SAP project woes impact Ingram Micro's profits

The Australian phase of the global software rollout is not going well

Problems with an SAP software implementation in Australia dragged down technology distributor Ingram Micro's first-quarter profits, the company said this week.

While revenue stood at a record US$8.72 billion for the quarter, net income was $56.3 million, down from $70.3 million in the same quarter last year, a drop "primarily attributable to difficulties transitioning to a new enterprise system in Australia," the company said in a filing with the U.S. Securities and Exchange Commission.

In the second quarter, "remaining transition issues" in Australia "will likely have an impact," the company said.

Despite the SAP project's problems, Ingram Micro stressed its long-term value to the business. "Once the implementation is complete in approximately three years, the new system will bring us greater automation and efficiencies, enhanced service for our customers and partners, better decision-making through richer and quicker data, and the consistent platform required to better operate as a truly global organization," it said.

Ingram began the project more than three years ago, rolling it out in phases around the world, CEO Gregory Spierkel said during a conference call with analysts Thursday. It is replacing a legacy system that was developed in the late 1980s.

The company completed a first phase of the SAP deployment in Singapore in 2009, he said. The system has also been deployed in New Zealand, Indonesia, Chile and Belgium. Those conversions were completed "within our expectations," Spierkel said.

But Australia, which hosts one of Ingram's largest operations, has presented some difficulties due to increased complexity in the existing IT landscape there, he said.

The system problems resulted in delayed orders that hurt sales and profit margins, he said.

Overall, the success of ERP projects depends on how well each of the three usual participants -- vendor, customer and systems integrator -- play their roles.

For example, vendors must provide software that can meet or be adapted to a customer's needs, while customers should budget properly for training and other so-called "change management" activities associated with moving users to the new system. Systems integrators are expected to give customers a realistic set of project timelines, deliver on agreed milestones, and staff the job with well-qualified technicians.

Accenture served as a systems integrator on the SAP project in Australia, according to a published report.

"Ingram Micro is a valued SAP customer, we're strong, positive partners," said SAP spokesman Andy Kendzie. "We're actively engaged with Ingram in completing this implementation. From our perspective, we think it's solidly on track. We remain confident that once it's completed that they will greatly benefit from the system."

Spokespeople for Accenture and Ingram Micro did not immediately respond to requests for comment on Friday.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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