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

October 01, 1995|By Jay Hancock | Jay Hancock,SUN STAFF

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."

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