Lidl cancels SAP introduction having sunk €500 million into it
Disruptive discount grocery brand Lidl has made an uncharacteristic misfire, shelving a seven year project to introduce SAP to its business. The attempts wasted an estimated €500 million, with Lidl now looking to revive its old system.
In recent years, German supermarket groups Aldi and Lidl have emerged as major threats to the previously untouchable market leaders of the grocery scene, with their discounted prices and quality goods appealing to consumers in the UK whose stagnating wages demand they do more with less. As a result, so many customers have invested into the budget supermarkets as opposed to the 'big four' – consisting of the more mainstream supermarkets Tesco, Sainsbury's, Morrisons and Asda – that those long-time market incumbents have either been forced into stringent cost-cutting measures, or surprise merger talks to preserve profits.
While the duo have often leveraged innovative and sustainable business practices, as well as slashing prices, to eat into the market share of top brands, however, Lidl in particular has made headlines for lagging behind in the race to digitise its back office procedures. Following a protracted attempt to complete an SAP introduction project, Lidl called time on the procedure, having already spent €500 million on it, though neither Lidl nor SAP have issued comment to confirm that number as of yet. If it is indeed accurate, then the cost will have been similar to another similarly incurred by Deutche Post - DHL for another failed SAP implementation in 2015.
SAP SE is a German-based European multinational software corporation that makes enterprise software to manage business operations and customer relations, and the project was reportedly intended to be a grand, transformative change for Lidl, as well as the biggest in the chain’s history, but with Lidl and German software giant SAP both being leaders in their respective fields, on paper, it looked set to succeed. In April 2017, SAP even awarded Lidl – which has close to €100 billion in annual revenues – a prize for being one of their best customers. The eLWIS (pronounced like Elvis in German) system, in planning since 2011, quickly lost its lustre however, as roughly 1,000 staff and hundreds of consultants implemented a new company-wide system for inventory control, the price quickly spiralled beyond the two groups’ estimations.
By May 2017, Lidl’s head of IT, Alexander Sonnenmoser, had left, and in July this year, eLWIS was finally halted. Now, Lidl intends to revert to its old inventory system, an embarrassing change of course. One company insider told German business paper Handelsblatt, “We are practically starting from scratch.”
The trouble for eLWIS began when SAP came up against the issue that unlike many of their competitors, Lidl based its inventory management system on purchase prices. The standard SAP for Retail software uses retail prices, and fearing the group could lose a competitive edge by compromising, Lidl declined to change, so the software was instead adapted. As this and several other accommodations had to be made, performance fell and costs rose.
Lessons to learn
According to a letter to staff from Lidl boss Jesper Hoyer, “The strategic goals as originally defined were not possible at an acceptable expense.”
On the other hand, suggests Jean-Claude Flury, an IT manager who works in the pharmaceuticals branch and also heads a SAP-user group, DSAG, which includes more than 3,300 SAP clients told the press, “If a company wants to use the standard software, it has to adapt its own processes,” perhaps suggesting the fault rests with a client unwilling to change.
Elsewhere, Andrea Cravero, an ERP, SCM & EPM Sales Consulting Senior Director of SAP’s ERP rival Oracle, took to his LinkedIn to suggest that there were at least two lessons to be learned from the failed project. He said, “An ERP implementation cannot last seven years. The pace of change has accelerated in many industries, retail and disrtibution is not immune. ERP Systems have to cope with the pace of change. Customisations should be avoided as far as possible, leveraging built-in best practices that are now part of modern ERP Cloud Systems.”
Secondly, Cravero added, “Now Lidl apparently wants to revive his old system… This sounds very odd to me. I would not base a digital transformation program on an on-premise, legacy solution conceived a long time ago. New technologies such as artificial intelligence, robotic process automation, conversational interfaces, block-chain are disrupting the application landscape and will guarantee a competitive advantage to the early adopters.”
A number of retail and consumer companies have tapped consulting firms to aid their SAP implementation schemes in recent years. Earlier in 2018, US chocolatier Hershey’s hired Accenture to assist its SAP roll out, while in 2016, Indian grocery group Bharti similarly looked to the consulting world for help, among a number of other cases.
