Sainsbury's has written off £260m IT spend and is
renegotiating a major outsourcing contract after it blamed supply
chain problems for poor results.
The supermarket chain, whose profits have been falling further
behind those of market leader Tesco, said last week that poor
availability of stock had hit its business. This was because
complex supply chain systems had not worked as expected,
Sainsbury's said.
"IT systems have failed to deliver the anticipated increase in
productivity and the costs today are a greater proportion of sales
than they were four years ago," the retailer said.
Much of Sainsbury's IT is outsourced to Accenture, but four
automated service depots, where many of Sainsbury's difficulties
occurred, lie outside the scope of the deal and account for the
bulk of the write-off. Accenture's contract is being
renegotiated.
Sainsbury's said, "The contract with Accenture is being
renegotiated to involve the company more fully in the selection and
implementation of systems and IT solutions. Accordingly the company
is rebuilding internal capability."
Sainsbury's uses a number of IT systems to manage its supply chain,
mostly within the Accenture outsourcing deal. Distrib- ution
warehouse management systems are provided by Manhattan Associates.
Eqos has built an alerts system to improve stock availability in
store, based on Microsoft .net technology. And Retek has supplied
software to forecast product demand in Sainsbury's stores.
Sainsbury's said it would continue to use its supply chain IT
systems and attempt to get better value from them, but when
necessary it would revert to manual support. It also plans to
reduce spending on IT and the supply chain.
Bola Rotibi, senior analyst at Ovum, said Sainsbury's review of its
IT and renegotiation of its outsourcing contract with Accenture
suggested that the retailer had not devoted sufficient resources to
managing its relationship with the outsourcing supplier.
John Bird, marketing and communication manager at Manhattan
Associates, said Manhattan's software had been tested by
Sainsbury's to full capacity and the supermarket was happy to
continue using it.
"In any complex re-engineering initiative, the reality of
productivity gains do not just come from technology. It is a
combination of getting technology to work together, change
management and ownership by the customer of the project. I think
[Sainsbury's] recognises this," he said.
An Accenture spokesman said, "We are responsible for the IT
transformation programme at Sainsbury's, including some of the
supply chain systems. However, the IT automation systems within
Sainsbury's four new automated depots are not, and never have been
under the scope of the existing contract. We are not responsible
for the strategy, development and operations of these systems"
The IT timeline
December 2000
Sainsbury's outsources its IT to Accenture. "Driving change in our
IT capabilities is a fundamental part of our business
transformation plans," said Sainsbury's chairman Peter Davis.
March 2003
Sainsbury's rolls out Alerts and Resolution Management software to
its supply chain. It will eventually be used by all of its 2,000
suppliers.
August 2003
Sainsbury's starts using self-scanning checkouts.
September 2003
Toby Anderson appointed head of online operations. His brief is to
help Sainsbury's online home delivery service to win market share
from Tesco.com.
October 2003
Suppliers use product- and store-based analysis using sales and
loyalty card data, in an attempt to ensure products are more
closely aligned with customer demand.
February 2004
Sainsbury's simplifies its contract with Accenture by buying an
intermediary firm for £553m to handle the relationship between the
two companies.
July 2004
Sainsbury's chairman Peter Davis stands down because of the firm's
continuing poor performance.
September 2004
Sainsbury's is lagging behind its rivals in implementation of chip
and Pin technology, and is set to miss the January 2005
deadline.
What Sainsbury's said about its IT
- "Sophisticated customer and product segmentation over the past
two or three years has required a complex supply chain solution
which simply cannot be delivered to the required scale. The new
automated depots are failing to perform at the planned
levels."
- "IT systems have also failed to deliver the anticipated
increase in productivity and the costs today are a greater
proportion of sales than they were four years ago."
- "The contract with Accenture is being renegotiated to involve
the company more fully in the selection and implementation of
systems and IT solutions. Accordingly the company is rebuilding
internal capability."