads. A few days later, it sent a message to another computer at a warehouse in Parsippany, N.J.: Send more Post-it notes.

Minnesota Mining & Manufacturing Co. makes Post-it memos. 3M is one of about 80 suppliers who have direct computer links with Office Depot, and 3M's Parsippany computer takes orders at least once a week from Office Depot's main computer in Delray Beach, Fla. Automatically.

Not long ago, all orders to 3M arrived as faxes, piling up in Parsippany to be punched in by hand. Now, "essentially there's no human intervention" on Office Depot orders, said Jerry Strand, logistics manager for 3M's office products business. "That kind of relationship has eliminated about 70 percent of our order entry time."

But the automation doesn't stop there. The Parsippany computer relays sales information to a computer in Mankato, Minn., in the Post-it pad factory. The Mankato computer is linked to other parts of 3M -- the plant where the sticky glue comes from, for example.

3M is so much quicker on its feet now that many Post-it notes are less than 2 months old when they hit the store shelf, down from an average of more than three months in 1990, officials estimated.

Companywide inventory stocks have fallen by between 30 percent and 40 percent in the last five years, Mr. Strand said. Before, 3M simply kept too many Post-it pads and parts on hand, tying up its capital and risking a glut if sales turned down.

Office Depot has cut its turnaround time, too. Pete Silewicz, the new manager of Office Depot's Savage warehouse, used to work for Federal Express, the overnight package company. That's how fast the company wants to move the goods.

Government figures show strikingly that the trend is national. In the recession of 1981, inventory equal to 3.8 months of sales stacked up in factories, farms, warehouses and stores across the country, according to the Commerce Department. In the recession of 1991, the highest backup was about 2.7 months.

So much slack has been removed from the nation's distribution web that in recent years inventories have hovered around 2.5 months' supply -- a level hardly seen before 1992, the Commerce Department said.

Recessions aren't obsolete. War, stock crashes, currency crises and interest-rate spikes can all push the economy into the tank. But, said Mr. Boltz, "it's getting harder and harder to have an inventory recession" caused by over-optimistic plant managers.

And there's progress still to come. Office Depot has computer links with only a quarter of its suppliers now.

"I want to get it up to 100 percent," said Mark Knotts, the company's vice president for logistics and distribution. "I want things automated. It's working today. We just need to expand it so everybody's a partner in the venture."

For its part, 3M isn't yet directly linked to the store cash registers of Office Depot and other retailers. It wants to be. Managers even foresee the day when 3M employees might work inside Office Depot's Savage warehouse, managing the traffic of 3M products and further bridging the organization gap.

The information relay down economic supply lines will never be perfect. Many companies, for competitive reasons, will want to keep sales data secret.

But within a few years, 3M thinks it can cut supply levels and processing time again by half.

"You could probably talk to somebody in every industry and they could give you about the same story," said 3M's Mr. Strand.

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