Supermarket chain Franklins made the headlines in late July with its well-publicised GST problems. But as Keith Power reports, that's not the only challenge the man in charge of IT in the discount giant has had to tackleWhen Hemant Kogekar joined Franklins as IT director in October 1997, he not only had to come to grips with a new industry after an IT career predominantly spent in banking, he also faced the challenge of an organisation in IT catch-up mode.
With more than 13 per cent of the national market, Franklins is Australia's third largest supermarket chain. Its brand names include Big Fresh, Franklins No Frills and Franklins Fresh. And while the company has demonstrated much initiative as a discount retailer in its 60-year history, Kogekar says that relatively little had been spent on IT in the 10 years before 1996. As a result, there were many IT practices in the company that were outdated, informal and unstructured.
With national responsibility for IT across all brands and states, a large part of Kogekar's initial challenge was to move the IT function to a more disciplined and formalised mode of operation, while at the same time introducing new technologies where appropriate. Kogekar had participated in a platform replacement at his previous employer, Citibank. So a similar undertaking - but in a new industry - appealed to him and is what he says attracted him to Franklins.
One of Kogekar's first initiatives was to outsource Franklins' data centre management. The company's technology upgrade required buying new servers, but the company did not have the facilities to accommodate them in a high availability environment. The choice, according to Kogekar, was to build such an environment or to outsource. He also wanted to separate operations management from business processes that at the time were merged, and felt that outsourcing also provided the solution to this.
Kogekar's key considerations in choosing an outsourcing partner are track record; acceptable parameters that the supplier is proposing, such as cost; and size and culture fit. "As a discounter, we wanted somebody in tune with our needs [regarding size]. I believe that if you try to do smaller things with big suppliers, you get second-rate people; whereas if you do smaller things with medium-sized players, you get top people. I had personally done business with Kaz Computers when I was at Citibank, so I know its management's commitment to the client and how Kaz works. That has been useful in an outsourcing arrangement," he explains.
Franklins has some other minor outsourcing relationships, but 75 per cent of its IT function takes place internally. There is a little more than 100 IT staff plus up to 30 contractors. Kogekar himself reports to Franklins' chief executive, Ian Cornell, who chairs the IT steering committee. The committee meets monthly to review the progress of important projects and to approve funding for significant IT initiatives, most of which Kogekar says are strongly allied to what the business wants to do. Kogekar also has a dotted line relationship to the CIO of the Dairy Farm group, of which Franklins is a subsidiary.
Kogekar classifies the company's applications into different areas. Firstly there is the in-store point-of-sale (PoS) application. Sitting behind that is a legacy application that consolidates the information from the stores, such as sales and pricing changes, and which is used for management information and reporting. In addition, Franklins has a merchandising component that stores information about products, vendors and retail trading terms. There is also a supply chain application to manage the warehouses and order delivery, and finally there are financial and data warehouse applications.
When Kogekar joined Franklins, a major re-engineering effort encompassing all of the company's systems was under way in conjunction with consultants James Martin & Company. According to Kogekar, this achieved a lot but there were a number of challenges, both technological and cultural, to be overcome. Some projects were consequently delayed or deferred and Franklins wasn't getting the results it wanted in the timeframe it wanted. When Cornell took over the helm of the company in February 1999, he decreed that rather than continue to take a broad-based re-engineering approach Franklins would focus on fewer things it wanted to do well.
In addition to GST Kogekar says Franklins' main focus for IT in 2000 has been inventory reduction, including supply chain efficiency.
"We want to reduce inventory and at the same time be able to increase the range and number of products we offer in our supermarkets," he says. "However, when you offer more products, you either need more shelf space or you need to manage that [shelf space] better because it's very difficult to change a store just because you've changed strategy. Also, you need more room in the warehouse to store [all the new products].
"So we're giving the store managers more RF technology-based tools for price checking and ordering. This will allow them to better manage inventory in the stores; having their inventory in line with their sales and not having to hold so much stock will create more space."
Like other retailers, Franklins faces the challenges of getting new product information into the system fast, as well as sending, receiving and confirming orders efficiently. The company is meeting the latter challenge with a Web-based EDI project it is currently piloting with selective suppliers. Two Dairy Farm companies, Woolworths in New Zealand and Wellcome in Hong Kong, have home shopping sites; however, Kogekar also considers these initiatives to be in a pilot stage in that the sales generated through them are still small.
In fact, he says, business-to-consumer e-commerce has not been a main priority for Franklins. However, the company is looking at the Internet for its non-trade procurement, such as for its office supplies. In particular, Kogekar anticipates that technology support for procurement activities would cut out maverick buying.
Retail by the Tail
After nearly three years at Franklins, Kogekar admits he still has a lot to learn about retailing. What has been both challenging and rewarding for him has been implementing changes and systems that permanently change the business. However, he has found the general lack of discipline and lack of established processes in the business frustrating. Although this has been changing, it takes time, especially in a large company, and Kogekar predicts it will take another 12 months to achieve a steady state.
Kogekar considers himself a delegator by nature and tries to appoint competent people he can rely on to get on with the job. He does find the IT skills shortage real, though, and says it affects Franklins in a number of ways. First, it takes longer to find the right people. Second, he finds that it causes people to sell themselves higher than what they are actually capable of. "You get people calling themselves senior project managers and they can't do project management well. You end up paying more but you don't end up with good skills. That's the frustrating part and it applies to both permanent staff as well as contractors," Kogekar says.
Keeping IT and business aligned at Franklins has not been a problem for Kogekar personally, he claims. The problem arises, he says, if you don't understand business and the business thinks you don't understand business. Conversely, once you understand the dynamics of the organisation, he says, you develop a level of rapport with the business. What he finds more difficult is proposing and getting approval for pure IT activities, such as a database upgrade, important as that might be.
"Getting business buy-in for that becomes hard," Kogekar reflects. "However, because IT was so neglected in the past, management has realised that can't continue in the future because it just creates issues for you to clean up. Y2K [for example] was a great clean-up exercise. So we are developing a level of understanding with the business that you can't ignore even pure IT issues forever and that has made life easier now in aligning the two. It's like housekeeping. You don't die if you don't vacuum your house one day. But leave it a year and you probably will."
Taxing Times at Franklins
The Australian Competition and Consumer Commission (ACCC) crackdown on Franklins in July was just the sort of adverse publicity that IT director Hemant Kogekar says the company wanted to avoid in its GST preparations and implementation. As he fatefully put it, speaking to CIO before the news broke: "You want to be careful you're not the one who gets caught."
However, Franklins did get caught and was found to be charging GST on 17 tax-free products. Consequently, the ACCC ordered it to reimburse customers by discounting the items by 11 per cent for three weeks in a move that was expected to cost the company millions of dollars. Customers who still had receipts were able to claim a full refund for the GST charged on the products in question.
Like all retailers, GST compliance and readiness was a major undertaking for Franklins. The time-consuming issue and where the slip-up occurred, Kogekar says, was in classifying products and clarifying the rules - that is, determining which products were subject to GST and which ones weren't.
According to Kogekar, Franklins had 50,000 products that needed manual flag setting. Some, he says, were misclassified due to the actual product being different - from the point of view of GST - from the description. For example, one of the 17 rogue items was No Frills Cereal Wheat Biscuits, which was classified as a biscuit (subject to GST) but is, in fact, a breakfast cereal (GST-free). Coupled with a lot of ongoing reclassification, this caused a few items to be mishandled in the process but which were corrected as soon as they were discovered, Kogekar claims.
Complying with the ACCC in the area of price modelling was another area that created a significant amount of work in preparing for the July 1 deadline, he says.
"Proving that your price rises are correct is not a simple question of adding 10 per cent. We had to look at all components of the cost, including what we pay vendors and where the rebates are. We had to model all of that for each of our products and see what the results would be when we dropped wholesale sales tax and included the diesel rebate and the GST," Kogekar explains.
Franklin's IT call centre normally takes 14,000 calls from its stores each month but received 5500 on the weekend of July 1-2 alone. However, Kogekar considers the switchover to have worked well, with only four of Franklins' 300 stores opening late.
Confrontation, Collaboration and Competition Five years ago, few, if any, would deny that the relationship between Australian manufacturers and retailers was very adversarial. However, according to an Ernst & Young report, "Collaborative Planning, Forecasting and Replenishment (CPFR)", released late last year, that has all changed. There is now a greater spirit of cooperation and collaboration between the two sides, the release says, at least at an industry level with the peak bodies working together more closely.
Hemant Kogekar, IT director at Franklins, believes the company has been instrumental in improving the climate between manufacturers and retailers but adds a word of caution.
"I think Franklins has worked quite well with its suppliers and tried to change the confrontational climate to more cooperative behaviour. But culture change takes time, and in an industry like ours there are a lot of old-fashioned people on both sides. We've had better success with some companies than with others. We recently instituted a vendor forum in which 12 of our large vendors sit together with our management and work out where we are going, where they see us faltering, what we could do and then work together on these issues," Kogekar says.
The Ernst & Young report defines CPFR as a cross-industry initiative designed to help retailers, wholesalers and manufacturers improve customer service and reduce inventory in the supply chain by speeding the flow of information between trading partners.
The primary reason why Australia lags behind the US, UK and European grocery industries in adopting and implementing CPFR, the report says, is because there are fewer players. Three companies (Woolworths, Coles and Franklins) own around 80 per cent of the Australian grocery market and all enjoy relatively comfortable margins, thus making competition less intense than it is for their overseas counterparts.
Second, according to the Ernst & Young paper, the big three retailers have traditionally invested heavily in their own custom-built information systems and have been reluctant to adopt common protocols or working practices that could be quickly picked up by their competitors. Kogekar tends to agree.
"Some time ago, Australian retailers got quite excited about efficient consumer response (ECR). The reality, though, is that not a lot of progress has been made against such industry-based initiatives. Sometimes retailers see greater advantage in their doing something unique themselves instead of something industry-wide to benefit everybody," he says. - K Power