SAP project costs cited in jeweler's bankruptcy filing

Shane Co. says it has also had functionality problems with ERP system installed in 2007

A Colorado-based retail jewelry chain that filed for Chapter 11 bankruptcy protection on Monday has partly attributed the move to rampant cost overruns and functionality problems on an SAP software implementation, according to a court filing.

Shane Co. signed a contract with SAP AG in 2005 for a "highly sophisticated point-of-sale and inventory management system," with an original projected cost of $8 million to $10 million and a one-year rollout schedule, the filing states. But costs ended up skyrocketing to $36 million, and the implementation stretched out to 32 months before the ERP system eventually went live in September 2007.

The company noted that it subsequently discovered that the new system "did not yet provide accurate inventory count numbers," causing Shane to become "substantially overstocked with inventory, and with the wrong mix of inventory." That added to Shane's capital costs and affected sales for the rest of 2007 and the first nine months of 2008, the court document says.

The system "became stable and functional" toward the end of last year but still doesn't deliver "the full functionality originally contracted for," the filing states. Eight independent contractors are now attempting to remedy the problems.

While the SAP project has been problematic, the biggest reason for Shane's bankruptcy filing was a "precipitous decline in retail sales, particularly in luxury goods," because of the economic recession, according to the filing made in the U.S. Bankruptcy Court for the District of Colorado.

The company's sales were $275 million in 2007, but it has said that it expects revenue for last year to total between $207 million and $210 million. The bankruptcy petition listed both Shane's assets and debts as being between $100 million and $500 million.

SAP spokesman Saswato Das said Wednesday that the software vendor couldn't immediately comment on the situation at Shane.

Shane's bankruptcy filing follows another recent public disclosure of trouble with an SAP implementation. Late last year, bed maker Select Comfort Corp. said it was halting work on an SAP project as part of a broader cost-cutting plan.

Copyright © 2009 IDG Communications, Inc.

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