ERP Woes Hit Grainger Again

For the third straight quarter, Chicago-based W.W.

Grainger Inc. expects problems related to the installation of a new SAP R/3 system to put a big damper on its earnings.

Grainger, a $4.3 billion company that sells manufacturing supplies and spare parts, said Friday that its profits for the fourth quarter of last year could be as much as 45% below Wall Street's average expectation of about $50 million.

The big culprit continues to be an enterprise resource planning (ERP) system based on SAP AG's R/3 software. Problems with the system, which was turned on last spring, already cost Grainger $19 million in lost sales and $23 million in reduced earnings in the second and third quarters of 1999.

As of Dec. 31, Grainger officials said, a physical count of inventory showed that the ERP software was counting more products than were actually on hand in its six warehouses.

That problem will affect fourth-quarter earnings, and Grainger said salary and employee benefit costs were also higher than expected as a result of costs associated with installing the ERP system and doing the inventory count.

David Dobrin, an analyst at Benchmarking Partners Inc. in Cambridge, Mass., said installing an ERP system can be an especially thorny task for a company such as Grainger.

"They have an extremely complicated business model and lots of [facilities]," said Dobrin. "It's the sort of thing that puts a lot of pressure on anybody's ERP system, not just SAP's."

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