Packaged Apps Not Always a Good Fit

Retailers need more scalability, features

Retail-sector CIOs said last week that they still face challenges finding packaged software to meet their needs, particularly in the supply chain areas.

Such difficulties plagued Kmart Corp., which took a $130 million write-off in September for supply chain software and hardware. The Troy, Mich.-based retailer sought bankruptcy protection last month due to business problems that were exacerbated by the need to enhance supply chain systems, analysts have said.

Retailers face such unique business issues that they have often been forced to write their own software or heavily customize packaged applications. Several retail CIOs said commercial offerings are improving, but it's still hard to find adequate supply chain software.

Jerry Miller, CIO at Sears, Roebuck and Co., said most of the Hoffman Estates, Ill.-based retailer's supply chain systems are homegrown because packaged applications haven't been able to scale to handle the high transaction volume and massive inventory Sears has.

"There has been some progress in this area by some vendors," Miller said, noting that Sears is starting to evaluate packaged applications. "If it can be shown that we can install, run and support a packaged [product] less expensively than homegrown, we have no problem bringing it in."

But right now, Sears finds itself turning to in-house IT staffers to design systems to scale and integrate its applications, Miller said.

Phillip Maxwell, CIO at The Neiman Marcus Group Inc. in Dallas, said his company has 45 stores - far fewer than Sears or Kmart—but is still "pushing the limits" of some software packages. Nevertheless, Maxwell said, Neiman Marcus will probably purchase a new merchandising system in a couple of years to improve data analysis capabilities.

"It may not hit everything that Neiman Marcus wants to do," he said. But the system will provide a quicker way to get more functionality, easier upgrades and the chance to lessen the need for in-house development, Maxwell said.

Some retailers have found themselves modifying packaged applications so heavily that that they have essentially rewritten them. Kmart, for instance, said it extensively customized a warehouse management system from Dallas-based Exe Technologies Inc. A Kmart spokeswoman claimed that the Exe package "was not doing the job we needed it to do," so Kmart decided to take a write-off on the software in September, even though it had just been installed in 1997.

Exe CEO Raymond Hood said his firm advised Kmart against heavy customization. He contended that the warehouse management system could be upgraded and serve the retailer well, as it has at other firms, including one of Kmart's major suppliers.

Several retail CIOs said they're trying to avoid heavy customization. Wolly Morin, CIO at New York-based Ann Taylor Retail Inc., said modifying packaged software can open the door to lots of problems.

Lesson Learned

Bill Finefield, CIO at Virginia Beach, Va.-based Navy Exchange Service Command (Nexcom), which handles $2 billion in sales across 112 stores and about 500 selling locations, learned about the dangers of customization the hard way. In 1993, prior to Finefield's arrival, Nexcom decided to replace obsolete, decentralized homegrown systems with packaged merchandising, planning, distribution, human resources and financial systems.

Some of that software was so heavily customized that Nexcom had to do extra work to make it Y2k-compliant, rather than being able to rely on the vendors' fixes. "We were guilty of doing heavy customization, and we have now learned our lesson," Finefield said.

Nexcom now plans to replace two of its 5-year-old applications with a major new merchandise package from Minneapolis-based Retek Inc.

Finefield said that this time, Nexcom will "go with as pure a product from the vendor" as possible to speed deployment and simplify maintenance.


Retail Ware

Major systems that a typical large retailer might use include the following:

Store systems Back-office systems
Point of sale
Time and attendance
Human resources
Loss prevention
Supply chain systems
Inventory management
Merchandise planning and management
Replenishment management
Pricing and promotions management
Transportation management
Demand forecasting
Warehouse management
Assortment planning
Supplier sourcing
Space optimization
Supply chain collaboration

Source: Janet Suleski, AMR Research inc., Boston


Copyright © 2002 IDG Communications, Inc.

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