Wine Society SAP project runs over by $1million

The troubled SAP R/3 implementation at The Wine Society has finally been completed, but not before it cost the organisation more than $1 million in unforeseen expenses, Computerworld has learnt.

According to a copy of its 1998/99 annual report, obtained by Computerworld, The Wine Society incurred "unanticipated expenses" of $740,000 relating to "computer induced business restrictions, fixes and manual workarounds" in the last financial year.

The report also stated $391,000 was spent on a "contractual settlement with legal expenses" and $232,000 on "investigating accountants and a management restructure", both of which are understood to have stemmed from issues relating to the R/3 implementation.

As Computerworld reported exclusively ("Grapes of wrath sour user's view of SAP R/3", CW March 19, p1), The Wine Society earlier this year faced a member backlash over inappropriate billings, invoicing problems, deliveries and other continuing dilemmas arising from the new system, which had been installed with the help of the Accelerated SAP template, a service designed to fast-track SAP's lengthy implementation times.

Problems with the project directly hit the Wine Society's bottom line, with revenue for 1998/99 totalling $30.8 million, down from $32.5 million in 1997/98.

"The Society experienced significant trading losses in the latter part of 1998 as a result of serious difficulties with our new and costly systems implementation," Steven Jarvie, chairman of The Wine Society, commented in the annual report.

"The business was wound back so the system could be introduced with as little disturbance as possible.

"Nonetheless, costs were being incurred but on smaller business activity and thus a smaller revenue base."

Geoff Loraway, chairman of The Wine Society's audit committee, said in the annual report: "Following and arising from [an accountant's] investigation, the committee recommended the board make changes in management, reforms to operational methodologies and processes, and to the computer information systems."

Jarvie stated in the report the R/3 system is now working and the "necessary cultural change has been effected".

However, The Wine Society is bracing itself for the possibility of future financial implications.

The annual report highlights a fourth unanticipated expense resulting from the R/3 project -- dubbed "disaffection of members and loss of their future business, cost of stabilising the membership" -- which it warns could cost the organisation "a very large number of dollars".

It is, according to the report, "the serious hurt; the most expensive and least tangible" cost.

Helen Mair, alliance director at SAP Australia, told Computerworld the vendor's relationship with The Wine Society is "fine" and it expects to maintain a good working association.

Wine Society executives declined to comment further before press time.

The Wine Society 1998/99 in brief

Trading results $30.8m sales

Unanticipated expenses:

Computer induced business restrictions,

fixes manual work-arounds $740,000

Contracted settlement with legal expenses $391,000Investigating accountants and management restructure $232,000Restriction of business due to April storm damage, (subject to insurance claims) $200,000Disaffection of members and loss of their future business, cost of stabilising the membership base $$ a very large numberSource: The Wine Society 1998/99 Annual Report

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