Another big reason for LU to dump its' SAP implementation..
SAP Software Snarls Cost Whirlpool a Contract With Home Depot
By David Ward
San Rafael, California, April 28 (Bloomberg) -- Whirlpool
Corp. planned to save millions of dollars by using the latest
inventory-management software from Germany's SAP AG. Instead, it
may end up losing out on as much as $650 million in annual sales.
In September, the computer systems at the biggest U.S.
appliance maker started running on SAP software. Within weeks,
troubles with the software led to missed and delayed shipments,
including those to Home Depot Inc.
Home Depot turned around and canceled an agreement to sell
Whirlpool products, yanking business analysts say was worth at
least a third of the $2 billion in appliance sales the home-
improvement chain will generate each year. Home Depot, which
already sold General Electric Co. appliances, this month said it
would begin selling goods made by Whirlpool rival Maytag Corp.
``There was a glitch in implementing their software, and the
result was a shortfall in product promised to customers,'' said
Prudential Securities Inc. analyst Nicholas Heymann. Now, ``Maytag
has taken the Whirlpool bid.''
Whirlpool isn't alone. Hershey Foods Corp., W.W. Grainger
Inc. and Stanley Works sought efficiency and cost-savings from SAP
software. Each wound up with order delays, sales shortfalls and
damage to earnings.
Good Idea
``The idea behind SAP is a good one; it's the implementation
where the problem arises,'' said James Lucas, an analyst at Janney
Montgomery Scott LLC who follows companies such as Stanley Works
and Newell Rubbermaid Inc. that use SAP software. ``People will
tell you they're comfortable with it, but then they turn it on,
and lo and behold, they don't know how to use it.''
Whirlpool said that it made the decision not to offer its
appliances in Home Depot stores.
``Given our brand strategies, it was not appropriate for us
to participate with Home Depot,'' Whirlpool Chairman David Whitwam
said in an interview. He wouldn't discuss the company's strategies
further, though he said the contract could be worth millions a
year.
Analysts estimate that the Home Depot agreement would have
boosted Whirlpool's yearly sales by $500 million to $650 million,
or about 10 percent of the appliance maker's $6 billion in annual
North American sales.
The difficulties companies have using SAP's software may help
explain the decline in German company's share of the $22 billion
market for software that helps businesses plan and manage
inventory, accounting, orders and shipments.
Market Share
SAP's piece of the so-called enterprise resources planning
software market is forecast to drop to 28 percent by 2004, down
from 34 percent in 1995 as the company loses ground to competitors
such as Oracle Corp. and PeopleSoft Inc., according to Boston-
based AMR Research Inc.
SAP, which went public in 1988, is Europe's largest software
maker, with a market value of about $60 billion.
Much of the growth came after 1993, when the company
introduced a new software system called R/3. That product helped
boost sales to $4.4 billion by 1998, 17 times more than in 1990.
The sales gains also brought growing pains and SAP couldn't keep
up with the demand for installation and service.
To cope, it turned to outside consultants to help new
customers install and manage the systems. SAP says there are
20,000 consultants licensed to sell its software, and another
20,000 who aren't licensed but still provide installation and
consulting services. Therein may lie the problem, analysts say.
``SAP may not train as much as they should, and then they
walk away,'' said Janney Montgomery analyst Lucas.
Whirlpool's Ordeal
Whirlpool's ordeal began in September after the Benton
Harbor, Michigan, company began using SAP software to manage
customer orders and shipments to wholesalers and retailers. The
first sign that all wasn't right came in November, when Whirlpool
said it was experiencing some temporary shipping delays.
Behind the scenes Whirlpool was losing the ability to track
product orders. In response, Whirlpool assigned lower priority to
orders from smaller suppliers in order to focus on its larger
customers, according to three analysts briefed by the company.
The problem was that Home Depot's 950 stores ordered
individually. Whirlpool misidentified the orders as coming from a
small buyer as it struggled to get its computer and new software
to run properly.
``Home Depot's practice of ordering is in very small
quantities in response to consumer sales,'' Whirlpool's Whitwam
said. ``That's where we had some issues in making that system work
when we switched over.''
Delayed Orders
The snafu delayed Whirlpool shipments to Home Depot stores
for weeks late last year, leaving many Home Depot customers
without the products they had ordered.
``We had one customer order a refrigerator, and they said it
would be delivered in two weeks,'' said Darlene Vertlieb, who
works at a Home Depot in the San Francisco suburb of San Rafael,
California. ``It never showed up; we never heard from'' Whirlpool.
SAP executives say their software isn't to blame. In an
interview last month, then-SAP Chief Executive Kevin McKay said
that Whirlpool's delivery setbacks weren't caused by SAP's
software, though he wouldn't discuss the dispute in detail.
``The Home Depot issue, which is the most sensational, has
nothing to do with the SAP system,'' he said.
McKay said that some companies struggle with the software
because they install and begin using the programs without
adequately training their employees.
``How ready is the company culture to accept change?'' McKay
said. ``If they score high marks, the product will be
successful.''
McKay said that Whirlpool remained a loyal customer.
Whirlpool is ``very pleased with SAP support and the SAP system,''
he said. McKay resigned from SAP last week and couldn't be reached
for further comment. SAP declined to comment on his departure.
If Whirlpool was pleased with SAP's product, Home Depot
wasn't pleased with Whirlpool. It promptly canceled an agreement
announced only weeks earlier as part of a plan to start selling
large appliances in its stores nationwide.
``We haven't ordered any more products'' from Whirlpool, Home
Depot spokesman Shields said.
At about the same time that Whirlpool was starting to use
SAP's software, Hershey Foods, the biggest U.S. candy company, was
having its own SAP software mix-up. The result was that Hershey
couldn't ship enough supplies to stores in time for Halloween.
Bare Shelves
The Hershey, Pennsylvania, candy maker said the breakdown
cost it $150 million in lost sales last year. Many customers'
shelves were bare of Hershey products during the biggest season
for candy sales.
Hershey executives have since told analysts and investors
that the computer problems have been fixed.
Another casualty was W.W. Grainger, which sells more than
550,000 repair and maintenance items from 500 stores worldwide.
The Lake Forest, Illinois, company, said earnings in the
quarter ended Dec. 31 fell 24 percent to $181 million, missing
analysts' estimates, because a new computer system built around
SAP software led to miscalculations in its inventory of motors,
lighting equipment, power tools and pumps and lost sales.
``On the initial start-up day, people didn't know how to use
the system, and they couldn't do it, leading to all these order
backups,'' said Charles Harris, a CIBC World Markets Inc. analyst.
Grainger, which is using SAP systems throughout its stores
and six distribution centers, has not had ``material problems''
with the system for the last six months, said spokesman Dileep
Gangolli.
The tale was the same for Stanley Works. The maker of hand
tools traced lower-than-expected sales in one of its units in the
quarter ended in June to ``difficulties associated with the
implementation of SAP software,'' Stanley Works Chief Executive
John Trani said in a statement at the time.
``They thought they'd lost $10 million to $12 million of
sales because of that issue,'' said Eric Bosshard, an analyst at
MidWest Research.
In the fourth quarter, Stanley Works said earnings fell 2.5
percent to $43 million after their new computer system disrupted
shipments. The company didn't cite SAP at that time.
Home Depot officials have said they may renegotiate with
Whirlpool, and still are interested in offering Whirlpool
products. No serious discussions are under way, Home Depot said.
Meanwhile, products from General Electric are on sale in Home
Depot stores, and the chain soon will start carrying Maytag
appliances.
``We've gone with Maytag,'' Home Depot spokesman Shields
said, ``but we still have an open door.'' |
