Getting ready for the year 2000 was a prime driver behind a Baan ERP implementation by Miller Industries Inc., a manufacturer of towing and recovery equipment in Chattanooga, Tenn. The company met its January 1998 deadline for the project, but in August reported a $3.5 million operating loss for the fourth quarter of 1999, ended April 30. It attributes the loss in part to costs and inefficiencies resulting from the new system.

CIO Lance St. Clair says the unexpected costs resulted from hiring additional staff to support a change in the production process imposed by the Baan software, and outsourcing part of its business to focus its operations running on Baan. "It takes a while to get everyone used to doing things a new way," he says.

Other companies aren't so forgiving. Allied Waste Industries Inc., a waste-management company in Scottsdale, Ariz., is throwing out a $130 million SAP installation it inherited with the recent acquisition of Houston's Browning-Ferris Industries Inc. David Hunts, director of MIS at Allied Waste, says the cost of maintaining the software and the constraints it put on his business couldn't be justified. "It looked like it wasn't going to bear fruit," he says. Allied Waste will transfer Browning Ferris to its Infinium ERP system over the next few months.

SAP customer W.W. Grainger Inc. in Lake Forest, Ill., also reported losses caused by bugs in newly its installed ERP package. In October, Grainger, a $4.3 billion distributor of maintenance, repair, and operating supplies and services, reported that net earnings for the third quarter, ended Sept. 30, were down 18%. CEO Richard Keyser says service disruptions caused by the company's transition to the new enterprise system accounted for an $11 million reduction in operating earnings.

Analysts suspect looming Y2K deadlines have been a factor in many troubled ERP projects. Y2K "may cause implementation teams to rush what they would have done more gradually," says Jim Shepherd, VP of research at AMR Research.

That was the case at the University of Utah in Salt Lake City, which had to prepare its systems for Y2K as well as a conversion from a quarter- to a semester-based calendar. The university is still working out problems with its PeopleSoft reporting and payroll systems. "Whenever you do an ERP implementation, especially in a compressed time frame, you're going to have glitches to work out," says Joe Taylor, director of administrative computing services for the university.

Software vendors should set realistic expectations for their products' capabilities and requirements, Taylor says--but that concept is often at odds with sales objectives. The university is still waiting for data warehouse and analysis tools PeopleSoft promised but has not delivered. "Did they tell us the software can do things it doesn't? Yes, they did," Taylor says. "But you have to realize when you're talking to a vendor that they're in a sales mode."

What's more, as they face stiff competition on the E-commerce, supply-chain, and customer-relationship management front, ERP vendors are rushing new products and releases out the door, says Dave Stein, an independent software sales consultant. He's concerned that many new products may not go through proper steps of quality control, beta testing, and consultant training. "The faster this stuff comes out, the worse it will be for those buying it," he says.

But Byron Miller, an analyst at Giga Information Group, says ERP projects involve changing the way a company works--and the company has to be responsible for doing that. "Unless a vendor materially misrepresents itself or its product," he says, "let the buyer beware."

Photo by Reed Rahn