Friday 10th Jul 2020 - Logistics & Supply Chain

Storing up trouble

It is a measure of how far the noble name of Sainsbury has fallen that, when a scion of the family recently announced he was heading a consortium to invest £37m in cash-strapped Leeds United football club, the news was received in the Northern city with less than ecstatic joy.

Perhaps some of those who weren’t entirely impressed had just been into one of the stores. Although Sebastian Sainsbury, the Leeds bidder is not involved in the supermarket’s management, the family name doesn’t carry the lustre of success that used to surround it. The trouble with a visit to the supermarket giant in recent months is that it’s not always been possible to buy everything you want.

That the supply chain should not have been working at peak (or even adequate) performance is a matter which has been exercising the mind of Justin King, Sainsbury’s new chief executive.

Not for him dreams of cup glory. He’d rather ensure that all the goods shoppers wanted were on the shelves. His recent business review, much anticipated in the City of London, promised savings in the supply chain of £75m and a reduction in stock losses of £180m by financial year 2007/8.

A tale of woe
But it also told a tale of woe – £180m of supply chain automated equipment written off in fulfilment centres and an £120m stock write-down because of changed procedures and accelerated write-down. It was all a sign that the grand plans of the departed chairman Sir Peter Davis had not delivered the expected performance.

Perhaps Lawrence Christensen, who joined Sainsbury’s in September with a brief to turn round the supply chain, can deliver the goods both literally and metaphorically. Christensen has been busy recruiting new members of a management team. He’s been simplifying supply chain processes, going back to manual methods where the much-vaunted new IT systems haven’t been performing and chivvying suppliers along to comply with the company’s processes.

What seems pretty clear is that King will judge Christensen by how well the supply chain contributes to the company’s hoped-for turnaround. And given the targets set in the business review, there is a limited time to get the supply chain up to speed. All in all, supply chain performance at Sainsbury’s is going to be under closer surveillance in the next couple of years – both within in the company and by City analysts – than ever before.

Which raises an interesting broader question – just how effectively is supply chain management measured in most businesses? According to Ian Charlesworth, one of the authors of a new report called ‘Corporate Performance Management’, published by IT analysts, the Butler Group: ‘A significant percentage of businesses would struggle to correctly quantify the number of suppliers they have, let alone ascertain which were the most profitable or reliable.’ 

Performance information
The question of getting reliable and up-to-date performance information is certainly not unique to logistics professionals. It tends, as other research by Cranfield University School of Management notes in a report called ‘Business Performance Management’, to be endemic. For example, Cranfield found that only 19 per cent of businesses use performance management data for strategy planning and, extraordinarily, only 18 per cent for ‘everyday decision making’. (Which rather begs the question of what information managers are using to take those everyday decisions.)

The problem in most companies seems to be that the IT systems which could crunch and deliver the performance data are stuck in the digital equivalent of the Dark Ages.

The danger is that a massive investment in IT systems doesn’t necessarily provide what’s needed, as Sainsbury’s experience shows. The company has splashed out more than £1bn on new IT systems during the past four years. As the company has now reluctantly acknowledged, measuring even such a critical performance statistic as product availability is no easier as a result.

Measuring supply chain performance is most effective when you focus on what’s really important to the business. If Sainsbury’s had lasered in on product availability over the past couple of years, its problem wouldn’t be so big today.

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