Levi's suffers profit meltdown in midst of SAP embrace
Pants ERP system leaves it without pants
Customer Success Testimonial: Recovery is Everything
Exclusive Problems with a massive global enterprise resource planning (ERP) rollout have helped send Levi Strauss' second-quarter results through the floor.
The jeans giant reported a 98 per cent drop in net income to $1m and squarely blamed "substantial costs" associated with its new ERP system among other factors for the shocker.
Levi's is standardizing on a single global instance of SAP ERP, and told The Reg it was forced to take shipping systems at its three massive US distribution centers off line for a full week in April to fix problems receiving and fulfilling orders.
The company not only lost business during the shut down, but also saw customers who'd placed orders cancel them once the systems were back up.
A Levi's company spokesman blamed the problem on integration of "legacy systems". He told The Reg Levi's is continuing the software rollout but notes it's currently in a "stabilization phase".
An SAP company spokeswoman said the company has a "great relationship" with Levi's. "As part of this close partnership we work closely together to resolve any challenges that arise," she said.
But we're guessing the SAP brass will have to do without their free jeans this year.
It's rare for software to get called out in an SEC filing for materially hurting the business or increasing costs, along with the standard business complexities of currency fluctuations or retail expansion. ERP was fingered with other factors, though, as Levi's explained its poor performance this week.
According to Levi's: "Half of the increase [in costs] reflects the effect of currency; the remainder of the increase reflects the substantial costs related to the ERP stabilization efforts in the United States and the company's global retail expansion."
The combined costs from taking the centers offline with retail expansion: $192.5m.
Levi's SAP project (here and here) is big: covering 5,000 users and expected to take five years, hitting Europe, North America and Asia Pacific.
SAP and ERP in general are complex systems, and when implementations go wrong they do so with profound implications on the bit of the business that really matters - making money and keeping customers happy. SAP has a few skeletons in its past.
US chocolate giant Hershey's one year blamed its poor Halloween sales on backlogged orders in its new SAP system, while white-goods manufacturer Whirlpool made the news when it experienced delays shipping goods having gone over to SAP.
SAP, along with Andersen Consulting, have even found themselves in court as a result of implementations. A bankruptcy trustee acting on behalf of drug company FoxMeyer filed separate $500m actions in 1998 that claimed SAP sold FoxMeyer software unsuited to its business while Andersen botched the implementation, resulting in FoxMeyer going out of business in 1996.
And let's not forget Carly Fiorina blaming an HP fiscal disaster on SAP as well. ®
COMMENTS
SAP keeps VBA running
OK, so I order kit on a SAP system. In order to keep track of what is on SAP I use a Excel/Access system to record what I'm doing. The SAP system is the pits for any sort of work if you don't keep your own records. So, instead of one set of records you add to the system the company has mandated your own system for keeping track. I can give my boss stats too. Anonymous for obvious reasons.
Quite worried now!
What, you mean that big SAP implementation we've had running for 3+ years is going to mysteriously sprout gremlins and kill the bizz? And there was me thinking the careful and deliberate design, the long testing and acceptance phase, and internal training, had immunised us against the dreaded Curse Of SAP! Oh, hold on a sec - it did!
First two rules of enterprise projects - the cheaper solution may actually work out more expensive in the long run; and pay peanuts, get monkeys! As I always put it to my project managers, the actual acquisition price of any solution is only about 20% of the complete solution's cost over the lifecycle if you get it right! Get it wrong and you consign yourself to a very expensive lifecycle even if you end it early. Take your time and spend your money on the planning stage before the purchase (honest, it doesn't all end up on widescreen HDTVs in BOFH Central) and you will save money after the buy.
I guess not a lot of you work with SAP ?
I'm amazed by all the negative comments here.
I've worked in support/development with a large (>4000 users now) SAP installation for a decade now - no major probs.
Maybe it depends who does the installation ?
I remember an audio file doing the rounds when AC was Andersons (ie pre paper shredding) containing lines like "Experts - Fresh out of college" . You look around & think "Yup"
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