The old delivery system was also ill-suited to changes in customer tastes, habits and store locations. Supermarkets have to offer a wider range of products, in smaller volumes and at lower prices, than in the past, to people who shop when they need to rather than stocking up once a week.
“Today, Sainsbury’s carries 2.5 million cases per week from around 2,000 suppliers. It also has to deliver them to 500 outlets every day, ranging from traditional large stores to smaller shops on previously untapped territories, such as railway terminals and Shell petrol stations. Given this diversity, daily “waves” of restocking are required from 5am onwards.” (, 4/4/2005)
In order to service this need, Sainsbury revamped its supply chain and created a complete end to end supply management system.
“The initial timeline for the project was seven years, as the struggling chain set about pruning a network of 25 distribution centres to just nine facilities in eight regions around the UK. Another part of the plan was to build four giant warehouses, two of them fully automated, for £400 million each."
(, 4/4/2005)
Sainsbury did it in three years, to catch up with, in some cases, and some cases overtake its rivals. Sainsbury's uses a number of IT systems to manage its supply chain, mostly within the Accenture outsourcing deal. Distribution warehouse management systems are provided by Manhattan Associates. Eqos has built an alerts system to improve stock availability in store, based on Microsoft .net technology. And Retek has supplied software to forecast product demand in Sainsbury's stores. By implementing automation, Sainsbury was hoping also to avoid human errors so that errors were right at the first time Although, Sainsbury has been working hard to improve its supply chain, however, the operation of its four new automated depots has failed to perform at the planned level which made its profit has been failing behind its rivals, Asda and Tesco and Poor availability of stocks has hit its business; the supply chain system has not worked as expected.
IT failure
One of Sainsbury ‘s biggest problem IT problem areas is the four automated depots , the implementation effort has failed to deliver the anticipated increase in productivity while IT costs continue to eat up more and more of the company's overall budget in proportion to sales.
The following are the faults in the failed project which led to a tremendous loss:
- The decision to outsource IT to Accenture was an expensive mistake (Accenture is responsible for the supermarket chain's IT transformation program, including some of the supply chain systems, the automated depots were never part of its contract with Sainsbury.)
- CIO failed to understand the drivers that affect a business, or were unable to communicate how the IT resources could help organizations manage these factors more effectively, then the credibility and esteem of the IT function would remain low.
- A business should never set out on a critical project without giving clear accountability to the key functions
- Failing supply chain left its shelves empty and its loyal shoppers frustrated
- Introducing sophisticated technology too quickly
- Lack of strategy (Teething problems are almost impossible for a business to implement a supply chain program in just 3 years)
- The change process has led to a significant reduction in morale at a time when we staffs are needed to be more motivated
- Inability to maintain a clear enough lead on quality and innovation
- Underplayed the problems and overplayed the success of its change transformation programme
- The supply chain overhaul failed to impress suppliers
- Staff turnover (problems with the system meant it fail to deliver, leading to low morale among staff)
Management Failure
However, Sainsbury’s troubles cannot solely be attributed to systems meltdown, systems failure aside, the management, clothing and home furnishing strategy was in disarray, introduction of non-food items were also factors that led to a continuous loss of market shares. Sainsbury was unable to understand its business objectives of whether being the food specialist or built its non-food items, for example, clothing, DVD, books, magazines and its non-food aware came incredibly late, the problems has been Sainsbury’s lack of ability to retail clothing. Warehouse management, staff levels, staff training, IT, in store merchandising, little advertising support, have all proved problematic. It has been unable to successfully integrate clothing into its stores and has certainly not done it as well as Tesco and Asda .Unable to realize its weakness in non-food offer, for example, got insufficient place in store, never cracked this part of its business, as a result, making itself even difficult to compete with its rivals therefore Sainsbury failed to differentiate itself in the marker place. Its significant investment had not been focused on customer but on the things that are invisible to customer, thus customers were neglected. Sainsbury has made some gains in terms of cost cutting, that will keep itself on target profit wise, but it has gone for the above – mid-market spenders and targeting higher spenders is always risky and it is not big enough to support the infrastructure and scale of its business.
So in summary, Sainsbury’s built an unsustainable business model that became margin driven, focused on short term profit. The investment in infrastructure, which has yet to deliver the benefits intended. The customer offer was neglected. It's self evident that the decline in the profitability means that the investment which have made has had very poor returns. And a direct consequence of much of that investment is that Sainsbury now have a cost base that this business cannot afford. The result in competitive terms is that its market shares continue to decline - part of a much longer term trend and the sales indiscernible have reduced which has been a key contributor to the cost pressure.
The upshot of all of this is that managing cost tightly is important.
. Recommendations
As competition in the global marketplace increases the importance of quality and in particular Total Quality Management (TQM) has become a key management issue within most major corporations. More and more companies are applying the principles of TQM and the topic is well publicized in many books and papers. The procurement function plays a key role within any company, as they are the link between the business and its suppliers. In essence the buyers interpret the requirements of the business and convert this into the materials required to satisfy the needs of the customer.
These are the reasons for implementing TQM:
- Increasing competitive pressure
- The changing perceptions of the customer
- The hidden waste under the present methods
- To change the perceptions of managers and people
- To release the potential of people
- Survival
The benefits of TQM can be summarized as the following:
- A greatly improved product or service
- A major decrease in wasted resources
- A massive leap in productivity
- The best opportunity to increase profit
- A long-term increase in market share
- A sustained competitive advantage
- A real release of the potential of people
- A motivated workforce
- The elimination of much hassle and frustration involved in management
By summarizing the benefits of TQM above, it is obvious that TQM is a effective approach to improve Sainsbury‘s performance, thus, recommendations with justifications for introducing TQM aspect to the company is necessary.
Base on TQM aspects, the new project should focus on the following issues:
- Sort out store revamps
- Bed down a new management
- Reduce no. of head office
- Rebuild true partnership with supplier
- Better clarity of range
- creating a new leadership team for the business, drawing on people with an exceptional track record of delivery in food retail
- focusing on fresh and own label
- reduce cost, focused on sales customers, emphasis on cash flow
- restore reputation for innovation and quality
- provide choice through focusing on customers
- Strong promotions program, carefully targeted, well-executed promotional activity will give the opportunity to maximize the share of customers spend.
Reference and bibliography
- http://www.manufacturing.net
- http://www.supplymanagement.com/archiveitem
- http://www.logisticsit.com/absolutenm
- http://www.timesonline.co.uk/article/0,,2095-1312976,00.html
- http://www.j-sainsbury.co.uk/files/reports/er2003/casestudy_products.htm
- http://news.bbc.co.uk/1/hi/business/3856725.stm