How the 'Newbury process' turned Sainsbury's round

'At 7.30am, the store looked as if it was 8pm'

When Sir Peter Davis returned to J Sainsbury as chief executive in January 2000, hopes where high that the man from the Pru would revitalise the ailing chain. He certainly made the right noises, with a renewed focus on pricing and plans to invest £3bn in the supply chain, IT systems and infrastructure in an attempt to make up ground lost to the mighty Tesco.

Yet in the end, Sir Peter's ambitions only added to Sainsbury's misery, and none more so than the construction of four, fully automated warehouses. The stock-picking systems cost a fortune - £100m each, as opposed to around £25m for a standard depot - but kept breaking down. Suppliers were also unsure how to deliver into them, and just one wrong-sized box would see the whole thing grind to a halt.

As the supply chain struggled to take the strain, the wrong depots supplied the wrong shops and deliveries were made at the wrong times. Inefficiency was the norm and wastage high. The result was a distribution system that didn't work, shelves devoid of goods and customers deserting in their droves.

So it was little surprise that one of the first tasks for the new chief executive, Justin King, was to hire the highly respected Lawrence Christensen, 62, as supply chain director. Formerly at Safeway, he had been considering retirement after the chain's acquisition by Wm Morrison, but Mr King persuaded him otherwise.

A little over a year later, and the Geordie is trying to describe his first reaction on joining Sainsbury's.

"For such a great company," he starts, before trailing off. He tries again. "I'm 32 years in this business ..." He pauses. "A senior director at a rival, who I've known for ages, said when he heard I'd taken the job, 'You must be mad; it's a basket case'.

"We used to hear the rumours about what was going on and couldn't believe how badly it was going in the wrong direction. I soon realised it was worse than even the rumours said it was."

His first port of call was his local store, in Newbury, Berkshire. He was not impressed. "I went at 7.30am and it looked like you would normally find a store at 8pm on a Friday. The warehouse was full of stock - there was even a tent at the back full of stock. It was just the wrong stock."

Within a week, he had Newbury running as it should, just to prove it could be done. His complaint was not with the ordering systems - which he claims were better than Safeway's - but the fact that no one had been trained to use them. And so the "Newbury process" was born, where shop managers were trained to ensure the right products were on the shelves.

Meanwhile, talks began with unions across the 22 depots about changing working habits, including the introduction of shifts and more weekend work. Two depots were earmarked for closure, and one handed over to a logistics company, Exel, to run. There were skirmishes with the unions, but the chain did not suffer any large-scale backlash.

Mr Christensen dropped the phrase "order fulfilment centres", complaining that it sounded "like something out of the motor industry". They are now called retail service centres.

But there were still those automated depots to address. "Not a single day went by without one, if not all of them, breaking down," recalls Mr Christensen. "But while I would never have built the damn things in the first place, to take them out would have caused so much more turmoil.

"The systems were flawed. They have to stop for four hours every day for maintenance. But because they were constantly breaking down you would be playing catch up. It was a vicious circle."

The companies that built the systems, Siemens and Witron, both from Germany, were called back and together they have overhauled them. Mr Christensen does not blame the companies for the depots' failings - "they built what they were told to build," he says pointedly - and is now satisfied with performance. Around two million cases a week are delivered, and in the past few months there have been only "minor stoppages, nothing serious".

And anyway, the systems are no longer his concern. Roger Burnley joined from discount retailer Matalan in January and recently took over the role after a handover period. Mr Christensen is staying on as a consultant.

"This is not where we're gong to stop," Mr Burnley says. "We have robust processes in store but our compliance isn't where we need it to be. We have a great network but we're not doing it as efficiently as we could.

"It's also a moving feast. How do we deal with a growing non-food offering, and a price position that gets more and more competitive?"

Challenges remain: wastage is still an issue and while availability is better, room for improvement remains. But Sir Peter's legacy was, in the large part, a supply chain so awful it became legendary. Mr King no doubt hopes that, helped by Mr Christensen, he will be remembered in a kinder light.