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Loblaw will have to increase its IT budget

Feb. 24, 2008

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Loblaw is seriously planning to enhance its retail food operations by including new IT investments and working with some of its outsourcers.

At last week's Loblaw’s investor meeting in Toronto, the company acknowledged it has historically underinvested in IT systems, an approach that will have to change if it wants to revamp its supply chain and improve its overall ROI.

Catherine Booth, Loblaw’s senior v.p. of information services said that "overall, Loblaw will need more modern IT systems to amend “some significant gaps that we have to close to become the best again.”

Besides historical underinvestments 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.

Additionally, Booth said Loblaw has a multi-year IT strategy and roadmap and is prepared to make the investment. The company had announced that strategy twelve 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.

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.

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 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 wants 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.

But historically, and in the last three to five years, Loblaw did meet some of its goals in certain areas and when its executive board announced them at that time. Loblaw 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.

However, Booth did note that the IT overhaul will be “bite-sized as opposed to big bang,” ensuring that risk is mitigated along the way. 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.

Beginning in 2010, Loblaw will be more dedicated to laying the foundations for its more in-depth supply chain transformation, including “palette-friendly deliveries” to get products on shelves faster, and improvements to the efficiency of the transport fleet.

Loblaw executive chairman Galen Weston said despite earnings challenges in 2007, the company made significant inroads on its IT initiative. “We feel pretty good about our strategy and ultimately feel that we’re going to get to the right destination,” he added.

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Source: IT World Canada