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Levi's suffers profit meltdown in midst of SAP embrace

Pants ERP system leaves it without pants

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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. ®

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