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in which stores, supply chain was not using the Web to work better and more inexpensively and the company also had outdated, ineffective business processes.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.

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.

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 Walmart 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

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 lo ss 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

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;

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

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.