Question:

I am sure that we are all aware of the past demise of Kmart. Attached is a case study that discusses Kmart ’ s situation and some of its problems. This is a case that was provided by Laudon and Laudon in their Management Information Systems, Managing the Digital Firm, 8 th edition.  Answer the following questions for this case study. Base your responses only on the facts in the case and that were present at that time. Do not base your responses on developments since then. a ) What was Kmart ’ s original business model and business strategy?  b ) What was the relationship of information systems to Kmart ’ s original business processes and business strategy? How well did its systems support this strategy?  c ) What management and technology factors contributed to Kmart ’ s problems?  d ) How important was supply chain management in contributing to Kmart ’ s problems? Evaluate Conaway ’ s decision to use i 2 software to improve Kmart ’ s supply chain management.  e ) Were those blaming software for the collapse of Kmart correct? Explain your answer.  f ) It has been said that “ Wal * Mart uses their IT ( information technology ) strategically, and they fully integrate it into their operating model. ” Does this statement apply to Kmart? Explain your response.  g ) List the problems Conaway faced when he took over Kmart, and then describe the short - range and long - range policies you would have followed had you been in his place.Case STupY-What Happened to Kmart? Fes On January 22, 2002, Kina fled for Chaps major compe, psd Kare as te scund bre discount GREY 11 bankupecy proceion. I was the lrg chin Tre bd prospered by emphasing io merchandising P28 rcuile ever to do s0 and shocked many people. distinguishing itself as a low-cost source of quality and syle. BDZ Xonar bad made el hicory when is foundr, Kare, in conerast, used 4 promorion-driven business ‘he Knope “ve and dime sr” chin invented model, damming vp business by sdversin “bl ight” 7 the concep of th dscns ore. The fi Ker wa eib ils ing ciclo nscre oto local evapapes. In aa lished in Dei in 1962, the sam jor Wal-Mart opened ts atc 10 sy shes of Wal Mar, Kear sated ivr $1 fico in Rogers, Asani. By the end of 1963 Kart had 63 bilo t modernize i inforaion eesin 1987, According ores converted from Kreg. 0 David Caan, then Kas IO, the compacy developed he Following yas, bowers, Wi Mar expand quickly capable colt the ecu dat, but dd ote them by Following a srtegy of ewtyday low pics. Wal-Mart wed to frees demand, relying iesd on managements jody: information chnelogy (T) ack sles i als ors and to mene. Caron ove thar Kimars ppl promote 3s may replenish its fastest selling products. Wal-Mart demonstrated its of their products as they could sell rather than helping Kmart ‘lines to spend nested funds on IT by inalin rgers focus on the bere sling fen, a was VA Marcs approsch ih barcode vanner in ech soe during che Lc 19708 nd Beginning in 1984, Kr began divest business by Cay 15805 which fd hs anc he pack od ore com acquiring Wldenbooks, Pyles Drugstores: pons Aubory, cr, The rel vas Wak Mart sls data wee shvayscutent and OfficeMax. tao opened cs fie Supe Kiar Caner, End ore manag knew what wat ling wel nd wha vs nt. mc larger ore at nw ned roi. nme many ces wee outed ight om to Wak Mir more Kart continued oloe gro to competes while ind the sppoprate suppl, and he delves wen ro tha sup. the mage of beng ob-hioned outed, snd frumpy. d+ ple cl to the sor. Wak Mar reemdy developed 4 rpuraton of beng a run-down place to shop with gn ini Eanes 10 wok doscly with key suppl om problem sch 5 selection of produc. Many of 6 heves were empty whi how nce ls on specific produc. Many nays bei prices wer oo bight wes even considered 0 ofc poor cu Vl Mir ha he mt aphid spp chi ses nh ores vic ant ot care about competion. By 1994, Kar indy son the veg of bankrpey J kd of is pever business By 1983, with is cin edge information tens, Wal: concent on fs dcoune ores, 0, in 1997, ing e Mart ws lead spending only wo ces per dels geing vey pops ra ewar prodac i oro home. In 1953, goods to i tres while Kina was spendin fe xn. From Kitt began developing Bloighccom, Web sie designe o hae iffrnl lon, Wal Mar cou sll he sm product st sell ew os i ore 0 dw comes o physic] oes 5d price 3 perce lowe than Kiar, an impor swing to poh mage. In May 2000, wading emorbging co nny shoppers In 1990 Wal-Mare passed Kiar the args tine, the company hired Chas Conaway te former CVS | dicount chin ith annul sks of $32.6 billion for Kmart doe chi presen, ss Kets chara snd CEO. $32.5 bilion, Wak Mar was wel on is way t boring the Conaway pledged to ram the company rund widin vo words large cis. In December 2001, Tage, Kmart ober years, snd i his goal was to ake Keg te primary dein Source Loudon MagoqeratT: chore Sslons (4 ofl ion for mothers looking for low-priced clothing, housewares, hours until they were recorded in the central tracking system. ind packaged food for thei families. He announced plans to The shelves displaying popular products wre ofcn empry, and resucure Krmar 10 increase dhe productiviy of Kiar sores, to reorder them from regional disibuton centers, sore me inventories, and information systems. He closed 72 cores, chandisers irs had to band sift through previous purchasing reducing suf by 5,000, He even announced Kare would rceips. Kmares inventory curnover rate was very low. In the spend abou $1.4 billion for IT ovr two years versus only $263 year 2000, Knmars was an anemic 3.6; while Wal-Marc's was ion during the previous two year. However, in Augusc 7.3, and Targes was 6.3. Gary Buack, the president of IHL. 2001, Kare announced second quarer loss of $22 millon, Consuling Group, estimated tht Kart could dd $1.9 billion ind Conaway blamed pricing pressure, particlaly from Wal. in profi jut by matching ts competicors tumover res. Mas. Kar reduced prices on 30,000 of its 70.000 ems and Conaway moved ahead quickly. In July, he seleced i2 at down on advertising circulars. Consumer habits we hard to Technlogisof Dallas, Texas, to work with Kmart in project 1 dhe and Knmar sale took a big hit rebuilds supply-chain sysceans. 12 bad been highly successful Sas at Wal-Mae and Targee grew in 2001, whi thos at vendor of supply-chain software, lhough principally for man- Kare continued to decline. Conaway sid he had not found a facurers, while Kmarts new sofware hd tobe designed for is formu o distinguih his company from his compecors. Since rcil busines. The projec was improve Kms management Conaway hd taken over, Kamae had increased the percentage of of sls forecasting, inventory sourcing logis, and reporting. ems i stock t0 86 percent, compared 073 percent wo to three 12 planned to use the Knmare project cee templats fo sal yea cuir. In conference wih Wall Sect analysis, Conaway tothe rl indus in acral an then custome hem speci sid Kanare was “doing phenomenal job of reverting” i sup- ial fo Kina. The projct would ls connect thse nw ss- By chain, which would be visble all i years tm. tems to pproprise in-store technology such 2 br code san Despite Kmards contining falling sales and rising losses nes a cas risers. J would alo include micromerchandising, Conaway again mandated price ut, this time on 50,000 prod- which enables individual toes to selec thee own merchandise was When Fleming Companies, now Kmart sole grocery sup. according to the needs and demands of thie loca community: le suspended shipments to Kmart because of Karts fulure 12 lime is sofware wold tack che ail of key supplies | Ee vdypymer of 73 mln. mp kl ck rd. old db Ko md nd ized it could no longer meet al of is financial obligations. execute the required order, schedule shipments, and record he Kamar had to declare Chapee 11 bankruprcy. delivery of produc. 12 claimed is sofware woud rode excess Kare had clearly exhibited many problems. For instance, invenory in stores and disuibuton cen, thus lowering cos, formes Kimare CIO Dave Carson ssid he had tied to unify and cabling Kana to lower pics. Sle would the grow and Kmart cwo separate computers in ts disbution sytem, but profits increase. Conaway sated Knmars supply chain would he ws turned down because the project was considered 10 be become the best in the rca busies, aibough Lora Cecre, a wo expensive. When Conaway was firs hired, he wanted t find Garenee analy, did question the ability of the project to succeed pew ways o bing customers into the stores, and 10 he cut back in such gan, complex project. on Kevres primary method of Sunday circulars but offered mo Katrina Race, 12s chief marketing office, sexed thac i2 dear akeriatve strategy: In, 2000, central planners were scl cxcels at sales bu its execution isc aways flawless.” Supply- locating 60 percent of Kamar’ goods to specific stores. chain management sofware for manufscuring sl counted Conaway tied to address tis problem, but by December 2001, for 90 percent of 2 busines, and i had oly recent aod limited 40 pescent ofits goods were sell being allocted by central plan experience in the retil sector. One major roadblock was that ring rather than by loca stores. Also, Kmart continued to manufceutes use a relatively small number of stock hesping expand the varey of its producs rather than focusing on fac unis (SKUS) that must be handled by supply chain manage- ‘cling tems, a did Wal-Mart. Shipping was such 2 problem mene software. Unfortunately, Kare had ave 70,000 SKU in hatin December 2000, being limited only 900 trucks per ts 2,100 stores, meaning th system mus dea with 147 millon day, Kmart was forced to chose beoween shipping toothpaste or possible pairings, and chs number is increased by inscring Chrismas res, Warehousing wis ls an obvious problem since many disburion centers nd time periods involved. The i2 15,000 truck-ralrs were parked behind its stores holding, software was simply not designed o handle such huge daa ses. excess inventory because they had rio more storage space. Yet advanced plain softwar s fundamenal supply chain Conaway did sucesflly climinae his problem within a few management, and the problem could only be solved by Kare ‘months, thereby also reducing the “shrink” (stolen product) purchasing more hardware an expensive solution for ompny atc. Many analysts and observers, including Conaway, believed acing Kars financial probes. supply chin minagemen wes Kars most serous problem, The i2 projec was organize with cam of 500 working in parculrly when compared to Wal-Mart. Karts promoions. an isolated. location. It included over 100 persomel from driven business model created sharp spikes nd drops in demand. Deloie Consulting who were to customise 2’ existing sof for producs nd bas been much more difficult suppor with wre, makin it abe to track the movement of goods to Kats supply chain management systems than everyday low pricing more than 2,100 sores. Conaway announced tha the fire models sch 15 Wal-Mart. Indications of supply chain woubles applications would go lv in carly 2001, followed by a “rapid, were everywhere. Outdated technology at th disbution cen methodical rollou” of several dozen bisines releases wich 3 ers resulted in spplics ofc sting on pallets for 24 or more total of 93 dine improvement, ll by August 2002. In February 2001, several supplies, including Pharmavice also see an expanded variey of name brand products such as Corp. of Northridge, California, and Bell Spores Corp. of Pentax cameras and Disney apparel. Management believes ving, Tecs, mid they were sing improved inventory manage. Kmart.com also meshes beter than Bluelight.com with the ment in the last thee months. Aso, Kmare anounced 3 $200 company’s curren *Scffof Lif” campaign, whichis ying 0 million program to purchase and insall new poiatof le emi positon the chain 2 8 Fail. ficly budgec minded sire nal ch regitrs fom TBM to improve custome sevice wich Emphassng cxchsive bands such as Marca SewareBveydsy fair checkout wechnologies. and Joe Boxer may help Kamar disinish ioc fom cs rivals, In June 2001, Kmart began incalling new warchouse man Conaway believes Kmart should be able to emerge from agement software called PMS, from Manhattan Associates. Tis Chapies 110 2003. goal was to move products more quickly trough Kmares dis The question is, will Kar ruly be abe to bounce back? bution carer to the toes, thereby cuting costs whi ging What will i tke o keep going? The company sl does hare he produce on the shelves before ic hasbeen old out. The sof. 3 low enough cost suceue compete wich Wal-Mart low are was isle ae corporate headquarters and in al dirib- prices, no docs it have the ready image of Target. What can tion center, Using it workers wha pick pack, and hip products Kmart do to become dhe shopping destination of choice? to the scores se barcode scanners to locaie cach tem and © rack the ow of the goods. A spokesperson sid Kare would Sours Mitchél Paele snd Amy Merck "Kare Gl save $15 millon a year by increasing productiviey and loweriog from Two Invern t Hurry 3 Rebound,” Wall Se rc labor cos. Management hoped it might aso increase ses. The | Sprember 12, 2002; Jenny Serwburg, “Keare Ture 1+ rele was tha Kare could tack 30 SKUs ac che beginning ofthe