Botched SAP system rollout haunts Spar
The botched upgrade of SAP’s enterprise resource planning (ERP) system at Spar’s KwaZuluNatal distribution centre, which wiped off millions of rand in profit in 2023, still troubles the company, a year after its rollout.
In a trading update on Wednesday, the retail group said that while the system was functioning as designed, the group’s ability to predict demand and manage availability of stock was not yet optimal.
“The suboptimal use of the system is impacting margin and exaggerating costs for this region. The group has performed a thorough reassessment of the SAP project over the past six months which involved stabilising the KwaZulu-Natal implementation, reassessing the warehouse management system and whether it is fit for purpose and reviewing how the system can continue to be rolled out at a significantly reduced risk level,” the company said of the system that went live in February 2023.
“This will include separating the ERP from the warehouse system and implementing them independently.”
In December, Business Day reported that three directors at Spar ignored a whistle-blower’s concerns about the botched rollout of SAP software. That failure to heed the warning saw the company lose out on R1.6bn in sales and about R720m in profit for the year to end-September, The SAP system was introduced in Spar’s biggest region of KwaZulu-Natal, causing major disruptions to the supply chain, forcing retailers to order directly from individual suppliers instead of using the software. Spar also had to spend extra on servicing KwaZulu-Natal from warehouses in other provinces.
The group’s trading update shows its revenue increased 9.3% in the 20 weeks ended February 16, with the company’s liquor and pharmaceutical business registering doubledigit growth.
Spar’s Polish business, which is up for sale, reported growth of 16.1% in revenue, while the Ireland and South West England business reported 19.1% growth.
The group said it was making progress in disposing of the business in Poland and was negotiating “the best possible outcome for all stakeholders”. Proceeds from the sale upon its conclusion will come in handy in reducing the group’s gearing.
“The group is considering various debt structuring options. An optimised debt structure is largely dependent on the outcome of the disposal of the group’s interests in Spar Poland. All financiers continue to remain supportive, and the group does not intend to raise any capital from shareholders.”
In 2023, Spar withheld paying a dividend after increasing debt led it to breaching banking covenants.