Sainsbury's discounts IT

The recent announcement that Sainsbury's plans to overhaul its IT operations because of falling sales should serve as a warning to other firms. The supermarket chain blamed the drop in sales on poor stock control and under-performing IT systems, which left goods stuck in depots and warehouses.

A security expert recently told me the Sainsbury's situation was a prime example of poor risk management. He argued that the supermarket had tried to cut its costs without taking into account the risk of not having people in place to get goods on the shelves.

This is a classic trap that firms can fall into - I want to cut my costs, so I must cut the number of staff, and I must buy more technology to replace the human element. All very well if firms follow proper risk evaluation processes.

I could have told Sainsbury's its new stock control systems weren't working long ago, without the aid of complex risk assessment methodologies - simply based on my experiences at my local store.

Over the past five years there has been a slack attitude to stock management. Many items were off the shelves by lunchtime on weekends, and a game of bakery roulette left either hundreds of unwanted loaves lingering on the shelves at closing times - or not a roll in sight.

In an attempt to turn its fortunes around, the retailer is writing off £260m worth of technology and supply chain systems and plans to cut 750 head-office jobs, while taking on an extra 3,000 in-store staff.

The firm said it will replace its automated supply chain system with a manual stock control process, and undertake renegotiations with Accenture, its current IT outsourcing partner, in an attempt to reclaim control of its IT capabilities.

Sainsbury's move may indicate a growing divide between the needs and expectations of outsourcing customers and suppliers. While Sainsbury's argued some of the IT systems implemented by Accenture were unusable, the consulting firm countered that it did not have control over some automation systems.

As further evidence of a divide, we have the recent decision by investment bank JP Morgan to pull out of its outsourcing deal with IBM and rehire 4,000 IT workers it had earlier transferred to the company to cuts costs.

But other evidence points in the opposite direction. Outsourcing specialist TPI says that mega outsourcing deals are on the up again, indicating that some firms are still willing to invest trust - and huge amounts of cash - in third parties.

I can't imagine Sainsbury's will be a participant in any more mega IT agreements for a while, judging by its recent experiences. But its decision to revert to manual processes could leave the supermarket in a worse position than when it started.

Having made the decision to invest £3bn to upgrade the supply chain process, why throw all these developments down the drain? Yes, some elements may have proven complex and unworkable, but surely these could be simplified. Properly-developed supply chain technology can offer firms a centralised, real-time management system that ensures stock levels are monitored and replenished according to need.

When deals go wrong it's tempting to take a completely new tack. But before taking such an extreme step, it might be worth examining root issues such as comms channels or contract management to see if the problems might lie there.