MFI to save £35m a year from SAP-based overhaul

Ambitious IT plan is key to furniture chain's business turnaround.

Furniture retailer MFI has identified IT as key to its business recovery as it presses ahead with ambitious plans to improve supply chain management, raise margins and expand internationally.

MFI expects to save up to £35m a year once the five-year IT overhaul, which centres around a company-wide SAP roll-out, is completed in 2005.

MFI has already invested £14m in the IT revamp project, dubbed Atlas. It will invest a further £5m to £10m between now and 2005.

The company began it restructuring programme in 2000 in response to falling sales in the late 1990s, which led to repeated profit warnings.

The SAP-based system, which replaces 20-year-old legacy systems based on Digital and Open VMS technology, will improve integration and overall efficiency, leading to vast cost savings, said Allen Shoemaker, chief information officer at MFI.

"We have set financial targets within the individual business functions, rather than in the IT department, which is an important distinction. This is where companies can get into trouble," he said. "Once phase three is completed we expect returns of between £25m and £35m per annum."

In the past a number of businesses, including Volkswagen, ICI and WHSmith, have faced serious implementation problems as users and system integrators tackled the complexities of rolling out the SAP system.

Today, users are able to draw on best practices gleaned from the experiences of early SAP adopters, while the software firm itself has learned lessons, said Martin Atherton, managing analyst at Datamonitor.

MFI's SAP technology will increase system reliability and make it easier to access business information, Shoemaker said. "The legacy systems are not fully integrated, which makes it harder to get information out, and the reliability is in question because the systems have been changed a lot."

Phase one of the SAP implementation began in May 2001 and covered financial systems, indirect procurement and property systems. It was completed in June of this year.

Phase two, which covered inventory, planning, scheduling and direct purchasing, began in July 2003 and is due for completion by the end of the year. The remaining phases, which will cover human resources, manufacturing and the retail front-end are due to be completed in 2005.

"We are working on a phase-by-phase basis, because putting all the transactional systems in at the same time is simply not possible for a complicated company such as MFI," Shoemaker said.

The company, with consultancy partners Kurt Salmon Associates and KPMG, has learned valuable lessons during phase one, which it will take on into the rest of the project, Shoemaker said.

"You cannot underestimate the value of the user community," he added. "The sooner you show users the system, the better. We had the bare minimum of training in phase one, but we plan to bring users in earlier in the process for the next phases."

The weeks following the completion of the roll-out are also important, Shoemaker said.

"We underestimated the time it took to bed down systems - we need to plan for the next couple of months, which is one of the benefits of multi-phasing a project."

As part of the Atlas project, MFI has upgraded its IBM infrastructure, rolling out the AIX operating system and DB2 database, as well as P60 server software.

It also plans to upgrade its network with multi-protocol labelling switching technology from BT, which is designed to improve network capacity.

Read more on Business applications