Sainsbury's faces £20m supply chain cost

Sainsbury's will take a£20 million hit next year from double running costs as it continues implementation of a new supply chain.

The grocer must keep its old supply chain network running while it rolls out a new one as a back-up measure to ensure that products get through to stores.

Sainsbury's is due to take a£6 million hit this financial year, but that will increase to£20 million next year.

A spokeswoman said that the higher cost is due to the opening of three distribution centres - at Stoke-on-Trent in Staffordshire, Rye Park near Hoddesdon in Hertfordshire, and Waltham Point on the Hertfordshire/Essex border - in the next 18 months.

But, according to analysts, Sainsbury's new supply chain is suffering some teething problems.

Robert W Baird analyst Paul Smiddy said: 'Their systems need sorting and at the moment are in chaos. The way the systems are configured means that they cannot physically handle some sizes of palettes delivered from suppliers.'

Smiddy added that Sainsbury's has also been very 'heavy handed' with suppliers in an attempt to make them cover the costs of the problem.

But the Sainsbury's spokeswoman said: 'We haven't heard of any problems.

We are working closely with our suppliers throughout the transformation (of the supply chain).'

Sainsbury's is investing£500 million in upgrading the supply chain.

The grocer expects to cut overheads by 30 per cent and generate cost savings of£100 million a year.