ITsuccess in merger turmoil

Somerfield has hit problems after its Kwik Save takeover - but at least the IT works.

Somerfield has hit problems after its Kwik Save takeover - but at least the IT works.

These are troubled times for the UK's fifth largest retailer. Somerfield's profits have nose-dived, merger talks with potential partners have fallen through, and its chief executive David Simons has been given his marching orders.

Somerfield's problems began when the group took over the Kwik Save discount chain two years ago. Many people thought the £1.25bn price tag was too high.

Although Somerfield is converting as many Kwik Save branches to Somerfield stores as it can, the group will ultimately be left with two very different businesses that don't fit together well - an upmarket chain of convenience supermarkets, and a downmarket chain of discount shops.

Amid all of this turmoil, one thing, at least, appears to have gone right. The group has pulled off the complex task of integrating the businesses' diverse IT systems. After 20 months and an investment of over £8m, the two chains finally have the infrastructure they need to begin reaping an expected £50m in efficiency savings.

Creating a single IT system is just one small element in a complex merger. Yet its success is fundamental to the rest of the project, said Tom Scott, Somerfield's head of central systems. With the IT in place, Somerfield can concentrate on what Scott modestly describes as the "real work".

Somerfield and Kwik Save's systems could not have been more different. Both supermarkets developed their own bespoke software. And while Somerfield's core systems were built to run on IBM mainframes, Kwik Save's ran on AS400 servers.

Scott and his team flirted with the idea of moving both stores over to SAP, but he said the project would have been "too large and just too complex and risky".

With SAP ruled out, the only viable alternative was to move Kwik Save on to Somerfield's IT systems. "Kwik Save had suffered from under-investment in its systems for a long time," said Scott. "They were functionally inferior to the Somerfield systems in key areas such as datawarehousing, product information and financial control."

Product support

But the biggest drawback with Kwik Save's systems was their inability to support the full range of Somerfield products. The systems were designed to process a maximum of 10,000 different product lines. With each different pack size and special offer requiring a product code, Kwik Save's capacity fell far short of Somerfield's needs.

Scott's team thrashed out a series of aims and deadlines to gradually bring the two systems together. Their plan was to phase out the IT systems at Kwik Save's headquarters, gradually transferring control of the Kwik Save stores to Somerfield's Bristol headquarters.

Somerfield was able to make simple but important improvements straight away. The Kwik Save stores lacked basic IT equipment on site. Somerfield installed an automated telephone ordering system to allow Kwik Save stores to place orders for fresh produce using a telephone key pad. It was a quick and easy solution that required little staff training.

Somerfield's improvements showed just how poor the stock control at Kwik Save was.

The store had been re-ordering on a weekly basis. At worst, this meant that it could wait ten days to refill its shelves once an item had run out. Somerfield's in-house programming team developed a central stock management system to allow Kwik Save stores to be replenished the next day, with dramatic results.

"The initial pilots showed the project would have a dramatic effect in reducing stock in the stores, while increasing their availability," said Scott.

"We found that some products in Kwik Save were so overstocked, they did not need to be re-ordered for up to 15 weeks," he added

During the transition, Somerfield constructed a series of middleware interfaces to channel data from the Kwik Save computers into Somerfield systems. Managing the interfaces, which had to translate Kwik Save product codes to Somerfield codes and match the chains' store numbers and supply numbers, was quite a challenge, said Scott.

Inaccurate data

However, Kwik Save's product data turned out to be highly inaccurate. Some of the products listed in computer files at Kwik Save's distribution depots did not appear to exist. Others were wrongly described or had the wrong product codes.

"It was a mammoth effort to correct it," said Scott. "It certainly delayed the migration of Kwik Save's data to the Somerfield systems. And it certainly delayed the conversion of Kwik Save depots to the Somerfield stores."

Somerfield created a data integrity team to sort out the problems. "The only way we could deal with it was to identify all the differences and data anomalies one by one. We loaded a lot of data onto our datawarehouse and started producing a lot of reports from that to try and patch things up and look at where things seemed to be out of kilter," said Scott

With the hard IT graft complete, Somerfield can now get on with the task of pulling the rest of the businesses together. Armed with a single IT system, the group can now see, for the first time, just what products are selling, how much money each store is making, and where savings can be made.

Unusually, Scott claimed that the IT costs of the combined group are already lower than the costs of the two retailers separately. Closing Kwik Save's Prestatyn datacentre, has cut maintenance costs. Further savings have come from shedding IT contractors and relying on permanent staff.

With Somerfield's current financial difficulties, Scott has put plans to roll out the SAP/R3 system on hold while he reviews less expensive alternatives. "It may be that a simplification of the current systems with a few key enhancements may give us what we need more cheaply," said Scott.

But Scott is adamant that Simons sudden departure will have no impact on the group's IT plans. "Its all-systems-go as before. We have projects in train which have been approved by the board and we are going ahead with them. We have not put anything on hold," he says.

Somerfield Kwik Save merger road map

Completion date Project
July 1998 Integrate merchandise accounts The integration allowed Somerfield to pay Kwik Save suppliers from its Bristol headquarters and monitor stock movements in and out of Kwik Save depots
September 1998 Install Kwik Save telephone order systemAn interactive voice response system enabled Kwik Save stores to re-stock fresh produce using a telephone key pad
October 1998 Put Kwik Save stores on a daily ordering cycleSomerfield developed interfaces to allow the Kwik Save Epos system to re-order through Somerfield's central IT systems. It allowed stores to restock daily rather than weekly
December 1998 Maintain Kwik Save prices from Somerfield
May 1999 Incorporate Kwik Save into Somerfield depot routing systems Integration allowed Kwik Save to prioritise orders to different depots according to urgency
August 1999 Update Kwik Save depot's warehouse management system Somerfield updated Kwik Save's EXE warehouse management software to allow Kwik Save to run Somerfield product codes
November 1999 Move production of shelf labels and price books for Kwik Save to Somerfield
February 2000 Move Kwik Save Store range databases to Somerfield systems The move gave Somerfield details of the range of stock held in each Kwik Save store

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