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Projects to improve back-end systems might not be as sexy as new user interfaces and improved functionality, but Harrods proved they can be just as important to the bottom line. The London-based retailer's systems once practically defined the word "siloed" -- individual and segregated for each of its back-end processes. "We had a system to support the customer-ordering process for furniture, another legacy system supporting planning for our food and beverage areas, another system for school uniforms and more," said David Llamas, chief information officer for Harrods. "All were migrated to SAP." In 2004, Harrods began its mission to replace legacy back-end silos with one SAP system. With the migration completed in late 2006, the company is now able to measure benefits gained from the conversion, including reduced IT expenses and improved product tracking. But the benefits did not come without human costs. Since 2004, Harrods has had a tight timeline of migrating two legacy systems per year to SAP, according to Llamas.
"Sometimes that pace is too fast," he said, indicating that occasionally the IT department seemed entirely driven by SAP projects. "The business also needs time to assimilate things -- and business and IT have been stretched at times." But the measurable benefits and the cultural changes the migration has driven at Harrods were worth the pain, Llamas said. "In the past, IT would act as more of a driver of change," he said. "Nowadays, the business is extremely confident, to the point that they are the ones demanding more changes." Harrods sells almost every product imaginable, from stamps to airplanes -- totaling about 1.4 million SKUs (stock keeping units). The company reported sales in excess of $725 million in 2006 and has more than 3,500 employees. Before the consolidation, some areas of Harrods' business -- food and beverage, for example -- had 100% invalid results when item barcode SKUs were scanned for a customer's purchase, Llamas explained. This was because every item was processed against a generic product number rather than its individual SKU. Not only did this affect the accuracy with which Harrods could report on product performance, it also affected customer experience, because no product information was on the receipt. "In food and beverage operations, one of the key components is margins," Llamas said. "If you're not able to analyze margins at the product level, you don't know how well your business is performing in that area." After consolidating on SAP, Harrods can track sales by individual product SKU, with the number of invalids down to 0.01%. This has improved the ability of the business to detect potential product problems, such as slow sales or high return rates, and act quickly to solve them. For example, Llamas reports that the level of product shrinkage -- losses from shoplifting, employee theft and paperwork snafus -- is down to 0.7%, below industry benchmarks of about 1.2%. Likewise, overall IT efficiency has improved measurably, he said. Since its SAP implementations, Harrods has been able to cut its IT department from 164 to 80 people, with little outsourcing. One way to measure this increased performance is by IT expenditures as a percentage of sales, Llamas said. Harrods IT spending is now 0.7%, whereas in other similar businesses it is closer to 2%-3%. "SAP is not the only initiator of that performance," Llamas explained. "But the fact that we consolidated legacy applications onto a unique platform means that we don't need teams maintaining those previous legacy applications -- it is a less complex environment that is easier to support and develop."
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