Grainger Details Technology Investments

W.W. Grainger, Chicago, expects to continue the installation of SAP software across the U.S. though the middle of 2005. To date, the company has completed the design and is currently refining the system to maximize capabilities. One third of the development effort is devoted to such testing and refinement. For 2004, the company continues to forecast $45 million to $55 million in operating expense and $50 to $55 million in capital expenditures related to the SAP program.

“For us, technology is not a mere indulgence or a nice to have. It is at the very heart of our business and helps us drive our multi-channel strategy,” said Richard L. Keyser, the company’s chairman and CEO. “Providing customers access to our broad product line through several channels has been a competitive weapon for us because it spells speed and convenience for our customers.”

Keyser also detailed Grainger’s telephony program designed to improve communication among Grainger’s 400 U.S. branches by providing customers with just one local number to access everything the company offers. “About 60 percent of our orders come in on the telephone,” he said. “Given our focus on service, we are updating our telecommunication systems to provide a seamless customer experience.”

To date, more than 100 branches have transitioned to the new communication system. Grainger is stepping up its conversion plan and intends to complete the remaining branches by the end of this year. The company estimates $15 to $20 million in capital expenditures this year for the project. That still keeps Grainger within its range of $150 to $175 million for 2004 total company capital expenditures announced in July 2004.

Senior Vice President, Supply Chain, Y.C. Chen, delivered an update on supply chain operations, detailing the results of the recently completed logistics network program. Under the program, the company added more than 1 million additional square feet in capacity and new automation to increase accuracy, speed and efficiency through the supply chain. Grainger’s nine distribution centers replenish branches daily and ship product to customers the same day for next-day delivery.

“The service and productivity improvements we’ve gained throughout our program are an important factor in our strong year-to-date results,” said Chen, who said that overall cycle time has improved by nearly 20 percent due to these enhancements. “Going forward we have a state-of-the-art distribution system that can serve as a strong foundation for growth. We’ve already seen a $115 million reduction in inventory and more than a 25 percent improvement in productivity. We expect to see a 50 percent total improvement for the project overall. Cumulative cash flows from the project are expected to be positive in 2005 and our redesigned logistics network is on schedule to contribute $10 million to operating earnings this year.”