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BY DAVID F. CARR AND EDWARD CONE
PHOTO ILLUSTRATION BY HUGH KRETSCHMER
CodeBlue
DURING THE LAST DECADE, KMARTâS NETINCOME HAS FLUCTUATED WIDELY (RIGHT).CEO CHUCK CONAWAY IS TRYING TO PRODUCE A FAST, STEADY RECOVERY.30
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When Chuck Conaway took over asthe chief executive of Kmart, he gavehimself two years to resuscitate thediscount retailer, get the right prod-ucts on its shelves and make it com-petitive again with the new kings ofgeneral merchandising, Wal-Martand Target. His No. 1 repair job, hesaid at the time, was the companyâssupply chain. He has 243 days to go.
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$195 million of assets held on its books that no longer had val-ue. This included $130 million worth of supply-chain hardwareand software that was being retired, and $65 million for the re-placement of two outdated distribution centers. Conaway saidimplementing two new state-of-the-art distribution centerswould allow hot-selling products to get priority treatment.
The technology write-offs were a sign that Kmart wasscrapping some relatively recent investments, and evencalled into question Kmartâs sweeping plan to work withonce high-flying i2 Technologies to overhaul its supply chain.
Whether the restructuring and write-offs announcedthat day defined success or failure remains to be seen. ButConaway was, if nothing else, putting himself on the spot.
He had just 337 days to go. On Aug. 10, 2000, Conaway had set his first major met-
ric for judging the success of his attempt to revive Kmart. Hesaid it would take 730 daysâtwo yearsâto make Kmartagain competitive with Wal-Mart, which had stolen Kmartâsseeming birthright as the largest discount chain in 1990, andTarget, which was about to sweep by Kmart to become thenationâs second-largest discounter.
Setting concrete goals and meeting them is key toConawayâs method of achieving success for Kmart. âChuckaggressively measures progress. If heâs not seeing it, heâs notagainst pulling the plug,â says one consultant who hasworked on Kmartâs logistics systems.
GOAL: FIXING THE ACHILLESâ HEELWhich leads back to Sept. 6.
Conaway, the 40-year-old boy wonder brought in fromdrug chain CVS to revive Kmartâs fortunes, has staked histwo-year recovery plan on revamping the companyâs supplychain and inventory management systems. Itâs the biggestpart of âachieving world-class execution,â the number one
goal he established shortly after he was hired in May 2000. He doesnât expect to completely fix the supply chain by
this coming August. But, in a Nov. 27 conference with WallStreet analysts, Conaway said Kmart was âdoing a phenom-enal job of reinventingââ its supply chainâand that should beevident by this time next year.
The revitalization from being able to put popular productson its shelves at competitive prices can come none too soon.In the quarter that ended Oct. 31, Kmartâs sales actuallydropped 2.2% from a year ago, to $8.0 billion. Even disregard-ing the writeoffs, the company reported a net loss of $127 mil-lion, while rivals were showing profits and sales gains.
How Kmart gets products onto shelves is not its onlychallenge. Conaway also is fighting to create a âcustomer-centricââ culture and to market more effectively, besidespulling people into the store with Sunday circulars.
But he has told shareholders, employees, analysts and hisboard that the supply chain is his No. 1 priority .
âI believe the supply chain is really the Achillesâ heel ofKmart,ââ he said in September. âJust fixing the supply chaincould really turbo-charge Kmart.â
Septemberâs writeoff says a good portion of what the com-pany spent in recent years on such technology is not deemeduseful any more. If this is a final clearing of the decks to makeway for new systems, Conawayâs ambitious plan could be suc-ceeding. But success is not yet visible to outsiders.
âThey are not dead yet, but for Kmart to get back in the gamewould be one of the greatest miracle comebacks, ever,â says LarrySchulsinger, retailing analyst with Management Ventures inWashington. âThe world can exist with more than two large massmerchandisers, and Chuck is smart enough to figure out a wayto do it. But if the story ended today, they have lost.â
Fourteen months ago, Kmart placed a big bet on i2Technologies as the strategic partner that would turn its
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K-MART BASE CASE
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Company: KmartHeadquarters: 3100 West Big Beaver Road, Troy, Mich.Phone Number: (248) 463-1000Business: Discount retailer of clothes, pharmaceuticals, general merchandiseFinancials: $37 billion in sales, net loss of $244 million, net loss margin 6.6% (fiscal year 2001)Chief Information Officer: Position openChallenges: Fill shelves with most popular products while still in demand; lower pricing; reduceadvertising expenditures while maintaining marketing impact; reduce costs; refocus stores toserve needs of mothers rearing childrenBaseline Goals:ïżœFix business and âmake it competitiveâ by Aug. 10, 2002ïżœKeep right products in stock 95% of time, up from 86%ïżœProvide âsuperâ service in 70% of stores, up from 56%ïżœTurn inventory 4.5 times a year or more, up from 3.6 times
September 6 may go down as a definingdate in Kmart chief executive Chuck Conawayâs effortto turn around the one-time king of discount storesin America. Five days before the twin towers tragedy,Conaway announced that Kmart would write off
perennially underperforming supply chain into an advan-tage. âThis represents about a $50 million opportunityâjust in the beginningâfor i2, and there is a tremendousamount of more work weâre going to do,â Conaway en-thused onstage at an Oct. 2000 i2 user conference.
The stakes are huge. Gary Busek, who studies retail tech-nology as president of IHL Consulting Group, estimatesKmart could add $1.9 billion to its bottom line if it could matchthe inventory turnover rates achieved by Wal-Mart and Target.
The number of times a company turns over the invento-ry in its stores and distribution network each year is a par-ticularly crucial metric in discount retail, which thrives onhigh volume. Last year, Wal-Mart turned its inventory 7.3times; Target turned its 6.3 times; Kmart: 3.6 times. Andchief financial officer John McDonald says turnover will beflat, at that same rate, again this year.
Ultimately, i2 is supposed to help Kmart achieve such ba-sic retail goals as keeping the shelves sufficiently stocked sothat customers can find what they need, but without stuff-ing stores with an excess of inventory that Kmart canât move.
Some of the ways i2 software can help is modeling de-mand for productsâand what it means for keeping inven-tory in stock at each store and each distribution center. Thesoftware keeps track of the ability of key suppliers to fill or-ders, and the cost and speed of different means of trans-porting goods through the network.
After needs are analyzed, then instructions can be gener-ated for executing orders, scheduling shipments, and record-ing the receipt of goods. If the analysis is correct and executionfollows, costs of operating the network are lower and the com-pany doesnât have to stock as much inventory either in distri-bution centers or in stores. That, in turn, means Kmart canlower prices and thereby raise sales and, hopefully, profits.
The Kmart partnership was a big deal for i2, based inDallas. I2 claims to have delivered billions of dollars of val-ue to its customers in the past few years. The market hasgrown skeptical, though, partly because of high-profile sna-fus involving an i2 manufacturing and distribution system atNike, which led the shoe marketer to say it missed up to$100 million in sales. AMR Research supply chain analystBob Ferrari sees Kmart as one of a handful of make-or-breakprojects for Dallas-based i2, in this case to prove it can de-liver hard financial results in a particular industry like retail.
The project would be organized as âa typical skunkworksâwith a cross-functional team of 500 working in a remote lo-cation and told to keep at it until the new system was fin-ished. Conaway spoke of emulating the kind of supply chainspeed of execution achieved by i2âs customers in high-techmanufacturing, such as Dell Computer. âWe need to stoptalking about days and start talking about hours. We have toget to that level of intensity to be world-class,â he said.
Besides speeding up supply chain processes, Conaway saidhe was looking to i2 to help Kmart with âmicromerchandis-ingâ efforts that would allow it, for example, to make surethat a store in an area with a large Hispanic population adjustsits mix of merchandise to appeal to that population. âGreatcompanies are going to have to look to a local customer liketheyâre actually a member of that community,â he said.
Now individuals close to both companies say the imple-mentation has stalled. Kmart is not commenting. Yet, evenJohn West, who until recently served as chief technology of-
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THE KMART ROSTER
Charles C. ConawayChairman and CEORole: Conaway is the driving
force behindKmartâs initia-tives to overhaulits supply chain,improve cus-tomer service,and market more
effectively. He joined Kmartin May 2000 from CVS Corp.,where he was president andchief operating officer.
Mark SchwartzPresident and COORole: A Wal-Mart veteran,Schwartz joined Kmart nSeptember 2000 and waspromoted to his current postin March 2001. Schwartz hastaken the lead on initiativessuch as shortening checkoutlines and clearing out excessinventory.
Randy AllenExecutive Vice President ofStrategic Initiatives andChief Diversity OfficerRole: Allen was hired asKmartâs CIO in September2000 but moved to her current post in August 2001.A former partner at DeloitteConsulting, Allen was central to Kmartâs selectionof i2 Technologies as a supply chain technologypartner. She brought inDeloitte personnel to tailorit to Kmartâs needs.
Tony DâOnofrioExecutive Vice Presidentand Chief Supply OfficerRole: DâOnofrio joined Kmartin October 2000 fromMichaels Stores, where hewas in charge of global sup-ply chain, distribution, and lo-gistics. He and his team halt-ed the rollout of a customwarehouse management sys-tem and brought in a newproduct from ManhattanAssociates.
Richard W. BlunckCEO, BlueLight.comRole: Blunck started in
December 2000as Chief Technol-ogy andeBusiness Officer.From the begin-ning he wascharged with
managing Kmartâs relationshipwith BlueLight.com and direct-ing technical strategy for theWeb commerce operation. Hewas named BlueLightâs newCEO in November after Kmartbought out investors and out-sourced hosting and fulfill-ment to Global Sports. LikeAllen, he hails from Deloitte.
PARTNERSGregory A. BradyCEO, i2 TechnologiesRole: Brady joined i2 as
president in1994. When hewas promoted to CEO in May2001, a big partof his mandatewas to ensure
customer satisfaction with i2 products. Brady reportedlyhad a hand in making thesale to Kmart in the firstplace. Before joining i2,he was VP of WorldwideApplications for Oracle Corp.
John WestFormerly CTO, i2TechnologiesRole: West consulted with
the Kmart proj-ect team on po-tential changesto i2âs software,templates andbest-practicesguidelines that
could improve the retailerâschance of success. Recently,i2 announced West hadâelected to reduce his cur-rent time commitment to thecompanyâ but would remainon in an advisory capacity.
Mark S. HansenChairman and CEO,Fleming CompaniesRole: Hansen is a formerpresident and CEO of SamâsClub, the warehouse divisionof Wal-Mart Stores. In February, Fleming and Kmartannounced a $4.5 billion ayear deal where Fleming willreplenish groceries and otherâconsumablesâ stocked by Kmart stores. Success will rely on tight logistical coordination between the firms.
Jim SchuetzGlobal Supply ChainPractice Leader, Chicagooffice, Deloitte ConsultingRole: Schuetz took overallresponsibility for the relationship between the consulting firm andKmart, including the i2 implementation.
Neil ThallExecutive Vice President,Manhattan AssociatesRole: Helps ManhattanAssociates address theneeds of retail customerswith their warehouse man-agement and supply chainsystems. Manhattan wonKmart as a customer earlierthis year, displacing ware-house management vendorEXE Technologies.
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ficer at i2, admits itâs not proceeding as fast as planned.At the projectâs peak, individuals close to the project say
the supply-chain revamp kept about 100 staff members fromDeloitte Consulting customizing i2 software so that it wouldprecisely track the movement of goods to Kmartâs 2,100stores across North America. Now, only a handful are left.
For its part, i2 says it has âmultipleâ applications live atKmart. But West would name only oneâa remotely hostedservice called FreightMatrix, which Kmart is using for in-bound transportation planning and sourcing. The slow pacemay result in part from a possible absence of leadership.Randy Allen, the CIO whom Conaway hired away fromDeloitte just a year ago, was reassigned in August to becomeexecutive vice president, strategic initiatives and chief di-versity officer. No replacement has been named.
Allen was Kmartâs fifth CIO in seven years. In contrast,when Randy Mott left the CIOâs post at Wal-Mart in early2000, he had been at the company since 1978 and taken overits top ITjob in 1994. Successor Kevin Turner has been with thecompany since 1985 and served as assistant CIO since 1998.
Conawayâs intense push comes even as Kmartâs financialperformance weakens. Lone among the major discountchains, Kmart reported a loss last year, of $244 million onrevenue of $37 billion. By comparison, Target reported a $1.3billion profit on nearly identical revenue of $36.9 billion.Wal-Mart, which has blown by Kmart in size and success,earned $6.3 billion on sales of $191.3 billion.
This fall, the stress of war and recession have actually boost-ed sales for competitors. But not for Kmart. Its sales dropped4.4% in October at stores open at least a year. Same-store salesimproved 6.7% for Wal-Mart and 2% for Target.
On those reduced sales, Conaway also is making ittougher to squeeze out a profit. He has mandated price cutson 38,000 of the 95,000 products that Kmart stocks in itsstores. He wants to cut prices on another 12,000, to staycompetitive with Wal-Mart, the most efficient player.
This strategy aims to let Kmart cut back on the use ofnewspaper circulars and sales to draw customers to stores.But when Conaway reported Kmartâs third quarter loss of$224 million on Nov. 27, he said âthereâs no doubt we madea huge mistake by cutting too much advertising too fast.ââAlthough âregular salesâ not associated with any promotionrose 12% in the period, it wasnât enough to make up for theloss of traffic associated with advertised promotions.
Beyond that, the price cutting is meant to be a âpay as yougoâ program, meaning greater operating efficiency pays for thelost revenue. Thatâs where the supply chain overhaul comes in.
On Nov. 27, Conaway said he expects changes that willprovide real-time data throughout the supply chain to becompleted by July 2002. He also reported progress with theintegration of separate systems for distributing âhardââ goodssuch as appliances and âsoftâ goods such as apparel. The up-dated system will allow any product to find the most effi-cient route to its destination, cutting lead times by 14 days.
Conaway said it has cut back the number of its suppliersby 25%; and, that a change in how it pays for supplies re-sulted in some invoices being dropped. The upshot? Theremay be other âbumps in the roadâ to come. âThatâs the realityof the massive change weâre going through,â he said.
Still, where last year a congested distribution systemforced Kmart to choose between shipping toothpaste or
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BASE TECHNOLOGIES
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Supply Chain Logistics
Transportation planning TradeMatrix i2and sourcing (hosted service) Technologies
Supply-chain planning Custom suite of i2 Technologiesand management i2 modules
Replenishment Inforem i2 Technologies
Transportation Planning Manugistics ManugisticsTransportation Management
Warehouse Management Custom solution EXE System (old) (deployed in Technologies,
âhardlinesâ PriceWater-distribution housecooperscenters)
Warehouse Management PkMS warehouse Manhattan System (selected in 2001) management Associates
EDI Value added GEISnetwork services
Supplier enablement Hosted services SPS Commerce
Sales Tracking, Demand and Merchandise Planning
Demand and i2 offers products i2 TechnologiesMerchandise Planning in this category.
Kmartâs commit-ment unstated
Demand Planning and Consumer Outlook! JDA Forecasting and Pin Point Software
Collaborative Planning, Extension to DevelopedForecasting and Kmart Merchantâs in-houseReplenishment (CPFR) Workbench
(extranet)
Floor space and Intactix JDA Softwareshelf space planning
Data warehouse Teradata NCR Corp.
Point-of-Sale Systems
Cash registers SurePOS 700 IBM
Self-checkout registers Self-Checkout NCRE-Series
Sales tracking Netfinity servers, IBMconfigured asPOS backend
NOTE: This point-of-sale technology rolled out in majority of Kmart stores
Inventory Tracking
Handheld scanners, Multiple products Symbolwireless networking, Technologies
Loss Prevention Ultra*Max Sensormatic
Internet Technology
BlueLight.com site Outsourced Global Sportsmanagement service
Intranet portal Plumtree PlumtreeCorporate Portal Software
Operating Systems
Most Kmart enterprise systems run on IBM operating systems,including MVS, AS/400, and AIX (IBMâs Unix) or on Windows NT.Kmart also makes some use of Sun Solaris
SOURCES: IHL CONSULTING, BASELINE RESEARCH
Kmart trumpeted apartnership with i2Technologies as key tomaking its supply chainefficient and effective
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Christmas trees during the holidays, now shipping capacityhas been expanded from 900 to 2,000 trucks per day,Conaway said. At the same time, replenishment systems arebeing tuned so that bulky items such as pillows can beheld at Kmartâs distribution centers, rather than taking upspace in the backs of stores, he said. Further, where lastyear 60% of the merchandise was being allocated to storesby central planners, today 60% is pulled to the stores in re-sponse to sales, he said.
But Conaway and other Kmart executives, while upbeatand insisting their initiatives are âon track,ââ refused repeat-ed requests to discuss the overhaul of its supply chain, indetail. Kmart Director of Corporate Communications JackFerry would say only that itâs a âwork in progress.ââ
GOAL: SPEND MONEY WISELYThere would be few questions of detail if Kmart over thepast two decades had managed to keep pace with the com-petition in the technology of retailing.
Through a combination of business missteps and ITbreakdowns, the company that managed to discard its five-and-dime store heritage and pretty much invent the large
discount store format has been left in the dust by one primecompetitor, and is about to be passed by another. Wal-Martand now Target are outperforming Kmart and, not coinci-dentally, using industry-leading technology in the process.
As early as 1983, Wal-Mart spent two cents of each dollarof sales on getting goods to its stores. Kmartâs costs were anickel, according to âIn Sam We Trust,ââ a chronicle of thecompetition by former Wall Street Journal writer Bob Ortega.
âWhat this meant, of course, was that other costs aside,Wal-Mart could sell its goods for about 3% less than Kmartand still enjoy the same profit margin,â Ortega writes.
Wal-Mart continued to press its advantage. In 1990, it ekedby Kmart in size for the first time, $32.6 billion in sales for theyear, versus $32.3 billion reported by Kmart at the time. Sincethen, Kmart has added just $4.7 billion in annual sales. Takingout inflation, Kmart has actually declined in size, to $27.6 bil-lion, in constant 1990 dollars. Meanwhile, Wal-Mart, even al-lowing for inflation, has increased 4.5 times in size. By thecalculation of theStreet.com, Kmart would need 21 years toearn what Wal-Mart earns in one quarter.
If Conaway hopes to revive Kmart through technologythat improves the manner it which it stocks its shelves, his
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KMART TURNS ON THE TECHNOLOGY:How its performance checks out
Case 005: A dissection
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Kmart completes theinstallation of price-scanning and satellitedata transmissionsystems in more than2,200 stores. CIODavid Carlson boaststhis is the fastestinstallation of suchUPC scanning in retail historyWal-Mart overtakesKmart in size
90Kmart announces itis using handheldscanning terminalsand wireless productsfrom Symbol Techno-logies for inventorymanagement in morethan 200 storesKmart orders 1,500Unisys Unix systems,in addition to 1,000already ordered, to bedeployed as point-of-sale servers in stores
91 92Kmart gets out ofthe wholesale clubbusiness, selling 91Pace stores to Wal-Mart and closingthe restInternal report findsfew Kmart employeesuse their computerseffectively and out-dated data is causingcash registers to ringup incorrect prices
93David Carlson endslengthy tenure asCIO, leaving as theIT departmentbecomes a targetfor cost-cuttingVirginia Rago namednew CIO, bears downon costs and plans tomove store systemsoff the Unix operatingsystem and ontoWindows NT
94Joseph Antoniniresigns as CEOFloyd Hall, formerlyof Target, becomesCEOHall closes 72stores, cuts 5,800jobsDon Normanreplaces Rago as CIO
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REVENUE
INVENTORY TURNS
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2,000th vendor joinsKmartâs electronicdata interchange (EDI)network, making itone of the largestordering networks in retailingKmart wins a Com-puterworld Smithso-nian award for latestincarnation of internalnet for merchandiseplanning, tracking andreplenishment
SOURCES: THOMSON FINANCIAL, DAYTON HUDSON CORPORATION, KMART CORPORATION, SEARS ROEBUCK AND CO., WAL-MART STORES, INC. RESEARCH ASSOCIATE: LIZ BENNETT
THE BASELINE: AN INDUSTRY AVERAGE, COMBINING THE RESULTS OF KMART, WAL-MART, TARGET AND SEARS
ability to juggle competing interests will be key. Because atthe same time the company is reshaping how it gets goodsinto its stores, it is reshaping the stores.
Prudential Securities expects Conaway to bump Kmartâscapital spending up by more than one-third, to $1.9 billion,by 2004 in order to convert stores to a larger format calledthe Super Center, which includes groceries.
After all, Wal-Mart is now the nationâs largest grocery chain.âLook out 10 years from now; the discount stores we know willbe a relic,â says Prudential Securities analyst Wayne Hood.
Cash could be tight as Kmart tries to upgrade about 800stores at the same time itâs revamping its software. But thisis a juggling act Kmart has dealt with before. âKmart has al-ways had a clash of what the IT guys knew they needed, andthe spending of money in other parts of the business,â saysHood, who nonetheless downgraded Kmart shares this sum-mer on worries about its ability to fund from cash flow all theinitiatives it needs to pursue. âThere is the potential now toget into some risk of spending in the wrong place.â
Making the necessary investments is not easy for a publiccompany, especially if youâre reporting losses, says Jim Dion,president of Dionco, a retail consulting firm in Chicago.
âWall Street today really does control a tremendous amount ofwhat you are capable of doing or are allowed to do. Decisions,rather than being made for the long-term health and growth ofthe company, are made for the very short term.ââ
Particularly in its early days, Wal-Mart was able to main-tain a long-term focus on driving high volume through a low-margin but operationally efficient business.
So it made continual investments in its distribution net-work and pioneered the use of technologies such as UniversalPricing Code scanning among non-grocery retailers. Becausethe family of founder Sam Walton held a large share of thecompany, Wal-Mart would spend the money even when it cutinto the profits it could report. Only Walton had to be con-vinced it made long-term sense. âKmart doesnât have thatluxury,â Dion says.
Kmart has few technological luxuries to enjoy. It has triedvarious ways of spurring interest in its BlueLight.com Website. But in July, it became the only believer, buying back theminority interests of Softbank Venture Capital, MarthaStewart Living Omnimedia and Internet portal Yahoo.Kmart paid $15 million in cash and 6 million shares of stockfor the privilege and took a charge of $100 million.
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Kmart joins theNational Informa-tion InfrastructureTestbed and com-mits to developinga pilot âRetail Storeof the FutureâTeklogix com-pletes installation ofmulti-million dollarwireless communi-cations system at13 Kmart distribu-tion centers
96Norman considersmerger of separateinformation systemsthat deliver hardgoods and soft goodsto storesAlso subject tostreamlining: four dif-ferent cash registersystems. Storesserved by two differ-ent systems fromIBM; and one eachfrom NCR and Fujitsu
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Joseph Osbourn,formerly of Disney,becomes CIOKmart teams withSoftbank Venturesand other investorsto create Blue-Light.com. MarkGoldstein signs onas CEO of the Webbusiness
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GOING OVER THE TOPWal-Mart and Kmartwere the same size in1990. Since, Kmart hasgrown far slower thanits rival or the industry
DELIVERINGTHE GOODSA key to efficient distri-bution and retailing isturning over your inven-tory quickly. Kmart isgetting better, but lagsits rivals significantly
BASELINE
WAL-MART
KMART
BASELINE
WAL-MARTTARGET
KMART
TARGET
KMART
Kmart experimentswith CollaborativePlanning, Fore-casting, and Reple-nishment (CPFR) toenhance its vendor-managed inventoryKmart introduceswww.kmart.com, itsfirst secure Web siteDon Norman leaves.Laurence Andersonserves as interim CIOfor more than a year
Floyd Hall retiresChuck Conaway, ofthe CVS pharmacychain, becomes CEO Conaway promisescompany turnaroundby August 2002.Randy Allen, ofDeloitte Consulting,named CIOKmart announcesstrategic partnershipwith i2 for overhaul-ing the supply chain
Kmart to buy out itsBlueLight.com partnersRandy Allen is re-assigned to ExecutiveVice President StrategicInitiatives and ChiefDiversity OfficerCIO job is vacantKmart announces$195 million writeoff,including $130 million for supply chain systemsthat will no longer be used
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GOTCHA!: SUPPLY CHAIN MANAGEMENT SOFTWARE
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Did you know that:
Supply chain software relies on modules that can be assem-bled into âtemplatesââ serving particular industries? But alltemplates are not created equal.
Templates guide users through a workflow that covers eachphase of the implementation.
âAs long as you adhere to the guidelines, you get a feasiblesystem,â says i2 Technologies executive VP Pallab Chatterjee.
According to Gartner, i2 has delivered solid templates for thehigh-tech manufacturing and semiconductor industries. But cus-tomers in retail, process manufacturing, transportation, and high-volume distribution should expect to invest in joint developmentof systems to fit their needs.
Many i2 users Baseline spoke with are implementing one ortwo applications, rather than buying an industry template. âYoureally have to take it one module at a time,â says one user.
The problem with power tools is itâs easy to cut yourself?
The biggest danger newcomers face is becoming intoxicated bypossibilities. âYou canât do everything at the same time, and evenif you could, you canât manage it,â says J.B. Hoyt, supply-chain di-rector at Whirlpool Corp. and chairman of the i2 Users Group.
The i2 Supply-Chain Planner that one apparel company uses isflexible enough that the company has configured it to handle day-to-day scheduling, rather than just the advanced planning func-tions for which it was designed. Because itâs trying to serve twodifferent functions, the system wound up being unnecessarilycomplex, the user says. Adding a separate scheduling systemwould probably work better.
The advanced planning software at the heart of supply chainmanagement is inherently memory-hungry? Itâs easy to ex-ceed the capacity of your hardware.
Planning modules work best when they can load all the variablesinto memory at once, rather than fetching data from a database.
That memory-resident approach can stretch the softwareâs lim-its in retailing, like at Kmart. The complexity of the model growsas a multiplier of the number of products the retailer stocks, thenumber of locations, and the number of time periods covered.Server memory can be outstripped, easily.
You may have to cut back your ambitions by deciding to model12 months rather than 18, for example. Or buy more hardware.
One retail member of the user group complains that i2 keepstelling him âto buy about $3 million worth of hardware,â which hiscompany is not about to do.
Problems can be solved with less memory, by breaking them upand solving them in pieces, Chatterjee says.
You have to feed your supply chain system the right data,and it has to be clean data?
Small inaccuracies and inconsistencies present in your legacydata for years suddenly become major problems. If data isnâtformatted the way the system expects it to arrive, you donât getthe answers youâre looking for.
Defining and redesigning processes often takes longer thananyone expects?
Projects stumble because the existing logistics or planningprocesses have never been documented properly.
âIâve heard from several retailers that this issue of definingprocesses, making sure theyâre accurate, and cleaning them upcan turn a one-year project into a three-year projectâit really canbe that bad,â says AMR analyst Randy Covill.
When LTV Copperweld brought in i2 Factory Planner, shopworkers rebelled. Because they believed management used pro-duction data in the past âas a club to beat them with,â it was hardto convince them that the data the new system required them tocollect really was needed to drive efficiency, says Judi Malec-DiGioia, co-founder of the user group (www.i2-usergroup.org).
Just because theyâre called âmodulesâ doesnât necessarilymean they were built to work together?
Many âmodulesâ in supply chain software libraries were originallyseparate products acquired by the vendors to round out their of-ferings. Without major architectural changes, these products donâtnecessarily integrate together without some help. For example, i2repeatedly attempted to build its own integration technology toconnect its modules, the last effort producing an âActive DataWarehouseâ to act as a central repository for data. With version5.2 of the i2 system, the company abandoned its technology infavor of integration software from WebMethods.
In return, Conaway says Kmart has been able to cut oper-ating expenses by about 25%, by outsourcing the siteâs techni-cal operations and order fulfillment.
However, integrating BlueLight.com into its stores has beendifficult. Taking orders from kiosks has had little impact on sales.
At some stores, like a Kmart in Manhattan that Baselinevisited, the kiosks have been turned off; at other locationstheyâre running, but only able to access a small subset of thecustom Web site with which they were designed to work.
An electronics department manager at a Super Kmartin the Midwest says the kiosks for a time had been fairlypopular. If customers couldnât find something on the shelf,heâd encourage them to check the online store. Sometimes,theyâd wind up ordering other items, such as flowers.
But now he doesnât know what to tell customers who askabout the device, which now will only display a âStoreLocator/Pharmacy Refillâ screen.
Joseph Chang, who was formerly director of Web devel-opment at BlueLight.com, says the kiosks were responsible fora single-digit boost in sales for the Web commerce operation,but did fall short in terms of integration with store operations.
Ideally, he would have liked to produce a Web applica-tion linked not only to the inventory of the dot-com store
but also to the inventory of the store where the kiosk userwas standing. Then you could have had a kiosk that couldnot only tell you that an item was available online but alsothat it was available two aisles over.
âThat would be an extremely useful device, and we hadpretty good people at BlueLight who wanted to achievethese goals,â Chang says. âThe supply chain managementwasnât tight enough to give usââ that capability.
GOAL: MAKE STORES COMPELLINGOf course, making BlueLight.com efficient pales besidethe need to make stores more effective.
Conaway wants Kmartâs supply chain to be second tonone, and the revamp was supposed to start in early 2001with the ârapid, methodical rolloutâ of the dozen businessreleases, and 93 distinct improvements by August 2002.
Following the methodology prescribed by i2, a âbusinessreleaseâ aims to achieve an incremental improvement inbusiness efficiency, which may be based on partial imple-mentation of several modules.
For example, the first business release might include im-plementing the basic features of supply chain and inventoryplanning modules, in concert with changes in the ways goods
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are received at distribution centers. The second business releasemight include an aggressive calculation of how many kitchenappliances or tennis rackets might need to be kept in distribu-tion center inventory, building on the efficiencies created by thefirst release. In this manner, Conaway hoped to march steadi-ly toward his goal of world-class supply chain performance.
But the project is not going that smoothly. â[The proj-ect at] Kmart is definitely not dead,â insists i2âs West.âBut they definitely have challenges.â
Kmart is under pressure to show bottom-line results,West says. Part of how i2 sold this project was with a âvalueassessmentâ of the results the project would deliver.
âTheyâre having trouble getting it to work so that they de-rive the value they were expecting,â West concedes. âWeârelooking very hard at how can we help them get this imple-mentation to where they want it to go.â
While he admits to some difficulties, West maintains theproject has slowed down or stalled because of âoperational is-suesâ at Kmart, not because the software didnât work. Hewouldnât be more specific. But supply chain overhauls facesome common hazards.
Covill, the senior retail analyst at AMR Research, saysthese hazards include the difficulty of combining new soft-ware with systems a company has long used, cleaning up dataso it produces useful results, and the need to define and, of-ten, redesign business processes [See âGotcha!,â p. 38].
Kmart may also have underestimated the difficulty of thetask when it agreed to partner with i2 on the joint develop-ment of a retail distribution system, says Gartner analyst KarenPeterson. âThey had scads, hundreds of Deloitte people inthere, and it got so expensive that they had to cut back,â shesays. âOne of the things weâve seen with i2, is that they oftenseem to be using consulting resources to do things that i2should have done in the first place.â
âItâs more people and processes than it is the technolo-gy,â says Judi Malec-DiGioia, one of the founders of the i2User Group, an independent organization that works withthe vendor. âYou could actually do a lot of this stuff withoutsoftware, but what the software gives is the rapid reconfig-uration of your planning.â
GOAL: AVOID DATA OVERLOADImplementations of i2 software tend to stumble for reasonsthat have nothing to do with the software itself. âIf the dataâsnot right, itâs not that it doesnât work in i2âitâs just that youwonât get the answer you want,â says another user group mem-ber. âTheyâve got a great product. Where they are weak istheyâve got to interface with every system that ever existed.â
Like many of the major supply chain software vendors, i2cut its teeth in manufacturing and is still learning the retailindustry. Retail has proven particularly challenging for many en-terprise software vendors, not just for i2, Peterson says.
The number of products produced by even the largestmanufacturers tends to be dwarfed by the number of dif-ferent products, known as stock-keeping units or SKUs, thata mass market retailer must track.
To give some idea, if Kmart is carrying about 70,000 SKUson average in 2,100 stores, thatâs 147 million item-locationpairs for starters. That doesnât even count distribution centersor the number of time periods that have to get tracked.
A weak point of i2âs software, users say, is that it can choke
on very large data sets because it tries to load the entire supplychain model into memory. I2 says the latest release has a moremodular architecture that minimizes the amount of data thatneeds to be loaded into memory. But users say itâs still an issue.
I2 can point to retail customers such as Home Depot andBarnes & Noble that have had success with its software. Yetone member of the i2 User Groupâs retail special interest groupreports a mood of simmering discontent among his colleagues.âI think we all have the same fear of telling people whatâs go-ing on, which is that i2 has done a poor job of promising some-thing that will actually work for retail and not delivering,â hesays. I2 customers in industries such as aerospace or comput-er manufacturing have better luck overcoming the difficultiesthat crop up during an implementation, he contends, âbutthose people have really, really deep pockets and high mar-ginsâand retail doesnât have that.â
When asked what the company was doing to ensure ithas happy customers in retail, Bernard Goor, i2âs vice presi-dent of retail product marketing, disputes the very idea thatthere might be unhappy customers. And he says i2 contin-ues to have a good relationship with Kmart.
âThere is so much misinformation out there about ourrelationship with Kmart that itâs scary,ââ says Goor. ââWe havean excellent relationship with Kmart.â
GOAL: MAKE AN IMMEDIATE DIFFERENCEConaway came into a company in decline and immediatelymade changes. He shook things up by luring talent from oth-er companies, including Wal-Mart veteran Mark Schwartz, thechief operating officer highly involved in tech projects, and ex-CIO Randy Allen, who came from Deloitte. The famous BlueLight Special that defined Kmartâs public image for years wasrevived, and Wal-Martâs âeveryday low pricesâ message wascloned with a promise of âlow prices every day.â
The new team also pushed hard to clean up and modernizedingy stores and improve customer service. âCustomer serviceis going to be at the top. Weâre going to measure that and weâregoing to tie incentives around it,â Conaway said.
He instituted a system of regularly polling customers ontheir experiences and using their responses to create a âsu-per service indexâ for each store. This metric has proven itsworth. The 200 stores with the highest service scores recordsales that are about 2% higher than the rest, he said duringan August call with analysts.
As part of this effort, store employees were told to get se-rious about opening a new register whenever more than threepeople are in line. To help, new IBM cash registers and NCRself-checkout terminals were introduced at many stores. Now,customers in some stores handle 70% of checkouts.
âWeâre investing in more self-checkout registers. No onewould have thought one year ago that Kmart would be lead-ing in any technology initiative, but this is something wetested and really saw promise in,â said Conaway to financialanalysts at Kmartâs second quarter earnings call. âNow, weâreseeing our competitors follow our lead.â
There are logistics and supply improvements, as well.The rate of in-stock items has risen to 86% at the end ofOctober, with a goal of 90% by the end of January. In 2000,Kmart got rid of nearly 15,000 truck trailers full of excess in-ventory that had been left parked behind Kmart stores be-cause there was no space in storage rooms, let alone on shelves.
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Conaway says part of the reason Kmart could trim theâshrinkâ rate for lost or stolen merchandise from 3% to 2.5%was eliminating storage in those poorly-secured trailers.
Inventory got bloated, analysts say, because of the compa-nyâs reliance on newspaper circulars during former CEO FloydHallâs regime, to promote sales. Advertising specials on lots ofdifferent items each week meant pushing lots of new productsinto stores each weekâand then hoping theyâd sell.
âIt was a culture out of control. The reliance on the cir-cular became like a drug, with more pages and more itemsbeing added,â says analyst Hood.
GOAL: FIND GOOD PARTNERSKmart has been able to strengthen its supply chain in someways that have little to do with the i2 project. One exampleis its decision to take advantage of the food distribution ex-pertise of The Fleming Companiesâowned by investor RonBurkle, who has also bought a 9% stake in Kmartâwith anexclusive contract to replenish the grocery operations of allKmart Super Centers. âKmart didnât have the infrastruc-ture to do it, so they outsourced it to Fleming,â says Hood.
But Kmart still needs to get its technology right, so it canaccelerate the effects of successful partnerships. GartnerâsPeterson compares IT to âthe Valvoline motor oilâ that makesa car run smooth and fast. âBut you have to have the car any-way,â she says. âYou have to have the business processes and theexecutive drive. Wal-Mart has proven itself to have very goodlogistics processes and very good processes in general.â
Wal-Martâs supply chain still runs primarily on home-grown software. The commercially available packages forretail didnât exist when those systems were being built andare still relatively immature today, Peterson says.
Kmart planned to grease the wheels with the i2 project.The original plan? I2 would use the Kmart project as thetemplate for the retail industry. I2 would then be able to sellgeneric modules to other retailers and customize them.Thatâs standard operating procedure for i2, but it has its haz-ards, says Peterson. âIt always tends to take a little bit longerthan expected.â
Now, Conaway may have grown impatient. I2, which saysprogress has slowed down, could be fighting to stay in thegame at Kmart. One clue: Vendors who a year ago couldnâtget their calls returned, now are getting in the door.
For instance, Kmart bought Manugisticsâ transportationplanning software several years ago, but certainly didnât makethe kind of strategic commitment it later made to i2. âNowweâre in the very early stages of talking to them about up-grading to some of the current releases,â says Jerry Blanford,vice president of retail sales at Manugistics.
Kmart has declined to specify whether i2 software was inany way part of the September write-off of supply chain in-vestments. Financial analyst Marie Driscoll says only,âtheyâre scrapping the stuff done in the last five years thatwas kind of done on an ad hoc basis,â she says.
The only software component of the write-off thatKmart did confirm was a warehouse management system li-censed from EXE Technologies in 1997. The EXE systemhad been heavily customized since the initial purchase, andthe decision to drop it may have had more to do with the ex-pense of maintaining the custom parts of the system, thanwith the EXE product itself, said a Kmart spokesman.
I2âs West says the important thing is that his company isfocused on helping Kmart work past its implementationchallenges. âThe real challenge is standing behind yourproduct and making it work,â he says. Even though i2âs soft-ware got blamed for up to $100 million in missed sales atNike, West notes i2 ultimately did get the $400 million sys-tem up and running for the sportswear maker.
But AMR analyst Covill said i2 paints a broad vision ofwhat it can do for customers, which is a weakness in a weakeconomy. âBuyers are much more focused on immediate re-turn on investment and on lowering expenses,ââ he said.
GOAL: ESTABLISH CONSISTENCYIf Kmart has failed to implement a consistent technicalstrategy, it may be because IT leaders have changed so often.
The company has had five CIOs since 1994 including therecently reassigned Allen. âNew management isnât going tosay, the last guy was doing it right,â says analyst Schulsinger.âYou have to earn your big paycheck, so you scrap whatevermomentum there was.â
Dave Carlson, who served as Kmartâs CIO from 1986 to1994, says one of the major supply chain initiatives he wouldlike to have undertaken was the unification of the separatecomputer systems for the Kmart distribution systems usedfor soft and hard goods.
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HOW KMART MEASURES PERFORMANCE
21185136467523256485195635736354485932643456395465306577367561254362745792315211851364675232564851956357363544859326434561
Measure Current Goal
Super Service Index 57% 70%
Store inventory turnover (annually) 3.8X 4.5X
Distribution center inventory turnover 4 times a year 12 times a year
Products in-stock 87% 95%
Checkout âringsâ per minute 12 16
Theft and loss, as percentage of revenue 2.50% 1.50%
Clearance markdowns, as percentage of revenue 6.10% 5.00%
Event markdowns, as percentage of revenue 9.50% 4.00%
Accounts payable to inventory ratio 36% 60%
Earnings before income tax, as percentage of revenue 1.80% 4%
SOURCE: KMART
PROJECT PLANNERABOUT TO LAUNCH A SUPPLYCHAIN OVERHAUL? HEREâSSOME HELP IN GETTINGSTARTED (SEE FOLDOUT).ïżœ
But the project was deemed too costly. âIt meant youcould never have a report that would have a single view ofwhat was going on,â he says. Only now, under Conaway, is theunification of the two systems happening.
Despite that flaw, Carlsonâs team won a Smithsonianaward for a system that allowed for central planning of an au-tomated replenishment schedule, while still allowing storemanagers the authority to override the forecast. The IT de-partment also worked to support initiatives such as a pro-gram where vendors managed inventory in stores, helpingconserve on merchandising costs.
But Kmart had deeper problems with merchandising man-agement, Carlson says. The company had fallen into the habitof expanding the variety of products it sold without payingenough attention to which items produced the most sales. ITcould design the data warehouse and produce the analysisshowing what products were gathering dust on the storeshelves, but store managers had to decide what to do with thatinformation. Unfortunately, they chose to ignore it, he says.
Carlson was forced out during a crackdown on ITspending that cost roughly 250 workers in the departmenttheir jobs. His departure was also part of a larger man-agement shakeup that stretched to the top of the compa-ny when then-chairman Joseph Antonini was replaced,after his strategy of expanding into the specialty retailbusiness failed. Antonini bought the Pace warehouse clubsand made an unsuccessful run at Samâs Club, the ware-house store division of Wal-Mart. At one time, Kmart alsoowned âcategory killerâ chains in different product nich-es in retailing, the Sports Authority, OfficeMax, andWaldenbooksâall of which it was eventually forced tosell off. Meanwhile, the core storesâKmart outletsâweresuffering from inattention.
Carlson was the only former CIO who agreed to speakfor this report. Successors took new tacks, but enjoyed com-paratively short tenures.
Virginia Rago became CIO in December 1994. She andCarlson waged a public debate in the trade press about herbelief that there was plenty of fat to be cut in Kmartâs IT de-partment. She also gained attention for her plans to convertstore systems from Unix to Windows NT as one money-sav-ing tactic at a time when NTâs suitability for enterprise usewas unproven.
By December 1995, Kmart had another CIO, DonNorman, who adopted a philosophy of gradual evolution ofthe existing systems rather than wholesale replacement.
Some of Ragoâs initiatives, like the move to WindowsNT, were put on the back burner. Early in his tenure, theMontgomery Ward and Ames alumnus did talk about im-proving integration between the different distribution cen-ter systems. But Norman left in July 1998 for a job atHarrodâs, the British retailer.
The CIO job went vacant for about 13 months, withLaurence Anderson filling in on an interim basis in additionto his role as president of the Super Kmart division.
Kmart hired Joseph Osbourn, formerly vice presidentof information systems at Walt Disney World in Orlando,as CIO in September 1999. By the following year, Kmarthad a new CEO. Conaway replaced Osbourn with RandyAllen in September 2000, about a month after launching histwo-year turnaround program. Less than a year later, Allenwas reassigned and Kmart was again looking for a new CIO.
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STAR SEARCH
211851364675232564851956357363544859326434563954653065773675612543627457923151
DavidCarlson
CIOHired:
July 1985
VirginiaRagoCIO
Hired:Dec. 1994
DonNorman
CIOHired:
Dec. 1995
JoeOsbourn
CIOHired:
Sept. 1999
RandyAllen
CIOHired:
Sept. 2000Reassigned:Aug. 2001
The revolving door in the CIOâs office canât help Kmart interms of continuity on its supply-chain projects. At somepoint, talented people ask themselves if signing on as thesixth CIO in seven years is a wise career move.
âGood candidates will ask whatâs wrong with a positionthat stays unfilled, or turns over often,â says JohnKoopman, a partner with search firm Heidrick &Struggles in Toronto, in assessing situations similar tothat faced by Kmart. âNo good executive wants a one-year assignment, even for a lot of money. That doesnâtfurther anyoneâs career.â
The highly regarded CIO of one national retailer is moreblunt: âThey could certainly find someone in betweenjobs that would take it, but I doubt that anyone wouldleave a good job.â
Plus, at Kmart, revolving doors seem to abound.On Nov. 9, Kmart announced that CFO Jeffrey Boyer, brought in from Sears, had resigned after only six months on the job. Earlier this year, chiefmarketing officer Brent Willis, brought in from Coca-Cola, departed after four months. Andy Giancamilliwas appointed president and chief operating officerin July 2000 by CEO Chuck Conaway, and resigned inMarch 2001.
The current CIO search began when Randy Allen wasreassigned from the post in August. Big-time jobs likethis one commonly take several months to fill, althoughtwo vacancies ago, it took Kmart more than a year toname a new CIO.
Of course, money can talk. Chief operating officer MarkSchwartz, who succeeded Giancamilli and is overseeingsome of the IT effort, received almost $4 million incompensation last year. And there also would be theglory of turning around Kmart, after decades of trailingin technology.
One search firm executive says he would recommendgoing after an experienced CIO who was willing to tryfor âone last hurrahâfive years and take the money.â
CEO Conaway, who received $14.2 million in salary,bonus, and other compensation last year, may be theguy to bring in the talent.
To replace Boyer, he promoted John McDonald,whom Conaway brought over from CVS where thetwo had success building one of the nationâs toppharmacy chains.
Conawayâs own lack of experience in a chief executivespot reportedly gave pause to some on Kmartâs board,but his strong personality and his track record at CVSâengineering acquisitions that made it the second-largest drugstore chainâwon over the skeptics. Butsuccess can be fleeting. Disappointing third-quarternumbers at CVS caused its stock to drop 23% in oneOctober day. The company said it will close stores anddistribution centers, and improve service.
Conaway makes himself highly visible to his IT staff,frequently appearing at departmental meetings-cum-pep rallies that are held at least once a month. Andwhen he isnât there, Schwartz is, firing up several hun-dred people as music blares in an auditorium or cafete-ria. âItâs informational and it shows that he truly sup-ports our group,â one Kmart insider says.
Also part of the bossâ modus operandi: Leaving a com-pany-wide voice mail each week to update people ongood news and bad.
Conaway, 40, who has regaled the media with tales ofbow-hunting exploits in Africa, may lure a CIO throughthis kind of adeptness in pumping up Kmartâs staff atthe same time he shakes up its promote-from-withinculture. âHeâs a good inspirational leader,â says one IT-department insider at Kmart. âIT is getting more of afocus on having a world-class organization that will becustomer-centric, as opposed to a bunch of techiessitting in the basement.â âD.C.
LaurenceAndersonInterim CIO
Hired:July 1998
Former BlueLight.com CEO Mark Goldstein says themove lets Allen focus on what she does best, and, removesissues for a successor coming in. âThis is going to be a muchbetter place for a new CIO to come in right now becausethey have their strategy in place, and theyâre looking forsomeone to implement it,â Goldstein says.
But turnovers hampered Kmartâs ability to execute aconsistent technology strategy. For example, a consultant fa-miliar with the EXE warehouse management implementa-tion noted that it was begun under one logistics executive,continued under a second, and axed by the current logisticsleader, Executive Vice President and Chief Supply ChainOfficer Anthony DâOnofrio.
Another program that seems to have been sidetracked bythe churn in people and strategies is Kmartâs CollaborativePlanning, Forecasting, and Replenishment program. CPFRis a set of technical and business process standards designedto help retailers and their suppliers work together on salesforecasts, promotional plans, and keeping products in stock.Wal-Mart provided a lot of the impetus. Back in 1995, Wal-Mart had proven the concept with a pilot project, workingwith Warner-Lambert to boost in-stock rates of Listerinemouthwash from 87% to 98%, cut the lead time for ordersfrom 21 to 11 days, and boost sales by $8.5 million.
Kmart began pilot projects in 1998 on similar systems.For example, Kmart and tissue maker Kimberly-Clark re-ported they were able to achieve a 14% increase in sales andboost in-stock rates from 86% to 94%, without an overall in-crease in inventory. Other participants in Kmartâs CPFRprogram included Procter & Gamble, Colgate-Palmolive,Pharmavite and Bell Sports.
Art Karrer, CPFR project manager at Pharmavite, saysthe program currently covers about 30 top selling items thataccount for half of the vitamin makerâs sales volume atKmart. He says Kmartâs sales forecasts are now 36% moreaccurateâand the discounter doesnât have to buy as muchproduct to satisfy customers.
By early 2000, Kmart was talking about expanding theCPFR program from 48 suppliers to more than 200. But thatnever happened, apparently because Kmart changed the CPFRprogramâs technical underpinnings. The early pilots had usedSyncra ct, the hosted version of the software from CPFR spe-cialist Syncra Systems. Syncraâs software allowed retailers andsuppliers to work together on forecasts and promotional plans.
At about the time that Kmart started talking about boost-ing the number of CPFR participants, it became one of the co-founders of the World Wide Retail Exchange, a consortiumthat was created to help its members interact with suppliers.
Kmart flirted with using the WWRE's planned CPFRservice. But it did not participate in the exchangeâs pilot,dropped the Syncra product and instead created a custom sys-tem as an extension of its Merchantâs Workbench extranet, ac-cording to managers with Syncra and Kmart suppliers.
Meanwhile, Kmartâs plans to add more suppliers wereput on hold.
âTo the chagrin of the suppliers, and to the chagrin of us,they just froze things,â says Syncra CEO Jeffrey Stamen. âAsfar as Iâm concerned, Kmart had a tremendous strategic ad-vantage, they had a leadership position, and they gave it up.â
Pharmaviteâs Karrer contends Kmart may not havewanted to pay Syncraâs subscription fees.
Regardless, Karrer can now download data on sales andinventory levels from Kmart and analyze it through LogilityâsVoyager Collaborate, another CPFR product. OncePharmavite is done, it exports the data to a spreadsheet andposts it to Kmartâs Internet site.
But an executive at another major supplier, who askednot to be identified, says he considers Kmartâs current CPFRprogram a giant step backward. âYou canât go beyond pilotsize by collaborating with spreadsheetsâyou just canât. Youcanât roll out on any kind of scale that way,â he says.
GOAL: FIND A NEW PERSONALITYWhile it struggles with its technology, Kmart also struggleswith its identity. Conaway is recasting Kmart as a destinationstore for mothers managing families, building on its part-nership with domestic goddess Martha Stewart.
âThe consumer has been confused,â says Schulsinger. âItwas male oriented, guns and bullets, now itâs Martha Stewartâshe brings big volume, but what does it do to the rifle buyers?What Kmart is depends on what day you are asking.â
Kmart still sells rifles and shotguns, but recently announcedthat it would stop selling handgun ammunition, for instance.
Kmart also is trying to get away from âpushingâ prod-ucts at customers, in hopes theyâll buy.
âThey (Kmart) would buy a million bouncing balls ... andwhat people didnât buy they would put in the back of thestore â or put in a truck in back of the store,â says Driscoll,the financial analyst with Argus Research. âWhat Wal-Martâsbeen able to do is use their point-of-sale systems to trackwhatâs sold today and immediately pull that from the man-ufacturer. Theyâve got it to the point where two-thirds oftheir inventory is financed by the manufacturer or supplier,and inventories turn frequently.â
Kmart has had a hard time matching the merchandisepushed through its distribution system with the items it waspromoting through sales, Driscoll says. âThey get peopleto the stores, and then they donât have whatâs advertised. Itâshard to get people back once theyâve had a bad experience.â
Conaway disowns these practices. âWeâre now pullingproducts that customers need, rather than pushing productsthey donât need,â he said in one recent earnings call.
Goldstein, who left Bluelight.com in May, says Conawaydeserves some time to get this right. âI know their opera-tions have lagged, but you canât blame the existing teamthatâs only been there a year or maybe 18 months. Youâve gotto blame who was there in the past and the fact that theychose to simply not invest in that.â
Kmart may just be spending its money more carefully bymaking sure the i2 project and other initiatives prove theirworth on a pilot basis before pushing ahead aggressively. âI2sold the magic bullet. At the end of the day, enterpriseAmerica has woken up to a new realityâthat there is nomagic bullet,â Goldstein says.
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BASELINE ONLINEWAL-MART CIO SAM WALTON AND KMART BOTH GOT STARTED IN THE SAME YEAR. BUT WAL-MART USED INFORMATION TECHNOLOGY TO GET A LEG UP ON ITS ONCE-LARGER RIVALâAND IS NOW SIX TIMES AS BIG.WWW.BASELINEMAG.COM/WAL-MART