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Computerworld - LONDON -- Looking to gain more control of IT operations, J. Sainsbury PLC, the U.K.'s second-largest grocery chain, is in the process of renegotiating a $3.25 billion outsourcing contract with IT services provider Accenture Ltd. as part of an overall three-year, $4.54 billion rescue plan designed to reinvigorate the struggling business.
In an attempt to drive down the price of the Accenture contract, Sainsbury will simplify existing IT systems as well as those in the pipeline, because the implementation effort has "failed to deliver the anticipated increase in productivity," while IT costs continue to eat up more and more of the company's overall budget in proportion to sales, Sainsbury said in a statement.
London-based Sainsbury signed a seven-year deal with Accenture in 2000 to outsource all of its IT operations. The pact led to the transfer of about 800 Sainsbury employees to Accenture. The grocer retained a small in-house staff to oversee the new IT strategy.
Last November, the contract was renegotiated with an eye toward cutting costs and extended through 2010, a Sainsbury spokeswoman said.
In-house Focus
In the statement, the supermarket chain said it wants to renegotiate the contract in an effort to provide its personnel with more input into the selection and implementation of IT systems. Sainsbury is also looking to rebuild its internal IT staff and systems.

Sainsbury says getting better performance out of its four automated depots is part of the grocery store's IT transformation effort. Image Credit: Corbis

One of Sainsbury's biggest IT problem areas is the operation of its four new automated depots, which the company said are failing to perform at the planned levels.
Accenture, which is one of the world's largest providers of IT services, said that although it's responsible for the supermarket chain's IT transformation program, including some of the supply chain systems, the automated depots were never part of its contract with Sainsbury.
Accenture said it replaced the bulk of Sainsbury's core operational systems, providing "improved reliability and stability of systems" while also reducing the grocery chain's annual IT operating costs.
Because negotiations between Sainsbury and Accenture are currently taking place, representatives from both companies declined to comment beyond the statements.
Sainsbury said that in its 2004-2005 fiscal year, it will write off $254 million of redundant IT assets and $218 million in automated equipment in the new fulfillment depots. An additional $54.5 million in inventory losses resulting from the disruption caused by the new depots and IT systems will also be written off, the company said.
Sainsbury estimates that itsexpenditures in its IT systems and supply chain will come in at an additional $363.5 million over the next two years. The company projects IT budget savings of $72.7 million by its 2007-2008 fiscal year.

Rohde writes for the IDG News Service.

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