***** Computer Select, February 1996 : Articles ***** Journal: PC Week April 3, 1995 v12 n13 pE1(2) COPYRIGHT Ziff-Davis Publishing Company 1995 ------------------------------------------------------------------------- Title: Kmart's IT crisis: electronic links needed between stores and suppliers (PC Week Executive) Author: Moad, Jeff Abstract: Kmart Corp urgently needs a new information systems (IS) strategy to challenge more technology-savvy rivals and will need to change its culture in addition to rolling out new systems, according to experts. The company has begun to supply some crucial decision-support information, but competitors have moved ahead of it in developing Efficient Consumer Response (ECR) inventory systems and in communicating more effectively with suppliers. Kmart CIO David Carlson reportedly resigned in Nov 1994 due to frustration with the need for major structural changes; his departure was followed by that of Pres and CEO Joseph Antonini, who was blamed for Kmart's weak financial figures in recent months. Carlson's group had pushed Kmart aggressively into open systems and had been working on an advanced CustomerTrack system for gathering information about customers entering stores. His successor, Virginia Rago, is focused more on costs and is part of a high-level cost-cutting committee that is planning to close 110 stores and lay off 8,000 out of 300,000 employees. ------------------------------------------------------------------------- Full Text: A new CEO isn't the only thing Kmart Corp. is looking for these days. The Troy, Mich., retailing giant is also in urgent need of an IT strategy that will help it thrive in a highly competitive and technology-dependent industry. For Kmart to challenge technology-savvy rivals such as Wal-Mart Stores Inc., the company will have to be better at rolling out systems that link with suppliers and align inventories with consumer preferences, experts say. Continuing to invest in IT will be critical. But just as important will be changing its internal culture so that Kmart managers and suppliers become more comfortable with IT tools. Kmart has begun to supply some critical decision-support information to the business, says Thom Blischok, managing partner of the national retail practice of Coopers & Lybrand, in Chicago. But "the traditional buying culture there has been less receptive than at other retailers to making structural changes that would allow them to use [sales] information," Blischok says. Rivals such as Wal-Mart have moved ahead of Kmart in developing so-called ECR (Efficient Consumer Response) systems, which help keep the right inventories in stock. Rather than sending out invoices when supplies are low, these retailers send daily sales reports to suppliers, who then are responsible for replenishing stock. "Kmart hasn't been structured properly to implement ECR," says Robert Cohen, president of Beta Data, a retailing consultancy in Dallas. "They tend to have a lot of isolated, functional departments that don't share data and cling to paper and invoices." Driving forces Sources say it was frustration with the need for those structural changes that drove high-profile Chief Information Officer David Carlson to resign in November. Rampant cost-cutting that threatened ambitious IT rollout plans also influenced his departure, they say. Carlson's resignation was followed two weeks ago by the long-rumored departure of President and CEO Joseph Antonini, who took the blame for recent poor financial performance. Antonini has been replaced temporarily by Ronald Floto, executive vice president and general counsel. Carlson was recently replaced by Virginia Rago, former vice president for store systems, who joined Kmart late last year from PJR Hills Department Stores. Ironically, Carlson had received high marks throughout the industry for his performance at Kmart. He was a driving force for electronic data interchange standards in retail. He pushed the company aggressively into open systems, placing Unisys U6000/65 multiprocessor-based Unix systems into each of the company's 2,000-plus department stores, and he rolled out Prism, an advanced point-of-sale system. His group also has been working on ShopperTrack, an advanced system for gathering information about customers entering Kmart stores, and a workbench to enable Kmart merchandisers to query vast amounts of Kmart product and sales-production data. Under Carlson, Kmart was reportedly spending about $160 million annuallyor about 5 percent of saleson IT, well above the industry average. Yet Carlson's IT group had its share of glitches. Sources say the organization tended to deliver applications in large chunks, rather than increments that would have helped line managers understand and digest the technology. Carlson tended to rely on internal resources rather than hiring outside expertise, which created delays when unexpected projects came up, sources say. Rago, who declined a request for an interview, seems to be focused on costs. She's part of a high-level committee that's been formed to identify $800 million in cost cuts that can be made over the next two years. That, coupled with her newcomer status, makes analysts question whether Rago will be able to pull off the IT challenges facing Kmart. Although the company plans to close 110 stores and lay off 8,000 of its 300,000 employees as part of those cuts, sources say the IT staff hasn't been hit hard yet. If the number of Kmart IS employee resumes reportedly on the street is any indication, however, many may end up leaving on their own. ------------------------------------------------------------------------- Company: Kmart Corp. Topic: Company Business Planning MIS Retail industry Company Analysis Record#: 16 780 294 *** End ***