When Chuck Conaway Took Over As the Chief Executive of Kmart, He

Code Blue BY DAVID F. CARR AND EDWARD CONE

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 Target. His No. 1 repair job, he said at the time, was the company’s supply chain. He has 243 days to go.

PHOTO ILLUSTRATION BY HUGH KRETSCHMER

DURING THE LAST DECADE, KMART’S NET INCOME HAS FLUCTUATED WIDELY (RIGHT). BASELINE NOVEMBER/DECEMBER 2001 CEO CHUCK CONAWAY IS TRYING TO 30 PRODUCE A FAST, STEADY RECOVERY. CASE 005 A DISSECTION 21185136467523256485195635736354485932643456395465306577367561254362745792315769234854716547856456476574196548165684

CASE 005 ADISSECTION K-MART BASE CASE

Company: Kmart Headquarters: 3100 West Big Beaver Road, Troy, Mich. Phone Number: (248) 463-1000 Business: Discount retailer of clothes, pharmaceuticals, general merchandise Financials: $37 billion in sales, net loss of $244 million, net loss margin 6.6% (fiscal year 2001) Chief Information Officer: Position open Challenges: Fill shelves with most popular products while still in demand; lower pricing; reduce advertising expenditures while maintaining marketing impact; reduce costs; refocus stores to serve needs of mothers rearing children Baseline Goals: Fix business and “make it competitive” by Aug. 10, 2002 Keep right products in stock 95% of time, up from 86% Provide “super” service in 70% of stores, up from 56% Turn inventory 4.5 times a year or more, up from 3.6 times

September 6 may go down as a defining date in Kmart chief executive Chuck Conaway’s effort to turn around the one-time king of discount stores in America. Five days before the twin towers tragedy, Conaway announced that Kmart would write off $195 million of assets held on its books that no longer had val- goal he established shortly after he was hired in May 2000. ue. This included $130 million worth of supply-chain hardware He doesn’t expect to completely fix the supply chain by and software that was being retired, and $65 million for the re- this coming August. But, in a Nov. 27 conference with Wall placement of two outdated distribution centers. Conaway said Street analysts, Conaway said Kmart was “doing a phenom- implementing two new state-of-the-art distribution centers enal job of reinventing’’ its supply chain—and that should be would allow hot-selling products to get priority treatment. evident by this time next year. The technology write-offs were a sign that Kmart was The revitalization from being able to put popular products scrapping some relatively recent investments, and even on its shelves at competitive prices can come none too soon. called into question Kmart’s sweeping plan to work with In the quarter that ended Oct. 31, Kmart’s sales actually once high-flying i2 Technologies to overhaul its supply chain. dropped 2.2% from a year ago, to $8.0 billion. Even disregard- Whether the restructuring and write-offs announced ing the writeoffs, the company reported a net loss of $127 mil- that day defined success or failure remains to be seen. But lion, while rivals were showing profits and sales gains. Conaway was, if nothing else, putting himself on the spot. How Kmart gets products onto shelves is not its only He had just 337 days to go. challenge. Conaway also is fighting to create a “customer- On Aug. 10, 2000, Conaway had set his first major met- centric’’ culture and to market more effectively, besides ric for judging the success of his attempt to revive Kmart. He pulling people into the store with Sunday circulars. said it would take 730 days—two years—to make Kmart But he has told shareholders, employees, analysts and his again competitive with Wal-Mart, which had stolen Kmart’s board that the supply chain is his No. 1 priority . seeming birthright as the largest discount chain in 1990, and “I believe the supply chain is really the Achilles’ heel of Target, which was about to sweep by Kmart to become the Kmart,’’ he said in September. “Just fixing the supply chain nation’s second-largest discounter. could really turbo-charge Kmart.” Setting concrete goals and meeting them is key to September’s writeoff says a good portion of what the com- Conaway’s method of achieving success for Kmart. “Chuck pany spent in recent years on such technology is not deemed aggressively measures progress. If he’s not seeing it, he’s not useful any more. If this is a final clearing of the decks to make against pulling the plug,” says one consultant who has way for new systems, Conaway’s ambitious plan could be suc- worked on Kmart’s logistics systems. ceeding. But success is not yet visible to outsiders. “They are not dead yet, but for Kmart to get back in the game GOAL: FIXING THE ACHILLES’ HEEL would be one of the greatest miracle comebacks, ever,” says Larry Which leads back to Sept. 6. Schulsinger, retailing analyst with Management Ventures in Conaway, the 40-year-old boy wonder brought in from Wa shington. “The world can exist with more than two large mass drug chain CVS to revive Kmart’s fortunes, has staked his merchandisers, and Chuck is smart enough to figure out a way two-year recovery plan on revamping the company’s supply to do it. But if the story ended today, they have lost.”

BASELINE NOVEMBER/DECEMBER 2001 chain and inventory management systems. It’s the biggest Fourteen months ago, Kmart placed a big bet on i2 32 part of “achieving world-class execution,” the number one Technologies as the strategic partner that would turn its 21185136467523256485195635736354485932643456395465306577367561254362745792315 perennially underperforming supply chain into an advan- THE KMART ROSTER tage. “This represents about a $50 million opportunity— just in the beginning—for i2, and there is a tremendous Charles C. Conaway PARTNERS amount of more work we’re going to do,” Conaway en- Chairman and CEO Gregory A. Brady thused onstage at an Oct. 2000 i2 user conference. Role: Conaway is the driving CEO, i2 Technologies force behind Role: Brady joined i2 as The stakes are huge. Gary Busek, who studies retail tech- Kmart’s initia- president in nology as president of IHL Consulting Group, estimates tives to overhaul 1994. When he Kmart could add $1.9 billion to its bottom line if it could match its supply chain, was promoted improve cus- to CEO in May the inventory turnover rates achieved by Wal-Mart and Target. tomer service, 2001, a big part The number of times a company turns over the invento- and market more of his mandate ry in its stores and distribution network each year is a par- effectively. He joined Kmart was to ensure in May 2000 from CVS Corp., customer satisfaction with ticularly crucial metric in discount retail, which thrives on where he was president and i2 products. Brady reportedly high volume. Last year, Wal-Mart turned its inventory 7.3 chief operating officer. had a hand in making the sale to Kmart in the first times; Target turned its 6.3 times; Kmart: 3.6 times. And Mark Schwartz place. Before joining i2, chief financial officer John McDonald says turnover will be President and COO he was VP of Worldwide flat, at that same rate, again this year. Role: A Wal-Mart veteran, Applications for Oracle Corp. Schwartz joined Kmart n Ultimately, i2 is supposed to help Kmart achieve such ba- September 2000 and was John West sic retail goals as keeping the shelves sufficiently stocked so promoted to his current post Formerly CTO, i2 that customers can find what they need, but without stuff- in March 2001. Schwartz has Technologies taken the lead on initiatives Role: West consulted with ing stores with an excess of inventory that Kmart can’t move. such as shortening checkout the Kmart proj- Some of the ways i2 software can help is modeling de- lines and clearing out excess ect team on po- inventory. tential changes mand for products—and what it means for keeping inven- to i2’s software, tory in stock at each store and each distribution center. The Randy Allen templates and software keeps track of the ability of key suppliers to fill or- Executive Vice President of best-practices Strategic Initiatives and guidelines that ders, and the cost and speed of different means of trans- Chief Diversity Officer could improve the retailer’s porting goods through the network. Role: Allen was hired as chance of success. Recently, After needs are analyzed, then instructions can be gener- Kmart’s CIO in September i2 announced West had 2000 but moved to her “elected to reduce his cur- ated for executing orders, scheduling shipments, and record- current post in August 2001. rent time commitment to the ing the receipt of goods. If the analysis is correct and execution A former partner at Deloitte company” but would remain Consulting, Allen was on in an advisory capacity. follows, costs of operating the network are lower and the com- central to Kmart’s selection pany doesn’t have to stock as much inventory either in distri- of i2 Technologies as a Mark S. Hansen bution centers or in stores. That, in turn, means Kmart can supply chain technology Chairman and CEO, partner. She brought in Fleming Companies lower prices and thereby raise sales and, hopefully, profits. Deloitte personnel to tailor Role: Hansen is a former The Kmart partnership was a big deal for i2, based in it to Kmart’s needs. president and CEO of Sam’s Dallas. I2 claims to have delivered billions of dollars of val- Club, the warehouse division Tony D’Onofrio of Wal-Mart Stores. In ue to its customers in the past few years. The market has Executive Vice President February, Fleming and Kmart grown skeptical, though, partly because of high-profile sna- and Chief Supply Officer announced a $4.5 billion a Role: D’Onofrio joined Kmart year deal where Fleming will fus involving an i2 manufacturing and distribution system at in October 2000 from replenish groceries and other Nike, which led the shoe marketer to say it missed up to Michaels Stores, where he “consumables” stocked $100 million in sales. AMR Research supply chain analyst was in charge of global sup- by Kmart stores. Success ply chain, distribution, and lo- will rely on tight logistical Bob Ferrari sees Kmart as one of a handful of make-or-break gistics. He and his team halt- coordination between projects for Dallas-based i2, in this case to prove it can de- ed the rollout of a custom the firms. liver hard financial results in a particular industry like retail. warehouse management system and brought in a new Jim Schuetz The project would be organized as “a typical skunkworks” product from Manhattan Global Supply Chain with a cross-functional team of 500 working in a remote lo- Associates. Practice Leader, Chicago office, Deloitte Consulting cation and told to keep at it until the new system was fin- Richard W. Blunck Role: Schuetz took overall ished. Conaway spoke of emulating the kind of supply chain CEO, BlueLight.com responsibility for the speed of execution achieved by i2’s customers in high-tech Role: Blunck started in relationship between December 2000 the consulting firm and manufacturing, such as Dell Computer. “We need to stop as Chief Technol- Kmart, including the i2 talking about days and start talking about hours. We have to ogy and implementation. get to that level of intensity to be world-class,” he said. eBusiness Officer. From the begin- Neil Thall Besides speeding up supply chain processes, Conaway said ning he was Executive Vice President, he was looking to i2 to help Kmart with “micromerchandis- charged with Manhattan Associates managing Kmart’s relationship Role: Helps Manhattan ing” efforts that would allow it, for example, to make sure with BlueLight.com and direct- Associates address the that a store in an area with a large Hispanic population adjusts ing technical strategy for the needs of retail customers its mix of merchandise to appeal to that population. “Great Web commerce operation. He with their warehouse man- was named BlueLight’s new agement and supply chain companies are going to have to look to a local customer like CEO in November after Kmart systems. Manhattan won they’re actually a member of that community,” he said. bought out investors and out- Kmart as a customer earlier Now individuals close to both companies say the imple- sourced hosting and fulfill- this year, displacing ware- ment to Global Sports. Like house management vendor

mentation has stalled. Kmart is not commenting. Yet, even Allen, he hails from Deloitte. EXE Technologies. BASELINE NOVEMBER/DECEMBER 2001 John West, who until recently served as chief technology of- 33 211851364675232564851956357363544859326434563954653065773675612543627457923151

CASE 005 ADISSECTION BASE TECHNOLOGIES ficer at i2, admits it’s not proceeding as fast as planned. At the project’s peak, individuals close to the project say the supply-chain revamp kept about 100 staff members from Kmart trumpeted a Deloitte Consulting customizing i2 software so that it would partnership with i2 precisely track the movement of goods to Kmart’s 2,100 stores across North America. Now, only a handful are left. Technologies as key to For its part, i2 says it has “multiple” applications live at making its supply chain Kmart. But West would name only one—a remotely hosted service called FreightMatrix, which Kmart is using for in- efficient and effective bound transportation planning and sourcing. The slow pace Supply Chain Logistics may result in part from a possible absence of leadership. Transportation planning TradeMatrix i2 Randy Allen, the CIO whom Conaway hired away from and sourcing (hosted service) Technologies Deloitte just a year ago, was reassigned in August to become Supply-chain planning Custom suite of i2 Technologies executive vice president, strategic initiatives and chief di- and management i2 modules versity officer. No replacement has been named. Replenishment Inforem i2 Technologies Allen was Kmart’s fifth CIO in seven years. In contrast, Transportation Planning Manugistics Manugistics when Randy Mott left the CIO’s post at Wal-Mart in early Transportation Management 2000, he had been at the company since 1978 and taken over its top ITjob in 1994. Successor Kevin Turner has been with the Warehouse Management Custom solution EXE System (old) (deployed in Technologies, company since 1985 and served as assistant CIO since 1998. “hardlines” PriceWater- Conaway’s intense push comes even as Kmart’s financial distribution housecoopers centers) performance weakens. Lone among the major discount chains, Kmart reported a loss last year, of $244 million on Warehouse Management PkMS warehouse Manhattan System (selected in 2001) management Associates revenue of $37 billion. By comparison, Target reported a $1.3 EDI Value added GEIS billion profit on nearly identical revenue of $36.9 billion. network services Wal-Mart, which has blown by Kmart in size and success, Supplier enablement Hosted services SPS Commerce earned $6.3 billion on sales of $191.3 billion. This fall, the stress of war and recession have actually boost- Sales Tracking, Demand and Merchandise Planning ed sales for competitors. But not for Kmart. Its sales dropped Demand and i2 offers products i2 Technologies Merchandise Planning in this category. 4.4% in October at stores open at least a year. Same-store sales Kmart’s commit- improved 6.7% for Wal-Mart and 2% for Target. ment unstated On those reduced sales, Conaway also is making it Demand Planning and Consumer Outlook! JDA tougher to squeeze out a profit. He has mandated price cuts Forecasting and Pin Point Software on 38,000 of the 95,000 products that Kmart stocks in its Collaborative Planning, Extension to Developed stores. He wants to cut prices on another 12,000, to stay Forecasting and Kmart Merchant’s in-house Replenishment (CPFR) Workbench competitive with Wal-Mart, the most efficient player. (extranet) This strategy aims to let Kmart cut back on the use of Floor space and Intactix JDA Software newspaper circulars and sales to draw customers to stores. shelf space planning But when Conaway reported Kmart’s third quarter loss of Data warehouse Teradata NCR Corp. $224 million on Nov. 27, he said “there’s no doubt we made Point-of-Sale Systems a huge mistake by cutting too much advertising too fast.’’ Cash registers SurePOS 700 IBM Although “regular sales” not associated with any promotion rose 12% in the period, it wasn’t enough to make up for the Self-checkout registers Self-Checkout NCR E-Series loss of traffic associated with advertised promotions. Sales tracking Netfinity servers, IBM Beyond that, the price cutting is meant to be a “pay as you configured as go” program, meaning greater operating efficiency pays for the POS backend lost revenue. That’s where the supply chain overhaul comes in. NOTE: This point-of-sale technology rolled out in majority of Kmart stores On Nov. 27, Conaway said he expects changes that will Inventory Tracking provide real-time data throughout the supply chain to be Handheld scanners, Multiple products Symbol completed by July 2002. He also reported progress with the wireless networking, Technologies integration of separate systems for distributing “hard’’ goods Loss Prevention Ultra*Max Sensormatic such as appliances and “soft” goods such as apparel. The up- dated system will allow any product to find the most effi- Internet Technology cient route to its destination, cutting lead times by 14 days. BlueLight.com site Outsourced Global Sports Conaway said it has cut back the number of its suppliers management service by 25%; and, that a change in how it pays for supplies re- Intranet portal Plumtree Plumtree Corporate Portal Software sulted in some invoices being dropped. The upshot? There may be other “bumps in the road” to come. “That’s the reality Operating Systems of the massive change we’re going through,” he said. Most Kmart enterprise systems run on IBM operating systems,

BASELINE NOVEMBER/DECEMBER 2001 Still, where last year a congested distribution system including MVS, AS/400, and AIX (IBM’s Unix) or on Windows NT. 34 Kmart also makes some use of Sun Solaris forced Kmart to choose between shipping toothpaste or

SOURCES: IHL CONSULTING, BASELINE RESEARCH CASE 005 ADISSECTION Christmas trees during the holidays, now shipping capacity discount store format has been left in the dust by one prime has been expanded from 900 to 2,000 trucks per day, competitor, and is about to be passed by another. Wal-Mart Conaway said. At the same time, replenishment systems are and now Target are outperforming Kmart and, not coinci- being tuned so that bulky items such as pillows can be dentally, using industry-leading technology in the process. held at Kmart’s distribution centers, rather than taking up As early as 1983, Wal-Mart spent two cents of each dollar space in the backs of stores, he said. Further, where last of sales on getting goods to its stores. Kmart’s costs were a year 60% of the merchandise was being allocated to stores nickel, according to “In Sam We Trust,’’ a chronicle of the by central planners, today 60% is pulled to the stores in re- competition by former Wa ll Street Journal writer Bob Ortega. sponse to sales, he said. “What this meant, of course, was that other costs aside, But Conaway and other Kmart executives, while upbeat Wal-Mart could sell its goods for about 3% less than Kmart and insisting their initiatives are “on track,’’ refused repeat- and still enjoy the same profit margin,” Ortega writes. ed requests to discuss the overhaul of its supply chain, in Wal-Mart continued to press its advantage. In 1990, it eked detail. Kmart Director of Corporate Communications Jack by Kmart in size for the first time, $32.6 billion in sales for the Ferry would say only that it’s a “work in progress.’’ year, versus $32.3 billion reported by Kmart at the time. Since then, Kmart has added just $4.7 billion in annual sales. Taking GOAL: SPEND MONEY WISELY out inflation, Kmart has actually declined in size, to $27.6 bil- There would be few questions of detail if Kmart over the lion, in constant 1990 dollars. Meanwhile, Wal-Mart, even al- past two decades had managed to keep pace with the com- lowing for inflation, has increased 4.5 times in size. By the petition in the technology of retailing. calculation of theStreet.com, Kmart would need 21 years to Through a combination of business missteps and IT earn what Wal-Mart earns in one quarter. breakdowns, the company that managed to discard its five- If Conaway hopes to revive Kmart through technology and-dime store heritage and pretty much invent the large that improves the manner it which it stocks its shelves, his

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500 REVENUE THE BASELINE: AN INDUSTRY AVERAGE, COMBINING THE RESULTS OF KMART, 300 WAL-MART, TARGET AND SEARS 893405784392574389 58439257483925734892574839253478259437527324785943752 3243457348953475893425743950378254935743957348925347593427 100 234

9 INVENTORY TURNS

7 0123468087 7843920175646389042731492384755892473849325947823910472389014783912563596231 BASELINE OCTOBER 2001 BASELINE OCTOBER 2001 2143589243725890345783492504735120398473756543 36 5

3 SOURCES: THOMSON FINANCIAL, DAYTON HUDSON CORPORATION, KMART CORPORATION, SEARS ROEBUCK AND CO., WAL-MART STORES, INC. RESEARCH ASSOCIATE: LIZ BENNETT ability to juggle competing interests will be key. Because at “Wall Street today really does control a tremendous amount of the same time the company is reshaping how it gets goods what you are capable of doing or are allowed to do. Decisions, into its stores, it is reshaping the stores. rather than being made for the long-term health and growth of Prudential Securities expects Conaway to bump Kmart’s the company, are made for the very short term.’’ capital spending up by more than one-third, to $1.9 billion, Particularly in its early days, Wal-Mart was able to main- by 2004 in order to convert stores to a larger format called tain a long-term focus on driving high volume through a low- the Super Center, which includes groceries. margin but operationally efficient business. After all, Wal-Mart is now the nation’s largest grocery chain. So it made continual investments in its distribution net- “Look out 10 years from now; the discount stores we know will work and pioneered the use of technologies such as Universal be a relic,” says Prudential Securities analyst Wayne Hood. Pricing Code scanning among non-grocery retailers. Because Cash could be tight as Kmart tries to upgrade about 800 the family of founder Sam Walton held a large share of the stores at the same time it’s revamping its software. But this company, Wal-Mart would spend the money even when it cut is a juggling act Kmart has dealt with before. “Kmart has al- into the profits it could report. Only Walton had to be con- ways had a clash of what the IT guys knew they needed, and vinced it made long-term sense. “Kmart doesn’t have that the spending of money in other parts of the business,” says luxury,” Dion says. Hood, who nonetheless downgraded Kmart shares this sum- Kmart has few technological luxuries to enjoy. It has tried mer on worries about its ability to fund from cash flow all the various ways of spurring interest in its BlueLight.com Web initiatives it needs to pursue. “There is the potential now to site. But in July, it became the only believer, buying back the get into some risk of spending in the wrong place.” minority interests of Softbank Venture Capital, Martha Making the necessary investments is not easy for a public Stewart Living Omnimedia and Internet portal Yahoo. company, especially if you’re reporting losses, says Jim Dion, Kmart paid $15 million in cash and 6 million shares of stock president of Dionco, a retail consulting firm in Chicago. for the privilege and took a charge of $100 million.

4238574382573485934759345734895034753495834625890365437534489374895432573402938457123482347238147130981434728632564574573848739243721492345624596485924749823472391471230345624596485924749814534895347583 96 97 98 99 00 01 Kmart joins the Norman considers Kmart experiments Joseph Osbourn, Floyd Hall retires Kmart to buy out its National Informa- merger of separate with Collaborative formerly of Disney, Chuck Conaway, of BlueLight.com partners tion Infrastructure information systems Planning, Fore- becomes CIO the CVS pharmacy Randy Allen is re- Testbed and com- that deliver hard casting, and Reple- Kmart teams with chain, becomes CEO assigned to Executive mits to developing goods and soft goods nishment (CPFR) to Softbank Ventures Conaway promises Vice President Strategic a pilot “Retail Store to stores enhance its vendor- and other investors company turnaround Initiatives and Chief of the Future” Also subject to managed inventory to create Blue- by August 2002. Diversity Officer Teklogix com- streamlining: four dif- Kmart introduces Light.com. Mark Randy Allen, of CIO job is vacant pletes installation of ferent cash register www.kmart.com, its Goldstein signs on Deloitte Consulting, Kmart announces multi-million dollar systems. Stores first secure Web site as CEO of the Web named CIO $195 million writeoff, wireless communi- served by two differ- Don Norman leaves. business Kmart announces including $130 million cations system at ent systems from Laurence Anderson strategic partnership for supply chain systems 13 Kmart distribu- IBM; and one each serves as interim CIO with i2 for overhaul- that will no longer tion centers from NCR and Fujitsu for more than a year ing the supply chain be used

WAL-MART GOING OVER THE TOP Wal-Mart and Kmart BASELINE were the same size in 74839210102938471392819234 1990. Since, Kmart has 821945647834291010293847564 TARGET 405784392574389253478925166723486441210239847564473 grown far slower than KMART KMART its rival or the industry WAL-MART DELIVERING TARGET THE GOODS 56432891047321890561902384732158906320 A key to efficient distri- 64783921474738291042793 bution and retailing is 05389124731490738290564925 BASELINE

39125635962319 BASELINE OCTOBER 2001 turning over your inven- BASELINE OCTOBER 2001 tory quickly. Kmart is 37 KMART getting better, but lags its rivals significantly CASE 005 ADISSECTION In return, Conaway says Kmart has been able to cut oper- but also to the inventory of the store where the kiosk user ating expenses by about 25%, by outsourcing the site’s techni- was standing. Then you could have had a kiosk that could cal operations and order fulfillment. not only tell you that an item was available online but also However, integrating BlueLight.com into its stores has been that it was available two aisles over. difficult. Taking orders from kiosks has had little impact on sales. “That would be an extremely useful device, and we had At some stores, like a Kmart in Manhattan that Baseline pretty good people at BlueLight who wanted to achieve visited, the kiosks have been turned off; at other locations these goals,” Chang says. “The supply chain management they’re running, but only able to access a small subset of the wasn’t tight enough to give us’’ that capability. custom Web site with which they were designed to work. An electronics department manager at a Super Kmart GOAL: MAKE STORES COMPELLING in the Midwest says the kiosks for a time had been fairly Of course, making BlueLight.com efficient pales beside popular. If customers couldn’t find something on the shelf, the need to make stores more effective. he’d encourage them to check the online store. Sometimes, Conaway wants Kmart’s supply chain to be second to they’d wind up ordering other items, such as flowers. none, and the revamp was supposed to start in early 2001 But now he doesn’t know what to tell customers who ask with the “rapid, methodical rollout” of the dozen business about the device, which now will only display a “Store releases, and 93 distinct improvements by August 2002. Locator/Pharmacy Refill” screen. Following the methodology prescribed by i2, a “business Joseph Chang, who was formerly director of Web devel- release” aims to achieve an incremental improvement in opment at BlueLight.com, says the kiosks were responsible for business efficiency, which may be based on partial imple- a single-digit boost in sales for the Web commerce operation, mentation of several modules. but did fall short in terms of integration with store operations. For example, the first business release might include im- Ideally, he would have liked to produce a Web applica- plementing the basic features of supply chain and inventory tion linked not only to the inventory of the dot-com store planning modules, in concert with changes in the ways goods

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GOTCHA!: SUPPLY CHAIN MANAGEMENT SOFTWARE

Did you know that: You may have to cut back your ambitions by deciding to model 12 months rather than 18, for example. Or buy more hardware. Supply chain software relies on modules that can be assem- One retail member of the user group complains that i2 keeps bled into “templates’’ serving particular industries? But all telling him “to buy about $3 million worth of hardware,” which his templates are not created equal. company is not about to do. Problems can be solved with less memory, by breaking them up Templates guide users through a workflow that covers each and solving them in pieces, Chatterjee says. phase of the implementation. “As long as you adhere to the guidelines, you get a feasible You have to feed your supply chain system the right data, system,” says i2 Technologies executive VP Pallab Chatterjee. and it has to be clean data? According to Gartner, i2 has delivered solid templates for the high-tech manufacturing and semiconductor industries. But cus- Small inaccuracies and inconsistencies present in your legacy tomers in retail, process manufacturing, transportation, and high- data for years suddenly become major problems. If data isn’t volume distribution should expect to invest in joint development formatted the way the system expects it to arrive, you don’t get of systems to fit their needs. the answers you’re looking for. Many i2 users Baseline spoke with are implementing one or two applications, rather than buying an industry template. “You Defining and redesigning processes often takes longer than really have to take it one module at a time,” says one user. anyone expects?

The problem with power tools is it’s easy to cut yourself? Projects stumble because the existing logistics or planning processes have never been documented properly. The biggest danger newcomers face is becoming intoxicated by “I’ve heard from several retailers that this issue of defining possibilities. “You can’t do everything at the same time, and even processes, making sure they’re accurate, and cleaning them up if you could, you can’t manage it,” says J.B. Hoyt, supply-chain di- can turn a one-year project into a three-year project—it really can rector at Whirlpool Corp. and chairman of the i2 Users Group. be that bad,” says AMR analyst Randy Covill. The i2 Supply-Chain Planner that one apparel company uses is When LTV Copperweld brought in i2 Factory Planner, shop flexible enough that the company has configured it to handle day- workers rebelled. Because they believed management used pro- to-day scheduling, rather than just the advanced planning func- duction data in the past “as a club to beat them with,” it was hard tions for which it was designed. Because it’s trying to serve two to convince them that the data the new system required them to different functions, the system wound up being unnecessarily collect really was needed to drive efficiency, says Judi Malec- complex, the user says. Adding a separate scheduling system DiGioia, co-founder of the user group (www.i2-usergroup.org). would probably work better. Just because they’re called “modules” doesn’t necessarily The advanced planning software at the heart of supply chain mean they were built to work together? management is inherently memory-hungry? It’s easy to ex- ceed the capacity of your hardware. Many “modules” in supply chain software libraries were originally separate products acquired by the vendors to round out their of- Planning modules work best when they can load all the variables ferings. Without major architectural changes, these products don’t into memory at once, rather than fetching data from a database. necessarily integrate together without some help. For example, i2 That memory-resident approach can stretch the software’s lim- repeatedly attempted to build its own integration technology to its in retailing, like at Kmart. The complexity of the model grows connect its modules, the last effort producing an “Active Data as a multiplier of the number of products the retailer stocks, the Warehouse” to act as a central repository for data. With version

BASELINE NOVEMBER/DECEMBER 2001 number of locations, and the number of time periods covered. 5.2 of the i2 system, the company abandoned its technology in 38 Server memory can be outstripped, easily. favor of integration software from WebMethods. or the number of time periods that have to gettracked.or thenumberoftimeperiodsthat have pairs forstarters. That doesn’t count distribution centers even in2,100stores, that’son average item-location 147million ly Infirst release. thismanner, Conawayhopedto marchsteadi- tion center inventory, buildingontheefficienciescreated bythe appliances ortennis rackets mightneedto bekept indistribu- calculationofhowmanykitchen might includeanaggressive are received atdistributioncenters. The second businessrelease a mass marketa mass retailermusttrack. stock-keepingferent products,knownas unitsorSKUs, that manufacturers tends to bedwarfedbythenumberofdif- t industry. formanyen- challenging Retail particularly proven has theretail cut itsteeth learning inmanufacturingandisstill system existed.”they’ve gotto thatever interface withevery ber. “They’vegotagreatproduct. Where theyareweak is wo not right,it’s notthatitdoesn’t work ini2—it’s justthat you nothingto dowiththesoftware itself.that have “If thedata’s I AVOID DATA OVERLOAD GOAL: uration ofyourplanning.” software, butwhatthesoftwaregivesisrapidreconfig- the vendor. “You doalotofthisstuffwithout could actually U gy,” saysJudi Malec-DiGioia, oneofthefoundersi2 doneinthefirstplace.” should have seem to beusingconsulting resources to dothingsthati2 says. “Oneofthethingswe’ve seenwithi2,isthattheyoften there, anditgotsoexpensivethattheyhadto cutback,”she a W challenges.” have “But theydefinitely notdead,”insistsi2’s isdefinitely ect at]Kmart West. t so itproduces usefulresults,andtheneedto defineand,of- ware withsystems longused,cleaning updata acompany has soft- these hazardsincludethedifficultyofcombining new some common hazards. w notbecausethesoftwaredidn’tsues” atKmart, work. He becauseof“operationalis- slowed downorstalled project has mentation to wheretheywantitto go.” hardathowcanwe helpthemgetthisimple- looking very rive thevaluetheywere expecting,” West concedes. “We’re Pe Karenment ofaretaildistributionsystem, analyst saysGartner to withi2onthejointdevelop- partner whenitagreed task erprise softwarevendors,notjustfori2,Peterson says. en, redesignbusinessprocesses [See“Gotcha!,”p.38]. mplementations ofi2softwaretend to stumbleforreasons ssessment” oftheresultsprojectwould deliver. ouldn’t face chainoverhauls bemorespecific.Butsupply

ser Group, anindependentorganizationthatworks with t est says.Part witha“value ofhowi2soldthisprojectwas t n’ oward his goal of world-class supply chainperformance. supply oward hisgoalofworld-class Aw To the largest The numberofproductsproduced byeven Like chainsoftwarevendors,i2 manyofthemajorsupply “It’s morepeopleandprocesses thanitisthetechnolo- Kmart isunderpressuretoKmart showbottom-line results, But theprojectisnotgoingthatsmoothly. “[Theproj- oil h eirrti nls tARResearch, says at theseniorretailanalyst Covill, AMR While headmitsto somedifficulties, West maintainsthe troublegettingitto work“They’re having sothattheyde- Kmart may also have underestimated thedifficultyof mayalsohave Kmart erson. “Theyhadscads,hundredsofDeloitte peoplein t gettheanswer youwant,”saysanotherusergroupmem-

give some idea, if Kmart is carrying about70,000 SKUs iscarrying give someidea,ifKmart eak pointofi2’s software,userssay, isthatitcanchoke an excellent relationshipwithKmart.” an excellent thatit’srelationship withKmart scary,’’ saysGoor. ‘’We have agoodrelationshipwithKmart. ues to have there mightbeunhappycustomers. And hesaysi2contin- dent ofretailproductmarketing, ideathat disputes thevery happycustomers Goor,has inretail,Bernard i2’s vice presi- retaildoesn’tgins—and that.” have really,those peoplehave deeppockets really andhighmar- that cropupduringanimplementation,hecontends, “but better thedifficulties luckovercoming er manufacturinghave says. I2customers aerospace orcomput- inindustriessuchas work forretailandnotdelivering,”he actually thing thatwill doneapoorjobofpromisingsome- ing on,whichisthati2has thesamefearoftelling peoplewhat’s have “I thinkwe all go- amoodofsimmeringdiscontentreports amonghiscolleagues. one memberofthei2User Group’s retailspecialinterest group &NobleBarnes hadsuccess withitssoftware. thathave Yet needs to beloadedinto memory. Butuserssayit’s anissue. still modular architecture thatminimizestheamountofdata chain modelinto memory. amore I2saysthelatest has release largedatasetsbecauseittriesto loadtheentiresupply on very wo index”foreachstore. per service its proven This metrichas their experiences andusingtheirresponsesto create a“su- going to tieincentives aroundit,”Conawaysaid. is goingto beatthetop. We’re goingto thatandwe’re measure “Customerdingy stores customer service andimprove service. day.”cloned withapromiseof“lowprices every and revived, Wal-Mart’s was lowprices” “everyday message Light SpecialthatdefinedKmart’s foryearswas publicimage CIO Randy Deloitte. whocamefrom Allen, The famousBlue involvedintechchief operatingofficer projects,andex- highly er companies, including Wal-Mart veteran Mark the Schwartz, made changes.He oth- shookthingsupbyluringtalentfrom Conaway cameinto acompany indeclineandimmediately MAKE AN IMMEDIATE DIFFERENCE GOAL: cause there was no space in storage rooms,letaloneonshelves. nospace instorage cause therewas thathadbeenleft parked storesventory behindKmart be- ofexcess 15,000 in- trailers full gotridofnearly Kmart truck October, with agoalof90%bytheendJanuary. In 2000, The rate items ofin-stock risento has 86%attheendof seeing ourcompetitors ourlead.” follow atKmart’sanalysts “Now, second call. quarter earnings we’re t ing inanytechnology initiative,butthisissomethingwe w customers insomestores handle70%ofcheckouts. self-checkout terminals were introduced atmanystores. Now, people areinline. To registers IBMcash andNCR help,new register morethanthree rious aboutopeninganew whenever an August withanalysts. call sales thatareabout2%higherthantherest,hesaidduring ested and really sawpromise in,”saidConawaytoested financial andreally ould have thought one year ago that Kmart would belead- thatKmart thoughtoneyearago ould have r When asked doingto whatthecompany was ensureit I2 canpointto retailcustomers Home suchas Depotand He teamThe new alsopushedhardto cleanupandmodernize There are logistics and supply improvements, as well. as improvements, There arelogisticsandsupply “We’re investinginmoreself-checkout registers. No one store ofthiseffort, employeeswereAs part told to getse- th. scores recordThe 200stores withthehighestservice “There issomuchmisinformationoutthereaboutour

instituted customers polling asystem on ofregularly AE005 CASE ADI SSECTION 39 BASELINE NOVEMBER/DECEMBER 2001 21185136467523256485195635736354485932643456395465306577367561254362745792315211851364675232564851956357363544859326434561

HOW KMART MEASURES PERFORMANCE

Measure Current Goal

Super Service Index 57% 70% Store inventory turnover (annually) 3.8X 4.5X Distribution center inventory turnover 4 times a year 12 times a year Products in-stock 87% 95% Checkout “rings” per minute 12 16 Theft and loss, as percentage of revenue 2.50% 1.50% Clearance markdowns, as percentage of revenue 6.10% 5.00% Event markdowns, as percentage of revenue 9.50% 4.00% Accounts payable to inventory ratio 36% 60% PROJECT PLANNER Earnings before income tax, as percentage of revenue 1.80% 4% ABOUT TO LAUNCH A SUPPLY CHAIN OVERHAUL? HERE’S SOURCE: KMART SOME HELP IN GETTING STARTED (SEE FOLDOUT).

Conaway says part of the reason Kmart could trim the For instance, Kmart bought Manugistics’ transportation “shrink” rate for lost or stolen merchandise from 3% to 2.5% planning software several years ago, but certainly didn’t make was eliminating storage in those poorly-secured trailers. the kind of strategic commitment it later made to i2. “Now Inventory got bloated, analysts say, because of the compa- we’re in the very early stages of talking to them about up- ny’s reliance on newspaper circulars during former CEO Floyd grading to some of the current releases,” says Jerry Blanford, Hall’s regime, to promote sales. Advertising specials on lots of vice president of retail sales at Manugistics. different items each week meant pushing lots of new products Kmart has declined to specify whether i2 software was in into stores each week—and then hoping they’d sell. any way part of the September write-off of supply chain in- “It was a culture out of control. The reliance on the cir- vestments. Financial analyst Marie Driscoll says only, cular became like a drug, with more pages and more items “they’re scrapping the stuff done in the last five years that being added,” says analyst Hood. was kind of done on an ad hoc basis,” she says. The only software component of the write-off that GOAL: FIND GOOD PARTNERS Kmart did confirm was a warehouse management system li- Kmart has been able to strengthen its supply chain in some censed from EXE Technologies in 1997. The EXE system ways that have little to do with the i2 project. One example had been heavily customized since the initial purchase, and is its decision to take advantage of the food distribution ex- the decision to drop it may have had more to do with the ex- pertise of The Fleming Companies—owned by investor Ron pense of maintaining the custom parts of the system, than Burkle, who has also bought a 9% stake in Kmart—with an with the EXE product itself, said a Kmart spokesman. exclusive contract to replenish the grocery operations of all I2’s West says the important thing is that his company is Kmart Super Centers. “Kmart didn’t have the infrastruc- focused on helping Kmart work past its implementation ture to do it, so they outsourced it to Fleming,” says Hood. challenges. “The real challenge is standing behind your But Kmart still needs to get its technology right, so it can product and making it work,” he says. Even though i2’s soft- accelerate the effects of successful partnerships. Gartner’s ware got blamed for up to $100 million in missed sales at Peterson compares IT to “the Valvoline motor oil” that makes Nike, West notes i2 ultimately did get the $400 million sys- a car run smooth and fast. “But you have to have the car any- tem up and running for the sportswear maker. way,” she says. “You have to have the business processes and the But AMR analyst Covill said i2 paints a broad vision of executive drive. Wal-Mart has proven itself to have very good what it can do for customers, which is a weakness in a weak logistics processes and very good processes in general.” economy. “Buyers are much more focused on immediate re- Wal-Mart’s supply chain still runs primarily on home- turn on investment and on lowering expenses,’’ he said. grown software. The commercially available packages for retail didn’t exist when those systems were being built and GOAL: ESTABLISH CONSISTENCY are still relatively immature today, Peterson says. If Kmart has failed to implement a consistent technical Kmart planned to grease the wheels with the i2 project. strategy, it may be because ITleaders have changed so often. The original plan? I2 would use the Kmart project as the The company has had five CIOs since 1994 including the template for the retail industry. I2 would then be able to sell recently reassigned Allen. “New management isn’t going to generic modules to other retailers and customize them. say, the last guy was doing it right,” says analyst Schulsinger. That’s standard operating procedure for i2, but it has its haz- “You have to earn your big paycheck, so you scrap whatever ards, says Peterson. “It always tends to take a little bit longer momentum there was.” than expected.” Dave Carlson, who served as Kmart’s CIO from 1986 to Now, Conaway may have grown impatient. I2, which says 1994, says one of the major supply chain initiatives he would progress has slowed down, could be fighting to stay in the like to have undertaken was the unification of the separate

BASELINE NOVEMBER/DECEMBER 2001 game at Kmart. One clue: Vendors who a year ago couldn’t computer systems for the Kmart distribution systems used 40 get their calls returned, now are getting in the door. for soft and hard goods. 211851364675232564851956357363544859326434563954653065773675612543627457923151

But the project was deemed too costly. “It meant you STAR SEARCH could never have a report that would have a single view of what was going on,” he says. Only now, under Conaway, is the The revolving door in the CIO’s office can’t help Kmart in unification of the two systems happening. terms of continuity on its supply-chain projects. At some Despite that flaw, Carlson’s team won a Smithsonian point, talented people ask themselves if signing on as the award for a system that allowed for central planning of an au- sixth CIO in seven years is a wise career move. tomated replenishment schedule, while still allowing store “Good candidates will ask what’s wrong with a position that stays unfilled, or turns over often,” says John managers the authority to override the forecast. The IT de- David Koopman, a partner with search firm Heidrick & partment also worked to support initiatives such as a pro- Carlson Struggles in Toronto, in assessing situations similar to gram where vendors managed inventory in stores, helping CIO that faced by Kmart. “No good executive wants a one- Hired: year assignment, even for a lot of money. That doesn’t conserve on merchandising costs. July 1985 further anyone’s career.” But Kmart had deeper problems with merchandising man- The highly regarded CIO of one national retailer is more agement, Carlson says. The company had fallen into the habit blunt: “They could certainly find someone in between of expanding the variety of products it sold without paying jobs that would take it, but I doubt that anyone would leave a good job.” enough attention to which items produced the most sales. IT could design the data warehouse and produce the analysis Plus, at Kmart, revolving doors seem to abound. On Nov. 9, Kmart announced that CFO Jeffrey showing what products were gathering dust on the store Boyer, brought in from Sears, had resigned after shelves, but store managers had to decide what to do with that only six months on the job. Earlier this year, chief information. Unfortunately, they chose to ignore it, he says. Virginia marketing officer Brent Willis, brought in from Coca- Rago Cola, departed after four months. Andy Giancamilli Carlson was forced out during a crackdown on IT CIO was appointed president and chief operating officer spending that cost roughly 250 workers in the department Hired: in July 2000 by CEO Chuck Conaway, and resigned in Dec. 1994 March 2001. their jobs. His departure was also part of a larger management shakeup that stretched to the top of the compa- The current CIO search began when Randy Allen was reassigned from the post in August. Big-time jobs like ny when then-chairman Joseph Antonini was replaced, this one commonly take several months to fill, although after his strategy of expanding into the specialty retail two vacancies ago, it took Kmart more than a year to business failed. Antonini bought the Pace warehouse clubs name a new CIO. and made an unsuccessful run at Sam’s Club, the ware- Of course, money can talk. Chief operating officer Mark Schwartz, who succeeded Giancamilli and is overseeing house store division of Wal-Mart. At one time, Kmart also some of the IT effort, received almost $4 million in owned “category killer” chains in different product nich- compensation last year. And there also would be the es in retailing, the Sports Authority, OfficeMax, and Don glory of turning around Kmart, after decades of trailing Norman in technology. Waldenbooks—all of which it was eventually forced to CIO Hired: One search firm executive says he would recommend sell off. Meanwhile, the core stores—Kmart outlets—were Dec. 1995 going after an experienced CIO who was willing to try suffering from inattention. for “one last hurrah—five years and take the money.” Carlson was the only former CIO who agreed to speak CEO Conaway, who received $14.2 million in salary, for this report. Successors took new tacks, but enjoyed com- bonus, and other compensation last year, may be the guy to bring in the talent. paratively short tenures. Laurence Virginia Rago became CIO in December 1994. She and Anderson To replace Boyer, he promoted John McDonald, Interim CIO whom Conaway brought over from CVS where the Carlson waged a public debate in the trade press about her Hired: July 1998 two had success building one of the nation’s top belief that there was plenty of fat to be cut in Kmart’s IT de- pharmacy chains. partment. She also gained attention for her plans to convert Conaway’s own lack of experience in a chief executive store systems from Unix to Windows NTas one money-sav- spot reportedly gave pause to some on Kmart’s board, ing tactic at a time when NT’s suitability for enterprise use but his strong personality and his track record at CVS— engineering acquisitions that made it the second- was unproven. largest drugstore chain—won over the skeptics. But By December 1995, Kmart had another CIO, Don success can be fleeting. Disappointing third-quarter numbers at CVS caused its stock to drop 23% in one Norman, who adopted a philosophy of gradual evolution of October day. The company said it will close stores and the existing systems rather than wholesale replacement. distribution centers, and improve service. Some of Rago’s initiatives, like the move to Windows Joe Conaway makes himself highly visible to his IT staff, Osbourn NT, were put on the back burner. Early in his tenure, the CIO frequently appearing at departmental meetings-cum- Montgomery Ward and Ames alumnus did talk about im- Hired: pep rallies that are held at least once a month. And Sept. 1999 when he isn’t there, Schwartz is, firing up several hun- proving integration between the different distribution cen- dred people as music blares in an auditorium or cafete- ter systems. But Norman left in July 1998 for a job at ria. “It’s informational and it shows that he truly sup- ports our group,” one Kmart insider says. Harrod’s, the British retailer. Also part of the boss’ modus operandi: Leaving a com- The CIO job went vacant for about 13 months, with pany-wide voice mail each week to update people on Laurence Anderson filling in on an interim basis in addition good news and bad. to his role as president of the Super Kmart division. Conaway, 40, who has regaled the media with tales of Kmart hired Joseph Osbourn, formerly vice president bow-hunting exploits in Africa, may lure a CIO through of information systems at Walt Disney World in Orlando, this kind of adeptness in pumping up Kmart’s staff at Randy the same time he shakes up its promote-from-within as CIO in September 1999. By the following year, Kmart Allen CIO culture. “He’s a good inspirational leader,” says one IT- had a new CEO. Conaway replaced Osbourn with Randy Hired: department insider at Kmart. “IT is getting more of a Sept. 2000 focus on having a world-class organization that will be

Allen in September 2000, about a month after launching his Reassigned: customer-centric, as opposed to a bunch of techies BASELINE NOVEMBER/DECEMBER 2001 two-year turnaround program. Less than a year later, Allen Aug. 2001 sitting in the basement.” –D.C. 45 was reassigned and Kmart was again looking for a new CIO. CASE 005 ADISSECTION Former BlueLight.com CEO Mark Goldstein says the move lets Allen focus on what she does best, and, removes BASELINE ONLINE issues for a successor coming in. “This is going to be a much WAL-MART CIO SAM WALTON AND KMART BOTH GOT STARTED IN THE SAME YEAR. BUT better place for a new CIO to come in right now because WAL-MART USED INFORMATION TECHNOLOGY they have their strategy in place, and they’re looking for TO GET A LEG UP ON ITS ONCE-LARGER RIVAL—AND IS NOW SIX TIMES AS BIG. someone to implement it,” Goldstein says. WWW.BASELINEMAG.COM/WAL-MART But turnovers hampered Kmart’s ability to execute a consistent technology strategy. For example, a consultant fa- miliar with the EXE warehouse management implementa- Regardless, Karrer can now download data on sales and tion noted that it was begun under one logistics executive, inventory levels from Kmart and analyze it through Logility’s continued under a second, and axed by the current logistics Voyager Collaborate, another CPFR product. Once leader, Executive Vice President and Chief Supply Chain Pharmavite is done, it exports the data to a spreadsheet and Officer Anthony D’Onofrio. posts it to Kmart’s Internet site. Another program that seems to have been sidetracked by But an executive at another major supplier, who asked the churn in people and strategies is Kmart’s Collaborative not to be identified, says he considers Kmart’s current CPFR Planning, Forecasting, and Replenishment program. CPFR program a giant step backward. “You can’t go beyond pilot is a set of technical and business process standards designed size by collaborating with spreadsheets—you just can’t. You to help retailers and their suppliers work together on sales can’t roll out on any kind of scale that way,” he says. forecasts, promotional plans, and keeping products in stock. Wal-Mart provided a lot of the impetus. Back in 1995, Wal- GOAL: FIND A NEW PERSONALITY Mart had proven the concept with a pilot project, working While it struggles with its technology, Kmart also struggles with Warner-Lambert to boost in-stock rates of Listerine with its identity. Conaway is recasting Kmart as a destination mouthwash from 87% to 98%, cut the lead time for orders store for mothers managing families, building on its part- from 21 to 11 days, and boost sales by $8.5 million. nership with domestic goddess Martha Stewart. Kmart began pilot projects in 1998 on similar systems. “The consumer has been confused,” says Schulsinger. “It For example, Kmart and tissue maker Kimberly-Clark re- was male oriented, guns and bullets, now it’s Martha Stewart— ported they were able to achieve a 14% increase in sales and she brings big volume, but what does it do to the rifle buyers? boost in-stock rates from 86% to 94%, without an overall in- What Kmart is depends on what day you are asking.” crease in inventory. Other participants in Kmart’s CPFR Kmart still sells rifles and shotguns, but recently announced program included Procter & Gamble, Colgate-Palmolive, that it would stop selling handgun ammunition, for instance. Pharmavite and Bell Sports. Kmart also is trying to get away from “pushing” prod- Art Karrer, CPFR project manager at Pharmavite, says ucts at customers, in hopes they’ll buy. the program currently covers about 30 top selling items that “They (Kmart) would buy a million bouncing balls ... and account for half of the vitamin maker’s sales volume at what people didn’t buy they would put in the back of the Kmart. He says Kmart’s sales forecasts are now 36% more store — or put in a truck in back of the store,” says Driscoll, accurate—and the discounter doesn’t have to buy as much the financial analyst with Argus Research. “What Wal-Mart’s product to satisfy customers. been able to do is use their point-of-sale systems to track By early 2000, Kmart was talking about expanding the what’s sold today and immediately pull that from the man- CPFR program from 48 suppliers to more than 200. But that ufacturer. They’ve got it to the point where two-thirds of never happened, apparently because Kmart changed the CPFR their inventory is financed by the manufacturer or supplier, program’s technical underpinnings. The early pilots had used and inventories turn frequently.” Syncra ct, the hosted version of the software from CPFR spe- Kmart has had a hard time matching the merchandise cialist Syncra Systems. Syncra’s software allowed retailers and pushed through its distribution system with the items it was suppliers to work together on forecasts and promotional plans. promoting through sales, Driscoll says. “They get people At about the time that Kmart started talking about boost- to the stores, and then they don’t have what’s advertised. It’s ing the number of CPFR participants, it became one of the co- hard to get people back once they’ve had a bad experience.” founders of the World Wide Retail Exchange, a consortium Conaway disowns these practices. “We’re now pulling that was created to help its members interact with suppliers. products that customers need, rather than pushing products Kmart flirted with using the WWRE's planned CPFR they don’t need,” he said in one recent earnings call. service. But it did not participate in the exchange’s pilot, Goldstein, who left Bluelight.com in May, says Conaway dropped the Syncra product and instead created a custom sys- deserves some time to get this right. “I know their opera- tem as an extension of its Merchant’s Workbench extranet, ac- tions have lagged, but you can’t blame the existing team cording to managers with Syncra and Kmart suppliers. that’s only been there a year or maybe 18 months. You’ve got Meanwhile, Kmart’s plans to add more suppliers were to blame who was there in the past and the fact that they put on hold. chose to simply not invest in that.” “To the chagrin of the suppliers, and to the chagrin of us, Kmart may just be spending its money more carefully by they just froze things,” says Syncra CEO Jeffrey Stamen. “As making sure the i2 project and other initiatives prove their far as I’m concerned, Kmart had a tremendous strategic ad- worth on a pilot basis before pushing ahead aggressively. “I2 vantage, they had a leadership position, and they gave it up.” sold the magic bullet. At the end of the day, enterprise

BASELINE NOVEMBER/DECEMBER 2001 Pharmavite’s Karrer contends Kmart may not have America has woken up to a new reality—that there is no 46 wanted to pay Syncra’s subscription fees. magic bullet,” Goldstein says.