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Select Comfort puts big SAP project into sleep mode

Bed maker halts work on ERP rollout after being pressured to do so by large shareholder

By Chris Kanaracus
December 17, 2008 12:00 PM ET

IDG News Service - Bed maker Select Comfort Corp. this week announced a series of cost-cutting moves, including a decision to halt all work on a wide-ranging rollout of SAP AG's ERP applications. But shareholder pressure also may have contributed to the ERP shutdown.

Select Comfort, which makes the "Sleep Number" bed, said in a statement on Tuesday that it expects the cutbacks to save about $15 million annually. In addition to ending the SAP rollout, the Minneapolis-based company said it plans to lay off about 120 employees, which amounts to 22% of its workforce.

On Wednesday, a Select Comfort spokeswoman declined to comment further about the shuttering of the ERP project or the company's future IT plans.

Select Comfort began using Oracle Corp.'s ERP software in 1998. But the Form 10-K filing that the company submitted to the U.S. Securities and Exchange Commission for 2006 says that Select Comfort planned to implement an integrated suite of SAP applications, including the vendor's ERP, CRM and supply chain management modules. The bed maker initially expected to complete the SAP rollout during the first half of this year.

"We believe this SAP-based IT architecture ... will provide greater flexibility and functionality for our growing and evolving business model and be less expensive to maintain over the long term," Select Comfort said in one SEC filing.

But other SEC filings show that Select Comfort officials for months had been pressured to spike the project by an institutional shareholder, a New York-based investment firm named Clinton Group Inc.

In letters sent earlier this year to Select Comfort's board, Clinton Group characterized the ERP implementation as significantly over budget and behind schedule, and criticized the bed maker's leadership as reckless.

"We believe that spending on the SAP system installation should be deferred until an expeditious detailed review of information technology needs is undertaken and completed by an independent consultant," Clinton Group Vice Chairman Jerry Levin wrote in a letter dated March 6.

Levin said that Select Comfort spent $12 million on the ERP project last year and planned to spend at least another $8 million this year. "It is difficult for us to envision, given the size of the Company, that the Company could ever achieve cost savings to justify such a large expense," he wrote.

A second letter dated June 23 was even harsher. "Select Comfort's plan to continue with the SAP rollout using internal resources that have at best limited experience implementing a new enterprise software system is indicative of extremely poor judgment by management," Levin wrote. "Given Select Comfort's financial performance, the implementation should cease immediately."

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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