During the Loblaw Companies Ltd.’s investor meeting in Toronto this week, the retailer acknowledged it has historically underinvested in IT systems – an approach that will have to change to revamp its supply chain.
The company will need new and upgraded systems to amend “some significant gaps that we have to close to become the best again,” said Catherine Booth, Loblaw’s senior vice-president of information services.
To that end, Booth said Loblaw has a multi-year IT strategy and roadmap and is prepared to make the investment. The company had announced that strategy 12 months ago as part of its “Make Loblaw The Best Again Plan,” and although it said some progress was made, there remains for more work to be done in certain areas.
Besides an historical underinvestment in IT infrastructure, Loblaw has typically built its own systems. But that’s going to change as well, said Booth: the company will look to buy and integrate “proven, reliable, scalable technology,” and resist deploying bleeding-edge systems.
The plan to improve IT consists of three components: core retail, supporting backline, and enabling capabilities. Core retail, said Booth, will be the priority for new technology deployments.
Loblaw will also turn to third-party outsourcers in particular for non-core processes. The company has already hired expertise to help build a “solid and scalable” infrastructure foundation to improve data access and flow.
Booth, however, noted that the IT overhaul will be “bite-sized as opposed to big bang,” ensuring that risk is mitigated along the way.
While the IT roadmap needs some work, so does the plan for an improved supply chain process – coined Supply Chain 2010 program – which remains “below satisfactory levels,” said Mark Foote, Loblaw’s president and chief merchandising officer. The initial part of the past 12 months began well but then suffered some issues near the end, he said, adding it was “reasonably comparable in food but did not hold the line as well as we needed to in general merchandise.”
The company proposes to replace the current “Stock and Ship” model with one called “Flow” in which all parties along the supply chain process will benefit from a unified forecasting system. Essentially, it will be “one integrated planned forecast shared with our vendors, driven by POS sales,” said Peter McMahon, executive vice-president in charge of supply chain and information technology with Loblaw.
The current model is “not responsive enough” due to the inability to accurately forecast demand, he said, using the example of a tub of yogurt that has already lost two-thirds of its life before it reaches the customer.
The next 12-18 months, he said, will be dedicated to laying the foundation for the supply chain transformation, including “palette-friendly deliveries” to get products on shelves faster, and improvements to the efficiency of the transport fleet.
However, Loblaw has met its goals for some areas of the 3-5 year plan it announced last year. The company has been successful in building a central operations team to enable it to operate “by truly taking advantage of its national scale”, said Foote. He added the team is tightly managed, follows standard processes, and operates consistently.
Loblaw executive chairman Galen Weston said despite earnings challenges this past year, the company made significant progress on this initiative. “We feel pretty good about our strategy and ultimately feel that we’re going to get to the right destination,” he said.
