What Happened to Kmart
Case Study – What Happened to Kmart? 1. Evaluate Kmart using the value chain and competitive forces models. What was Kmart’s business model and business strategy? Kmart has numerous problems with its value chain. This is evident from the suppliers sending items that the suppliers want to sell, shelves remaining unstocked, the “hand shifting” reordering process for popular items, products being allocated by central planners and not based on individual store demand, excess inventory stored in 15,000 truck-trailers behind its stores, shrinkage, and having to choose to either ship toothpaste or Christmas trees.
Since its entrance as the first discount store in the 1960s, Kmart has not been able to ward off new entrants into the discount chain business. The new entrants, such as Wal-Mart and Target, have come on strong and surpassed Kmart. Kmart’s suppliers seem to be calling the shots with the retailer, since they are promoting the items that they can sell and not helping Kmart address its mounting problems. Kmart’s customers are voting with their pocketbooks and shopping at its competitors’ stores.
Kmart uses a promotions-drive business model. The company uses advertising circulars to promote its “blue-light” specials. 2. What was the relationship of information systems to Kmart’s business processes and business strategy? How well did its systems support its strategy? Kmart’s information systems and its business processes and business strategy were not in alignment. As an example, the information systems could collect data, but the data were not available for analysis and decision-making purposes.
As the case mentions, forecasting decisions were based on management’s judgment, not on the data. Kmart’s systems did not support its strategy. One of the problems mentioned in the case is that its supply chain management system could not easily accommodate the sharp increases and decreases in demand. The distribution center’s outdated technology led to supplies sitting on pallets for 24 hours until they were recorded in the central tracking system. When reordering popular products, the employees would hand sift through previous purchasing receipts. . What management, organization, and technology factors contributed to Kmart’s problems? From the case, it appears that Kmart management is inconsistent with its implementation of the company’s strategy. Management is unable to use data to forecast demand; it has lost sight of its core competencies, and is unable to change Kmart’s image. Although management wanted to restructure its supply chain, it continued to expand its product offerings, as opposed to focusing on the fastest selling items. Mr.
Conaway’s plan to restructure Kmart has obviously not worked out. Although Mr. Conaway wanted the local stores to make their own stocking decisions, the stocking decisions were still being made by the central planners. When the new system was installed, Mr. Buzek made the comment that “the information would be useless because management just didn’t believe in the system. ” Although the company uses a promotions-driven strategy, the company reduced its advertising circulars. As the case points out, no other alternative for achieving the strategy was provided.
Although Kmart wanted to reinvent its supply chain, management was unwilling to unify the distribution system’s two computers because the project was too expensive. From an organizational perspective, the suppliers, central planners, business processes, individual stores, warehouses, and distribution center have definite communication problems and are not sharing data as efficiently as possible. One could argue that very little data sharing is going on. Central planners are making the stocking decisions for the individual stores, but what needs to be stocked at each store is not being effectively communicated.
From a technology perspective, outdated technology and incompatible systems were in place. The new i2 project did not succeed for a variety of reasons, including the need for more hardware, the inability of the project to connect the point-of-sale systems and inventory systems to the distribution systems, and not being robust enough to handle a large number of SKUs. 4. How important was supply chain management in contributing to Kmart’s problems? Evaluate Conaway’s decision to use i2 software to improve Kmart’s supply chain management.
Supply chain management was very important to Kmart. Kmart has been unable to successfully manage its inbound logistics, operations, sales and marketing, service, and outbound logistics. Unfortunately, the company’s inability to effectively manage its supply chain led to ineffective advertising, lots of items being overstocked, popular items being understocked, a large product offering, poor communication with suppliers and its business units, items sitting on pallets waiting to be entered into the central tracking system, and shipping problems.
The goals for the i2 project were commendable, since the project was supposed to improve Kmart’s sales forecasting, inventory sourcing, logistics, and reporting. The project was supposed to facilitate micromarketing, supplier product tracking, order execution, shipment scheduling, and delivery tracking. It is interesting that Mr. Conaway chose i2 Technologies for the new supply chain management project, since i2 Technologies had “only recent and limited experience in the retail sector. The decision to use i2 Technologies was not a good decision, since the system was not designed to work with the large number of SKUs, Kmart (according to some) wrote off and abandoned some of its i2 software, the project fell behind schedule, and the inability to connect the point-of-sale systems and inventory systems to the distribution systems. 5. Were those blaming software for the collapse of Kmart correct? Explain your answer. Actually, there is enough blame to go around. 2 Technologies did a very poor job analyzing and designing the system for Kmart. It also appears that Kmart’s management did not get behind the project and was also unwilling to transform its core business processes. 6. It has been said that “Wal-Mart uses their IT strategically, and they fully integrate it into their operating model. ” Does this statement apply to Kmart? Explain your response. This statement does not apply to Kmart.
Kmart is using an outdated business model and has been unwilling to change its model. Its unwillingness to change is one of the reasons why Wal-Mart and Target have been able to successfully compete against Kmart and why Kmart is in bankruptcy. 7. List the problems Conaway faced when he took over Kmart, and then describe the short- and long-range policies you would have followed had you been in his place. When Mr. Conaway took over Kmart, he faced several problems, including stiff competition from Wal-Mart and Target.
The company was using an outdated business model, spending more money than the competition to get its goods into its stores, its information systems were collecting data but not using it effectively, it had significant problems with its entire value chain, it had a frumpy reputation, its shelves were often empty, it offered a wide range of products, it provided poor customer service, and it did not care about the competition. Students will provide a variety of short- and long-range policy recommendations.