Published on the 23/06/2015 | Written by Donovan Jackson

Deploying an enterprise resource planning (ERP) solution is no mean feat, often involving millions of dollars and spanning the course of several years…

That’s the case for Foodstuffs North Island, which is in the process of rolling out SAP to its network of more than 400 owner-operated stores, which include the Pak n’ Save, New World and Foursquare brands. iStart caught up with freshly minted CIO of the Year and Foodstuffs North Island technology supremo Peter Muggleston, to find out more about the company’s Project Lightning.

You’ve described Project Lightning as a platform for change. Can you tell us why change is necessary for Foodstuffs NI?
We asked ourselves, ‘how long can we continue to compete on natural strengths’? We have the best grocers and they have freedom to operate their stores as they choose, but up until now, they have operated on intuition and instinct. We’ve been good at the art of retailing, but not the science. Project Lightning is changing that by making hard information available much faster. That, in turn, allows for our retailers to more rapidly respond to, for example, the success of a promotion or other initiative. It equips them to be more innovative, too.

So supermarkets, too, have to be information-driven businesses?
It’s still a relationship game and owners know their good customers, but as customers become more transient and move around, you can’t depend on [relationships]. You need a deeper understanding of what’s going on and when. That means consistent, reliable and timely information across the cooperative. We’ve been doing OK, but we needed to get better, as many of our stores would not know if they are efficient or not, beyond an instinctive level. And as the world gets more competitive, you need that information to support efficiency while getting a richer understanding of the customer.

Can you explain how better information improves retail?
Fundamentally, it’s about getting the right product in the right place at the right time. If you don’t have a good system, you wouldn’t know if you’re achieving that. With hard information, you have reduced out-of-stock, reduced inventory and better forecasting and replenishment. You can buy better and deliver improved service levels. Customers are price-sensitive, too, and doing all this provides the ability for lowering cost and passing that on.

What’s spurred this project on?
To date, we’ve focused on our stores and customers. We don’t want to change that focus, but the company has under-invested in IT for decades and that comes back to bite you. We had ageing, outdated and out-of-support equipment and nothing to monitor it. A ten year old unsupported network and a data centre which was barely a data centre meant significant outages. We also had quite simplistic manual processes which were inefficient. If something broke, however, stores could still trade, but when implementing something as complex and end-to-end as SAP, you need the right infrastructure in place.

So Project Lightning isn’t just about the SAP implementation?
Far from it; it’s about people, process and technology. Rolling out this modern Germanic software meant we first had to get the foundations in place from an infrastructure perspective. That’s data centres, the network, storage and compute resources and tools to support and monitor it all in line with IT Service Management principles.

That much change sounds risky…?
It is very risky, so one of the measures we’ve taken to de-risk at the store level is to run the existing point-of-sale in parallel with the new system. That’s meant doing an integration [of the old POS into the SAP system] which we will discard in time and for which we have paid a premium. We’re expecting that to deliver three to four years of value, which, for the de-risk, is considered worth it.

SAP at head office is one thing; how easy is it to get the buy-in of, say, the country Foursquare owner?
There are a number of layers to reaching the store owner, the first of which is that owners across the business were recognising the shortcomings of the existing systems. They were also aware that they don’t have ready access to the information they need to run their business; in other words, they knew that change is necessary. We’ve had the conversation of whether or not SAP is right for a small Foursquare, but we have to bear in mind that this is not for individual stores only, but across the cooperative – and a single way of working is better than multiple ways. That’s a real benefit recognised by most of our grocers, as it means their skills become transferable. Still, German software vendor meets Kiwi grocer doesn’t make it easy.

Tell us a little more about the change management process to address that reality of colliding cultures?
SAP is rigid and unforgiving; it works well if used right. However, its interconnectedness means things quickly go wrong if something isn’t done right anywhere in the chain. Addressing that, we’ve run a readiness programme around the stores; that involved a ‘shine and polish’, getting stores in order with basic training and up to speed with stuff they should already know, so there was already a benefit with that. What was also really important was engagement and buy-in from store owners in the design process. Although we’re going for a standard implementation, we needed to validate that which we did in a collaborative way.

What are the advantages of a standard implementation of SAP? Doesn’t standardisation remove the ability for store owners to innovate?
Standardisation is not the enemy of innovation, but the enabler. Innovation is ‘thin’ in this business; it needs to be in areas where you can make a difference. If you have to develop a whole process in order to innovate, it drives the wrong sort of innovation because it becomes a big and expensive project. Standardisation means you no longer need to worry about the regular processes and flows of business; they take care of themselves. That means your attention is turned to the thin layer where a difference can be made. It also means you can light a thousand fires and see which one burns – with the cost of trying something new lower, it doesn’t matter if it fails. Innovation in our business has to be small, fast and cheap, at the store level. Standardisation, for us, is an innovation machine.

That said, we’ve set the hurdle for any deviation from standard very high. We’ve been brutal.

Consistent, reliable information is what we’re looking for from a standard platform, and that’s the single biggest contributor to innovation. It’s what you do with that information which makes a difference.

The investment ($150m) in Project Lightning is massive, how is the return calculated?
What this project is based on, and with insights from Foodstuffs South Island, is a conservative lift in gross profit and we can see that already. It has already paid for itself, so we don’t have to spend time on quantifying and justifying benefits. Whether that leads to increased profitability is unlikely, as we will trade that away in price- but the power to do that is important. Price and service are the two levers for competitiveness in this business, and the Project Lightning transformation lets us pull on both.

What’s the project status right now – and how has it progressed to date?
We’re in the process of rolling out to the stores, with two complete, and a project plan which provides for an accelerating number of in store deployments as we go. Completion is set for 2018.

With projects of this scope, things never go perfectly, but we had a good understanding of where it is OK to get a few things wrong, and where it is not OK. That’s all about the customer experience in store, and there, there hasn’t been an impact at all.