By Andy McCue, 3 December 2004 16:35
NEWS Problems with the implementation of a new supply chain system have cost furniture retailer MFI £46m in lost sales, additional deliveries and extra IT work.
The company admitted the problems with the multi-million pound supply chain modernisation project, built on various technology, most notably R/3 software from SAP, in a profits warning earlier this year that led to then COO Gordon MacDonald and finance director Martin Clifford-King being sacked.
In a new trading update MFI has now revealed the full scale of the problems estimating that an increased level of refunds has reduced customer orders by £30m since the introduction of the new supply chain systems in March.
MFI has also taken a hit with a one-off cost of £16m on additional deliveries and call centre and technical costs resulting from the systems issues. An additional incremental investment of £8m per year will also now be pumped into additional supply chain resources, including staff.
As a result of the problems the MFI board has also been forced to knock £20m off the "carrying" (book) value of the supply chain system in a non-cash charge.
The system was introduced to replace 20-year-old legacy systems but immediately following its implementation technical problems affected MFI's ability to operate supplier ordering processes, which caused lower stock availability, longer delivery times and incomplete orders being sent out to customers.
These appeared to have been resolved in July but a further deterioration occurred in August with additional technical problems. MFI said it has installed extra processing power and memory and undertaken pre-testing of the supply chain system to assess its ability to cope with Christmas and winter sale volumes but admitted it cannot "eliminate entirely" the possibility of new problems occurring.
But in order to minimise risk and maintain stability no further modifications of the system are planned until after the winter sale.
SAP has not commented on the exact cause of the problems except to say that it is not the actual SAP software that is at fault.
Comments
There are 9 comments. Join the discussion
1. anonymous
Anyone who has worked on an SAP project will know that this is more the common result than an exception during a new installation. And SAP are quite right to say it is not their software (as such). What they don't advertise is the difficulty of ensuring business processes are correctly analysed configured within SAP due to its complexity and the shortage of quality consultants who understand how the different SAP Modules work across across a company. This is where the problems usually occur. Anyone considering a major ERP implementation needs to focus here!
2. anonymous
I will never ever purchase anything from MFI again and strongly discourage anyone else from doing so. The wife and I made the mistake of purchasing a new Kitchen from MFI. Although the planning service was fine everything else has been outrageously bad. It was only on the day of delivery that we were told crucial items would not be delivered until the end of January. I've been charged for subsequent orders after they've been cancelled and the units that have been delivered are sub standard and of different colours. We will remember this Christmas for many years to come. SAP have a collective responsibility to ensure projects of this magnitude are a success. It is naive of them to try and portray themselves as innocent parties in this.
3. Malcolm Ripley
What annoys me is that if something like this occurs within government the opposition and newspapers attack the government instead of the people actually at fault - private IT contractors employed to design and implement the system. Imagine if the government lost the same amount of money as Sainburys did several months ago. It would the main story for ages with MP's being asked to resign !
4. anonymous
My experience of working in several retailers is that these major SAP like projects start out as major business re-engineering projects but because of commercial trading focus the projects repidly become IT only projects. When the new system goes live its only then that the business starts to appreciate (too late) the level of change being imposed on their business . Wonder whether this is really what happned at MFI?
5. Neil Postlethwaite
Why buy MFI anyway, most stuff you want can be bought off the shelf at Argos/Ikea/B & Q/Almost anywhere else anyway. Now you need to wait for just about everything.
MFI years ago, perhaps in the retro days of Asda/MFI (chortle), used to have a pickup entrance where you could get the goods almost immediatley.
6. anonymous
I did hear from someone who worked on the project, but I don't know how true it is, that the company bought in to implement SAP had never implemented SAP before. Sounds like a recipe for disaster to me.
7. anonymous
Having worked for the said company I think there is a lot of responsibility on both sides. SAP for presenting their tool as a 'cure all' and MFI for believing them. However MFI is a maze of an organisation - its structure makes no sense, with no-one knowing what department are responsible for what. Hardly surprising that processes could not be mapped. All the experienced staff were taken out of the operations years ago to do SAP implementation, and then the organisation was moved on in new ways by all the new people that were recruited to replace them. This meant that SAP was being implemented for how a company operated a couple of years ago. And where was the direction and leadership when this was needed? Good question where was it indeed
8. anonymous
SAP doesn't exactly go out of its way to ensure there is a good number of developers well-versed in its technology.
I think it has a vested interest in keeping consultant and course prices high and 'exclusive'.
9. anonymous
New IT Projects
…To take advantage of the latest technologies is a very high risk activity on what is a tried and tested legacy 25 year old OpenVMS systems which to this day is still continuing to server the needs of the business. Computers are complex by nature but the current computer solution which has been designed and implemented by business partners and consultants just doesn’t work. SAP are right to say “Their software is not at fault” it’s down to a combination of software products which being new are proven in a real business environment, SAP is just one part of the business process of which there are many process and products in use (DB2, WebSphere, Tivoli Maestro and VMS) all of which have had their share of software problems some are so basic you have to question the testing and QA by the Vendors.
Manager