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MFI blames drop in profits on supply chain IT

Furniture retailer MFI reported a sharp fall in profits last week following its struggle to remedy a botched implementation of...

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Furniture retailer MFI reported a sharp fall in profits last week following its struggle to remedy a botched implementation of £50m supply chain system.

Operating profits in MFI's UK retail division plummeted from £41m in 2003 to a loss of £46m in 2004, as the retailer struggled to absorb the costs of rectifying the system.

The company ran into difficulties last year after a combination of underpowered processors, poor data quality and poor stock-level forecasting left many customers with incomplete orders.

The problems have cost MFI £17.1m in compensation and rectification work, and a £20m exceptional charge, accounts released by the firm last week revealed.

MFI chief executive John Hancock said he was confident that the problems had now been rectified.

"2004 was a poor year in UK retail, with performance severely affected by the issues around the new supply chain systems. We are making progress in addressing these issues and 2005 will be a year of stabilisation and recovery," he said.

The supply chain system, which went live in March 2004, replaced 20-year-old legacy systems and was viewed by MFI as essential to meet the changing needs of the business.

But technical problems led to "significant disruption" to the home delivery service, resulting in a large number of customers receiving incomplete orders. MFI's finance director and chief operating officer lost their jobs after the debacle.

"We undertook a thorough root cause analysis of problems in the supply chain. This revealed additional technical problems and two underlying business requirements - better data and more accurate inventory forecasting," said Hancock.

Hancock said MFI had now made progress on all the key areas and was "increasingly confident that the supply chain systems are stabilising".

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