Chemical industry giant ICI has demonstrated in spectacular fashion the consequences of a botched software implementation.
A profits warning from the company, that yesterday resulted in a 39% drop in its share price, blamed major problems with the implementation of an SAP supply chain management package at Quest, its Netherlands-based flavours and fragrances business unit.
The supply chain project, known as Q-Star, went live at four sites in the Netherlands in May 2002, but encountered major problems from the outset. Most seriously, staff using the system had difficulty locating raw materials and thus struggled to fulfil orders, leading to a huge backlog.
Although ICI said last autumn that the software problems with the year-long implementation system had been “substantially eliminated”, it revealed yesterday that some of Quest’s largest customers had now defected to competitors as a result of poor order fulfilment.
Last month, ICI said it wrote off £20 million over 2002 as a result of the problems, and before yesterday’s profits warning it had made provision for a further £5 million to be written off this year. Earlier, the company also said that it had deferred the implementation of a restructuring and cost-saving programme following problems with deployment of the supply chain system.
The departure of Quest chief executive, Paul Dreschler, shows where ICI thinks responsibility lies for such systems implementation failures. Quest had revenues of $716 million in 2002.
The fall in ICI’s market capitalisation, which was also triggered by warnings of trouble elsewhere at them company, means that it is no longer one of the top 100 largest companies listed on the London Stock Exchange, putting in jeopardy its place in the FTSE 100.