Projects Gone Wrong - ERP Hell
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Perhaps no other wide-scale enterprise project can strike fear into
the heart of a CIO or project manager like an enterprise resource
planning (ERP) implementation. And for good reason. ERP touches the
nerve center of organizations. If something goes wrong, it goes
terribly wrong.
American La France Hosed by ERP
Sometimes a nightmare project can put a company in bankruptcy.
Last year, the venerable firetruck manufacturer American LaFrance was
forced to undergo Chapter 11 proceedings after what it called
“operational disruptions caused by the installation of a new ERP
system.” According to information provided to customers, the company
incurred $100 million in debt since it spun off from Freightliner in
2005 due to inventory imbalances and ERP malfunction.
“These problems have resulted in slowed production, a large unfulfilled
backlog, and a lack of sufficient funds to continue operating,” the
company told customers in January 2008.
When American La France initially bought back its business from
Freightliner, the plan was to get its former host company to handle
accounting, purchasing, inventory, production, payroll and finance
until American La France could work with its consultants at IBM to
implement a new ERP system that would handle all of these functions.
But after flipping the switch to set the ERP system running in June
2007, American La France encountered inventory difficulties, resulting
in serious liquidity issues for the manufacturer. Though American La
France said at the time that it was looking into holding IBM legally
accountable for its role in the botched ERP implementation, more than a
year later no such action has been taken. Since then the company has
come out of Chapter 11, worse for the wear after customers complained
of late truck deliveries and a shortage of repair parts that made
certain firehouses scramble for months to keep their fleets running.
Lessons Learned:
Botched ERP implementations can drastically affect operational
capabilities. Spin-offs, company sales and M&A activity must be
followed by careful infrastructure planning.
Tom Shane Paid Too Much
As our previous example showed, picking one’s way through an enterprise
resource planning project can be akin to dancing across a minefield.
With so much money and so many critical functions at stake, ERP
projects have the potential to make or break a company.
Unfortunately for Centennial, Colo.-based Shane Co. Jewelers, its foray
into SAP broke the company. In January 2009 the family-owned company
announced bankruptcy as a result of poor sales returns from 2007
through 2008 and an SAP implementation that executives said cost the
company three times its initial estimate and left store inventories
unbalanced.
According to bankruptcy filings, Shane Co. reported that it took three
years and $36 million to put in place the SAP AG system after being
told by SAP that it would only take one year and $10 million. What’s
worse, once the system went live in 2007, Shane experienced nine months
of inventory issues that ‘adversely affected sales,’ the company told
the court.
Most egregious of these issues was a severe overstock of the wrong
products in late 2007. Shane told the court that since then it managed
to sell off the overstocked products and stabilize the SAP system, but
that the financial damage was already done. In 2008 the company
experienced a 32 percent decline in sales during the holiday season.
Bankruptcy filings show the company owes more than $100 million to
creditors. Shane told the court that it was revamping operations,
scrapping plans for new headquarters and putting the kibosh on store
expansions. During the bankruptcy, company founder Tom Shane is lending
the company money from a separate business he owns to keep Shane Co.
operational.
Lessons Learned: Appropriate vendor selection and realistic project goals are imperatives for successful ERP implementations.
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IT Management 
