00309-How Sainsburys Transformed Its Supply Chain.doc

how sainsburys transformed its supply chain?supply chain management review may 7, 2004by the mid-1990s, it was abundantly clear that sainburys could no longer keep up. long a high street fixture for britains value-conscious shoppers, the grocery giant had already been bested by longtime rival tesco.things werent about to get easier. sainsburys faced increasing pressure from asdasoon to be acquired by wal-martfrom aggressive regional retailers, and from growing cross-border initiatives in the retail sector. the grocers 11 million customers were looking for more product choice, higher quality, more freshness, wider availability, better and more customized servicebut with no higher prices. suppliers wanted better demand signals and more predictable order flow. and shareholders had already seen a 30% drop in earnings in a sector notorious for its paper-thin margins.executives at j. sainsbury plc did not have to look far to see where much of the blame lay. behind the bright storefronts was an outdated supply chain infrastructure that was no match for a system that had to efficiently handle more than 2,000 suppliers, 35,000 product skus, and 800 million cases of product each year. warehouse pick lists were circulated on paper. inventory visibility was murky not only in the warehouses but also in the stores, making basic replenishment an inaccurate process. management had little real-time data with which to make sound decisions. and performance measures meant sainburys had to turn inventories faster each year.yet the company was using a 30-year-old mainframe-based warehouse management system（wms）. its typical distribution center was almost as old. compared to the age of the average tesco depotseven yearssainsburys depots were nearing the end of their useful life. at the server level, utilization rates were as low as 1%. many of the it systems were proprietary; the bulk of the software had been developed in-house. as recently as 2000, the system was still staggeringly complex, with as many as 400 different supply chain software applications.the consequences were all too apparent: stock shortages were common, and on one occasion, all of the depot systems crashed when sainsburys tried to order goods in a different way, according to andy banks, director of supply chain development. much of the technology budget was dedicated to maintaining the complex and antiquated it infrastructure; and it was particularly difficult to launch new business initiatives. sweeping changes were clearly mandatory.new supply chain blueprintsainsburys has long enjoyed a reputation as a high-quality grocery chain in the u.k. it is also the parent of shaws supermarkets in the u.s. until tesco attained market supremacy, sainsburys had been the largest in the segment. it is a formidable contender, with annual revenues of more than $27 billion from 450-plus stores supplied by 19 depots and 12 primary consolidation centers（pccs）.change had begun in the late 1990s with the retailers adoption of manhattan associates advanced wms system. but wholesale change came in 2000 not long after sir peter davis joined as ceo. realizing that many of the business initiatives he wanted to initiate were hampered by sainsburys it systems, davis authorized an end-to-end overhaul that led to outsourcing of the entire it function to accenture. the primary goals: halve it operating costs and introduce powerful new applications that would ease introduction of crucial new business initiativessuch as loyalty programswhile producing accurate and timely business intelligence for senior management. “sainsburys is a business undergoing transformation,” says supply chain development director andy banks.the transformation began in earnest with a new blueprint for sainsburys supply chain operations. the $1.8 billion overhaul is well under way, and will be completed in 2005. accenture and sainsburys agreed that what was needed was an agile it infrastructure built on an open, adaptive, scalable architecture with hardware and software systems that would give very high performance, strong data security, and low total cost of ownership. these transformation principles dictated an aggressive move away from the grocers proprietary legacy platforms to proven best-of-breed technology providers whose products would interoperate with ease. accenture understood that sainsburys would not be well-served by dependence on providers of proprietary technology. it was crucial to smoothly integrate best-of-breed products to manage the retailers business risks well.advocate for affordability, reliabilitysun microsystems, inc. fitted sainsburys needs perfectly. long a vocal advocate of open standards and affordable and highly reliable infrastructure, sun had completed over 5,000 supply chain implementations worldwidemany of them in retailand most importantly, the company had a robust network of more than 100 software partners. (see sidebar: suns strategic partnership with manhattan associates.) we chose sun as the cornerstone of our entire it strategy, and our decision was ratified by the sainsburys board, says ian notley, a partner at accenture and head of architecture for the firms retail industry practice.together with accentures partnership network, suns ecosystem of technology leaders would give sainsburys the mix of experienced, independent, objective it providers it needed. the clear delineation between application vendors, platform providers, and integrators would make for smooth project planning with no territory fights. additionally, sun was already well versed in cutting-edge technologies such as wireless mobility and auto-id, or automatic identification of parts and materials. for the sainsburys project, sun dedicated a core team of 20, including professional services, technical architects, and support services. there was also a sun performance consultant, full-time for two years, whose key job was to help isolate any performance issues with applications or platforms before they became problems.in fact, the it overhaul was only one of several big transformation programs that sainsburys was rolling out simultaneously. the retailer was diversifying into general merchandise, and it was upgrading its entire supply chain structure. the future supply chain will involve 32 distribution sitesgigantic fulfillment factoriessuper-depots, in effectwith several existing regional distribution centers (rdcs) and pccs.key to the supply chain reengineering was an upgrade from edi data interchange to electronic automated stock notices (asns) via the web. the trading partner management (tpm) systemformerly called infolinkfirst went live last january, and is steadily improving the efficiency of sainsburys receiving operations. even small vendorsfarmers, for examplecan access the web-based system and handle everything from printing out pallet labels to sending asns. encouraging compliance is far from easy: it involves many rounds of communication and education, followed by tests with dummy data and then controlled live trials. sun is handling much of the implementation and distribution of tpm.scrutinizing sainsburys supply-chain makeover, its possible to pinpoint five characteristics that have contributed significantly to the projects success. each merits a closer look:1. low total cost of ownershipearly on, sainsburys placed a premium on containable total costslow operating costs, yes, but also reduced purchase costs. integrator accenture discovered substantial savings in hardware expenditures. specifically, the sun fire v880 serverspowerful midrange boxes that run manhattan associates wms systemwere priced at up to $80,000 each, or just 35% of the cost of a comparably specified eight-way machine from a leading competitor. clustered with sun l100 tape drives, the v880s are now being rolled out to all 28 of sainsburys u.k. depots, with sun staff taking care of implementation and testing. the total saving in purchase cost is approximately $7.5 million compared to what the retailer would likely have had to spend with the competitor.speaking to these kinds of economic advantages, scott mcnealy, chairman and ceo, sun microsystems says: over the past year weve made a dramatic move in leveraging industry economics to bring customers the enterprise-class benefits of our solaris os and java technology at compelling price points.similarly, it service costs are significantly lower because the overall architecture is simpler and more standardized, and because the sun platforms, running on the solaris operating system, are extremely reliable. sainsburys has suffered no server downtime since the first sun box was deployed more than 18 months ago; suns service level agreement with accenture calls for 99.95% uptime. in turn, the systems reliability has encouraged migration from microsoft windows operating systems to solaris for the order fulfillment system behind sainsburys online grocery delivery channel. the retailer then opted to run solaris on sun v280 servers, with consequent savings above comparable boxes.its similar on the software side: a profusion of capable off-the-shelf packages generally means lower prices, and tight performance tuning regimenssun has been very active herehave kept the applications running safely within capacity. in one case, suns engineers were able to rebalance manhattan associates wms system so it used far less system memoryagain with savings in hardware investments.2. partner-led business modelaccenture sees great advantage in a best-of-breed approach, believing it offers the customer a lot more flexibility and greater choiceespecially if it is based on an open architecture and the right partners. its an approach that sun swears by too.sun has a firm view of what that means, and it is demonstrated by how it has worked with many of its business partners while on the sainsburys project. in essence, it is an extra mile approach, often transcending the terms of the service level agreement to push for solutions to the customers or partners challenge. (see sidebar: suns strategic partnership with manhattan associates ) sun prizes its relationships with sainsburys application vendors such as ab initio, siebel, retek, oracle, blue martini, seebeyond, and others. in turn, accenture values the depth and breadth of suns relationships, and also its enthusiasm for understanding a new partners motivations and needs.sun proactively partners with software vendors and system integrators to help customers integrate and streamline their supply chain business processes. the iforce erp/supply chain network is a good example of suns partner-led strategy; it brings partners in the iforce community together with technology, marketing, and sales resources to enable the delivery of customer-focused solutions on the sun platform through defined supply chain offerings and activities.suns iforce erp/ supply chain network is a compelling go-to-market engine, and the supply chain thought leadership series and stanfords global supply chain forums provide sun and its partners with thought leadership in supply chain management, says dr. hau lee, professor of operations, information and technology, stanford business school. (see box: recommended actions.)in effect, sun and other partners with the same holistic mindset have built solid relationship equity that can be monetized as more resource-sharing and less friction in transactions between partners. for instance, sun makes available its benchmarking centers around the worlda major benefit for accenture when technology issues must be resolved quickly.suns strategic partnership with manhattan associatesmanhattan associates is the leader in supply chain execution with more than 800 customers. but its strong alliance with sun microsystems has helped both technology providers better serve their customers, and typifies suns wholesale embrace of the partnership model. sainsburys supply-chain reengineering initiative is a case in point. in order to provide the grocer with the packaged solution it needed, suns experts worked with manhattan associates wms to extend its capabilities to produce and chilled goods. they also committed to performance tuning and testing of the system before it went live. in another situation, manhattan, which had originally been running its wms on hp-ux and windows, had wanted to run a test against every patch. but suns offer of its binary compatibility guaranteeif the application breaks, it is suns responsibility to fix it even though it is not an application providerwas a strong lever in wms eventual move to solaris.the sainsburys project is expected to be one of the largest implementations of manhattan associates anywhere. previously, manhattan wms had not been available on the sun platform, so suns engineers had to collaborate closely with their peers at manhattan to port the application onto sun. the success of the project to date has led to several other companies specifying wms on sunleading companies such as communications giant sprint, foodservice marketer sysco, apparel brand perry ellis, and gift retailer russ berrie and company.the flexibility, scalability, and availability of manhattan associates software on the sun platform are helping us achieve our global growth goals throughout our entire supply chain, linking our offices and factories in north america, europe and asia-pacific, says michael saunders, russ berries vice president and chief information officer.3. data integrationsainsburys supply chain transformation mandated an integrated end-to-end approach, and that mandate carried over into data integration too. on top of that, accentures best-of-breed strategy put the onus on effective integration of applications. it was crucial to ensure that sainsburys supply chain applications ran smoothly on top of the solaris and other operating systems, that they could integrate easily with both earlier and current technology investments, and that they would have the flexibility to change quickly as the retailers business needs changed in future.suns reference architecture for supply chain management (see chart) helped provide the right framework. the java enterprise system (jes) forms a base middleware layer that supports consistent web access, identity management, and directory services. jes effectively integrates the whole stackthe cluster solution, application server, portal server, and so on. overall, a jes-based system is low-cost compared to bea or ibms websphere; every layer runs efficiently.jes is the underlying middleware layer for any supply chain it infrastructure such as that at sainsburys. the new jes approach enables customers to synchronize it investments with business priorities, helping them acquire and deploy enterprise infrastructure software, and allowing the rapid deployment of business applications and java web services. jes has three fundamental elements: a new software system, a new systematic approach to design, development, test, and delivery, and a new business model. together, these reduce cost and complexity while accelerating business solutions to employees, customers and partners.sun worked closely with partner seebeyond, the provider of an integrated composite application network built on a comprehensive integration platform, to develop a highly efficient and low-cost enterprise infrastructure that is already making sainsburys supply chain significantly more agile. suns jes smoothly enables application version control, release schedules, and updates, minimizing the need for software license audits and reducing it overhead and maintenance costs. seebeyond has become a supplier of choice of leading retailers seeking effective application integration solutions.4. robust securitynot long ago, a front office at sainsburys was out of action for several hours when its windows pcs were attacked by the blast worm. the grocery will not tolerate similar disruption in its supply chain.for sainsburys and integrator accenture, security has meant uptime just as much as it has referred to data integrity. accenture has picked suns high-reliability servers and the stable solaris operating system for much of the retailers supply chain it infrastructure. and sun has partnered aggressively with application vendors to tune systems for peak-load efficiency so the risk of an outage is further reduced.but data security has been a key proviso too. a new trusted solaris operating system now comes with increased privacy and reduced risk of security violations. the issue is particularly sensitive in wireless environments; sun is actively working to introduce new layers of security that will strengthen the case for early migration to promising auto-id technologies.5. open standardswhen sainsburys contracted to outsource all of its it operations to accenture, the integrator did not need to be reminded of the value of open standards. the need to use commercially available software wherever possible dictated a requirement for a hardware platform that was based on open standards, in order to minimize the costs and timescales involved in integrating the total solution, explains ian notley, architecture chief in accentures retail industry practice.as wed also decided against using an enterprise resource planning (erp) software package in favor of using individual applications from a series of best-of-breed vendors, the need for an open system was even greater.the demand for high reliability helped turn the choice toward unix as the basis for as much as possible of sainsburys it architecture. hp and ibm systems were already in use there, but suns enterprise-wide commitment to open systemswitnessed most recently in it