A Colorado retail jewelry chain that filed for Chapter 11 bankruptcy on Monday has partly attributed its move to rampant cost overruns on an SAP implementation, according to a court filing.
Shane Co. entered a contract with SAP in 2005 for a “highly sophisticated ‘point of sale’ and inventory management system” at an original projected cost of US$8 million to $10 million and a one-year project schedule, the document states. But costs ended up skyrocketing to $36 million and the implementation stretched out to 32 months, eventually going live in September 2007.
The company subsequently found that the system “did not yet provide accurate inventory count numbers,” causing it to become “substantially overstocked with inventory, and with the wrong mix of inventory,” adding to Shane Co.’s capital costs and affecting sales through year-end 2007 and the first nine months of 2008, the court document says.
The system “became stable and functional” toward the end of 2008, but still does not deliver “the full functionality originally contracted for,” the filing states. Eight independent contractors are now attempting to remedy the problems.
But a “precipitous decline in retail sales, particularly in luxury goods,” due to the recession was the biggest reason for the company’s bankruptcy filing, not the SAP project, according to the document, filed in the U.S. Bankruptcy Court for the District of Colorado.
Sales in 2007 were $275 million, but the company expected 2008 returns to be between $207 and $210 million. The company’s bankruptcy petition listed both its assets and debts as being between $100 million and $500 million.
SAP spokesman Saswato Das said Wednesday that SAP could not immediately comment.
Shane Co.’s news follows another recent public disclosure of trouble with an SAP implementation. Late last year, bed-maker Select Comfort said it was halting work on an SAP ERP (enterprise resource planning) project as part of a cost-cutting plan.