UK: LOOKING AFTER THE SHOP - INFORMATION TECHNOLOGY.

UK: LOOKING AFTER THE SHOP - INFORMATION TECHNOLOGY. - Supermarkets are big IT spenders. The volume of data going through their systems is enormous and reliability is crucial. Sainsbury's strategic aim of a fully streamlined and optimised business impose

by Jane Bird.
Last Updated: 31 Aug 2010

Supermarkets are big IT spenders. The volume of data going through their systems is enormous and reliability is crucial. Sainsbury's strategic aim of a fully streamlined and optimised business imposes high performance standards on equipment suppliers.

Chris Montagnon, wrested from his sleep at 1am that morning, was still full of energy and enthusiasm. Night time calls, says the departmental director of information systems at Sainsbury's, are merely an occupational hazard. This time it was a fault on the distribution system. For Montagnon, it's all part of the fun: 'One feels a bit peeved about having to get out of bed, but it's also rather thrilling to think that here you are in the middle of the night helping the nation get its tomatoes in the morning.' With sales last year of £10 billion, Sainsbury's is the UK's biggest supermarket chain: 8 million customers pass through its 350 stores each week buying around 250 million products. Every stage of the business, from supplier to shelf to shopping basket, is monitored and controlled by computer.

Not surprisingly, Sainsbury's is a big IT spender - during the past five years it has forked out £200 million on computers. Currently, the annual budget is £20 million a year for hardware and £50 million for running costs such as software and staff. There are some 550 full-time IT employees, with a further 150 seconded to IT projects in other departments.

It is the pivotal role that IT has in Sainsbury's that excites Montagnon - without computers the business simply could not exist in its present form. His management approach is a mixture of on-the-spot trouble-shooting and long-term planning. Much time is spent dealing with operational issues - hence the night disturbances. He might step in when a supplier's equipment is at fault. Or he might act as an interpreter for other directors when IT problems affect their part of the business. Sometimes he might be there just to provide moral support. 'If your troops have been out fighting in the middle of the night it's not a bad idea to say hello to them occasionally.' He also attends the board's weekly operational meetings - just a short step down the corridor from his office in the company's discreet headquarters near London's Blackfriars Bridge. There he has to provide answers to questions about how IT problems have affected the business.

Strategic planning is the other crucial part of Montagnon's job. Much of his agenda is drawn from think tank sessions held in each area of the business every four or five years. Outside consultants are sometimes called in to these sessions to advise on industry trends and how IT might contribute to business development. But Montagnon's IT strategy is also influenced by short-term considerations and immediate business needs. For example, any form of business process re-engineering requires new IT systems.'We might decide to reduce the stock levels held in depots by asking suppliers to pre-assemble their goods,' says Montagnon. Items could then be transferred directly to Sainsbury's delivery vehicles without interim warehousing. But such a move could not be made without enhancements to computer forecasting and warehouse systems.

In formulating his strategy, Montagnon works closely with Angus Clark, Sainsbury's executive director of distribution and information systems. The two then meet the joint managing directors to decide budgets and set priorities. By the time the budget proposals are put to the main board there is seldom much argument. Board members have a healthy scepticism for IT - not all are at ease with their desktop computers - but they are well aware of its importance to the business. Montagnon then produces detailed plans of how objectives are to be achieved on a rolling 12-month basis.

UK supermarkets are big spenders on IT. They accounted for around £400 million of last year's £12.8 billion IT spend, says ICL, which has the largest share of business to the retail sector. Running a supermarket chain is not complex in the sense of designing jet engines or plotting the weather, but the volume of data forced through the system day and night is enormous and reliability is crucial. At Sainsbury's, customers and purchasing generate some 1.5 million computer messages a day. For example, Sainsbury's automatic store re-ordering systems transmit details of what has been sold 10 times a day. This is consolidated centrally and triggers automatic orders to the 800 suppliers linked electronically to Sainsbury's, who then confirm receipt. There is no manual back-up. 'If the system stops the effect is dramatic,' Montagnon says.

But however good your technical reliability, it won't guard against hazards such as fire, flood or bombs. So the company's two Amdahl mainframes are positioned in duplicate computer centres on opposite sides of London. In the event of a crisis, each can take over the other's work and restore essential data. To ensure it works, Montagnon has a complete dry run every six months.

his web of interdependent systems, and the need for non-stop computing, causes problems when Montagnon's team needs to make upgrades or changes. 'When you change something in the middle of such a complex set of dominoes you have to be very careful that the whole lot doesn't come crashing down,' he says. No changes are allowed during November and December, retailing's two busiest months.

Not surprisingly, the company is much wooed by computer suppliers, but relatively few can deliver the stringent performance required. A recent contest to replace the store ordering systems was won by Hewlett Packard. 'A crucial element in selecting the supplier was the conviction that its computer would be much more reliable,' says Montagnon. 'We chose HP because it comes from a manufacturing processing background and is used to providing computers that operate in a continuous production environment.' Cost is the other main consideration because once a system is selected it may be replicated hundreds of times throughout the stores or depots. Even small price differentials soon mount up. Like most retailing businesses, Sainsbury's is skilled in the art of squeezing supplier margins. And Montagnon reckons there is plenty of room for manoeuvre, especially in software pricing. Some leading spreadsheet packages have fallen to 10% of their launch price, he points out. 'Clearly the price has to include enough to invest in the next generation of software, but some products are being priced far too high at the outset.' Another area where Montagnon would like to see more rapid change is in the much-heralded 'open systems'. The machines, available from a wide range of manufacturers, have been designed to common standards so that they can speak to each other and exchange information without the need for complex translation software. The concept of open systems is beginning to drive down prices but the technology still has far to go, Montagnon says. 'We need open systems that actually work. This has not yet happened. I can't swop an HP computer for an IBM computer because of the different control software that has to be wrapped around each system.' Users also need software products and applications packages that can be more easily integrated, Montagnon says. 'At present, even if hardware is compatible there are frequently problems interlinking software for different applications - you might buy a purchasing program and a communications package only to find they won't work together.' Such obstacles make it hard to realise the dream of a fully streamlined and optimised business. To minimise integration problems, Sainsbury's tends to focus on a relatively small number of suppliers. But none can afford to be complacent. 'Sometimes we enter into longer term partnerships, like developing the scanners with ICL.' These are used in Sainsbury's 9,000 checkout lanes. 'But, like any relationship, these marriages are subject to change and may end in divorce,' Montagnon warns.

Like all major users, one big risk Sainsbury's must avoid is investing in equipment that becomes obsolete. Angus Clark is well aware of the danger in keeping computers beyond their sell-by date. Soon after joining the board in 1979, he decided that the incumbent ICL main-frames would not be able to cope with future data-processing needs. So he switched to IBM. With hindsight, the decision has been vindicated, he says. 'I don't know what would have happened to our mainframes if we'd stayed with ICL operating systems and mainframes into the 1980s.' lark's overseer's role is supported by Montagnon who writes the reports and makes the technical recommendations for presentation to the board. Avowedly not a 'techie', his motivation is: 'To use maths and logic to help businesses run more effectively'.

Montagnon, who studied maths at Cambridge, gained his first exposure to computers when he joined Dunlop and helped start a computer department in 1967. Relishing the new technology, he built a complex production control system for a large manufacturing machine shop, picking up a PhD at the same time. The love affair with retailing began when he moved to Imperial Group and took over the IT department at Courage. 'Once you're involved you somehow don't want to get out. It enters your blood and you feel at the heart of a very significant business.' At Courage he became a pioneer of on-line ordering systems which offered great advantages over slow, unwieldy and error-prone paper. Leaving Courage with a golden handshake in 1987, he worked briefly at Rumbelows and Harrods before joining Sainsbury's two years ago. He continues to see himself as businessman rather than a technician. He is not particularly excited by the fact that desktop PCs now offer more power than machines that were the size of rooms when he started out. 'What does turn me on is that they open the door to new opportunities and enable us to build systems which do so much more.' It is the strong focus on business drivers, rather than a passion for high technology, that has been one of the secrets of Sainsbury's success, he believes. 'All IT projects here are led or owned by a director at Board or departmental level. I sit alongside and support them which is why I have such a hands-on role.' Even training is planned strictly according to business requirements rather than technological whim, with courses closely matched to the computer projects ahead. 'The mistake of many IT departments is to provide people with skills which then are not used.' The 'bleeding edge' of computer innovation, where so many companies have come to grief after investing in unproven systems, is not for Sainsbury's. 'We prefer not to be pioneers in the technical sense, but we like to be the first to put various elements of technology together in an innovative way.' Radio handsets are being tested in warehouses to communicate directly with drivers on fork-lift trucks. The advantage is increased throughput without having to make the warehouses bigger. Electronic shelf-edge labels, that can be updated centrally in seconds, have also been tested, but not yet implemented.

Much of the new development is buried in software for applications such as plotting optimum routes for delivery vehicles, thereby minimising journey times and distances, cutting transport costs and reducing environmental damage. Such software uses so-called expert systems and artificial intelligence techniques which mimic the human brain's approach to problem solving. One of the most important applications for these programming methods is forecasting. Better predictions about consumer buying patterns would help Sainsbury's cut inventories, reduce waste and provide fresher produce. Ultimately the aim is to be able to tell suppliers not just what is needed this week, but anticipate demand for next week, next month, or even next year.

There is also much progress to be made in analysing customer buying habits - an activity which has been pioneered in the US. Supermarkets in the UK are relatively ignorant about the lifestyle and buying patterns of their customers. Such information can be highly effective in targeting local promotions or direct sales campaigns. 'In the US, for example, the Wallmart chain can show the results of promotions and identify which product lines perform best in specific socio-economic areas. It can analyse in detail every basket sold for the last six to nine weeks,' Montagnon enthuses.

Electronic communications is another key area for development. At present, some 90% of the orders Sainsbury's places with UK suppliers are despatched electronically, and around 65% of invoices are returned down the line. But the cost of providing equipment to send and receive these messages is still prohibitive for some of the smaller specialised suppliers, so Montagnon's team is looking at cheaper alternatives such as fax. 'This means, for example, that the tomato grower from Lincolnshire can take part in our electronic world without necessarily having sophisticated equipment.' However, there are no immediate plans for automatic electronic payment of suppliers. 'Closing the loop', as it is known, has not been seen as a priority by the supermarket industry.

The benefits of electronic communications are not being restricted to customers and suppliers at Sainsbury's. They are also being felt internally thanks to electronic mail - using desktop PCs to send and receive free-format messages. By the end of 1994, all 3,000 staff at head office will have their own desktop PCs, a situation which Montagnon believes will enable them to move ahead much more rapidly.

In the days when his staff notified him of problems on paper, it would be at least 24 hours before Montagnon was informed of many problems. Now he knows in minutes, and can start asking questions and getting answers back equally fast. 'It sounds rather Big Brotherish, but that is what happens. The whole cycle of addressing issues and moving on to the next stage is now quite different. You move forward much faster.' The result is unlikely to be fewer headaches for Montagnon, but it just might mean he gets woken less often in the middle of the night.

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