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LONDON - Sainsbury's plans to write off 260 million pounds (U.S.$478 million) in costs associated with flawed IT and supply chain systems blamed in part for the chain's recent poor performance.
The company's chief executive, Justin King, revealed the costs as well as plans to get rid of 750 head office jobs and replace them with 3,000 in-store staffers, following the results of its business transformation review.
Now being forced to restructure its operations, King said, the company will:
-Stop using its automated supply chain system, closing some newly automated depots, and revert to manual processes for stock-level management;
-Renegotiate its business transformation contract with lead contractor Accenture;
-Write off 120 million pounds (U.S.$221 million) worth of supply chain assets and £140 million (U.S.$258 million) in related IT systems.
"Our supply chain systems and automated depots are not fully operational," said King. "The IT systems that were built to back it up have not delivered. The IT cost is a greater proportion of sales than [it was] three years ago. The system was developed to account for stock, but the system can't see the stock on the shelves. Every store is now going to manually update the stock levels on its shelves."
Asda went through a similar transformation during its integration with U.S. giant Wal-Mart, claiming a number of supply chain benefits.
An Asda spokesman said: "We can track stock more effectively at depot, shelf, and warehouse levels. This means we are better at availability, and the cost savings from the operational efficiencies means we can invest in price competitiveness and pass that onto our customers."
King also said Sainsbury's will renegotiate its contract with services firm Accenture, which has been responsible for the business transformation program, to ensure systems run smoothly in the future. Accenture has stressed that its contract does not cover the four automated depots that will now be closed or converted to manual procedures.
The business transformation program began in 2000 when former chief executive Sir Peter Davis signed a 1.8 billion pounds (U.S.$3.3 billion), seven-year contract with the managed service provider to modernize its IT and take on 800 staffers.
But Tuesday's write-offs were the culmination of recent reorganization in its IT service provision over 13 months.
In February 2004 Sainsbury's spent 553 million pounds (U.S.$1.02 billion) to buy back Swan Infrastructure Plc, the intermediary company it had set up for Accenture to run as part of its business transformation program.
At the time Sainsbury's was at pains to stress its motives for the move would save the company £25 million (U.S.$46 million) a year through better accounting practices.
A spokeswoman said at the time, "We would not have extended the deal [with Accenture] last November if we had any concerns about them."
Accenture did deploy new in-store systems, including 14,100 checkout systems and 5,800 PCs as part of its responsibility for Swan and its IT estate of PCs, servers, supply-chain packages, and point-of-sale systems.
But analysts felt the move was made to simplify relations at the time -- a view fuelled by King's comments about the relationship with Accenture.
Senior analyst Douglas Hayward Ovum said: "Essentially Sainsbury's was too ambitious on the business side, trying to oversegment its customer base, which meant that it, in turn, created an overly complex IT system that wouldn't scale."
Mike Godliman, director of retail consultancy Pragma, agreed that Sainsbury's problems were not purely on account of IT. "It's easy to blame technology, but technology is a tool, a labor-saving device. [Arcadia Group owner] Philip Green would never look at a computer screen to tell him what products to put in what store. Sainsbury's could've had the best IT system in the world, and it would still have [financial] problems."
-- Miya Knights, Computing magazine, a VNU publication