Kmart-Sears Merger Brings Supply-Chain Questions

Opinion: After a time of confusion, the ultimate effect on suppliers and IT vendors will depend on which retailer's approach to SCM prevails.

Beyond its more publicized impacts on shareholders and consumers, the astonishing merger of Kmart and Sears cant help but spawn bewilderment among product suppliers and IT vendors. That initial period of confusion is bound to last for a while—up to a couple of years, some say.

After that? A lot will hinge on whether the combined company, dubbed Sears Holdings, decides to follow Sears approach to SCM (supply chain management) or Kmarts.

In referring to Kmart, though, maybe Id better use the term "mismanagement" instead. In an ironic twist of acquisition fate, one of the least efficient retailers in the business (namely Kmart) is the one whos doing the buying this time. (If youve ever driven past a Kmart store, youve probably seen way too many delivery trucks in the parking lot, so you know what Im talking about.)

/zimages/6/28571.gifRead more here about the merger of Kmart and Sears and what it means for the retail industry.

But "whos buying what?" is only the first point of confusion around this deal. Certain IT vendors, including IBM and Symbol, are well-ensconced in both retail chains, and might come out far ahead of their competitors, notes Greg Buzek, an analyst at IHL Consulting.

"But somebodys going to need to go over each and every one of these [IT] products, and decide which will ones will stay and which ones will go," Buzek says. It sounds to me like there might be some great potential plays for systems integrators ahead—although then again, for all anyone knows, maybe the ultimate upshot will be a total rip-and-replace.

Heres another thing. The merger seems to be more about grabbing a lot of real estate for (relatively) dirt cheap than about building a new and improved retail chain. With Kmarts acquisition of Sears for $11 billion, the combined entity becomes the nations third largest retailer, trailing only Wal-Mart and Home Depot. Target slides from third to fourth.

Thats right, folks. Theres already discussion in the air about closing down some of the existing Kmart and/or Sears stores. So, if youre a product distributor, youd better get ready to take a forklift to your logistics plans.

Its Wal-Mart, of course—and certainly not either Kmart or Sears—thats blazed the retail industry trail in industry technology initiatives ranging from RFID to VMI (vendor-managed inventory) and trade exchanges. But I dont want to be totally uncharitable. To their credit, Sears and even Kmart have each come up with some forward-thinking supply chain moves over the years.

Unfortunately, however, Kmarts best intentions kept getting lost in shuffle, thanks to high turnover on the CIO side, along with the chains ongoing failure to implement effective demand planning.

/zimages/6/28571.gifClick here for a case study of Albertsons business strategy.

Trading partners will probably get a lot luckier if the combined company opts to inherit Sears SCM approach. Last summer, Sears unveiled intentions to use Manugistics demand planning and replenishment software in 2005 as part of an ambitious five-year systems modernization effort.

Will that IT overhaul still occur? Will it expand to encompass the (remaining) Kmart stores? Well, all we can do right now is wait and see what happens at the new Sears Holdings.

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