Mattress maker can no longer spring for SAP roll-out

With the economy presently being the pits nearly everywhere you look, many folks are warily eying the IT sector for signs of disaster.

Will IT spending take further hits in 2009? An announcement today from the US-based mattress maker Select Comfort could be a sign of tech spending on the chopping board – but it also could just be another case of an enterprise software adoption gone out of control.

Select Comfort has announced a new cost-cutting scheme that includes a complete freeze of its SAP Enterprise Resource Planning (ERP) software roll-out, as well as laying off approximately 120 workers.

The company blames the need for reductions on "further slowing of sales after Thanksgiving and in anticipation of continued macro-economic challenges in 2009." The move is expected to save $15m annually beginning in the first quarter next year, the company said.

But according to letters sent to the Select Comfort's board of directors by a major shareholder, New York-based investment firm Clinton Group, the SAP implementation had been a burden on the company for some time. The filings were first spotted by Computerworld.

A Clinton Group letter filed by the US Securities and Exchange Comission dated March 6, 2008 claims the SAP system installation "is behind schedule and is significantly over running its original cost estimates"

The investment firm estimated Select Comfort had already spent $12m on the SAP implementation and expected to spend another $8m in 2008.

"It is difficult for us to envision, given the size of the Company, that the Company should ever achieve costs savings to justify such a large expense," the firm wrote.

Clinton Group called for Select Comfort to cease all spending on the SAP installation until the IT needs of the company could be reviewed by a independent consultant.

Another letter dated June 23 goes into more detail on why the Clinton Group claims Select Comfort's IT adoption was running afoul.

"Select Comfort's plan to continue on with the SAP implementation, particularly using internal resources rather than qualified external consultants, is a waste of resources and puts the entire company's operations at risk from a poor implementation," the letter stated.

"Implementing an enterprise software system is challenging for any company, even when using qualified experienced outside consultants. 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."

The letter added that Select Comfort never said why it needs even to spend the cash on a enterprise software system.

Select Comfort claims to employ about 2,500 people total in the US, with manufacturing and distribution facilities in South Carolina and Utah. Earlier filings with the SEC indicate the company planned to roll-out a full suite of SAP applications, including Enterprise Resource Planning (ERP), Supply Chain Management (SCM), Customer Relationship Management (CRM) and others. It had originally planned for the project to be complete in the first half of fiscal 2008.

But with sales drying up – the company apparently had no choice but to bow to shareholder pressure.

Economic downturn aside, enterprise software roll-outs often come with a substantial sticker-shock if a company doesn't appreciate the complexity. Escalating costs of an ERP installation was largely blamed by jean giant Levi Strauss for its second quarter net income dropping 98 per cent.

HP has blamed fiscal bombshells on SAP implementation as well. ®