CIO Magazine N° 70501 - 03/05/2007 - 301 · ERP packages and custom Tesco applications for...

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Shoppingfor valueWHY READ THIS?

Find out :

About increased outsourcingin the retail sector

Why supermarkets are

moving into the non foodmarkets

Why Tesco is focusing onthe US for expansion

From Sainsbury s acquisitionrumours to Tesco s marketdominance

, supermarketshave been making headlines .

Sarah Aryanpur checks outhow their IT

is faring in thisfiercely competitive market

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Every year CIO UKfinds out which companies are the largest users of IT in the UK and reportson each of them in the CIO 100 . The annual report also analyses the 10 major industry sectors

in the UK,

considers the challenges these industries have to meet and their use of technologyto get there .

In this month' s industry focus CIO UK takes a look at the supermarket industryand previews the CIO 100 profiles of three major players .

CL

reed from the shackles of chip and pinimplementations ,

retailers have spent

IF

their budgets on a broad variety of

technologies over the past 12 months .

Many have invested in staff scheduling ,

onlinerecruitment

,

IP-based security surveillance and

elearning systems ,

in an effort to improve operatingefficiencies

,

increase sales and reduce costs .

It is hardly a stampede but others have tappedinto more innovative technology ,

such as thermal

imaging software to reduce queuing times .

Hot topicLast autumn

,

Tesco chief executive,

Sir Terry Leahy,

said that a quarter of a million more customers a

week do not have to queue thanks to its `one in

front' campaign ,

which uses thermal imagingcameras . Previously ,

the supermarket chain hadto poll checkouts every 15 minutes but the Irisyscameras tie in with point-of-sale information to

automatically detect the number and behaviour of

queuing customers at its checkouts . Subsequently ,

Tesco has extended the use of the cameras at store

entrances so that managers can better predicttraffic through the tills .

Saucy lingerie and sex toy specialist AnnSummers has also deployed thermal imagingsoftware

,

which shows customers as a hot blobcounted once they cross a line

,

from a différentIT supplier . Other innovation has seen Argos ,

Woolworths and JJB Sports continue to invest in

kiosk technology . Argos is rolling out additionalkiosks in stores after fine-tuning their usage over

several years . Last year ,

Woolworths laid it was

extending its number of kiosks from 20 to aboutroo units

, although itis still evaluating their

return on investment .

However,

such innovative projects only accountfor a small proportion of retailers' investment in

IT . With one eye on improving operating margins ,

most retailers place a greater emphasis on usingtechnology to trim costs . Certainly , supermarketchain Somerfield had cost savings in mind

,

when it signed a seven-year deal with Indianservices provider Tata Consultancy Services

(

TCS)

to outsource the management of its entire IT

infrastructure late last year . Owned by a privateequity consortium

,

Somerfield expects to cut costs

by a third over the duration of the contract,

whichextended its existing agreements with TCS .

Indian takeawayUnder the deal

,

TCS will take responsibility for

managing Somerfield '

smainframes

,

Unix and NT

platforms ,

and delivering IT services to zoo xetailoutlets and eight distribution depots . The supplierplans to exploit developments in technology to

manage user accounts, deploy software upgrades

and manage capacity remotely from India . About

115 ofthe i4i IT jobs at the retailer' s Bristol

IT headquarters were transferred to TCS butSomerfield retained a team of 25 senior executives

to manage the strategic direction of the contract .

While such large outsourcing deals are rare

in retail,

most outsource a large chunk of theirIT services

,

of which India swallows a growingproportion . According to analyst firm IDC

,

western European retaile s expect to allocate at

least 6o per cent of their IT budget to external

providers this year , up from 5o per cent inthe

latter part of 2005 . Transactional websItes are

also an increasingly essential part of a retailer' s

technology armoury . This is hardly surprisinggiven that UK consumers spent 7.66 billiononline in the io-week run-up to last Christmas

-nearly 5o per cent more than the 4.98bn sales

for same period in 2005 , according to industrynetwork body ,

Interactive Media in Retail Croup .

Over the past year , Body Shop ,

Ikea, jewellery

chain Ernest Jones and Superdrug have launchede-commerce sites

, although many retailers have

already progressed beyond their first generationsites . As John Clare

, group chief executiee of

electricals group DSGi, says:

"

If any major retailer

is not in the process of making the transition to

e-tail, they' re probably too Tate "

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6'

N

"

Farm connectionswill enable beef

farmersto exchange

information withtheir supply chain

partners ,

drive downcosts and improve

the competitivenessof British beef "

- Justin King ,

chief executive,

J Sainsbury

J SainsburyHeadquarters: LondonTurnover: 16.06 billionHead of IT: Angela Morrison

,

directorof European strategy

CI0 100 2006: Ranked 18

Sainsbury has rarely been outof the news

Jin

the last few years and its latest headline

involves the possible takeover by privateequity investors of the supermarket chain .

US-based private equity consortium CCVC

Capital Partners,

Blackstone and TPG Capital

pulled outin early April after

it became clearthe Sainsbury s board would not back their

proposed offer . The consortium had offereda

bidof 5.82 per share but the Sainsbury

family-which still dominates the boardwanted more .

Recovery positionThe company is just coming to

the end of a

th'ee-year turnaround plan devised by chiefexecutive Justin King to revive its fortunes after

a disastrous couple of years . This included theUK'

s largest ever IT insourcing project ,

whichwas completed last year . IT assets

, 470 staff,

and third-party contracts from Accenture were

brought back inhouse at a costof 65 million .

The supermarket expects this to be paidback in less than two years , through future cost

savings from bringing IT back under its owncontrol . At its last trading statement Sainsbury s

unveiled its eighth consecutive quarter of likefor-like sales growth , strong Christmas trading-serving o' er tom customers in Christmasweek-and growth of around 6o per cent forits online business across the quarter . Kingclaimed this online growth has been driven bycustomer demand

,

as the company does notdo significant marketing of its online offering .

This channel is likely to become critical for allthe leading retailers over the next two yearsand Sainsbury s

is one ofa number of retailers

currently working on multi-million poundupgrades and changes to online offerings ,

as this part of the business continues to

experience spectacular growth .

Although no one will comment publicly onthe project ,

it is thought likely to include a farmore interactive web offering , incorporatingWeb 2.o technologies aimed at capitalising

on internet social ne .rkig

. Sainsbury s has

continued to invest in ne\y

stores,

with eightsmall new supermarkets pening in the last

quarter alone and it has caifried out significantrefi rbishments giving it ore room for nonfood lines like clothing ,

where sales are now

up around 5o per cent on the year . Investment

analysts have pointed to S insbury' s propertyassets as a major reason for the interest from

private equity investors . 1rofits forecasts forits full year figures are no at 36om .

Trying something nemThe Jaime Oliver catchphra

something new today' refle

company to move its focus

markets,

such as or.i " anic

se for the store,

'

Trycts the push by the

to di ferent specificfood

,

small local

produced goods andenvionmentally

sound

shopping . The company lecently pledged to

grow Fairtrade sales 145per

cent to L130m in

2007 and to increase it to 4Zoom by 2008 . It

already claims to sell more Fairtrade food than

any other UK retailer .

Sainsbury s is also usig

IT-based projectsto support some suppliersundertaken is to provide

One project beingIT to key farming

producers in the UK . Only 20 per cent of UKfarmers are thought to use IT to manage theirbusiness and an even sma ler number of beef

producers , according to Th Red Meat IndustryForum . Sainsbury s

has 1 unched a projectcalled Farm Connections

,Chat offers training ,

computers and software : obeef producers ,

which the supermarket say , will allow them to

compete better in the market .

" Farm connections will enable beeffarmers to exchange info mation with their

supply chain partners ,

drive down costs and

improve the competitiven ss of British beef,

"

said King at its launch .

"I am convinced the project will makea

positive différence to ourf

roducers includingproviding information relating to customerhabits and trends

,

andsignificantly helping

them in their businesses. "

->

M

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4 / 5

"

Elements of ourcommon operating

model are already in

place and benefitingsome- of our

businesses but this:

.- invéstment wi ll help

us meet our goalof opening our first

Asian storein 2007 "

-Co tn Cobain,

groupx director

,

Tésco

TescoHeadquarters: Cheshunt

,

HertfordshireTurnover: 38.3 billionHead

of IT: Philip Clarke, global IT director

CIO 100 2006: Ranked 11

Thebig Tesco story throughout the "

In other countries,

like Korea and Japan ,

welast year has been its ongoing growth have established the bed ock-including tillsand consolidation as

a market leader system ,

back-office,

core ommunications andto rival Wal-Mart in the US through financials . Now we need to go on and build

increased global expansion . Most recently ,

that on that with store ordei ing , space planningexpansion saw it announce it will enter the USmarket in 2007 with

a new `fresh and easyneighbourhood market' brand based on its local

`express' format . The retailer's own research

found an annual US market worth 31o billionthat

is also estimatedto outstrip UK market

turnover growth of around five per cent,

at 40per cent over the next five years .

Heading out westColin Cobain

, group IT director, says the move

to the US would consolidate and build on the

company' s successin Europe and Asia .

The IT strategy that underpins suchaggressive expansion is based on a commonoperating model across all countries wherebusiness processes and IT are standardised as

much as possible .

Notable within this strategy was thedeal struck with

IT outsourcer Wipro latein 2006 to rollout a `Tesco-in-a-box' suite

of systems , consisting ofa mix

of standardERP packages and custom Tesco applicationsfor cost-effective and efficient store rollouts

,

while still maintaining some sensitivity to

local conditions . Its preferred application mixconsists of Oracle Retek ERP

,

Teradata data

warehousing , Business Objects reporting ,

Oracle/ PeopleSoft human resources and Oracle

financials . More recently ,

it addeda major

investment to extend and renew the life of its

legacy mainframe store inventory system .

In March 2007 ,

the company investedin

mainframe integration software from Micro Focusto extend the use of the retailer'

s bespokemerchandising system used for the UK andIreland

to other territories . Cobain at the timesaid extending the life and scope of the systemwas essential to expand Tesco

s global supplychain fulfillment footprint in other markets .

and merchandising to rriake sure what we're

delivering is constantly i novating to improvethe customer offering ,

"

e says .

" Elements of

our common operating odel are already in

place and benefiting some of our businessesbut this investment will elp us meet our goalof opening our first Asian store

in 2007."

Tesco will modernise and extend its uniqueContinuous Replenishmént

(

CR) application

to run on the latest IB System p

servers

running AIX,

in addition to its System z

mainframe running z OS . Micro Focussoftware will create

a

p

rt for theCOBOLbased CR application to IX

. This will allowTesco

to maintaina sing e-source stream for

both the mainframe and Unix versions of the

application , ensuring future enhancementsto

the UK-based

mainframapplication can be

rolled out to ail internats nal countries on the

existing servers more cost-effectively.

IT backburnerIt would seem that other

n ajor IT-led initiatives

including its radio frequency identificationtracking trials of goods in its supply chainhave taken

a backseat to he company' s plansto penetrate new markets . This also includedthe launch of the Tesco irect home deliveryservice

in the UK .

Tesco still occupies the dominant retailsupermarket position in the UK

, claiming 31.4

per centof the key Christmas and New Year

trading during 2006 to 2007 , according to

market researcher TNS .

Along with this suc ess has corne theinevitable criticism abo t monopolies and

abusing its position of power .

That has led to an ongoing investigationof Tesco

sUK busines practises by the

government' s Competitio Commission .

MICRO FOCUS

CIO Magazine N° 70501 - 03/05/2007 - 301 · ERP packages and custom Tesco applications for...

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Transcript of CIO Magazine N° 70501 - 03/05/2007 - 301 · ERP packages and custom Tesco applications for...