Goal: Find Good Partners

By Edward Cone  |  Posted 2001-12-10 Email Print this article Print

When Chuck Conaway took over as the chief executive of Kmart, he gave himself two years to resuscitate the discount retailer, get the right products on its shelves and make it competitive again with the new kings of general merchandising, Wal-Mart and Tar

Goal: Find Good Partners

Kmart has been able to strengthen its supply chain in some ways that have little to do with the i2 project. One example is its decision to take advantage of the food distribution expertise of The Fleming Companies—owned by investor Ron Burkle, who has also bought a 9% stake in Kmart—with an exclusive contract to replenish the grocery operations of all Kmart Super Centers. "Kmart didn't have the infrastructure to do it, so they outsourced it to Fleming," says Hood.

But Kmart still needs to get its technology right, so it can accelerate the effects of successful partnerships. Gartner's Peterson compares IT to "the Valvoline motor oil" that makes a car run smooth and fast. "But you have to have the car anyway," she says. "You have to have the business processes and the executive drive. Wal-Mart has proven itself to have very good logistics processes and very good processes in general."

Wal-Mart's supply chain still runs primarily on homegrown software. The commercially available packages for retail didn't exist when those systems were being built and are still relatively immature today, Peterson says.

Kmart planned to grease the wheels with the i2 project. The original plan? I2 would use the Kmart project as the template for the retail industry. I2 would then be able to sell generic modules to other retailers and customize them. That's standard operating procedure for i2, but it has its hazards, says Peterson. "It always tends to take a little bit longer than expected."

Now, Conaway may have grown impatient. I2, which says progress has slowed down, could be fighting to stay in the game at Kmart. One clue: Vendors who a year ago couldn't get their calls returned, now are getting in the door.

For instance, Kmart bought Manugistics' transportation planning software several years ago, but certainly didn't make the kind of strategic commitment it later made to i2. "Now we're in the very early stages of talking to them about upgrading to some of the current releases," says Jerry Blanford, vice president of retail sales at Manugistics.

Kmart has declined to specify whether i2 software was in any way part of the September write-off of supply chain investments. Financial analyst Marie Driscoll says only, "they're scrapping the stuff done in the last five years that was kind of done on an ad hoc basis," she says.

The only software component of the write-off that Kmart did confirm was a warehouse management system licensed from EXE Technologies in 1997. The EXE system had been heavily customized since the initial purchase, and the decision to drop it may have had more to do with the expense of maintaining the custom parts of the system, than with the EXE product itself, said a Kmart spokesman.

I2's West says the important thing is that his company is focused on helping Kmart work past its implementation challenges. "The real challenge is standing behind your product and making it work," he says. Even though i2's software got blamed for up to $100 million in missed sales at Nike, West notes i2 ultimately did get the $400 million system up and running for the sportswear maker.

But AMR analyst Covill said i2 paints a broad vision of what it can do for customers, which is a weakness in a weak economy. "Buyers are much more focused on immediate return on investment and on lowering expenses," he said.

Senior Writer and author of the Know It All blog

Ed Cone has worked as a contributing editor at Wired, a staff writer at Forbes, a senior writer for Ziff Davis with Baseline and Interactive Week, and as a freelancer based in Paris and then North Carolina for a wide variety of magazines and papers including the International Herald Tribune, Texas Monthly, and Playboy. He writes an opinion column in his hometown paper, the Greensboro News & Record, and publishes the semi-popular EdCone.com weblog. He lives in North Carolina with his wife, Lisa, two kids, and a dog.

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