ERP cost and time overruns force AU company into restructure

Troubled metals and plumbing company the Crane Group has written down the carrying value of a new PeopleSoft enterprise resource planning system by AU$28.8 million due to "significant cost and time overruns" and is considering a claim against the vendor.

Troubled metals and plumbing company the Crane Group has written down the carrying value of a new PeopleSoft enterprise resource planning system by AU$28.8 million due to "significant cost and time overruns" and is considering a claim against the vendor.

In a strategic review document released to the Australian Stock Exchange today, the Crane Group said adjustments to the carrying value of the system "will result in a written-down book value of deferred expenditure related to the system at 30 June 2004 of approximately AU$48 million".

The company blamed the enterprise resource planning system difficulties for the underperformance of its Tradelink plumbing supplies stores.

"While Tradelink has a sound market position in an attractive industry, its financial performance, albeit on the back of the disruption caused by the ERP system rollout, is significantly lower than the industry standard and thus unacceptable," it said.

The Crane Group's managing director, Greg Sedgwick, also said the company's information technology department had been rationalised under one chief information officer, while significant savings would be derived from downsizing the department by 30 people following completion of the enterprise resource planning deployment.

Sedgwick told wire services implementation of the system, which kicked off four years ago, was meant to have been completed within two years. Instead, it caused immense difficulties and distracted management from doing their jobs well.

However, to date, all 42 of the company's manufacturing and warehousing sites are live on the system, as well as 207 of 230 trade outlets. The last trade outlet is expected to go live next month.

The Crane Group said operating costs of the information technology system, including depreciation and amortisation, were expected to rise by AU$15 million for the year ended 30 June 2005.

However, the group said despite the problems encountered in rolling out the system -- formerly a JD Edwards product before the vendor's acquisition by PeopleSoft -- "the underlying rationale for the implementation of the new system remains valid".

More than 380 jobs will go across several divisions under the rationalisation, which is expected to cost the company AU$51.4 million after tax.

The then managing director of JD Edwards Australia and New Zealand, Ian Hodge, touted the Crane Group win in November 2002 as an example of how the company was capturing market share by taking from the higher-end at the expense of Oracle and SAP.