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SAP project halted after shareholder pressure

Chris Kanaracus | Dec. 18, 2008
A mattress maker's decision to halt an ERP project reflects the bleak economic climate.

BOSTON, 17 DECEMBER 2008 - The weak economy has companies of all sizes and types moving to cut costs, and for U.S. bedding manufacturer Select Comfort, those choices have included a decision to halt all work associated with a wide-ranging SAP ERP (enterprise resource planning) project. And documents on file with a government regulator indicate that shareholder pressure may have contributed to the move.

Select Comfort, maker of the "Sleep Number" bed, will also cut 22 percent of its workforce, or about 120 jobs, and combined with other actions under consideration, the moves will save the Minneapolis, Minnesota, company about US$15 million each year, according to a statement.

A company spokeswoman declined to comment further on Wednesday.

Documents on file with the U.S. Securities & Exchange Commission show that Select Comfort planned to implement an integrated suite of SAP applications, including modules for ERP, CRM (customer relationship management), SCM (supply chain management) and many others. The company initially expected the project would be complete during the first half of its fiscal 2008.

"We believe this SAP-based IT architecture ... will provide greater flexibility and functionality for our growing and evolving business model and be less expensive to maintain over the long-term," one filing states in part.

But other SEC filings show that Select Comfort officials had for months been under pressure by a shareholder, the Clinton Group, to spike the project.

In letters to Select Comfort's board, the Clinton Group characterizes the ERP implementation as significantly over budget and behind schedule, and the company's leadership as reckless.

"We believe that spending on the SAP system installation should be deferred until an expeditious detailed review of information technology needs is undertaken and completed by an independent consultant, particularly in light of the departure of the Company's Chief Information Officer," states a letter dated March 6.

The Clinton Group also said Select Comfort spent $12 million on the implementation in 2007 and "anticipates spending another $8 million in 2008, assuming no additional costs. ... It is difficult for us to envision, given the size of the Company, that the Company could ever achieve cost savings to justify such a large expense."

"Select Comfort's plan to continue with the implementation using internal resources that have at best limited experience implementing a new enterprise software system is indicative of extremely poor judgment by management," states a letter sent by the Clinton Group in June. "Select Comfort's management has never articulated why it needs to spend tens of millions of dollars on implementing an enterprise software system, and given Select Comfort's financial performance the implementation should cease immediately."

While Select Comfort's statement did not rule out the possibility it would revive the implementation, unfinished ERP projects are "more common than you might think and more common than [they] should be," said Frank Scavo, managing partner of Strativa, an IT consulting firm in Irvine, California.

 

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