Hosted SAP Implementation Goes South
Waste Management Inc. filed suit against SAP on March 20th for a failed ERP (Enterprise Resource Planning) software implementation. While failed ERP implementations are nothing new, this situation is somewhat unique in terms of the claims made and the opportunity for post mortem analysis.
The Waste Management claims that fall outside the norm of failed implementations include legal allegations of fraud and operational allegations that the core out-of-the-box SAP ERP software product failed. Software modification is a common culprit associated with most unsuccessful accounting software implementations, however, in this case the client company claims that they consciously avoided software customization in order to reduce risk and increase the probability for success. Waste Management also claims that the SAP demonstration of a waste industry standard solution with no customization required included functionality the software didn't have and in turn made the company a "guinea pig" for on the fly software coding which was not ready for the production environment.
SAP and rival Oracle have aggressively moved into adapting their horizontal ERP software applications for the needs of vertical markets. Waste Management intended to use SAP software for back office accounting, receivables processing, container management and waste logistics. A key buying criteria was the ability to streamline the order to cash process which was a key element in the company's customer satisfaction strategy referred to as Customer First.
Waste Management selected SAP Managed Services to host the mySAP Business Suite implementation so that the waste service company could focus on core business and strategic issues. However, after spending in excess of $100 million to implement the SAP software, the SAP implementation was a "complete failure." The company chronicles that during the pilot project in New Mexico, the software couldn't perform the most basic revenue management function and when SAP attempted to fix the problems by rewriting tens of thousands of lines of code during the implementation, the problems became exacerbated and contributed for further failures.
This implementation is certainly a far cry from the December 2005 press release issued by SAP claiming among other things, that "Waste Management becomes SAP’s flagship U.S.-based waste and recycling customer, joining more than 50 waste and recycling customers throughout the world." Waste Management is now seeking recovery of expenses and additional damages.
The legal claims of fraud don't come at a good time for SAP, as the software giant is embroiled in a losing lawsuit with Oracle due to its subsidiary TomorrowNow allegedly taking Oracle confidential information. While Oracle boasts the breach was "corporate theft on a grand scale", SAP acknowledges the act, however, is trying to downplay the magnitude and control the damage.
Possibly on a more positive note, the Waste Management failed ERP implementation may provide the needed public visibility for a post mortem analysis that will benefit ERP implementers and users of any ERP application. SAP is certainly not unique in failed engagements and the lessons learned may be applied by other project teams and project managers in a way that will benefit the industry. I intend to survey the information as its released and look forward to finding some insight that industry practitioners may benefit by.
Post: March 30, 2008 in SAP | Permalink | Comments (2) | TrackBack (0)
Tags: SAP, Hosted CRM software, on-demand crm software
Comments to hailey[at]haileyblog.com
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Over a $100 million throw away. It would seem they could have cancelled this project before it reached this sum. Is this the biggest ERP failure in the industry?
Posted by Mark Hathoway on March 31, 2008
No, unfortunately not. There are actually many big ERP implementation failures that can be cited. Hershey Foods’ SAP R/3 implementation is another high profile, high cost debacle. Hershey spent $112 million and 30 months of implementation effort, however, when they attempted to go live in July 1999, the company experienced catastrophic failures with sales order processing, which had a crippling effect in shipping delays and deliveries of incomplete orders.
Another touted ERP failure was shoe company Nike. During an earnings statement, Nike announced that it expected its third-quarter earnings to fall at least 28% short and Nike blamed software vendor I2 for much of the problem. I2 attempted to overhaul Nike's supply-chain management system in its footwear division, which delivers about 57% of the company's total sales. Nike claimed that the I2 supply chain system instructed the company to stop shipping shoe models that were selling well and produce more shoe models that weren't selling.
American LaFrance, a manufacturer of fire engines claimed its failed ERP implementation from IBM sent it to bankruptcy. The hallmarks of this failure, illustrated in the claim below, are noteworthy as they are quite comparable to other commonly cited failures.
Upon the changeover to the ERP System, the company recognized serious flaws with the ERP system that had a crippling impact on operations. Some of the problems encountered in implementing the system included, among others: (i) inability to reconcile data between the Freightliner system and the ERP System; (ii) incorrect or incomplete inventory, purchasing and customer data due to either problems with the Freightliner system or the conversion of the data to the ERP System; (iii) inaccurate or incomplete vehicle configurations loaded in the ERP System; (iv) insufficient training on the ERP System; and (v) missing financial information including accounts payable detail, incomplete or inaccurate accounts receivable data, and inaccurate beginning general ledger balances. For the next several months following the changeover, the company attempted to solve the host of problems with the ERP system. Despite such efforts, as a direct result of the problems with the ERP System, the company became unable to complete its manufacturing of many pre-ordered vehicles.
The longest period I've ever heard of for a failed ERP implementation was the Philadelphia municipal water billing system. This back office ERP implementation took over 20 years and cost the taxpayers about $47 million before it was aborted, restarted, aborted again and eventually reeled in.
Posted by Hailey on March 31, 2008
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