STRATEGIC
MANAGEMENT
IN IT
Analysis of the Warehouse
Automation Failure at Sainsbury’s
Monika Srinivas (228)
TABLE OF
CONTENTS
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EMPHASIS
All organizational departments play a collective role in ensuring that
the intended goals and targets are achieved. It is vital that they work
together because the whole is greater than the sum of the parts.
Because of the connection that exists amongst different departments,
failure in one department may have a detrimental effect to the entire
organization. In this regard, this report addresses the case of
warehouse failure at Sainsbury’s. It provides an in-depth discussion of
the failure and utilizes Porter’s value chain analysis model to explore
how failures in primary and supporting activities from the model might
have contributed to this.
INTRODUCTION
One of the responsibilities of managers is ensuring that all components
or departments within the organization work effectively. This is
because success in organization is dependent on the contributions
made by different departments. There have been several cases where
failure in a single department has adversely affected all operations of
the company.
“The view that there are many operational
failures or disasters occur due to managers’
lack of understanding about the whole
organization”
AN OVERVIEW OF SAINSBURY’S
Sainsbury’s is one of the largest supermarket chains in the United
Kingdom, with a current market share of 17.7%. Apart from
running the supermarket business, the brand also deals in the
banking and property industries.
Currently, it runs more than 1,106 convenience stores and
supermarkets, and has more than 150,000 employees. The
company operates both as a wholesaler and as a retailer.
It has stores that comprise of supermarkets, convenience stores,
and pharmacies. In the supermarkets’ category, the company runs
Sainsbury’s café and Sainsbury’s fuel. It also has an online business
referred to as Sainsbury’s online, and comprises of Sainsbury’s
Energy, Entertainment, Compare and Save, and Sainsbury’s gift
cards.
here are also banking and mobile businesses that are run by the
company. Even with this level of success that the company
presently enjoys, it has also undergone a number of challenges,
some of which have led to heavy losses. Key among these was the
warehouse project failure.
WAREHOUSE AUTOMATION FAILURE AT SAINSBURY’S
The warehouse automation project commenced in 2010 and had originally been meant
to improve the efficiency of the company’s supply chain. The project was under the
“business transformation programme”, whose key planks were Electronic Point Sale
(EPOS), supply chain management, and outsourcing of its IT projects to Accenture. The
warehouse automation project was intended to overhaul and improve supply chain
management of the company.
The company had originally intended to make installations of automated
fulfilment systems in one of its distribution centres, Waltham Point in Essex. This is the
company’s biggest depot, and distributes stock around London and southeast England.
By implementation of a barcode based fulfilment system though this project, it was
projected that it could make the company’s warehousing operations more streamlined
and efficient.
Three years into the launch of the business transformation programme, the CEO who
had launched the project reported that it was on the right track, and had saved the
whole organization a total amount of £700 million.
However, it was later realized that automation system had developed technical
issues, mainly errors in reading barcodes. Not only did this failure affect the company’s
2
operations, it also caused contractual rows between Sainsbury’s and Accenture,
financial losses and undue attention from media.
Causes of the failure
This failure can be attributed to several management issues in the company. One of
these was the situation on which IT projects, which were to facilitate the automation
project, were outsourced to another company. Even though the company being
outsourced to might have had a good reputation in implementing such projects, the lack
of involvement by parent company managers in the monitoring and evaluation of the
project can affect the attainment of the intended objective. The minimal involvement by
Sainsbury’s management in this project explains why it took three years and a change in
leadership to realize that the project was not likely to attain its set objectives.
Another possible cause, which has also been identified is that there was insufficient
engagement between the company’s CEO and its IT suppliers in projecting the possible
key business and IT risks. For this reason, no delivery strategy that could tackle these
challenges was promptly designed. This can also be considered as the lack of sufficient
preparations by the then CEO (Sir Peter Davis) before the initiation of the project.
Insufficient preparation exposes projects to the risk of possible failure and over-
expenditure.
There was also a communication problem, which can be mainly blamed on Sir Peter
Davis. Whereas it must have been known to him that the project could probably fail to
serve its intended objective, his presentation about the project to the public was that its
progress was as planned and that by 2013, it had saved the company £700 million. Had
the issues been frankly and promptly pointed out, necessary measures could have been
undertaken to avert the heavy loss that was later incurred. Given that this failure was
associated with the warehouse automation exercise at Sainsbury’s warehouse
automation project, it is also worth noting that the failure might have been partly
caused by automation challenges. The fact that automated system failed to operate as it
was intended to, indicates that all the inputs in terms of time, money and resources
were lost.
PORTER’S VALUE CHAIN ANALYSIS OF THE FAILURE
Porter’s value chain model can be used to identify the primary and supporting activities
which contributed to the failure at Sainsbury’s According to Porter (1985), generic value
added activities can be divided into two. These are primary activities and support
activities. Primary activities comprise of inbound and outbound logistics, sales and
marketing, services and operations. Supporting activities, on the other hand, comprise
of firm infrastructure, senior management roles, internal culture, procurement,
outsourcing and technological developments. The model is represented in the diagram
3
below, in which the functions that contributed to the failure at Sainsbury’s have been
marked.
Outbound logistics: in the value chain, outbound logistics are referred to as activities
that mainly relate to transference of goods to customers through warehousing. The
automation of the warehouse at Sainsbury’s was being done so as to facilitate this
primary activity in the organization. The failure of the warehouse automation to
effectively take place thus affected the activities in outbound logistics (Zott et al.,
2011).
Senior management Roles: There was a failure by the senior management, led by the
company’s CEO to effectively make an exhaustive plan of the warehouse automation
project, which could have identified the potential risks and contributed to the
formulation of possible strategies to overcome these challenges (Kardes et al., 2013).
Another failure by the management was in terms of their involvement in the
implementation of the project, only to identify issues three years after
implementation of the project (Double Loop, 2013).
Internal Communications: This function refers to how effectively and accurately
information is passed within the organizational precinct (Wright, 2012). The failure
was due to the miscommunication by the CEO, where he purported that the project
was on the right track and had in fact saved the company a reasonable amount of
money. This shows that he was either being given the wrong information by the
contractor company or he was presenting wrong information about the project.
Technology developments: It has to be acknowledged that the company’s agenda
was to improve its service delivery to its customers through technological innovation.
However, given that the entire automation project failed to materialize, it can be
argued that there was a technological development failure. According to Porter’s
(1985) model, technological development comprises of all activities that relate to the
processing and management of information. It also involves the activities undertaken
in ensuring that the organization keeps up with the latest technological changes.
Outsourcing: The IT automation project was undertaken by Accenture, an
outsourced IT company, which failed to deliver the intended automation results, and
ultimately led to the cancellation of the contract.
CONCLUSION
With the help of the Porter’s value chain model, several primary and supporting
activities that might have contributed to the failure have been identified. The identified
primary activities are inbound logistics and outbound logistics. Supporting activities are
outsourcing, technology developments, internal communications and senior
management roles. The fact that all these activities affected and were also affected by
the warehouse automation failure at Sainsbury’s proves that many operational failures
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or disasters that occur because there is lack of understanding of the whole organization,
resulting in problems in the synchronization of different organizational functions.
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