Stumbling ERP project racks up sales losses greater than budget

Readers will be familiar with the concept of return on investment (ROI) — when a tech project saves more than it costs — but less well-known is the idea that, like in particle physics, there exists an anti-ROI.

Apparent evidence for this hitherto undetected phenomenon comes from a retail ERP project that appears to have lost an organization more in missed revenue than its planned budget for the software.

The data comes from South African wholesale warehousing and distribution business Spar Group Ltd, which licenses and services the franchised retail stores of the same name across the country as well as in other regions across Southern Africa, Ireland, Switzerland, and southwest England. The group said the SAP project it has been grappling with for the past few years has cost the org about $107 million (ZAR 2 billion) in lost sales in the financial year to 30 September 2024.

The Spar Group Ltd's Integrated annual report 2024 [PDF] said executive management is successfully addressing the SAP system issues.

Among other comments on the system, it noted: "The SAP dashboard lacked the clarity of the previous system, affecting pricing and margin visibility. Manual processes required for this had a negative impact on margins."

"The implementation, which began in February 2023, faced critical challenges such as poor pricing visibility and inefficiencies with the new warehouse management system, which had resulted in an estimated R2 billion in lost sales in the 2023 financial year.

"We are satisfied with the improvements the dedicated working group has made, particularly in pricing visibility and the transition to a new warehouse management system. The future focus is on enhanced data management practices and using data more effectively, even before the full system rollout. We are confident these measures will drive better performance moving forward," it said.

Investors might welcome the reassurances, yet the sales decline logged for the retailer's 2024 fiscal already exceed the reported implementation costs, estimated at $95 million (ZAR 1.8 billion) by newswire Bloomberg from September 2023.

At the time, Spar's chief information technology executive Mark Huxtable stood down for personal reasons and South African national information technology executive Brett McDougall stood in to help.

• Asda decided on a 'no go' for 'mass rollout' of store IT conversion
• SAP says GenAI will help solve legacy migration skills shortage
• Mega supermarket spots stock discrepancy of tens of millions amid ERP system migration
• Britain enters period of mourning as Greggs unable to process payments

The project's problems centred around the distribution systems in KwaZulu-Natal, the eastern region of South Africa containing the city of Durban. However, the company’s Annual financial statements 2024 [PDF] maintains it is getting on top of the situation.

"Significant progress has been made in resolving SAP integration issues, including improving visibility of pricing and subsidies for buyers, as well as addressing warehouse management inefficiencies that increased labour and transport costs through the selection of a new warehouse management system.

"Whilst interventions to resolve the SAP impacts in the KZN region are well underway, it will take some time for the full effects to be felt and for the overhang on gross margins to be eliminated," the report said.

We have asked Spar Group for comment. ®