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ERP Woes Hurt Levi Strauss |
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Jeans manufacturer Levi Strauss is the latest company to report that its financial results were severely impacted by difficulties encountered with an enterprise resource planning (ERP) implementation.
The storied San Francisco company reported earlier this month that its second quarter results plummeted 98% from the previous year, citing problems encountered with an implementation of SAP software as a primary culprit for the decline. Levi’s profits fell to $1 million in the quarter compared to $46 million a year earlier.
Levi’s is in the midst of a global rollout of SAP to support its 10,000 employees in more than 110 countries. In a conference call to discuss the second quarter results, chief executive John Anderson said sales were down in the quarter as the economies in some of its key markets were hurting, however, he also said problems with the ERP installation were a “substantial” factor in the poor results.
He did not provide specifics into what went wrong with the installation, but the problems became so bad early in the second quarter that the entire system had to be shut down for a week. Levi’s spokesman Jeff Beckman says the shut down meant that the company had to cease product shipments for one week as a result.
Beckman says following the shutdown, the SAP system was brought back online and while there were some “stabilization issues”, the system is functioning. “We’ve made a lot of progress,” he said. “We’re now back to shipping at our forecasted levels.”
Beckman confirmed that Gordon Brown, a former chief information officer with ToysRUs and Franklin Templeton has been brought on board to sort out issues with the SAP installation. David Bergen, the company’s former CIO left early in the year. Bergen had served as Levi’s CIO since November of 2000 and had been charged with sorting out the company’s hodge podge of information systems. Beckman says Brown’s role is as a consultant and that a search for a new CIO is underway.
Levi’s is far from alone in blaming problems with an ERP installation for having a severe impact on its profits. Earlier this year, American LaFrance, a 175-year-old manufacturer of fire trucks and other emergency vehicles, was forced into bankruptcy after encountering severe problems with its ERP installation. (See Part I., and Part II of CIOZone blogs looking into American LaFrance’s ERP struggles.
In March, Waste Management revealed it was suing German software maker SAP after it says it spent more than $100 million on an SAP system and that it turned out to be a “complete failure.” See CIOZone article: Waste Management Sues SAP. Waste Management is seeking to recoup its expenses and receive punitive damages. An SAP spokeswoman says it is company policy to not comment on pending litigation.
Yet again the Levi’s situation reinforces the fact that companies need to carefully plan and rigorously execute ERP installations. Despite the fact that they have been around for more than two decades, ERP systems are immensely complicated, require huge cultural transformation in companies, and if fouled up, have the potential to bring down an organization.
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