UK supermarket giant Sainsbury’s Plc is writing off $462 million in redundant IT assets and supply chain systems, and renegotiating its $3 billion business transformation outsourcing project with Accenture following a swathe of IT-related problems.
Announcing the group’s strategy review intended to turn around the ailing supermarket chain’s business, Sainsbury’s CEO Justin King said: The Business Transformation Programme has not realised many of the anticipated performance improvements and cost benefits and distracted us from investing in and delivering the customer offer. In particular the challenges this has presented have made it more difficult for our store colleagues to deliver an acceptable level of service to customers. This has led to declining market share.
London, UK-based Sainsbury’s said that the IT systems project had, failed to deliver the anticipated increase in productivity and the costs today are a greater proportion of sales than they were four years ago. As a result, it said it will be writing off 140 million pounds ($250 million) from redundant IT systems, and 120 million pounds ($213.6 million) from automated equipment in the new fulfilment centers. It also lost some 30 million pounds ($53.4 million) in the value of its stock from disruptions caused by the IT systems.
Accenture commented on Sainsbury’s review with a statement distancing itself from the fallout: We are responsible for the IT transformation program at Sainsbury’s, including some of the supply chain systems. However the IT automation systems within Sainsbury’s four new automated depots are not…under the scope of the existing contract.
The project was hailed by Accenture as one of its flagship BTO deals, and the largest of its kind in the supermarket retail sector, intended to transform the way Sainsbury’s delivered goods and services to its customers through new IT and supply chain systems.
Accenture was hired back in August 2000 under the watch of former CEO Sir Peter Davis, to take over the management of the payroll and IT infrastructure underpinning Sainsbury’s 530 stores, in a seven-year deal that saw some 800 Sainsbury’s staff transfer to the outsourcer. The deal formed part of Sainsbury’s 1.8 billion pound ($3.2 billion) business transformation program designed to help it recover ground in an intensely competitive sector. Sainsbury’s had been expecting to generate savings of 35 million pounds ($62.3 million) annually through the outsourcing deal, from its initial 200 million pounds ($356 million) IT budget. The deal had been extended for an additional three years in February 2004, giving the contract an expiration date of 2010.
However the failure of large parts of the project have forced Sainsbury’s into taking action. It said that the project with Accenture will now be renegotiated, to involve the company [Sainsbury’s] more fully in the selection and implementation of systems and IT solutions. Sainsbury’s will also slow down the roll out of future systems and upgrades, focusing on existing systems, in particular the forecasting and scheduling tools. It also sees certain systems being unusable, with others requiring more investment to simplify and improve their functionality.
Sainsbury’s said it is also now re-building internal capability within its IT department, which will mean it being less reliant on Accenture for IT delivery. It made some move towards this end back in January 2004, when Sainsbury’s acquired Swan Infrastructure Plc, its IT services contractor that is employed on the outsourcing deal with Accenture.
Sainsbury’s paid a total of 553 million pounds ($940 million) to purchase the Swan business from parent Barclays UK Infrastructure Fund in a move that aimed to simplify the structure of its outsourcing project with Accenture and to create a direct commercial relationship with it.
Following the business review, Sainsbury’s aims to reduce operating costs by 400 million pounds ($712 million) by 2007/8, of which 50 million pounds ($89 million) will be in the supply chain, and a further 40 million pounds ($71.2 million) in IT.
Accenture attempted to smooth over the cracks commenting, We have a good relationship with Sainsbury’s, which has developed over the past four years…We look forward to continuing our work with them.