Risky business: bold R/3 effort by Aerosoles

A hot, $150 million shoe company embarks on an ERP adventure.

Many of the profiles of application implementations published by most trade publications begin with a vendor or public relations staff providing to reporters and editors the names and telephone numbers of happy customers. While PlugIn Datamation attempts to uncover the full story about these companies and their completed projects, it is rare that any publication gets the insider view of an implementation before it is completed.

This story is different. The CIO of AeroGroup International, a shoe company in Edison, N.J., contacted PlugIn Datamation earlier this year with a unique offer. The company had just decided to implement the R/3 suite of enterprise resource planning applications from SAP AG of Walldorf, Germany, and invited PlugIn to chronicle its experience as a guidepost to others.


Executive Diary
We jumped at the opportunity. PlugIn Datamation will provide a diary of the executive decision-making by AeroGroup's CEO and other senior managers who will be deciding whether to buy or build, what to buy, how to implement it, and lessons learned. Live, as it happens.

Watch for upcoming entries in the executive diary. And if you want this type of exposure for your application implementation, please contact Larry Marion at lmarion@datamation.cahners.com, 617-558-4612.



Jules Schneider is nothing if not blunt.


AeroGroup's management team: (left to right) Jeffrey Zonenshine, CIO; Jules Schneider, CEO; and Richard Morris, executive VP for IT.
Photo: James Leynse/ SABA
Seated in a conference room among the noisy, carton-jammed offices in Edison, N.J., the chief executive of AeroGroup International, whose principle brand is Aerosoles, is quick to identify one of the glaring flaws in the creaky, outdated software that runs the shoemaker's operations.

"It's centralized on how Jules wants to do things," he says flatly.

Trouble is, Schneider isn't alone anymore. Over the last decade, he has grown the business from $7 million to $120 million last year, and redefined the once stodgy market for comfort shoes. Dazzled by Aerosoles' hip stylishness and $40-a-pair price tag, shoppers are expected to slip on $150 million worth of the brand's loafers, sandals, and pumps this year, up 25% from 1997 revenues.

Few CEOs would so readily dropkick a legacy system they had spent years personalizing. But Schneider, a former accountant who knows when to cut his losses, says this is one of those times. Having weathered a difficult 1997--with bungles in order entry and warehousing that were partly due to IT limitations--Aerosoles is priming itself to step into the big time.

The next 18 months are crucial for the company and its IT systems. Schneider has hired a new management team to help him take the company public. But investment bankers and institutional investors require reliable financials--something Aerosoles lacks. The solution? Implementing an enterprise resource planning (ERP) system that includes integrated modules for finance, sales and marketing, inventory, and other departments.

Schneider is aware of the risks of an ERP installation. The projects are notorious for draining corporate resources and funds. Implementing the tricky software with a new management team while preparing for an initial public offering is a potent challenge. Less politic observers might call it crazy. But Aerosoles was built on risky ideas. Over the next year, this project will either launch the company into the next century (on the road to $500 million in revenues by 2003) or capsize it.

The soul of aerosoles


Aerosoles' CEO Jules Schneider says, "We don't spend a lot money on anything but the shoes. This [ERP implementation] is a big deal for us."
In 1979, the shoe business was the furthest thing from Jules Schneider's mind. At 28, he was content and challenged by his work as a CPA and consultant for what was then the Big Eight accounting firm Touche Ross. One day he was dispatched from the firm's Manhattan office to Stamford, Conn., to build all-manual financial and operational systems for a start-up shoemaker. Schneider became intrigued by the charged atmosphere at the new company. He jumped at the client's offer to run the new systems.

Around that time, the shoe business crackled with a split that would carry it through the next two decades. Casual and rugged brands like Bass and Timberland appeared, and newcomers Reebok and Nike started to hit the stores with footwear that had once been called sneakers. As the athletic shoe business roared to life, shoemakers specialized in either fashion or athletic footwear.

Schneider's new employer, Fisher Camuto, was firmly in the fashion camp. It reaped $8 million in sales in its first year and quickly became a leader in the field. In five years there, Schneider rose from general manager to executive vice president of the company's newest division, Nine West.

In 1983, Schneider left the company after a difference of opinion over his role at the new division. Today, Nine West Group is a $1.3-billion powerhouse in women's fashion footwear, snagging a 35% market share. Schneider's leaving "was the kind of thing that dopey 33-year-olds go through," he says, adding, "growth brings on changes that are sometimes painful."

AT A GLANCE: AeroGroup International

Mission: To become the #1 product-driven footwear company. To sustain 30% growth over the next five years; to record revenues of $500 million; to go public within 12 months.

Principle brand: Aerosoles

Divisions: Women's, men's, private label, catalog, and retail (55 stores)

Main system: Footworks Solution, a 10-year-old proprietary COBOL-based, menu-driven system. It tracks order entry and pricing. It also includes warehouse receiving via a barcode system and an EDI interface.

Network operating system: Novell NetWare 3.12

Financials/general ledger: SBT Accounting Systems

A/R: Outsourced to Atlas Systems

Payroll: Outsourced to ADP

Retail point-of-sale software: Datavantage Store21

Retail back-office software: Retail Automated Merchandising System (RAMS) by Richter Systems, UNIX-based. Runs on Windows NT server in main office. Receives Excelnet feeds from DataVantage.

Future technologies and platforms: Windows NT, Oracle, SAP modules for finance and logistics.

Schneider strode back into the New York shoe scene in 1983 as a divisional head for the new junior footwear line at uber-fashion company Kenneth Cole Productions. But his own evolving ideas of products and brand-building differed sharply from Cole's of-the-moment emphasis and marketing sizzle. In addition, Schneider and a partner in Italy had A Big Idea.

They found a way to take the soft and flexible method used to construct slippers and give it the durability of a shoe. Schneider wanted to continue to hone the idea's and adapt it to other kinds of men and women's shoes. Cole didn't.

In 1987, Schneider solved the conflict. He led a group of investors in a leveraged buyout of Cole's $7-million junior division. The move gave Schneider the runway for his own ideas. Within three years, the new company, then called What's What Inc. was manufacturing the Aerosoles line in Italy, Portugal, Sri Lanka, Brazil, and China. Its shoes began filling the shelves of Nordstrom's, Bloomingdale's, and footwear specialty stores.

Aerosoles' niche was comfort, an edge it achieved through its patented soles. By 1990, the company was ringing up sales of $30 million. That same year, industry weekly "Footwear News" named Schneider Man of the Year. Life was good.

Indeed, by the late 1990s, Aerosoles was enjoying double-digit sales growth each year. Its shoes remained popular. "I wear the 4-Give to work every day," confided a frazzled shoe clerk at Macy's in Braintree, Mass., one Saturday afternoon, referring to the fisherman's sandal. "My daughter just bought a pair, and she loves them."

But Aerosoles' popularity also led to the perils of prosperity. For starters, Schneider, still the lone senior executive at Aerosoles, struggled with maintaining fast growth in a flat market. Shoppers bought just 1% more shoes in 1996 than in 1995. In addition, stores began stocking knock-offs that copied the Aerosole's patented "waffle" bottoms. The company aggressively fought back, filing trademark and patent infringement suits against several manufacturers.

Fancy footwork

While Aerosoles' roster of wholesale customers included big-name retailers like Dillard's and Burdines, its computing systems remained strictly small-company. As they do today. Except for the 1997 addition of Microsoft Exchange for e-mail, Aerosoles' operating systems look the same in 1998 as they did in 1993.

Footworks Solution, a green-screen system written in COBOL more than a decade ago by Comprehensive Computer Services, in New Britain, Conn., watches over order entry and pricing. Running under SCO UNIX on Compaq ProLiant 5000 dual-processor servers, it serves as Aerosoles' backbone.

Each day Footworks cranks out the pending customer orders, and Schneider manually marks the orders to be filled. No snazzy supply chain management software. No optimization. Just Schneider's gut instinct.

Inventory allocation is a delicate science for footwear companies, says Jeff Singer, business development manager for the Apparel Footwear Solution component for SAP America's R/3 package. "With footwear being as seasonal as it is, you have to get the right inventory to the right customer. Jules knows who are the most important and profitable customers. If we could put all of that into the software, he wouldn't have to do that."

Managing wholesalers' returns to Aerosoles is similarly Schneider-centric. When a customer service rep enters a return authorization into Footworks, Schneider signs off on it. With a system that integrates the customer's full order history, sign-off could be handled by customer service.

Most of the 60 employees at Aerosoles' headquarters use Novell NetWare 3.12 to connect to Footworks' UNIX box running terminal emulation software on their Windows95 desktops; other users are stuck with dumb terminals. In catalog processing, about a dozen employees link to the UNIX server via dedicated terminals.

The lean salesforce--seven independent contractors account for 65% of Aerosoles' wholesale orders--makes do with nightly downloads from the main Footworks server. They dial in remotely from home-office PCs and crunch the numbers into Microsoft Excel or Lotus 1-2-3 spreadsheets. As a result, the information they use is always one day behind.

Aerosoles' business has blossomed, however, and so has the magnitude of Footworks' shortcomings. To incorporate electronic data interchange (EDI) into the system, Aerosoles bought the source-code rights and wrote its own EDI capabilities into the system. A barcode scanning system written in 1995 bought the shoemaker some efficiencies in the warehouse it sublets behind its offices. The warehouse staff unloads 25,000 cases each month, typically in batches of three or four deliveries daily. Armed with one of 43 RF (radio-frequency) scanning guns from Intermec Technologies, the staff scans the factory-applied barcode labels on each carton. The guns transmit the data to a warehouse radio receiver that connects through a direct cable to a Footworks server in the main office.

Outgrowing its own shoes

Aerosoles' patching Footworks couldn't continue indefinitely. In 1997, the system failed to handle the load of increased business. "Last year was as tough as anything," Schneider says. Mishandled orders and inventory mismatches plagued the company.

External pressures were intense, too. Retail shoe sales were moribund as shoppers reined in their shoe-buying. In May 1997, a New York district court ruled against much of Aerosoles costly patent lawsuit against a competing shoemaker.

Within the company, conditions were growing strained. Aerosoles made its first major marketing outlay, spending about 5% of sales on TV ads and March of Dimes support. There were rumblings of discontent over the lack of data on the business. The salesforce and the factories complained about the need for sales history and projections. Schneider heard the complaints but had no time to address the issues.

Footworks' limitations only deepened the crisis. Once considered an asset because of its careful match to Schneider's work style, the program now hamstrung Aerosoles' ability to do business. While it captured orders and pricing, Footworks had no links to manufacturing, production, or inventory. Moreover, the Footworks data was often at odds with the numbers that accounting generated. There was no way to reconcile or verify the figures. For Schneider, trained in the precise profession of accounting, the gaps were overwhelming.

"There were inconsistencies in the reports that would drive me crazy because the inventory was not right or the sales were not right," says Schneider. "And we were basing decisions on that information. It was very scary stuff."

Reinforcements arrive

After 10 years as the sole executive, Schneider, and Aerosoles' other investors, wanted reinforcements brought in. Enter Richard Morris. Aerosoles' hiring of Morris in April 1997, was a coup. Since 1993, he had served as CFO for Handleman Company, the $1.2 billion distributor of music, video, books, and software in Troy, Mich. With an IPO in Aerosoles' future, the fact that Handleman trades on the New York Stock Exchange had bolstered Morris' candidacy.


"Timidity would not be a term that would characterize our company," says Richard Morris, executive vice president for IT and operations.
Armed with experience and expertise, Morris signed on as executive vice president for administration, overseeing the IT, legal, and shipping functions. Morris immediately went to work revamping a variety of operational areas. Improving IT, however, would require more expertise.

Last fall, Aerosoles began recruiting for a vice president of IT. Schneider's only request: No slash-and-burn mentalities, please, as Aerosoles' carried out its IT overhaul. "I didn't want someone who would get into the macho thing," says Schneider, who wanted to ensure that existing staff members wouldn't be alienated by the new IT manager's policies and practices.

Jeffrey Zonenshine understood what Aerosoles was looking for. Smart and understated, Zonenshine, most recently CIO for HFS Inc.'s Century 21 Systems unit in Parsippany, N.J., had an approach to technology that fit Aerosoles' future. Morris liked the fact that Zonenshine was unafraid to say he had no quick fix for Aerosoles' ailing systems. Zonenshine liked the chemistry between Morris and Schneider. He joined Aerosoles in December 1997.

Striding ahead

Early this year, Zonenshine, Morris, and Schneider began considering the state of Footworks. The assessment was dismal. Schneider opposed any more patches. The subject of enterprise resource planning software arose. Under the eyes of Zonenshine, who has worked on many custom application-development projects of similar breadth and cost, Aerosoles began taking its first step toward a companywide software implementation. In January, it hired Transaction Information Systems, a consulting firm in New York to document its requirements and process flows in preparation for a request for proposal for an ERP system. Then it started matching the leading ERP vendors' software to its requirements.

That the footwear industry is ripe for enterprisewide systems had not been lost on market-leader SAP or on its much smaller competitor, the Laurel, N.J., office of JBA International. Both vendors have introduced specialized application packages to help apparel and footwear companies better track their industry's complex inventory-allocation processes and the myriad styles that make up their product lines.

After evaluating both systems, SAP's R/3 and JBA's System 21 Style, as well as systems from Baan and Oracle, Aerosoles chose R/3 and its new Apparel Footwear Solution (AFS) module. The selection criteria went beyond a simple feature-by-feature comparison. "The decision is based less on functions than on architecture and the future of our company," says Zonenshine. He favors SAP's open architecture--R/3 runs on a wide variety of operating systems and databases. In addition, hundreds of specialty software applications are available as bolt-ons. Furthermore, Zonenshine was interested in SAP's Accelerated SAP (ASAP) implementation methodology. ASAP, rolled out a year ago, gives organizations a set of guidelines, processes, and toolsets to use with R/3.


"Inconsistencies in the reports would drive me crazy because the inventory was not right or the sales were not right. And we were basing decisions on that information. It was very scary stuff."
--Jules Schneider

Zonenshine is confident about R/3. "We look at it as a toolset that we're looking to scale to our business," he says. "We don't see it as scaling Mount Everest."

The prospect of a multimillion-dollar project, however, makes Schneider nervous. The company has not yet selected an implementation partner or finalized the budget for the project. Company officials acknowledge that the R/3 implementation will be the largest capital project in the company's history.

Spending millions of dollars on an ERP project is a huge leap of faith for Schneider. Even after years of rapid growth in the mercurial fashion world, Aerosoles is not given to spending money on itself. The company sports no mahogany conference tables, no lavish interiors. There is no receptionist to greet visitors. Gesturing to Aerosoles' worn, bare-bones offices, Schneider says, "You can see we don't exactly spend a lot of money on anything but the shoes. This is a big deal for us."

Indeed, some caution is always in order when it comes to R/3. The package remains daunting. While many improvements have been made to it, R/3 continues to confound some organizations. Alcoa, Dell Computer, NEC Technologies, and Unisource Worldwide abandoned R/3 projects during the past 18 months.

To ease the implementation challenges, SAP introduced the Accelerated SAP program last year. SAP claims that the combination of tools and methodology cuts implementation time in half. The consulting firm AMR Research in Boston interviewed "a number" of ASAP consultants and customers and determined that the estimated time savings of ASAP implementations ranged from 25% to 50%. And while SAP claims that 34% of R/3 installations have been in organizations with revenues of $200 million or less, most of those small-scale successes have been in Europe.

The fact is that some R/3 implementations often drag on, draining corporate coffers, for reasons that have nothing to do with the software, says David Dobrin, research director for Benchmarking Partners in Cambridge, Mass., another consulting firm close to the SAP and ERP markets. For one thing, businesses often make sweeping, systemic changes when they implement R/3. What's more, despite its popularity, R/3 is not right for all organizations, says Dobrin, who has worked on 15 implementations.

"If you try to install something that isn't right for you, it's going to take a long time," Dobrin says. The use of ASAP, he adds, won't improve the condition.

Anything but typical

Schneider concedes that seismic changes are ahead. In preparation for the tumult, he has worked to include the company's youthful department heads in the decision-making processes related to R/3 and the review of business functions. Already employees have faced a raft of changes since Morris' arrival and subsequent imposition of budgetary and planning disciplines. Helping to stabilize Aerosoles is part of Schneider's responsibility. "There is a lot of stress that this company is going to go through," he says with a mixture of excitement and wariness.

Aerosoles sees no reason why R/3 can't work for it. It has pushed hard to be sure it doesn't get bowled over by R/3.

In fact, Aerosoles has been tough with SAP. Late in March, executives leapfrogged the local reseller and met with the high-level managers of SAP's channel program to get a better idea of R/3 capabilities and challenges. Such meetings aren't routine, says Tom Melchiore, district manager for SAP America's Certified Business Solutions program in Wayne, Penn. Value-added resellers typically cover this type of sales call. But Aerosoles never sees itself as typical. "They wanted to know how we would work with them once they became a customer," says Melchiore.

On April 7, Aerosoles hosted the first R/3 demo. SAP solutions partner Titan Technologies Group of Edison, N.J., was there, as were several Aerosoles department heads. Representatives of each of the four companies that responded to the RFP for an implementation partner were also invited.

Schneider remembers it as "a fiasco." Demanding more details than the high-level assertions being made, Schneider, Morris, and Zonenshine insisted Titan pitch them again, this time with specifics on how R/3 would address Aerosoles' needs. The second meeting, held a week later, was worse. Still lacking was an understanding of Aerosoles' business, says Morris.

Ticked off, Aerosoles representatives suggested yet a third demo. "Timidity would not be a term that would characterize our company," says Morris.


Jeffrey Zonenshine is confident about R/3. "We look at it as a toolset that we're looking to scale to our business," he says. "We don't see it as scaling Mount Everest," says Aerosoles' CIO.
On April 16, the Aerosoles team met with AFS product manager Jeff Singer for a meeting that had been fortuitously scheduled before the dismal demos. "We were able to communicate with Jeff," says Zonenshine. They also requested to speak with an AFS customer, and Titan referred them to Bruno Magli, the New Jersey shoemaker known for pricey dress shoes for men and women.

Singer helped put together a team to meet with Aerosoles for a third demonstration on May 8. All parties worked to make sure no detail of the meeting went unaddressed. Noting Aerosoles' unpretentious work environment, "I told my people going to the demo to dress casual," says Titan account executive Dan Briano. That was a good call, he says, "Jules came dressed in black jeans, a denim jacket, and a backpack."

The third meeting was a success. Zonenshine and Morris attribute it to improved communication among the parties. Schneider is less diplomatic. The meeting worked, he says, because SAP and Titan officials "left their egos at the door." Instead of touting their product, they focused on Aerosoles' needs.

At the same time Aerosoles was grilling SAP and Titan, it was sifting through the responses to the inch-thick RFP for an implementation partner. Four companies responded to the March 30 loose-leaf binder, and three made the semi-final cut. For Aerosoles, a key criterion for its partner is footwear experience, and the company right now is scrutinizing the resumes of those who will work on its project. It is also receiving help in evaluating the proposals from an SAP corporate staff member. Melchiore says it has been SAP's policy for the last six months to assign such an individual to its mid-emerging market customers, those with annual revenues of $200 million or less. Aerosoles will make its decision on an implementation partner any day now.

is betting its future on R/3. But the company also maintains a healthy skepticism of the product and a firm plan to ensure that both vendor and implementation partner deliver. "Certainly the promise that's been made is that this is an important segment for SAP," says Morris of the midsize business market. "Will we get as much attention as we'd like? We'll tell you that in a couple of months." //

Deborah Asbrand is a Boston-based writer who focuses on information technology. She can be reached at dasbrand@world.std.com.






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