Supermarket Sainsbury's unhappy with IT investments

J. Sainsbury, the U.K.'s second-largest grocery chain, is in the process of renegotiating its £1.8 billion (AU$4.45 billion) outsourcing contract with IT services vendor Accenture as part of an overall three-year, £2.5 billion (AU$6.2 billion) rescue plan, designed to reinvigorate the struggling business.

In an attempt to drive down the price of its Accenture contract, Sainsbury's will 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, Sainsbury's said in a statement.

Sainsbury's signed a seven-year deal with Accenture, based in Hamilton, Bermuda, in 2000 to outsource all of 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 revisited and extended to 2010, with an eye towards 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 program, including some of the supply chain systems, the automated depots have never been part of its contract with Sainsbury's.

Accenture 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 add any further comment to their statements.

In the 2004/2005 fiscal year, Sainsbury's will write off £140 million (AU$346 million) of redundant IT assets and £120 million (AU$296 million) in automated equipment in the new fulfilment depots. An additional £30 million (AU$74 million) in stock losses will also be written off, due to the disruption caused by the new depots and IT systems, the company said.

Estimates for expenditures in its IT systems and supply chain come in at an additional £200 million (AU$494 million) over the next two years, Sainsbury's said. By its 2007/2008 fiscal year, the company intends on saving £40 million (AU$98.9 million) from its IT budget.

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