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Analysis of the Warehouse Automation Failure at Sainsbury’s

| February 7, 2017

Abstract

All organizational departments play a collective role in ensuring that the intended goals and targets are achieved. It is vital that they work together because the whole is greater than the sum of the parts. Because of the connection that exists amongst different departments, failure in one department may have a detrimental effect to the entire organization. In this regard, this report addresses the case of warehouse failure at Sainsbury’s. It provides an in-depth discussion of the failure and utilizes Porter’s value chain analysis model to explore how failures in primary and supporting activities from the model might have contributed to this.

Introduction

One of the responsibilities of managers is ensuring that all components or departments within the organization work effectively. This is because success in organization is dependent on the contributions made by different departments. There have been several cases where failure in a single department has adversely affected all operations of the company. This paper seeks to address this management issue by focusing on the failures that occurred in the warehouse automation strategy at Sainsbury’s in 2004 (Double Loop, 2013). It is based on the view that there are many operational failures or disasters occur due to managers’ lack of understanding about the whole organization. This  leads to problems in the synchronization of different organizational functions.

An Overview of Sainsbury’s

Sainsbury’s is one of the largest supermarket chains in the United Kingdom, with a current market share of 17.7%. Apart from running the supermarket business, the brand also deals in the banking and property industries. Since it was founded in 1869, the company has undergone a phenomenal growth. Currently, it runs more than 1,106 convenience stores and supermarkets, and has more than 150,000 employees. The company operates both as a wholesaler and as a retailer (Sainsbury’s, 2014). It has stores that comprise of supermarkets, convenience stores, and pharmacies. In the supermarkets’ category, the company runs Sainsbury’s café and Sainsbury’s fuel. It also has an online business referred to as Sainsbury’s online, and comprises of Sainsbury’s Energy, Entertainment, Compare and Save, and Sainsbury’s gift cards. There are also banking and mobile businesses that are run by the company. Even with this level of success that the company presently enjoys, it has also undergone a number of challenges, some of which have led to heavy losses. Key among these was the warehouse project failure in 2004 (O’Brien, 2004).

Warehouse automation failure at Sainsbury’s

The warehouse automation project commenced in 2000 and had originally been meant to improve the efficiency of the company’s supply chain. The project was under the “business transformation programme”, whose key planks were Electronic Point Sale (EPOS), supply chain management, and outsourcing of its IT projects to Accenture. The warehouse automation project was intended to overhaul and improve supply chain management of the company. The company had originally intended to make installations of automated fulfilment systems in one of its distribution centres, Waltham Point in Essex. This is the company’s biggest depot, and distributes stock around London and southeast England. By implementation of a barcode based fulfilment system though this project, it was projected that it could make the company’s warehousing operations more streamlined and efficient (Double Loop, 2013).

Three years into the launch of the business transformation programme, the CEO who had launched the project reported that it was on the right track, and had saved the whole organization a total amount of £700 million. However, it was later realized that automation system had developed technical issues, mainly errors in reading barcodes. Not only did this failure affect the company’s operations, it also caused contractual rows between Sainsbury’s and Accenture, financial losses and undue attention from media. With reference to O’Brien (2004), implementation of this project led to a pre-tax loss of £39 million in the first half of 2004, the worst that the company had ever recorded in its 139 years of operation. This also made the company lose ground to its competitors in the market, which included Asda and Tesco (Double Loop, 2013).

Causes of the failure

This failure can be attributed to several management issues in the company. One of these was  the situation on which IT projects, which were to facilitate the automation project, were outsourced to another company (Abdullah & Verner, 2012). Even though the company being outsourced to might have had a good reputation in implementing such projects, the lack of involvement by parent company managers in the monitoring and evaluation of the project can affect the attainment of the intended objective (Alexander & Walker, 2013). The minimal involvement by Sainsbury’s management in this project explains why it took three years and a change in leadership to realize that the project was not likely to attain its set objectives (Alexander & Walker, 2013).

Another possible cause, which has also been identified by Double Loop (2013) is that there was insufficient engagement between the company’s CEO and its IT suppliers in projecting the possible key business and IT risks. For this reason, no delivery strategy that could tackle these challenges was promptly designed (Chermack, 2011). This can also be considered as the lack of sufficient preparations by the then CEO (Sir Peter Davis) before the initiation of the project. Insufficient preparation exposes projects to the risk of possible failure and over-expenditure (Kardes et al., 2013).

There was also a communication problem, which can be mainly blamed on Sir Peter Davis. Whereas it must have been known to him that the project could probably fail to serve its intended objective, his presentation about the project to the public was that its progress was as planned and that by 2003, it had saved the company £700 million. Had the issues been frankly and promptly pointed out, necessary measures could have been undertaken to avert the heavy loss that was later incurred (Aula & Siira, 2010). Given that this failure was associated with the warehouse automation exercise at Sainsbury’s warehouse automation project, it is also worth noting that the failure might have been partly caused by automation challenges. The fact that automated system failed to operate as it was intended to, indicates that all the inputs in terms of time, money and resources were lost (Kardes et al., 2013).

Porter’s Value chain Analysis of the Failure

Porter’s value chain model can be used to identify the primary and supporting activities which contributed to the failure at Sainsbury’s According to Porter (1985), generic value added activities can be divided into two. These are primary activities and support activities. Primary activities comprise of inbound and outbound logistics, sales and marketing, services and operations. Supporting activities, on the other hand, comprise of firm infrastructure, senior management roles, internal culture, procurement, outsourcing and technological developments. The model is represented in the diagram below, in which the functions that contributed to the failure at Sainsbury’s have been marked.

Fig. 1: Sainsbury’s value chain components that contributed to the failure in warehouse automation

The functions marked in the value chain model above have been identified as the contributors towards the identified failure. They are explained in more detail below:

Outbound logistics: in the value chain, outbound logistics are referred to as activities that mainly relate to transference of goods to customers through warehousing. The automation of the warehouse at Sainsbury’s was being done so as to facilitate this primary activity in the organization. The failure of the warehouse automation to effectively take place thus affected the activities in outbound logistics (Zott et al., 2011).

Senior management Roles: There was a failure by the senior management, led by the company’s CEO to effectively make an exhaustive plan of the warehouse automation project, which could have identified the potential risks and contributed to the formulation of possible strategies to overcome these challenges (Kardes et al., 2013). Another failure by the management was in terms of their involvement in the implementation of the project, only to identify issues three years after implementation of the project (Double Loop, 2013).

Internal Communications: This function refers to how effectively and accurately information is passed within the organizational precinct (Wright, 2012). The failure was due to the miscommunication by the CEO, where he purported that the project was on the right track and had in fact saved the company a reasonable amount of money. This shows that he was either being given the wrong information by the contractor company or he was presenting wrong information about the project.

Technology developments:  It has to be acknowledged that the company’s agenda was to improve its service delivery to its customers through technological innovation. However, given that the entire automation project failed to materialize, it can be argued that there was a technological development failure. According to Porter’s (1985) model, technological development comprises of all activities that relate to the processing and management of information. It also involves the activities undertaken in ensuring that the organization keeps up with the latest technological changes.

Outsourcing: The IT automation project was undertaken by Accenture, an outsourced IT company, which failed to deliver the intended automation results, and ultimately led to the cancellation of the contract (Double Loop, 2013).

Conclusion

This paper has presented a case of warehouse automation failure at Sainsbury’s in 2004. With the help of the Porter’s value chain model, several primary and supporting activities that might have contributed to the failure have been identified. The identified primary activities are inbound logistics and outbound logistics. Supporting activities are outsourcing, technology developments, internal communications and senior management roles. The fact that all these activities affected and were also affected by the warehouse automation failure at Sainsbury’s proves that many operational failures or disasters that occur because there is lack of understanding of the whole organization, resulting in problems in the synchronization of different organizational functions.

References

Alexander, A. & Walker, H., 2013. Sustainable supply chain management: towards a systems theory perspective. Dublin: EUROMA conference.

Double Loop, 2013. Sainsbury’s Warehouse Automation Project. [Online] Available at:   http://www.doubleloopconsulting.com/sainsbury-warehouse-automation  [Accessed 6 March 2014].

Kardes, I., Ozturk, A., Cavusgil, S.T. & Cavusgil, E., 2013. Managing global megaprojects: Complexity and risk management. International Business Review, 22(6), pp.905-17.

O’Brien, L., 2004. Digital disaster. [Online] Available at:   http://www.supplymanagement.com/analysis/features/2004/digital-disaster/  [Accessed 6 March 2014].

Porter, M., 1985. Competitive Advantage. New York: Free Press.

Sainsbury’s, 2014. About us. [Online] Available at: http://www.j-sainsbury.co.uk/about-us/  [Accessed 6 March 2014].

Zott, C., Amit, R. & Massa, L., 2011. The business model: recent developments and future research. Journal of Management , 37(4), pp.1019-42.

Abdullah, L.M. & Verner, J.M., 2012. Analysis and application of an outsourcing risk framework. Journal of Systems and Software, 85(8), pp.1930-52.

Aula, P. & Siira, K., 2010. Organizational Communication and Conflict Management Systems: A Social Complexity Approach. Nordicom Review, 31, pp.125-41.

Chermack, T.J., 2011. Scenario Planning in Organizations. California: Berrett-Koehler.

Wright, M., 2012. Gower Handbook of Internal Communication. Burlington: Gower Publishing.

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Category: Business & Management, Essay & Dissertation Samples, Strategic Management