Sainsbury's puts brakes on IT after £290m write-off

Sainsbury's has put the brakes on new IT investment and is looking to renegotiate its £1.8bn IT outsourcing contract with Accenture as part of a new back-to-basics business plan designed to turnaround the struggling supermarket chain.

The supermarket revealed it will take a £290m hit on its disastrous automated depot and supply chain IT project that failed to get goods onto the shelves of its supermarkets.

The extent of the problems, which were part of a £3bn project implemented by previous CEO Sir Peter Davies, are revealed in Sainsbury's new business plan put before investors today.

The write-off of redundant IT assets will cost £140m and the write-off of automated equipment in the new fulfilment depots will cost £120m. Another £30m in stock losses is due to the disruption caused by the new depots and IT systems. Remedial and completion capital spend in IT systems and the supply chain is estimated at an additional £200m over the next two years.

Sainsbury's CEO Justin King said the business transformation project distracted the company from its "customer offer" and so he has laid out plans to "fix the basics" as part of a £2.5bn "sales-led" recovery for the embattled supermarket chain.

"IT systems have also failed to deliver the anticipated increase in productivity and the costs today are a greater proportion of sales than they were four years ago," it said. "The rollout of future systems and upgrades has been slowed down while focusing on driving benefits from the systems already in place."

Sainsbury's £1.8bn IT outsourcing deal with Accenture also comes under the spotlight. "The contract with Accenture is being renegotiated to involve the company more fully in the selection and implementation of systems and IT solutions. Accordingly the company is re-building internal capability," the review said.

That deal was only renegotiated to cut costs with an extension to 2010 last November. A spokeswoman for Sainsbury's told silicon.com it is "renegotiating the overall cost structure to improve flexibility" but denied it signalled a shift to bringing the supermarket's IT back in-house.

"We have a good relationship with Accenture and we have every confidence Accenture will be able to support the business going forward."

Accenture said it has improved the reliability and stability of Sainsbury's systems and reduced annual IT operating costs as part of the outsourcing deal.

A spokesman for Accenture said: "We are responsible for the IT transformation programme at Sainsbury's, including some of the supply chain systems. However, the IT automation systems within Sainsbury's four new automated depots are not, and never have been under the scope of the existing contract. We are not responsible for the strategy, development and operations of these systems."

In the meantime Sainsbury's focus will be on getting cost savings by simplifying existing IT systems, and in some areas this means manual processes will be reintroduced where systems are failing. IT and the supply chain account for almost a quarter of the operational savings target of £400m by the end of financial year 2007/2008.