Canadian supermarket chain abandons SAP's retail software

Canada's second-largest supermarket chain has abandoned an $89.1 million implementation of SAP AG's business applications for retailers after a five-day database and systems shutdown during December affected the company's business operations for nearly a month.

Bill McEwan, president and CEO of Stellarton, Nova Scotia-based Sobeys Inc., said during a conference call last week that "growing pains" expected by the 1,400-store retail chain on the 2-year-old project turned out to be "systemic problems of a much more serious nature." McEwan, who inherited the SAP implementation when he joined Sobeys in November, added that it would have taken another two years to finish the software rollout.

The decision to write off the SAP system resulted from the complexities of the project, combined with the technology problems that occurred in early December, said McEwan. The system shutdown resulted in "unprecedented" out-of-stock issues with products at many of Sobeys' corporate-owned stores in eastern Canada, he said.

The SAP Retail software had "insufficient core functionality . . . to effectively deal with the extremely high number of transactions in our retail operating environment," McEwan said, adding that the disruption also forced Sobeys to implement a series of workaround procedures for its accounting department.

Business operations were affected for four to five weeks while the problems were reconciled, McEwan said. He also announced that the company is hiring a new CIO "on the heels of our SAP decision," although he didn't name the incoming IT executive.

Bill Wohl, a spokesman at SAP's U.S.-based subsidiary in Newtown Square, Pa., said the German software vendor was taken by surprise by Sobeys' decision to jettison the project. "This is not a problem with the SAP software itself," Wohl said, while adding that Sobeys does plan to continue using SAP's human resources and financial applications.

Wohl said there are industry-specific data processing challenges facing retailers above and beyond any implementation difficulties that may be posed by applications such as those made by SAP. "Those challenges are not unique to SAP, but to [Sobeys and other retailers]," he said. "We feel confident about the [SAP Retail] solution."

Sobeys executives didn't return phone calls seeking additional comment on the decision to scrap the project. During last week's conference call, McEwan said SAP Retail will be phased out of the supermarket chain's Atlantic Division and 30 corporate-owned stores in Ontario, with the decision costing the company an after-tax writeoff of $49.9 million.

Sobeys plans to replace the SAP applications with an alternate software package that can be installed more quickly and that "will fully meet all the business requirements" at the company, McEwan said. He didn't identify the vendor of the replacement software.

Big enterprise resource planning (ERP) installations such as the one at Sobeys are highly complex, said Kevin Restivo, an analyst who works in Canada for Framingham, Mass.-based market research firm IDC. Sobeys is a "particularly unhappy" user, Restivo added, but he said the problems that companies can run into on ERP projects "aren't usually as black and white as people make them out to be."

SAP has been dogged by problems at a number of high-profile users. Retailers have been especially prone to difficulties: For example, pet-supply retailer Petsmart Inc. and Jo-Ann Stores Inc., which operates a chain of fabric and craft stores, both said last fall that their financial results were being affected by lingering problems related to rollouts of the SAP Retail applications (see story).

Sobeys also is at least the second big food distributor to back away from an SAP Retail installation. Two years ago, Minneapolis-based food wholesaler and supermarket operator Nash Finch Co. shelved most of a $76 million SAP project after development delays made it impossible to install the software in time to fix its year 2000 problems (see story).

The perception that SAP's software is thorny to implement is one that executives at the vendor "are trying to shake," Restivo said. "No matter whose fault it is, they'd like to get past that image and be seen as a [developer of software] that won't have to be ripped out."

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