Building products company halts SAP project, citing strategy shift

A major new ERP system doesn't make sense anymore, according to Quanex's CEO

Building products manufacturer Quanex has stopped the rollout of an SAP ERP (enterprise resource planning) implementation, but due to a shift in corporate strategy rather than major problems with the software.

In its fourth quarter ended Oct. 31, Quanex recognized roughly US$15 million in depreciation related to the implementation, which has now ceased, according to the company's earnings announcement Wednesday.

But stopping the project will allow Quanex to pursue different business opportunities that weren't available at the time it started three years ago, according to CEO William Griffiths, who was named to the post in July after serving on Quanex's board since 2009.

The original intent of the project was to centralize operations in order to focus on selling window parts to 1,000 regional window manufacturers, Griffiths told analysts during Quanex's third-quarter earnings call in September.

While that seemed like "the right strategy at the right time," and it made sense to centralize sales, marketing and back office functionality, "implementing a single corporate-wide manufacturing system has turned out to be significantly more expensive and complex than anticipated, and is no longer as necessary as originally contemplated," Griffiths said.

Today, Quanex has a "much larger opportunity" through partnering with 50 of the largest window manufacturers instead, according to Griffiths.

But Quanex needs to free up capital in order to do so, which played "a significant part" in its decision to stop the ERP project, he said.

While Quanex plans to continue using the SAP system for "certain corporate functions," other areas will be rolled back to legacy systems, according to a filing with the U.S. Securities and Exchange Commission on Wednesday.

On the face of it, Quanex's situation can't be labeled a failed project in the classic sense, according to one observer.

"This is a business planning issue," said Michael Krigsman, CEO of consulting firm Asuret and an expert on why IT projects go awry. "It has nothing to do with the technology. Any time a company changes its strategy mid-stream there are going to be mopping-up costs, which is what this is, and if they don't need the capabilities of an elaborate ERP system then they are wise not to continue with it."

Many times, "companies buy an expensive fancy software package, then they get in over their heads and it's more than they need anyway," Krigsman added.

That said, Quanex "had identified limitations in the old system," he said. "Now they're going to have to live with those limitations again."

A Quanex spokeswoman didn't respond to a request for further comment Thursday.

Quanex's decision doesn't necessarily reflect any problems with SAP's software, according to a spokesman.

"We have 250,000 companies that run SAP successfully every day," said SAP spokesman James Dever, who noted that Quanex will continue using SAP in some form. "The fact that it's not news when a project like this starts, but it is news when a project like this stops, shows how rare [a stoppage] is."

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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