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i2 Will Come Out Ahead In Kmart Deal

Written By: Steve McVey
Published On: October 24 2000

i2 Will Come Out Ahead In Kmart Deal
S. McVey - October 24, 2000

Event Summary

During its recent Planet 2000 user conference, B2B supply chain collaboration software market leader i2 Technologies announced a deal with a venerated symbol of American discount retail, Kmart Corporation. i2 is vested with the task of transforming the retail company's inefficient fulfillment operations and enabling it to become a viable player in the Internet economy. By leveraging i2's expertise in supply chain management, Kmart hopes to improve most of its back-end functions, including strategic, financial, demand and merchandise planning, design functions, sourcing, logistics, transportation, and reporting. The deal also includes i2 solutions for increasing electronic collaboration within Kmart and between Kmart and its business partners.

Like Wal-Mart Stores, JC Penney Co., Sears and others among its peers in the retail industry, Kmart has expanded to the Internet and is recognizing the importance of an efficient fulfillment infrastructure for success, albeit somewhat belatedly. The storm seemed to set in quickly on the 100-year old discount retailer. Beginning in 1996, Kmart enjoyed a succession of improved earnings performances culminating in the fourth quarter of 1999 in which it netted earnings of $ 633 million. This streak came to an abrupt end in the first quarter of 2000 when flat sales and high operating expenses cut its earnings to just $22 million. The first quarter proved to be merely a prelude to the havoc visited on Kmart in the second quarter, however, resulting in a staggering $448 million loss in the second quarter ended July 31, 2000.

Market Impact

i2 benefits from the deal in two valuable ways. First, a successful implementation and demonstrated improvement in supply chain efficiency at Kmart will establish once and for all i2's capabilities in the retail sector. Since its inception, i2 has received only marginal recognition outside of the high tech electronics sector, which contributes most of its revenue. If i2 can help Kmart reverse the damage from an inefficient supply chain, then even the most skeptical observers will have to admit that TradeMatrix has capabilities in retail. Second, even if Kmart does not reap the full potential from TradeMatrix, i2 will have gained access to the full scope of one of retail's oldest supply chains if only for a short time. The insights i2 can learn during this timeframe and the subsequent retail-specific features it can develop for TradeMatrix will greatly enhance its products for the retail industry.

User Recommendations

There are some indications that Kmart is looking to i2 for more than just state-of-the-art information technology; it may also be seeking help in redefining its business processes. If so, Kmart's decision can ultimately have negative consequences that dwarf its current financial woes. Users should engage software vendors only after independently determining what steps need to be taken in order to correct infrastructure problems. Otherwise, they run the risk of putting generic tools and technology in charge; it is not the technology but rather the decisions of experienced industry participants (a.k.a., your company) that should drive the business.

 
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