Supermarket chain Sainsbury's is writing off more than £100m in IT investments after admitting new delivery systems had reduced, rather than enhanced the availability of goods in its shops.
The company is renegotiating its £1.8bn outsourcing contract with IT services provider Accenture as part of an overall three-year, £2.5bn rescue plan, designed to reinvigorate the struggling business.
Sainsbury's said it would simplify existing IT systems as well as those in the pipeline as implementation thus far has "failed to deliver the anticipated increase in productivity" while its IT costs continue to eat up more and more of its budget in proportion to sales.
The retailer signed a seven-year deal with Accenture to outsource its IT operations and transferred about 800 employees to Accenture, retaining a small in-house staff to oversee the new IT strategy.
Last November the contract was extended to 2010, with an eye to cutting costs, a Sainsbury's spokeswoman said.
The supermarket chain said that it now wants to renegotiate the contract again to give Sainsbury's more input in the selection and implementation of IT systems and solutions, and that it also plans to rebuild its internal IT staff and systems.
One of Sainsbury's biggest IT problem areas is its four new automated depots, which the company says are failing to perform at the planned levels.
Accenture, one of the world's largest providers of IT services, said that though it is responsible for the supermarket chain's IT transformation programme, including some of the supply chain systems, the automated depots have never been part of its contract with Sainsbury's.
The supplier said it replaced the majority of Sainsbury's core operational systems, which has brought "improved reliability and stability of systems," while also reducing the chain's annual IT operating costs.
Because renegotiations between Sainsbury's and Accenture are currently taking place, representatives from both companies declined to comment further.
In the 2004/2005 fiscal year, Sainsbury's will write off £140m of redundant IT assets and £120m in automated equipment in the new fulfilment depots. An additional £30m in stock losses will also be written off, due to the disruption caused by the new depots and IT systems.
Estimates for expenditures in its IT systems and supply chain come in at an additional £200m over the next two years, Sainsbury's said. By its 2007/2008 fiscal year, the company intends on saving £40m from its IT budget.
Laura Rohde writes for IDG News Service