Sept. 11, 2000

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E-Commerce Pays Off For Office Depot

By Clinton Wilder

f you want a good example of the oft-quoted phrase "the Internet changes everything," head to the IT department of Office Depot Inc. in Delray Beach, Fla. From Web-browserlike order-entry screens to object-oriented development in a Java framework, the top-rated specialty retail company in the InformationWeek 500 has ingrained the Net in just about every aspect of its IT work. And did we mention that Office Depot's online sales may approach $1 billion this year?

Office Depot was one of the first big suppliers to offer nonproduction goods for online corporate procurement, participating in a pilot with the Massachusetts Institute of Technology in 1996. The company launched its own Web site two years later, and it made a critical decision to make E-commerce integral to the entire business.

"We had a choice," says CIO Bill Seltzer. "We could use the Web as another sales channel or as a unifier to lift all channels of our business.

We want to be ubiquitous to the customer--to let the customers choose whatever channel they want." And plenty are choosing the Web. Office Depot is on pace to sell nearly $900 million worth of office products online this year, which would account for about 9% of domestic sales.

Customers like to order through a Web browser, and so do order-entry employees. Office Depot replaced its catalog operators' green screens with a browserlike interface called Millennia. Catalog sales have jumped 12% since the company began using Millennia earlier this year. Meanwhile, the company is spending $1 million a year to retrain its programmers in ObjectThink, a Java-based development methodology used to create reusable objects.

"There was a time in IT when every application had its own data, which was often redundant, and that's how database-management systems came into being," Seltzer says. "We need to do the same thing with application logic so you could use the same currency conversion module, for example, in all your financial apps. Reusable objects mean real productivity."

Office Depot also runs one of retail's largest data warehouses, an NCR Teradata repository that's nearing 10 terabytes and has cost more than $30 million. Using MicroStrategy Inc.'s decision-support tools and other appli-cations, Office Depot analyzes its weekly cross-selling and up-selling reports so intensely that store and district managers' performances are judged on cross-selling results. Eighty percent of customers who buy a PC from Office Depot, for example, also buy a power-surge protector with it. "We've learned that you want to have very low prices on items that draw in other higher-margin items," Seltzer says. "The data warehouse has been a gold mine."

On the supply-chain side, Office Depot went live last month with a private extranet that allows suppliers to check inventory levels in the store, not just the warehouse. Using a method called "trickle poll" over its WorldCom frame relay network, Office Depot can provide suppliers with inventory updates within two hours of when sales are made. The company will first bring its 250 highest-volume vendors onto the system, as they account for 85% of the chain's sales.

With Web activity so integral to its core goals, Office Depot pays close attention to Web performance and plans an overhaul of the site next year, using Art Technology Group's Dynamo toolkit. The company uses Keynote Systems Inc.'s performance-monitoring service to rate its site's availability, download times, and transaction speeds against 40 other companies, including competitors such as Staples Inc. and OfficeMax Inc., every day. "If we slip below them," Seltzer says, "we get all over it to bring the performance back up." Because for Office Depot, the Web is as mission-critical as it gets.

Return to main story, "Specialty Stores Fight Back."

Illustration by Jeffrey Fisher

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