MFI has begun urgent remedial work on its £50m SAP-based
supply chain system after warning that unexpected problems with the
newly installed software would materially affect its
profits.
The home furnishings retailer warned that its UK retail division
would show a substantial loss following the discovery of
"significant issues" with the system, which were affecting its
ability to dispatch customer orders.
MFI said it would have to spend a further £30m to correct
mistakes in orders delivered to customers and to put the SAP-based
project back on track.
A spokesman for SAP said, "There is no problem with our
software. It is not a software issue."
The new system is central to MFI’s plans to boost profit margins
by improving stock replenishment. It had been expected to generate
savings of £35m a year.
The system, which links point of sales systems to furniture
production and ordering, replaces 20-year-old legacy systems based
on Digital and Open VMS technology.
The scale of the problems, which only emerged following an
internal review last week, will come as a serious blow to MFI,
which had heralded the SAP-based system as the solution to flagging
sales and repeated profit warnings that dogged it in the late
1990s.
The problems follow the failure to successfully re-order
components, leaving customers with incomplete deliveries.
An MFI spokeswoman said, "We are systematically going through
each of the 8,000 [product lines], looking at the order and
distribution channels and checking that they are working
correctly."
"We believe we have identified the key issues with the systems
and it is a question of getting on with the work to resolve
that."
AMR analyst Alexi Sarnevitz said that retailers in general were
struggling with the best ways to execute replenishment strategies
which require seamless integration between stores, distributions
centres and suppliers.
Many retailers based forecasts for stock replenishment on
shipment history, which leads to stock shortages, rather than using
forecasting tools to predict demand, he said.
MFI, which indicated in July that teething issues with the
system had been resolved, said it now realised that it had been
addressing the symptoms rather than the cause of the problem.
Although the retailer has been open about its IT in the past, it
declined to give any further details of its remedial work on the
system or the technical nature of the problem.