NetSuite socked with lawsuit by textile manufacturer

It's the second customer lawsuit filed against the cloud ERP vendor within the past few months

NetSuite has been hit with another customer lawsuit, this time from textile products manufacturer Kentwool, which alleges the cloud ERP vendor pulled the wool over its eyes in order to take its money.

In March 2014, Kentwool signed a one-year contract with NetSuite, under which the vendor would "customize, configure and implement its ERP [enterprise-resource-planning] software for Kentwool's specific needs and uses," according to the complaint filed last week in U.S. District Court for the District of South Carolina.

NetSuite told Kentwool, which makes socks and other products, that it could tie together the company's manufacturing, inventory, purchasing, financial, sales and shipping operations "into a single platform," the complaint states.

Before inking the contract, Kentwool had a number of meetings with NetSuite, during which company officials said its software was "fully capable" of serving Kentwool's needs, according to the complaint.

"More specifically, NetSuite represented to Kentwool that 'NetSuite is a complete solution for manufacturing organizationsthat require inventory management with dynamic replenishment, production planning, warehouse management, financial accounting and costing, customer and partner relationship management, and e-commerce,'" the complaint adds.

Kentwool relied on these pledges when it decided to sign the contract, but all the while NetSuite knew its software didn't have the functionality required to live up to the deal, the complaint adds.

A NetSuite project manager assigned to the Kentwool project even told the company that after an early sales meeting, he had "expressed doubt to his colleagues" that NetSuite could deliver, the lawsuit claims.

Meanwhile, NetSuite also told Kentwool the project would be completed by around Oct. 1, 2013, but that was not to be, according to the complaint: "The software failed, and continues to fail, to operate as originally represented by NetSuite."

For example, "order approvals, an integral part of the purchase order and procurement functions of the software, were easily thwarted by simply entering transactions for a low dollar amount and then amending the order to amounts in excess of the approval limits selected by Kentwool," the complaint adds.

NetSuite told Kentwool it could fix the problems, but allegedly failed to do so. Kentwool ended up paying US$318,000 to NetSuite, "well in excess" of the original estimate of $246,000, according to the complaint.

In December, Kentwool President Mark Kent wrote to the company expressing concerns about the software and demanding a remedy, the complaint adds. NetSuite responded with a revised statement of work that proposed charging Kentwool another $216,000. The vendor also asked the implementation period be extended to May of this year.

Kentwool then decided to terminate its agreement with NetSuite and ask for a full refund, according to the complaint.

Kent subsequently was contacted by NetSuite vice president Roman Bukary, whom he asked for a money-back guarantee from NetSuite if the project was to resume. Bukary declined to do so, citing SAS (Statements on Auditing Standards) rules against doing so. "Upon information and belief, no such limitations exist," according to Kentwool's complaint.

NetSuite didn't immediately respond to requests for comment on Tuesday. Kentwool's suit is the second filed within a few months against the company for allegedly faulty implementations, following skin care product retailer SkinMedix's action in May.

While aggrieved, Kentwool itself may not have done enough to protect itself, according to a number of industry analysts.

"Kentwool repeatedly says that it relied upon NetSuite's representations of what its system could do," said analyst Frank Scavo, managing partner of IT consulting firm Strativa. "But vendors can be tempted to over-promise during the sales cycle. So it's dangerous to take the vendor's word for anything. You have to do your own reference checks to confirm what the vendor is saying."

However, cloud-based software like NetSuite receives continuous improvements, said Ray Wang, founder and chairman of Constellation Research. That means it's also important to understand what may be on the vendor's near and long-term road maps, he said.

What needs to happen is an industry push to avoid these types of customer complaints, in Scavo's view.

"There are still too many lawsuits involving ERP vendors," he said. "In manufacturing, there's a philosophy called 'zero inventory.' Maybe software vendors should have a philosophy of 'zero lawsuits.' Look at all the reasons you are getting sued and do something to address the core problems. There'd be a huge return on investment for a program like that."

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

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Tags enterprise resource planninglegalsoftwareapplicationsnetsuiteCivil lawsuits

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Chris Kanaracus

IDG News Service
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