Major supply chain IT projects can deliver significant benefits, but when things go wrong the penalties of failure soon hit the headlines – and the bottom line.
If anyone needs reminding of the damaging effects supply chain hiccups can cause to retailers, all they need is a quick glance at recent news headlines. From “SuperGroup shock profits warning” to “Fortnum & Mason hampers will not arrive before Christmas” there have been sufficient tales of woe to send a chill down the spine of many a logistics or distribution manager.
While SuperGroup’s “warehouse computer glitch” held up supplies of fast selling T-shirts and hoodies and wiped £8.8 million from its profits, Fortnum & Mason’s “severe issues with its IT infrastructure” delayed despatch of its top-selling hampers and was followed by a spate of hyper-critical readers’ letters in the broadsheets and an obvious loss of goodwill. At Ocado “warehouse problems” led to its shares hitting an all-time low, while even Sainsbury’s came in for some stick for a failure of its online delivery slot booking system which left many shoppers without their Christmas orders.
Implementation projects running behind schedule lay at the root of three of these high profile débâcles. At Ocado it was a warehouse automation project designed to increase capacity at its Hatfield distribution centre that was to blame, with CEO Tom Steiner admitting that: “..we did not achieve as large or as early an increase as we had originally planned”. Instead of increasing capacity – and therefore the numbers of its delivery slots, geographic reach and customer orders – Ocado had to hire extra staff and increase manual picking just to cope with its existing customer base. As a result analysts downgraded annual earnings from almost £34m to around £28m.
At SuperGroup it was a distribution systems upgrade, supposed to increase efficiency, which instead left “£2m of stock” in the wrong place – although seeing the hiccup was subsequently blamed for a profits shortfall approaching £9m, it would appear that rather more stock went adrift than reports at the time implied.
Fortnum’s variously blamed “a new computer system” or “infrastructure upgrade”, both of which it seems to have begun implementing earlier in the year, coupled with an unexpected increase in orders: “hundreds of temporary staff” were drafted in during the last weeks of December to clear the despatch back-log.
For the vast majority of retailers the timetable for every IT implementation is crucial and extremely tight. Few would dream of starting a major project until after the January clearance sales were over, some – especially in the DIY sector – put projects on hold during the Easter peak, further delays can happen around the July sales, and just about everyone ensures that the work is completed by late September when the build-up to Christmas starts in earnest. Such restrictions have meant that many projects progress in short, self-contained, phased developments while rolling out new store systems across a large estate can take years.
Replacing mission critical IT systems is not something any retailer contemplates lightly – which is possibly one of the reasons why so many still depend on ageing legacy applications, and why long-established high street names are slower to adopt new technologies than more recent start-ups with newer, more flexible. IT kit.
As any retail IT manager also well knows – and numerous retail consultants have been quick to point out – identifying, managing and mitigating risks are probably the prime considerations for any major IT project. Implementations either have to be rapid and intensive – usually a frenetic period during the slack weeks following the January sales – or they have to “hasten slowly” and follow a protracted timetable to minimise risk. The retail calendar demands tight adherence to deadlines and while “project slip” seems to be something the public sector lives with every day (viz NHS computerisation) it has no doubt cost the jobs of many retail IT managers over the years.
The consequences of failure are well demonstrated by this latest round of high-profile supply chain catastrophes. At the time of writing Ocado shares were trading at around 54p compared with a launch price of 180p in July 2010. SuperGroup’s problems hit the headlines last September, but by December its CEO, Julian Dunkerton, was able to declare that: “Our replenishment capability in the UK business in now restored.” – even though £8.8 million had been wiped off the bottom line.
Were these failures caused by simple project slip? Was initial testing inadequate with premature “go live” dates? Did Boardroom doubts over the necessary IT investment delay contracts and thus start dates? So far all three retailers have maintained a discrete public silence about both the precise nature of the problems and the IT suppliers involved. If systems or implementation consultants were to blame perhaps a spate of lawsuits will follow in due course: if it was a management issue then no doubt the recruitment columns will soon reveal all.
Regular columnist Penelope Ody is a retail market specialist.
