Nash Finch Co., one of the first users to buy a version of SAP R/3 forretailers, last month shelved most of its US$76 million project after development delays made it impossible to install the software in time for the year 2000.

Instead, the Minneapolis-based food wholesaler and supermarket operator, which has already spent about $50 million on the project, is launching a crash program to do a year 2000 fix on the mainframe applications that SAP AG's SAP Retail software was supposed to replace.

Bruce Cross, who became Nash Finch's new CIO just six weeks ago, said the company plans to revive the SAP Retail project in early 2000. But it is "impossible to say" when the software could go into use, he said. Cross added that Nash Finch may start over with a newer R/3 release.

Nash Finch was working jointly on the project with consultants from both SAP and Ernst & Young LLP. Cross wouldn't say what bogged down the development work, and Nash Finch corporate spokesman Norman Soland blamed it simply on "testing and programming delays."

MARKETWIDE ISSUE

The problems at Nash Finch are indicative of the difficulties retailers can face when they try to implement R/3 and other enterprise resource planning (ERP) applications that were developed with manufacturers in mind, analysts said.

When work on the project began, the functionality needed by a food distributor and retailer "didn't really exist" in SAP Retail, Soland said. "It was something that was being created [as part of the project]."

Nash Finch planned to start rolling out the retail software in September, but Cross said the schedule slipped first to next June and then into 2000. Even managing to get some sites up and running next year "wouldn't have solved our year 2000 problem," he added. "It was all or nothing."

SAP Retail was released in the U.S. 18 months ago. But only two U.S. companies -- Reebok International Ltd. and MJDesigns Inc., a Coppell, Texas, chain of arts and crafts stores -- have the software in production at this point. And both turned it on only in the past two months.

Reebok did ask SAP to make changes in the software to fit its needs, "but everything we needed for going live got done," said Peter Burrows, chief technology officer at the Stoughton, Massachusetts, footwear maker. "And compared with other things we've done, we didn't really see [this project] as thatchallenging."

The grocery business is especially complex, and Reebok and MJDesigns are both using a more advanced version of R/3 than Nash Finch was working with.

But Andy Laudato, director of systems development at Jo-Ann Stores Inc. in Hudson, Ohio, said SAP Retail still can't fully handle important retail tasks such as auditing store sales and changing the prices of entire product categories in one fell swoop.

"Where retail and manufacturing functionality overlap, [SAP Retail] is very strong," Laudato said. "But in areas that are specific to retail, it just doesn't have depth."

Jo-Ann Stores intends to replace most of its mainframe-based retail systems with SAP Retail next June as part of a US$30 million R/3 rollout. However, the chain of fabric and craft stores may have to hook in other applications to fill SAP's gaps, Laudato said. It also is continuing with a year 2000 fix on the mainframe side in case the SAP Retail project runs into snags.

UPHILL BATTLE

Winning the trust of retailers "has been very, very slow for SAP," said David Dobrin, an analyst at Benchmarking Partners Inc. in Cambridge, Massachusetts. "It's just a different set of problems than R/3 is used to dealing with." Rivals such as PeopleSoft Inc. and Baan Co. was trying to avoid the kind of headaches SAP is having by teaming up with retail software vendors, he added.

SAP America Inc. executives responsible for the Newtown Square, Pennsylvania-based company's retail program weren't available for comment by press time. Nash Finch is using SAP's finance applications and still plans to roll those out to more business units, Cross said. But SAP Retail is the centerpiece of the project, which was described in Nash Finch's 1997 10-K financial disclosure form as "a major strategic investment for the company's future."

In addition to relieving the $4.4 billion company of the need to invest in a year 2000 fix, SAP Retail was expected to deliver business and competitive benefits such as improved efficiency and data analysis.

"We obviously had some hard-dollar benefits in mind," Cross said. "But the bottom line is that we have to make sure we are year 2000-compliant."

More than 100 Nash Finch employees were working on the SAP project. Only a small number will be left to evaluate SAP's upcoming R/3 4.5 release and to continue the finance rollout, Cross said. Most of the others will be shifted to work on the year 2000 program, which is expected to require 125 internal workers and contractors.

Cross said Nash Finch is still assessing how much the year 2000 fix will cost. Coding and testing are scheduled to be finished next April and October, respectively. Company executives are "very confident we're going to make it without a problem," Cross said.

(Post Script: At least one Australian company is running into similar implementation problems with the SAP R/3 retail module. Their plight is not being helped by having error messages which occassionally pop up in German. - Ed)