December 13, 1999

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E-Business 100
Office Depot Builds Winning Strategy On The Web
Next-day delivery, electronic bill payment draw customers to office-supply retailer's sites

By Bob Violino

t the top of the InformationWeek E-Business 100 list is Office Depot Inc., a retailer and, increasingly, an E-retailer of office equipment, supplies, and small business know-how. Office Depot was one of the first merchandisers to move onto the Internet to expand its business, and the company reports dramatic growth of sales on the Web. Plans for 2000 include a major overhaul of its main Web site, the addition of international language sites, and the creation of a massive data warehouse to enhance its electronic supply chain.

"Almost everything we're developing now is Web-based," says Bill Seltzer, Office Depot's executive VP and CIO, who spends nearly one-third of his work time planning and initiating an electronic-business strategy.

The Delray Beach, Fla., company began creating customized Web sites for its large business customers in 1996, and it launched its OfficeDepot.com site for small businesses and consumers last year. Its Web sites have attracted business customers and consumers by letting them place orders and have merchandise delivered the next business day, as well as pay their bills electronically. The sites also provide real-time status of orders--whether placed by phone, fax, or on the Web--and customers can use the sites to get inventories at warehouses or stores around the country.

The quick delivery of goods is possible because Office Depot's sites are linked directly to its order-processing and warehouse-management systems, which are housed on IBM mainframes and AS/400s. Internally developed communications software running on Compaq Windows NT servers provides smooth interaction between the Web sites and the mainframes and AS/400s.

"The communications software permits the Web sites to interact with our mainframes in such a way that the mainframes don't know if it's a Web order or a phone order," Seltzer says.

The OfficeDepot.com site also includes a number of self-service functions. Users who make frequent purchases, for instance, can create lists of products they are most likely to buy. These lists appear each time the user logs on to the site. OfficeDepot.com also includes an area called Office Solutions, which provides a handbook on starting and running a small business, downloadable business forms and financial spreadsheets, and a guide for setting up Web sites.

Office Depot is developing an enhanced version of its Web site, to be introduced this spring. Seltzer declines to give details, but says the site will be "an order of magnitude better in terms of functionality, speed, and quality."

Web orders save Office Depot money by lessening demands on call centers. On average, Web orders are 3% to 6% less costly than orders placed through traditional call centers. Also, the average order size on the Web is bigger than orders from the catalog, and return and error rates are much lower because there are fewer points of contact in the process.

Sales from Office Depot's public and business-to-business Web sites soared 421% to $99 million in the third quarter, compared with $19 million in the third quarter of 1998. For the first three quarters of the year, Web sales totaled $219 million, up 492% from the same period in 1998. There's still plenty of room for growth: Web sales account for just 3% of the company's total annual revenue.

Office Depot also is using Web technology to speed internal processes. Its company intranet, which lets employees access a variety of human-resources information, E-mail, and applications from desktops, and managers update employee records, is reducing paperwork and cutting process time. An online training program called Office Depot University reduces cycle times for management and employee training.

The company is also significantly expanding its electronic supply-chain capabilities, including building a massive data warehouse that will be accessible through the Web. Nearly all of the company's purchases from suppliers are made through the Internet or electronic data interchange. "We're moving all purchases to the Web," Seltzer says.

The retailer scored high in several of the criteria used to rank E-Business 100 companies, such as successful deployment of E-business projects and effective metrics to measure payback, says Fern Halper, director of the E-business strategies practice at Hurwitz Group. The IT consulting firm worked with InformationWeek in developing the selection criteria. "Office Depot has developed a single customer view," which has helped it succeed in E-business, Halper says. "And it's truly integrating E-business across the enterprise."

Office Depot isn't the only office products retailer to make the E-Business 100. Also represented are BT Office Products (24rd), Staples (58th), and Corporate Express (90th).

BT Office Products International Inc., which distributes general office products, business furniture, computer supplies, and promotional products, says it's "migrating" its customers to the Web, where the Deerfield, Ill., company provides personalization technologies that make it more efficient for customers to order products. The Web site provides access to 11,000 items via an electronic catalog, which is linked to a buyer's order-management system to automate the purchasing process.

An internally developed system, called Syntranet, gives customers access via the Web site to a database that houses up-to-the-minute information on accounts, pricing, and order status. Information is culled from user profiles, site navigation, order history, and buying habits.

BT Office plans to personalize its site further based on the size of the customer. For example, small companies will be offered an intuitive self-service site with "mass-personalized" content, while larger customers will get self-service options for routine transactions and interaction with "personal sales teams" when needed.

Staples, the first of the office superstores, is working to transform itself from a conventional retailer to a fully integrated E-business, according to a spokesman. For years, the Westboro, Mass., company has given its largest business customers the option to order office supplies electronically, through EDI or PC systems. In mid-1998 it let customers buy supplies over the Internet.

Staples launched its E-commerce Web site, Staples.com, in November 1998. The site provides customers with a record-keeping and ordering system that lets up to 100 workers at a company order supplies. Staples is installing Internet-based in-store kiosks to help salespeople better serve customers.

The retailer created an online division, Staples.com, to explore additional E-business opportunities, including ways to communicate electronically with suppliers. For example, Staples gave Hewlett-Packard access to inventory-management systems at the office-supply retailer's warehouses to determine when to ship additional PCs to specific distribution centers.

Corporate Express, which supplies office products and services to companies, says about one-third of its business is handled electronically and nearly 20% of its sales come through its Web site. The goal is to derive half of all sales via the Web by 2001. The company uses its intranet to order supplies, disseminate information to workers, post human-resources announcements, and download files. But much of its E-business efforts are focused on external business partners.

A customer- and supplier-management system called ISIS handles order transactions, billing, warehouse operations, purchasing, and data warehousing. Customers can gain access to an order-management system on ISIS via the Web.

The site includes a simple order screen for users who know part numbers, customized online requisition forms for frequently ordered items, an indexed online catalog, order-tracking features, and a user interface designed to minimize the time it takes to place orders.

An enhanced version of the order-management system, now under development, will include a library of how-to information for buyers, as well as tools to help customers link to different features and information for users based on their past purchases and their company's ordering preferences.

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