Tip. From this example, you can make three recommendations for companies that implement ERP-systems in their business:
- Before you start developing, make sure that your business processes are standardized, that is, the same for all departments, divisions and branches. If this is not the case, first solve the problem and only then proceed to the development of ERP, since automation cannot make order out of chaos.
- Panorama Consulting research shows that 75% of ERP implementations take longer than expected. This should be considered when developing a technical plan for implementing ERP in your business.
- When choosing a technical partner, check not only his cases and team competence, but also the financial condition.
3. Target and “spam” data
. In the period from 2013 to 2015, the Target retail chain opened 130 stores in Canada, and the company’s management decided to implement a new ERP system
for effective business management
in this region. Two years were allocated for the project, but at the end of the term it was never fully implemented, Target left Canada, and CBC News tagged this venture the “greatest failure”.
Due to inaccurate data, Target closed 133 stores in Canada, lost $ 2 billion and laid off 17,000 workers
And this is really a huge failure, which cost Target 2 billion dollars. And all because the American retailer ignored the "alarm bells", indicating a problem with the data from suppliers. The audit
showed that only 30% of this data is correct (there are no errors in the name of the goods, dates, cargo sizes, bills, etc.).
Before the introduction of the new ERP system, problems related to inaccuracy of data were solved on the spot or simply ignored. For example, back in 2012, Target had serious problems with cargo transportation:
- containers were not completely filled or the goods did not fit in them;
- the list of sent goods did not match the list of orders;
- the cargo arrived at the wrong address or was significantly delayed;
- and much more.
The company constantly experienced serious problems with logistics
, against which the management decided to launch an aggressive expansion of the Canadian market and at the same time integrate the new ERP system
. This is really the “greatest failure” in making management decisions.
Tip. Target experience says that before you run a project to develop and implement ERP, you need to solve the old problems of your business. And this is especially important if they concern to processes related to ERP processes.
In order not to go on the path of Target, before starting the development, think about such questions:
- Do you have problems with logistics (delivery of goods)?
- How often do you do random testing of reports and important data?
- How accurate is the data you use when planning business processes and making decisions?
4. PG&E and “nobody’s” personal customer data
. In 2016, Chris Vickery, a risk analyst at UpGuard (an Australian cyber-resistance startup company), discovered an open database on the network for the ERP system
Pacific Gas & Electric Corp (PG&E), which contained information on 47,000 computers, servers, virtual machines and other company devices. It was a big scandal, because, according to the rules of the US Department of Homeland Security, electric power companies are part of the country's critical infrastructure.
PG&E failed to prevent data leakage, which threatened US security
After detecting a leak, PG&E first tried to blame the suppliers, then they said that it was “fake” data generated for ERP testing
, but in the end they still recognized the authenticity of the information. An investigation showed that the database hit the network
during the deployment of the asset management system: "The third-party supplier was provided with operational data of the company to fill in the "demonstration" database and test its work in actual manufacturing practice".
It’s unclear how a “demo” database got into the network. Chris Vickery believes that PG&E failed to protect the system during deployment or made negligence in granting access to information, which was used by hackers or simply curious individuals.
Tip. The history of the leakage of the PG&E database teaches us to treat production data responsibly. This is a valuable resource, the protection of which must be approached with the utmost responsibility, even if you transfer it to partners or service providers. In the case of PG&E, the best solution would be to use “fake” data (as they claimed), since transferring it to third parties does not pose any threat to you and your customers.
5. Nike and catastrophic forecasting error
Failure anatomy. In February 2000, Nike shares collapsed by 20%, and the company lost 100 million lost profits due to an error in the ERP platform forecasting system developed by i2 Technologies. Nike paid $ 400 million for this software.
Market response statement from Nike about problems with ERP
When Nike discovered the problem, they first stated that the supply chain management system
developed by i2 Technologies led to excessive inventory and delayed orders, which in turn led to lower profits (as we can see from past examples, partner accusations are a common occurrence in failures with the introduction of ERP). The statement led to a drop in stock prices of Nike and i2 Technologies.
The software company analyzed the software, found no errors, and sued Nike. Later it turned out that Nike’s management was not sufficiently trained in how to use the system, because of which an incorrect forecast was created at the level of factory orders. Then, according to Roland Wolfram, Nike's vice president of global operations and technology (2004), this “ripple” of inaccuracies spread to the supply chain and caused a large “wave” of inaccuracies.
Tip. From Nike's experience, you need to get two things:
- The first is to be responsible for the training of personnel who will use the system, regardless of its level of importance to the company. At Nike, the mistake was at a rather low level in the hierarchical management structure of the company, but it was able to do harm for hundreds of millions of dollars (direct losses + stock crashes + reputation losses).
- The second is not to blame the technical partner for failure without weighty evidence. Otherwise, you can receive in response multimillion-dollar claims for the destruction of someone else's reputation.
An important point in the history of Nike is the fact that the company recognized the error, found the problem and eliminated it. And with that not abandoned software i2 Technologies.
6. HP and the "perfect storm" of problems
. When in 2004 the American division of HP decided to switch to a new ERP system
, its management knew everything about this process - under belt of the head of the project Cristina Hanger there were five such iterations. HP prepared an emergency plan and were prepared to reduce system performance and reduce sales. However, this did not help them - the company lost $ 400 million due to an unfortunate set of circumstances.