Fidelity knew by the end of the 1980sthat its spiraling growth - it managesabout $405 billion in assets, more thantriple the 1990figure - made its mailingfacilities in Dallas and Boston inadequate.It chose Covington because it is centrallylocated and only 10miles from an airport.And the price was right. The state ofKentucky gave the land to Fidelity pro-vided it created 500new jobs in 17 years;the facility already employs 2,000.

Most financial·service companies runlabor-intensive mail operations, with lotsof forklifts and other one-dimensional ma-chines. Fidelity executives toured manu-facturing companies and learned how theyuse robotics to store and retrieve spareparts. Fidelity uses those techniques for itsprospectuses and promotional materialson retirement and college-savings plans,charitable annuities and various otherbusinesses. Including personal state-ments, Fidelity mails customers as manyas 3,000different "kits."Drying Out

Before Covington, Fidelity 'had beenvexed by customer statements that re-tained moisture like kitchen sponges, caus-ing edges to curl and ink to smudge. Papermanufacturers told Fidelity to dry out thesheets for 24hours before printing. But thecompany ran its own tests, hanging out thepaper for as long as a week and adjustingroom temperatures and humidity levels.

The result: Inside a climate-controlledroom, the paper bides its time at 70degreesFahrenheit and humidity of 45% to 55%for48 hours, ensuring crisp folds and smoothapplication of toner. "We think paper andprint are a strategic advantage," Mr.Cramer says. .

Fidelity promises that when a customercalls seeking written material, it will be inthe mail the next day. Each day's requestsare sent electronically to Covington thefollowing morning at 2 o'clock EST. Fidel-ity has already pulled often-requested ma-terials. For much of the mail, the companydownloads the names and addresses intomachines that "ink-jet" the data on thecover and apply metered postage. Themachines then optically read the ZIP Code,spray on a Postal Service bar code, sort theletters and spit them into different trays.

About 90% of the shipments never seethe inside of a post office. It is metered andsorted at the facility, hauled away byPostal Service trucks and taken directly tothe airport.Last Flight

Not everything goes like clockwork.Fidelity isn't always ready for the PostalService's last pickup at 8 p.m., forcing

(over please)

Reprinted from THE WALL STREET JOURNAL.WEDNESDAY, MARCH 20, 1996 © 1996 Dow Jones & Company, Inc. All Rights Reserved.

Stamp of Approval

A High-Tech SystemFor Sending the MailUnfolds at Fidelity

Robots at 'Kentucky Farm'Boost Output, InvigorateBack-Office Operations

Rolling Hills of Red BalloonsBy JAMES s. HIRsCH

Staff Reporter of THE WALL STREET .JOURNAL

COVINGTON, Ky. - Fidelity Invest-ments has revolutionized personal invest-ing. Now, on the rolling hills of northernKentucky, it is once again pushing theenvelope.

Make that millions of envelopes.Two years ago, Fidelity opened a huge

printing and mailing facility here. Draw-ing upon tracking and storage techniquesused by manufacturers, the nation's larg-est mutual-fund company has tried toreinvent the inglorious task of sorting,stuffing and stamping mail. In doing so,Fidelity is showing - with technology, ob-session to detail and a frenetic work pace-how it strives to beat rivals.

Many companies view tasks like mail-ing, data processing and telephone sys-tems as added line items - costs that arenecessary but mundane, and secondary tothe main task at hand. But Fidelity givesthem every ounce of its energy.

"Rather than processing mail like aback-room function, they see it as a corebusiness to retain customers," says RonNabors, a vice president of sales at Bell &Howell Co., which supplies Fidelity withcustomized inserting and sorting ma-chines. "The total package of their opera-tions is unique."Pastoral Calm

And it is expensive. Closely held Fidel-ity has spent more than $100million on aiss-acre office park that includes the mailwarehouse as well as two office buildings.A faux waterfall, wooden trellises andjogging paths with muted lights evokepastoral calm - a world removed from Fi-delity's nearby Parthenon to postage.Humming 24 hours a day, seven days aweek, it churned out 140million pieces ofmail last year - more than double that of

the second-largest mutual-fund company,Vanguard Group.

Consistent operations can help comfortcustomers amid volatile market swings or,recently at Fidelity, mediocre investmentresults. Those concerns spurred the com-pany to make sweeping changes in portfo-lio managers this month .:

The Covington project, meanwhile, of-fers some glimpses into the managementstyle of Fidelity's reclusive chairman, Ed-ward "Ned" Johnson III. While he inher-ited the company and its Boston real estatefrom his father, Mr. Johnson has nowcarved his own legacy into a swath ofabandoned Kentucky farmland. In doingso, associates say, he has realized a long-held dream: to create what he considers anideal work environment, one that maxi-mizes output through teamwork and tech-nology. Mr. Johnson is a devotee of kaizen,a Zen-like philosophy that rejects successas an attainable goal but stresses improve-ment through restless striving and incre-mental changes. In Covington, no changeseemed too trivial.Computer Gabfests

To achieve Mr. Johnson's vision of thelandscape's undulation, hills were built toreplace gouges left by previous excava-tions. Landscape architect William Press-ley first simulated the hills with waves ofred helium balloons, at varying heights. "Ihave pictures of [Mr. Johnson] in the muddirecting the work," Mr. Pressley says. "Itwas quite a surprise."

A 256,000-square-foot mailing ware-house lies at the heart of Fidelity's "Ken-tucky farm." Inside, prospectuses are re-trieved by robotics that not even the U.S.Postal Service had seen in mailing. Con-veyor belts and rotating carousels, run bysoftware unique to Fidelity, haul materialsthrough cavernous, concrete rooms. Com-puters coordinate movements throughnonstop gabfests with each other. To real-ize perfect folds, paper used for statementsis aged like fine tobacco.

Fidelity earns its keep in the serviceindustry. But with racing forklifts andflashing safety lights, Covington has allthe ambiance of heavy industry. "This isone of the few places at Fidelity where youcan get killed," says Christopher D.Cramer, in charge of the operations.Spare No Expense

Covington mirrors Fidelity's basic busi-ness principles: Stress customer service.Find new ways to solve old problems.Develop your own technology or customizeit, sparing no expense. Squeeze supplierson costs. And motivate employees withperks and pressure.

JournalReprints • (609) 520-4328· P.O. Box 300. Princeton, N.J. 08543-0300DO NOT MARK REPRINTS • REPRODUCTIONS NOT PERMITTED

company trucks to make late-night dashesacross the Ohio River to the downtownCincinnati post office. That late-arrivingmail hurts the Postal Service's efforts tomake it to the airport before the last flightsleave. Local postal officials say the Coving-ton facility's ballooning volume - up 27%last year -:-may be getting out of hand andis already straining Fidelity's capacity.

"They have overwhelming .complex-ity," says one postal official, "and some-times the left hand doesn't know what theright hand is doing."

Mr. Cramer says the company has tomake late-night runs only a couple timeseach quarter. When a reporter who identi-fied himself as a possible customer called _six mutual-fund companies on the sameday seeking prospectuses, Fidelity'sar-rived first - on the Monday following aFriday call. (OnlyFidelity followedup witha call from a sales representative. )

Getting the mail out, employees say, isan obsession. "Youhear it each gay: 'This:has to be done, this has to be done,"'saysGerry Buechel, who operates an insertingmachine. "There's a lot of pressure, but wedon't want our customers going to" thecompetition.

Fidelity pushed suppliers like Bell &Howell, a unit of Bell & Howell HoldingsCo. of Skokie, Ill., to create more sophisti-cated inserting and sorting machines,called "intelligent inserters," which han-dle multiple tasks simultaneously, andadapted existing technology for new uses.To help it handle bulk mailings, Fidelityhired Cisco-Eagle Inc. of Dallas, whichdesigns conveyor systems and other mate-rial-moving products. Fidelity officials ob-served a Cisco system that helped a client

- ship pencils, pens and other office sup-plies. Fidelity used these ideas to build asorting system called "pick to light"Light Show

Using the system, an employee pro-grams a computer for as many as eightbulk orders; one might be a brokeragehouse asking for 500Magellan Fund pros-pectuses. Rotating racks stocked withbooklets bring them around. Lights on theracks show the employee the exact location

of the items to be pulled - so 500Contra-fund booklets aren't pulled instead - andother lights show where, in a carousel oftubs, to place them.

A belt carries the orders to a machinethat specializes in "least-cost routing" forprivate shipments. Put the item on themachine, type in the ZIP Code and date itmust arrive, and the machine calculatesand displays the different prices for Fed-eral Express, Airborne Express and United

.Parcel Service. The lowest price gets thebusiness.

When supplies get low, robotic contrap-tions retrieve new material from storage-some 400feet away - and send it over onconveyor belts. Last year Fidelity shipped3.7 million pounds of bulk freight, morethan double the volume of 1993,when suchfreight was handled in Dallas. Orders thatused to require two days to be filled arenow handled on the same day.

New mailing technology has alsohelped-solve a sticky regulatory problem.When a mutual fund does something likechange its portfolio manager, it must sendshareholders a new prospectus with anaddendum. Fidelity once used stickers,affixed by hand at a rate of 200an hour. ForCovington,it hired four vendors to build an"insert tabber," a machine that slips aloose insert inside the prospectus. Securi-ties and Exchange Commission approvalwas required. The machine also sprays onnames and addresses and meters the pro-spectus, whippingout 12,000an hour.

Fidelity is the largest sender of first-class mail in the Cincinnati region. 'Platvolume, .along with Fidelity's abillty' tostamp, sort and code the deliveries, allowsthe company to obtain a 24.9-cent rate foreach letter. Last year Fidelity spent $40million on Postal Service and private deliv-eries.Various Perks

Employees go through a seven-weektraining course and take a series of writtenand operational tests just to work aninserting machine. Entry-level workersearn a base of $17,000to $19,000a year,which is competitive in working-class Cov-ington. Fidelity tries to earn employees'

loyalty with various perks as well as goodbenefits and bonuses of as much as $1,000ayear. Small details, such as painting inte-rior pipes bright colors instead of standardgray, are appreciated. "It keeps you in abetter state of mind than if you wereworking in a concrete jungle," says KimSnow, a floor supervisor.

But employees often work six- or seven-day weeks, 10- to 12-hour days, pushingthemselves to complete a job before thenext postal trucks leave the facility. "Yourchild thinks you'd rather spend time at thejob than at home," says Mickey Parks, afloor supervisor whose husband, Robert,also works at the mail facility. "But mydaughter is proud her parents work atFidelity."A Natural Look

Two roads Mr. Johnson built on-site arecalled Crosby- his middle name -;-and Ma-gellan. The mail facility's outside walls areadorned with concrete frogs, called "frog-oyles." (The unassuming amphibian,adopted as Fidelity's mascot in the 19705,isfitting for the financial-services giant, Mr.Johnson believes, compared with MerrillLynch's bull and Dreyfus's lion.)

Fidelity built a greenhouse to keep thelobbies in bloom year-round. A tree nur-sery will open this spring.

A bundle was spent on an earth-tone,multistory garage, sloped to fit into thecountryside so parking lots full of carswouldn'tsuIIy the bucolic views. Mr. John-son made the area's groundskeeper, An-gelo Randaci, replant shrubs because theyweren't irregularly staggered. "He doesnot like plants planted in rows," Mr.Randaci says. "They don't looknatural."

Also. unnatural, in Fidelity's quintes-sentially private Yankee view, is too muchpublicity. The local Tri-County EconomicDevelopment Corp. would like to trumpet

. the facility, but Fidelity has asked to be leftout of the promotions.

"I'm missing a great marketing oppor-tunity," says James West, the agency'spresident. "It's an award-winning project,but we defer to their wishes because wefollow the golden rule: They have the gold,so they make the rules."