ikea&pcase
TRANSCRIPT
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Can A&P Renew Itself with New Information Systems?
Ike M. Gaamil
January 3, 2012
Area of Consideration (Facts)
The A&P was founded in 1859 and it became the most famous supermarket
chain in the United States. Their annual revenue was second only to General Motors.
They have about 750 stores in 16 states, consisting of 24,400 full-employees and
56,600 part-time employees.
However by 1990, its sales were no longer growing and facing stiff competition
from such grocery giant chains as Safeway and Kroger. The business operates on high
volume of transaction and tiny profit margins of 1 to 2 percent of sales. A& P was losing
market share to Wal-mart and facing challenges from discount clubs stores as Sams
Club and convenience store 7-eleven.
In 1993, 34-year old Christian Haub became the CEO of the company. He lunch
a program named Great Renewal and closed more than 100 underperforming stores,
while establishing a number of superstores. And in mid 1999 he hired Nicholas L. Ioli as
senior vice president and CIO. Ioli immediately embarked on a project to reconstruct
and modernize the company, including its supply chain.A&P was facing another serious problems like obsolete information technology
infrastructure that was composed of a complex web of stitched-together old legacy
systems, using 12- to 20-year old software running on two large mainframe computers,
the antiquated systems from finance to merchandising to store and warehousing
systems, the fragmented distribution systems resulting in little knowledge of what sells
in which stores, supply chain was not using the Web to work better and more
inexpensively and the company also had outdated, ineffective business processes.
Haub's plan to revive A&P called Great Renewal II for using new information
systems to serve the customer better and managing inventory more efficiently.
Management expected the new systems to save about $325 million over four years by
decreasing operating costs, eliminate inefficiencies in supply chain and the project to
result in an increase of $100 million annual pretax operating profits.
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In March 2000, the company launched a $250 million project for a four year
redesign of its information system. Of the $250 million, 35 percent would be technology
cost and the remaining 65 percent would be for training, communication, and managing
and measuring performance. The management doubles the A&P IT department from
150 to 300 people and outsources the noncore IT functions. The project is planning for
a web-enabled e-commerce supply chain and the modernization of other system,
replacing pt o 95 percent of current applications.
Ioli turned to IBM as a consultant and partner for the Great renewal II project.
Developing software was a major challenge because there is very little prewritten
software available for grocery business and writing own software is time consuming and
expensive for A&P. The prewritten software commercially available would require
software to interface different portions of the system so they could communicate but it
consumes a great deal of time for a project that needed to be completed rapidly. The
possible solution was an ERP system, however no ERP system had ever been
designed for grocery business with its special problems, such as t need to move
perishable items rapidly through the supply chain. But according to Ioli , it would be the
first attempt to strategically reengineer company and get as close to and ERP as we
can.
A&P wanted a core system for merchandising information that have functionality
for category management, merchandising , procurement, promotion, pricing, and
forecasting, including the perishable side of the grocery. The management select Retek
a small software company that had developed system for European and Asian grocery
chains.
Retek provided a merchandising system that A&P could use to execute core
merchandising activities.
In 2001, CEO Haub expressed disappointment with how the company was
executing its plans. In 2002 Ioli was replaced as CIO by John Metzger, who had been in
charge of logistics. In early 2003 A&P, Retek, and IBM issued a press release
announcing the completion of the project, but declined to comment further.
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The company continues to struggle, reporting losses of $25.1 million for fiscal
year 2001; $71.9 million for fiscal year 2002 and $194 million for fiscal year 2003. A&P
stock had lost half of its value since the Great Renewal Part Two was announced.
Problem
Organizational Factors
The first major problem facing by the A&P was the stagnant sales in 1990. The
companys tiny profit was because of the stiff competition from grocery giant like
Safeway and Kroger. In addition, the loss of market share because of the entry of Wal-
mart to grocery business and the discount club stores like Sams Club and the
convenience Store such as 7-eleven.
The worst crisis is the continuing reported losses of of $25.1 million for fiscal year
2001; $71.9 million for fiscal year 2002 and $194 million for fiscal year 2003. And losing
half of its stock value because of the Great Renewal II.
Technological Factors
One of the major problems of A&P was the old information system, which could
not keep up with new trends of business. Strong competitors such as Safeway, Kroger
and Wal-mart have their excellent information system to help their decision makers to
manage inventory efficiently and to serve customer better. In the other hand, A&P still
had a number of serious problems. The obsolete information technology infrastructure
was composed of a complex web of stitched-together old legacy systems. The
company was primarily using 12- to 20-year-old software running on two large
mainframe computers, the antiquated systems, from finance to merchandising to store
and warehousing systems. And also the outdated, ineffective business processes for
not having the system to analyze data from either customers or suppliers.
Developing software was also a challenge since the time to develop and cost of
the software must be considered. Choosing the ERP System was not a total solution
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because there is no ERP software designed specifically for the grocery industry, where
perishable items must move swiftly through the supply chain. IBM is a big IT company
but it was their first attempt for the IBM to create an ERP like system, which is risky for
the A&P. The software they develop was not proven and tested with various companies
and in fact, it is the first of its kind in the grocery industry. Another risk was choosing a
small software company, the Retek to implement a companys core system.
Alternative Courses of Action
Christian Haub initiates the Great Renewal program to address the A&Ps
problem particularly the stagnant sales of the company. Closing more than 100
underperforming stores while establishing a number of superstores is not the
appropriate solution to the problem. The stagnant sales and tiny profit was triggered by
competition. The management should examine the problem of every underperforming
store to determine and resolve the problem, and improve the marketing strategies.
Establishing a number of superstores is not the right time for a company struggling to
improve it sales because it is additional expenses of the company.
After the Great Renewal, it was reported that the company was continuing to
experience losses. If properly planned, the Information Technology can help the
company to gained profit of its business operation. But the A&P failed to its goal to
increase profit after the completion of Great Renewal II. The Information Technology
investment was very expensive and the company spends for it. And the company was
not able to get back its capital. Adapting new trend of business and upgrading the
system should be properly planned as well as proper financial management in order to
preserve the companys resources.
The Great Renewal II program was A&Ps solution for its old IT System in order
to remain competitive with other grocery store and to adapt the new trend of business.
But as mentioned, after this program, the companys profit loss was increasing yearly.
According to wall street journal, the IT Investment of A&P was too late, and it is true.
The management should consider the future business situation 5 year or more ahead.
The company should first consider the reason of upgrading the system, the possible
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output of the system, the cost of the system, the time frame for the implementation, the
company who are about to implement and develop the system, the training to 24, 400
full-time and 56,600 part-time employees and the key person to manage.
Evaluation of each ACA
One of the fastest ways to lose customers is not having an effective business
strategy in place for customer service. To be successful today, your company must
become competitor-oriented. Through the business strategy process the overall
direction of the business is set. Strategy is how you get to know your enemies, yourself
and the ground on which you will fight. Identifying the Strength, Weakness,
Opportunities, and threats can help A&P is a component of companys development.
Good business strategy can assure that company resources are used efficiently. Create
business strategies that utilize all of your company resources to help give your company
a competitive advantage over the competition. An inefficient use of company resources
can cost the company money, lose customers and reduce market share, like what
happen to A&P.
From the individual to the largest organization, everyone today has to make
investments in information technology. The information technology role in business
sector certainly is of a great importance, which enables businesses to effectively and
successfully plan, manage, execute strategies which lead to profit.
Planning of the implementation is crucial to its success as poor planning and
inadequate resourcing are often primary causes of system implementation failures.
The entire implementation process involves the complete business process,
customer service, interaction with suppliers and a link with all other interested
stakeholders. Important considerations are the following:
Have a sound understanding of the organization, particularly in terms of its
culture and values.
The rationale behind any new system implementation should have thoroughly
considered how the system is likely to help provide a better service to all
concerned with it;
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Communicate this understanding to all concerned parties.
Undertake a very comprehensive review of all business processes and, where
necessary, pedagogic practice, and begin to develop and introduce new policies
and procedures before tuning the system to meet the agreed requirements;
Have a complete appreciation of the complexity and flexibility of the system;
Have an understanding of the inherent dangers of customization of any software
and how these can be mitigated against;
Conduct a thorough set systems testing procedures, whilst accepting the
potential need for software 'bug fixes' and upgrades;
Budget for the real costs of internal staff time and their training and development;
Train all users to use the system;
Train all users and supervisors to fault-find and correct autonomously;
Acknowledge the critical nature of system documentation and maintain
accordingly.
Careful planning and efficient management of the implementation are vital to
success and to negate the threats of spiraling costs, extended timescales, losing
key personnel and general dissatisfaction with the outcome.
The A&P should hire the most skilled and experience CIO. The Chief Information
Officer (CIO) is a job title for the head of information technology within an organization.
It is a job title commonly given to the person in an enterprise responsible for the
information technology and computer systems that support enterprise goals. As
information technology and systems have become more important, the CIO has come to
be viewed in many organizations as a key contributor in formulating strategic goals.
Typically, the CIO in a large enterprise delegates technical decisions to employees
more familiar with details and making an IT department successful.
Conclusion
The redesigning of the system through the Great Renewal II could be successful.
But the successes of the company not only depend on investing in information
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technology. Not all problems in the company can be solved by IT like the management
problem, employees misconduct and attitude problem, and psychological problem. The
Great Renewal II solved the companys problem specifically the old IT infrastructure.
Another important thing to consider is the strategic planning. Strategic planning in
business is important from the perspective of the long term health of the company.
Figuring out where your business is going is fundamental to strategic planning and to
your overall success, and taking the time out to pinpoint strategic objectives is a
worthwhile practice for all small business owners. The business strategy and strategic
planning are essential to achieving your goal, and no business can possibly head
forward over the long term without some form of strategic planning and decision
making.