Parts maker pins profits dip on IT

Thomas & Betts Corp., a $2.5 billion electrical parts manufacturer, is blaming problems with a new Internet-based order management system for a 50% nosedive in fourth-quarter profits — plus another $42 million in losses caused by order and shipping disruptions.
Last week, shareholders responded by slapping the Memphis-based company with a class action suit that claims that T&B "misled investors concerning the successful implementation of its Web-enabled order processing systems."
"We chose to transition to those new systems at a time when our organization was already engaged in a massive cost-reduction program, integration of acquisitions and preparation for the Y2k changeover. That caused missteps," said CEO Clyde R. Moore last week.
In addition to $20 million in delayed shipments, the recently installed Thomas & Betts Order Processing System (TOPS) cost T&B $24 million in lost sales for the fourth quarter. As of last week, the backlog for orders was two days at the company's 1 million-sq.-ft. central distribution center, down from five days at all three satellite distribution centers late last year.
TOPS comprises software applications for processing and fulfilling orders. The ordering and fulfillment systems are IBM mainframe-based, layered on Adabas, using the Natural interface language. All of this is front-ended with dynamic HTML-, Java- and XML-based processes. IBM's MQSeries middleware connects the system to T&B's Oracle financial system and to AS/400-based manufacturing systems.
TOPS also includes a worldwide online ordering system and gives customers the ability to get pricing and product availability information and to track their orders.
Upon implementation, the order processing and tracking parts performed as anticipated, said CIO John Haluska.
But when volume grew, the fulfillment systems couldn't handle the stress. "After three intense weeks, we began to make progress and started eating away at the backlog, but by that time, the damage to our fourth quarter had been done," Haluska said.
Still, Haluska said, he considers the fourth-quarter meltdown a "hiccup," and that TOPS is sometimes exceeding expectations.
"What went wrong was the integration of our order processing (system) with the software that drives our distribution centers. It was causing shipments' timing to be out of sync with conveyor-belt systems at the distribution center," said Renee Johansen, a T&B spokeswoman.
She said T&B also had problems implementing the part of the system that gives customers Web access to real-time data about where their orders are in the manufacturing and shipping processes.
"It's very similar to what you have seen happen with Grainger and Hershey Foods. Pretty much any of us with existing brick-and-mortar businessesare moving to the Web to enable e-commerce. It's not an easy, flawless task," she said.
Candy maker Hershey Foods Corp. fingered problems it had processing orders with SAP AG's R/3 software for a 19% drop in third-quarter profits.
Chicago-based W. W. Grainger Inc. also had SAP implementation woes, leading to $19 million in lost sales and $23 million in reduced earnings in the second and third quarters of 1999. The $4.3 billion company also expected fourth-quarter profits to sink as much as 45% below Wall Street's expectations (News, Jan. 10).
"It's not at all surprising that this happens," said David Dobrin, an analyst at Benchmarking Partners Inc. in Cambridge, Mass. "This stuff is really hard to do."
T&B's fourth-quarter net earnings totaled $23.2 million, compared with a net of $46.1 million a year earlier.