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.