By Kim S. Nash  |  Posted 2005-08-04 Email Print this article Print

New systems obscured key financial data, forcing managers to make decisions on half-cooked information. After filing for bankruptcy, the company is working to recover.

Rolling Boil

In 2001, New World decided that its mix of highly customized 15-year-old manufacturing and financial applications should be replaced by a single suite. That switch was partially spurred by the company's desire to move from IBM AS/400 servers to more economical PC servers with Microsoft's Windows NT operating system. But New World also wanted to generate reports on such items as factory efficiency and sales forecasts—data that had been difficult to extract and integrate from the disparate systems it had been using.

As the migration started, New World bought the pasta business of its closest rival, Borden Foods, for $43 million. The transaction increased revenue by one-third and added six factories and 11 brands, including Creamette and Prince.

Yet, the deal required tough decisions. New World had to decide what factories to shutter, whom to lay off, how to reallocate equipment such as industrial mixers and pasta rollers.

For the information-technology staff, a huge challenge loomed. The Borden business had to be immediately taken off its former parent company's PeopleSoft systems and added to New World's then-unfinished OneWorld setup.

OneWorld was rushed into place without proper testing for response time, compatibility with existing systems and other factors, says John Lausas, an AlixPartners associate.

For example, Lausas found that the 2.0 version of the Citrix software in use to control access to applications wasn't certified by the vendors to work with the OneWorld Version 7.3 package installed. Citrix couldn't call up and control OneWorld properly, which turned out to contribute to several systems crashes from 2001 to 2004. The outages left some financial data unavailable for two or three days at a time, Lausas says.

Some data was stored on individual servers and not copied onto backup disks. If a server went down, that data was inaccessible, he says. People would use older data they had stored on their PCs in the interim, introducing inconsistencies.

Accounts receivable were discovered to have been overstated in 2001 by 10%—as $66.7 million, instead of $60.8 million. Net losses, reported as $2.2 million, were actually $118.2 million.

"It was management by best guess," West says.

Because of the rush, many of the business staff who were supposed to use OneWorld weren't thoroughly trained on it and didn't understand how to query the system for sales, inventory, cash flow and other needed reports, according to West.

Instead, business analysts resorted to creating their own reports using Microsoft Excel spreadsheets and Access databases. They would share the files with each other by sending them as attachments to e-mail messages, so there were multiple versions of these reports with inconsistent data.

The ad hoc reporting process had the company both overestimating and underestimating demand in a single year.

For example, late in 2002, the company raised prices by 15% across its 18-brand line. But supermarkets didn't like the markup and scaled back orders. New World soon lagged behind competitors in sales growth by five percentage points, said then-CEO Wynn Willard in a June 2003 conference call.

Sales agents had entered orders into the system. But because reports were difficult to generate, analysis showing the downtrend didn't percolate up to decision-makers in marketing and strategic planning for several months.

Earlier the same year, the software wasn't forecasting sales demand accurately, so some factories weren't making enough pasta. The company had to buy pasta from other companies and pack it in its own boxes and bags. Even so, up to 20% of orders weren't being filled, Willard said.

In November, 2002, the company admitted to the Securities and Exchange Commission that it couldn't file a financial report for the most recent quarter because of unreliable and missing data. Financial figures from 2001 also "should not be relied upon," the company said.

Failing to make SEC reports put the company in default on loans, kicking off a grim 18 months of negotiations with banks and bondholders over $460 million in debt.

Senior Writer
Kim has covered the business of technology for 14 years, doing investigative work and writing about legal issues in the industry, including Microsoft Corp.'s antitrust trial. She has won numerous awards and has a B.S. degree in journalism from Boston University.

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