ERP woes blamed for lumber company’s bad quarter

Lumber Liquidators Inc. is attributing a weak third quarter to a complex enterprise resource planning implementation, saying the project imposed a significant drain on worker productivity. But the problems appear to be largely related to employees having trouble acclimating to the new system, versus malfunctions in the software itself.

The east-coast discount flooring chain “implemented the most significant phase” of its SAP AG project during the quarter in late August, it reported Wednesday. Its components include a new point-of-sale system along with warehouse management and inventory modules.

While business continued without interruption during the project, and net sales rose US$6.7 million to $147.2 million, lower productivity led to an estimated $12 million and $14 million in unrealized net sales, according to the company. Net income fell nearly 45 percent to $4.3 million.

But Lumber Liquidators expects the SAP system to have significant benefits for the company over time, CEO Jeffrey Griffiths said during a conference call Thursday. It will help the company grow internationally, as well as take advantage of a broad ecosystem of complementary applications, he added.

He attributed the problems in the quarter to employees having difficulty adjusting to the SAP software, which he nonetheless praised.

“One feature of our previous system is that it was very flexible and easy to manipulate. SAP is much more structured, you follow steps, but it’s much more stable. Because of that it was a change for us,” he said. “There were a few things that didn’t work quite right, a few things that were unique to our business that we didn’t see as well ahead of time,” he added.

Prior to SAP, Lumber Liquidators also employed many manual processes, running some operations off spreadsheets, he said. With SAP, “we’re confident that we’re going to see significant improvements and benefits.”

As of now, Lumber Liquidators’ staff is “probably at 85, 90 per cent productivity, and we get better every week,” Griffiths said

The situation differs from other troubled SAP projects, such as one conducted by Waste Management that led to a bitter lawsuit. That matter was ultimately settled.

“Lumber Liquidators is a valued SAP customer and we remain strong and positive partners,” SAP spokesman Andy Kendzie said in a statement. “SAP is actively engaged with the company in completing their implementation and we believe this is solidly on track. When complete, we are confident Lumber Liquidators will reap significant benefits from the system and it will continue to be a critical element in the company’s growth strategy.”

Overall, ERP projects can go badly for multiple reasons, such as “changing internal requirements by the company that slow down system integrator implementation, lack of resources for training and system design, and complexity in the software,” said Altimeter Group analyst Ray Wang.

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