New Computer Strategy Dawns at Delta Systems

Delta Systems Inc. has some outside-the-box ideas for packaging.

Canadian-traded Delta, with a 30,000-SF manufacturing plant in Rogers and a 5,000-SF corporate headquarters in Bentonville, develops and markets software for automation-control and high-speed packaging systems.

Although the company’s roots are in the food-packaging industry, the success of its SoftFlow software has readied Delta to delve into other segments more starved for efficiency — the online retail business.

So in addition to automating machines and developing software, Delta will add to its arsenal shelf-to-shipping logistics for orders filled online.

According to the trade publication Packaging World, U.S. companies spend $2 billion a year to buy and upgrade packaging machines. For a decade, Delta’s core business has been in modernizing old machines by integrating them with computers — a $600 million submarket. Now CEO and president Will Salley says the company is expanding into the packaging industry’s projected $60 billion e-fulfillment sector.

“In the past, we didn’t come up with a whole new way to package things,” Salley said. “We just found incrementally better systems. But the whole e-fulfillment packaging sector is wide open for someone to take the lead.”

Delta installed a beta-test e-fulfillment system with an unidentified e-tailer during the fourth quarter of 2000 and plans a rollout this year. Delta’s potential to decrease e-fulfillment costs while expediting shipment has gained the attention of technology investment experts such as Mark McQueen, director of investment banking for Yorkton Securities Inc. of Toronto. Yorkton thought enough of Delta to recently become its lead underwriter.

Calendar 2000 was Delta’s first full year on the Canadian Venture Exchange, where it’s traded as DLT.S, and its year-end figures are due in early February. According to Delta’s 1999 annual report, sales during its last three years before going public leapt from $1.5 million in 1997 to $7.3 million in 1999.

Salley said the company expects to turn a profit in 2001 and, within 24 months, hopes to convert to the Nasdaq exchange. Delta’s third-quarter sales figures, released Nov. 28, show a 7 percent quarter-over-quarter increase, from $1.5 million in 1999 to $1.6 million in 2000. Its net loss also dropped 17 percent, from $911,091, or 47 cents per share, in 1999 to $752,386, or 25 cents per share, in 2000.

Despite the company’s stock remaining thinly traded, its recent financial gains and the lack of a major e-fulfillment competitor have sparked both Salley and McQueen’s optimism.

“Strictly speaking as an investment banker and not an analyst,” McQueen said, “Delta is intriguing because of its near unlimited potential” in this segment.

“Delta has a proven track record with 10 years of experience in the packaging software industry,” he said. “They have come up with what is probably the most efficient way to bring the Internet fulfillment business into this century. Basically, the industry has been using 19th century technology on a 21st century business. Delta helps them move forward.”

Sorting the ‘E-Tails’

One of the biggest problems facing Internet retailers, or e-tailers, in the dot-com revolution’s first phase has been the lack of automated fulfillment systems. Since online orders tend to require random filling — for instance, a book is purchased, followed by a garden hose and then a leather bag — virtually every e-tailer’s processing is still 100 percent manual.

Workers have to identify a given order, fill it, sort it, package it and label it for shipment because existing packaging machines can’t deal with the random sizes. Delta attacked the problem by developing a system that identifies and measures products with an electronic scan.

An item’s size is established, and the system selects the proper corrugation to fold around it. So instead of a one-size-fits-all approach to packing, Delta’s software enables e-tailers to build boxes around orders right on the shipping line.

Salley said the savings could be tremendous. Styrofoam peanuts are eliminated. Delta’s system can also handle about 2,000 items per hour and at times requires only three workers for operation. Existing systems, to equal that output, would need 40 workers on the line.

“Not only are there wage savings,” Salley said. “Savings on raw materials can be 30 to 40 cents per item with small-margin items like paperback books. That might mean $40,000 per day in savings for volume producers.”

Hard-Core Software

Proprietary algorithms make SoftFlow, Delta’s layered software approach to improving automation, work. They operate through three linked computer and machine components that speak and translate separate computer languages.

Delta added expertise in March when it bought out Device Bus Inc. and its 15,000-SF plant in Harrisburg, Pa. Device Bus brought special applications for PC-based control technology to the table, and Delta is in the process of deploying the combined product. The unique thing about the result, Salley said, is speed at which it allows packaging machines to operate.

“Our software works like this,” Salley said. “If you’re walking through your house and only opening and closing your eyes once per minute, you can’t go very fast. Because our software executes so quickly, we get a lot more pictures and can control machines much better.”

Delta is split into two divisions, Automated Solutions and Software Development. Automated Solutions is further divided into two wholly owned subsidiaries that focus on packaging and e-fulfillment. The company has 75 employees, about 60 of whom work in Arkansas.

Delta’s customers include Tyson Foods Inc. of Springdale, McKee Foods Inc. of Gentry, and out-of-state companies Hershey Foods Corp., Nestle NA, Quaker Oats Co., Aurora Foods and Interstate Brands Corp.

In 1997, Salley said, Hershey, Nestle and Quaker accounted for 85 percent of Delta’s business. Delta has since diversified, and its major clients now each make up only about 0.5 to 1 percent of its total business.

In October, Delta raised $6 million through a second public offering in Canada. It has more than 40 major clients and sales offices in Philadelphia, Chicago, Minneapolis and Atlanta and does business in Europe and North and South America. McQueen, the investment banker, said Delta’s true growth potential probably had not even been tapped yet.

“The opportunity we see is nothing but blue sky for [Delta] to become the No. 1 software supplier to Internet fulfillment companies,” McQueen said.