Peering across the abyss: Clothing and shoe companies cross the ERP chasm

Nineteen ninety-eight opened with great promise for the apparel and shoe industry. The economy was strong, skirt lengths were rising to new heights (thanks to Ally McBeal), and the stock market was humming. Furthermore, much of the apparel and footwear industry buzzed with anticipation. Software giant SAP AG of Walldorf, Germany, was about to launch what seemed to be the solution to the industry’s manufacturing and distribution problems. A tailored version of R/3, SAP’s enterprise resource planning (ERP) juggernaut, promised to untangle the knot of variables–style, size, color, etc.–that had stymied earlier attempts at production and distribution integration.

Executive Diary

In January 1998, industry participants rang in the year celebrating the Apparel/footwear Solution (AFS), which several companies had been co-developing with SAP for two years. On New Year’s Eve day in 1997, in a conference room in Rockford, Mich., Wolverine World Wide inked a deal with SAP that the $670 million maker of Hush Puppies and other brands hoped would lead its systems out of the Dark Ages. Two weeks later, in Carlstadt, N.J., employees at Bruno Magli USA gathered in their offices to enthusiastically kick off the luxury-footwear maker’s AFS implementation.

But 4,000 miles away, the mood was decidedly grim in a small office complex in the tiny German village of Hallbergmoos. There, in one of the buildings that housed SAP’s AFS development effort, five IT staffers from Sara Lee Hosiery were making a startling discovery. After eight months of poring over code in intense collaboration with AFS programmers, the Sara Lee team was shocked to find that SAP had decided–six months earlier–to ax a key function on which their implementation depended.

The gloom in Hallbergmoos that day has spread. As 1999 unfolds, the buoyant anticipation that greeted AFS’s debut has evaporated, at least at some companies. In its place is stoicism, mingled with muted panic and dead silence. By the end of 1998, several AFS projects had been delayed, and at one–AeroGroup International, the Edison, N.J.-based maker of the Aerosoles line of casual shoes–it was coming unraveled.

This spring, more than a dozen AFS projects will go live, according to company officials and SAP. Only two projects were operational as the year opened, though, despite the fanfare surrounding the software’s official introduction in April 1998. They were:

But Justin Industries, a conglomerate with revenues of $440 million, predicts that implementation of enterprise resource planning software from SAP at its Fort Worth, Texas-based footwear unit will have a significant negative impact on fourth-quarter revenues, according to recent Securities and Exchange Commission filings. Justin officials didn’t return phone calls requesting comment on their AFS implementation.

AeroGroup CIO Jeffrey Zonenshine declined to discuss the company’s R/3 project now, after volunteering the firm’s implementation story to Datamation when the project began. Photo: James Leynse/SABA

It wasn’t supposed to be like this. AeroGroup’s original plans called for launching its AFS implementation in February 1999. But early in January, AeroGroup signed a contract to replace AFS with JBA styles, according to software maker JBA International in Rolling Meadows, Ill. AeroGroup officials have declined to be interviewed since September. The Eisner Consulting unit of Richard A. Eisner & Co., AeroGroup’s implementation consultant for the R/3 project, also declined to comment.

What’s going on? Despite its impressive R/3 lineage, AFS is full of new programming code that hasn’t been proved in real-life production environments. IT executives trying to stitch the two together found their implementations–and their nerves–frayed. Some of the difficulties are endemic to ERP in general. Some are due to SAP’s stumbles as it entered the complex business of apparel and footwear. The lessons from 1998 are a cautionary tale for IT executives in any industry looking for a single solution to their enterprisewide problems.

Stepping in it

The cutting and stitching that’s at the heart of the apparel and footwear industry may echo old-world craftsmanship, but it’s anything but quaint. “Some of the most complex design problems in any manufacturing sector are in footwear,” says Nick Brown, a partner with Comprehensive Computer Services Inc. (CCSI), maker of Footworks, a UNIX-based software package.

Fresh from the semiconductor industry three years ago, Gary Acromite was hired by Wolverine World Wide as chief information officer in 1995. He thought the footwear industry would be a snap. “I thought, Gee, this’ll be easy,” says Acromite. Far from it. Each day, apparel and footwear makers keep track of thousands of stock-keeping units, or SKUs, that have shelf lives measured in months and even weeks. Furthermore, market conditions are among the toughest in any industry. Against the fickle winds of fashion, companies contend with a complex supply chain that depends on myriad small and technologically unsophisticated overseas production facilities.

Wolverine World Wide CIO Gary Acromite says that some of the AFS modules weren’t ready for use as of January 1999.

To avoid getting stomped by flat sales and inefficient processes, the industry needed to shoehorn itself into a new, more efficient way of doing business. To Peter Burrows, that relief would come in the form of a global software partner. “We wanted what other industries have,” says Burrows, chief technology officer for Reebok. Burrows approached SAP officials three years ago and suggested they create a tailored version of R/3 for the apparel and footwear industry.

SAP has been wildly successful doing the same sort of thing in 17 industry niches. Since dominating the manufacturing sector, it has methodically drummed up new customers for R/3 in sectors such as oil and gas or aerospace and defense. SAP’s clout is so powerful that the mere mention of its planned entrance in a market triggers a flurry of activity. “As soon as SAP announced it would do insurance-claims processing in 2001, we had three or four clients call and ask, ‘Should we be early adopters?'” says Vinnie Mirchandani, vice president in business applications for the Gartner Group, the market research firm based in Stamford, Conn.

But SAP’s foray into the apparel and footwear industry was different. First, the idea originated from Burrows rather than from SAP’s finely tuned marketing machine. Second, SAP was daunted by the patched-together state of the clothing and shoe industry, according to Burrows. “It appeared messy and hard to deal with, and the company said, ‘Why should we be in it?'” he recalls. A spokesperson for SAP said no one at the company was available to discuss AFS. To encourage SAP, Burrows agreed to collaborate with VF Corp. to underwrite the software’s development. VF, headquartered in Greensboro, N.C., is the largest apparel company in the U.S., with $5.2 billion in sales of such brands as Vanity Fair, Lee, and Wrangler. The two companies would be the charter members of the AFS consortium.

By May 1996, Reebok and VF were ready to submit their merged requirements to SAP. But a third investor was needed to help offset the cost. Burrows says he convinced SAP America to cover the costs until another partner could be found. Ultimately, the final third was provided by Sara Lee Hosiery, already an R/3 customer, and systems integrator Kurt Salmon Associates of Atlanta, which joined the consortium as associate members.

Three’s a crowd

Industry consortia are a key element in SAP’s entrance into new markets. The company’s modus operandi includes partnering with a handful of large organizations and then adding more early customers as the software matures.

The AFS consortium operated according to a strict set of rules: Only Reebok and VF Corp. could add functionality to AFS. The other companies could only make suggestions for accomplishing processes. Burrows admits that he fought hard to ensure that Reebok earned a competitive edge from its investment in the development of AFS. “We tried to structure it so the other guys couldn’t get in. We asked, ‘Why should we let you in?'” After all, he adds, “we put up all the risk.” Burrows declines to say how much Reebok invested. AFS participants at the lower membership level report paying upwards of $125,000 to join.

Sara Lee Hosiery sent an elite team of IT professionals to Germany to work with AFS programmers there. But the pantyhose business is less subject to the whims of fashion than Reebok’s or VF’s lines of apparel. Sara Lee’s knitting machines frequently churn out one product for an entire year. Repetitive manufacturing, a feature of the AFS production planning module that would oversee the steady production runs, was key to Sara Lee’s implementation.

Only when the Sara Lee staff began to ask questions about the missing feature were they told it had been deleted, says Randy Hyack, director of IT and SAP project manager for Sara Lee Hosiery. After recalling the staff to Winston-Salem, N.C., Sara Lee Hosiery replotted its AFS strategy: It would shelve AFS until the product was more stable and the functionality it needed could be written in. “We spent a lot of resources on the AFS project that could have been applied to other projects,” says Hyack.

Sickles and rakes

Some executives who attended the teleconferenced AFS consortium meetings were satisfied with the sessions, but others expected more support and direction. Meanwhile, the consortium members were increasingly under the gun as 1998 passed: Sales were soft and the stock values of many AFS customers plummeted, including Authentic Fitness, Florsheim, Justin Industries, Reebok, Superior Uniform, Wolverine World Wide, and Warnaco.

Nerves became frayed. “SAP didn’t pay enough attention to the 25 of us who participated,” says one member who did not want to be identified by name. “We were executives from around the world, and they turned us into a hostile band of farmers with sickles and rakes.”

Some participants say they aren’t quite sure what became of the consortium and didn’t perceive much benefit in it anyway. “It died of its own weight,” says Brent Pulsipher, chief information officer for Tropical Sportswear International in Tampa, Fla., another AFS early adopter. “We were supposed to have a conference call every month, and we only had two. It was too much of a question-and-answer session.”

How SAP’s Apparel/Footwear Solution works AFS is an add-on component to its R/3 enterprise resource planning software. The add-on has the following features: It allows manufacturers, wholesalers, and distributors to use a product grid to track shoes and clothing by variables such as material number, style, size, color, and quantity. It allows users to prioritize and schedule orders. It enables users to process orders received via telephone, fax, EDI, or the Internet. Companies that outsource manufacturing can track vendors based on priorities such as cost, quality, and reliability. It can be integrated with standard R/3 modules such as financials, logistics, and human resources.

One reason for the problems with the consortium and AFS in general was the industry’s hunger for the product and its enthusiastic jump to AFS once word spread of the add-on’s existence. “That caught SAP by surprise,” claims Burrows. “There are other packages out there, but they’re not as complete and they’re not global. I think SAP underestimated how desperate the industry was for a good solution.”

Indeed, SAP’s readiness to enter an industry doesn’t always signal the industry’s preparedness for SAP. “We constantly counsel customers in industries that SAP is trying to penetrate that the concept of best practices is not as well understood in these markets,” says Gartner Group’s Mirchandani.

Tropical Sportswear is confident it bought AFS for the right reasons, though. The clothing maker says it received the core functionality it needed in AFS. But after wading through the crowds at SAP’s annual SAPphire conference in September 1998 in Los Angeles, CIO Pulsipher has no illusions about where the $400 million company falls within the R/3 family: “If you go to SAPphire, you realize you’re a gnat on the elephant. So you go where the elephant goes.”

“Although SAP had a product, it wasn’t evident to us that it was available,” says Harry Kubetz, senior VP of operations at Kenneth Cole Productions.

“We tell people who are signing with SAP–and for that matter with PeopleSoft and Oracle–that you’re joining a club,” Mirchandani adds. “You may think you’re hot stuff in your industry, but when you join, your leverage drops the day you sign the contract.” SAP’s vast roster of R/3 clients is crowded with billion-dollar businesses that have to jostle for SAP’s attention. “With 14,000 customers, even Exxon is a blip,” says Mirchandani of R/3’s sprawling client base.

Kenneth Cole Productions evaluated AFS but chose AS/400-based software from JBA International–the same software AeroGroup is reportedly planning to use. “Although SAP had a product, it wasn’t evident to us that it was available,” says Harry Kubetz, senior vice president of operations for the $225 million New York City fashion company. He prefers the JBA approach–direct contact with JBA on the project–to the SAP approach, which requires that customers rely on consultants and systems integrators for implementation. And the project’s $2 million tab, including hardware, software, and consulting, is $3 million less than Kubetz calculates he would have paid for the SAP product. It’s also 50% less than the much smaller AeroGroup (with projected 1998 revenue of $150 million) planned to spend on its AFS implementation.

If the shoe doesn’t fit, squeak

Even AFS customers that are going live in January 1999 say it has been a rough experience. Did companies at times feel like guinea pigs? “You can say that again,” says Bruno Magli USA president Peter Grueterich. With revenues of $60 million, Bruno Magli is one of the smaller companies to adopt AFS. Its implementation is six months late and 15% over budget. The company expected to go live in January 1999. Grueterich dismisses the delay as necessary while the company geared up for the busy fall and holiday selling season. He adds that the lapse was fortunate: While Bruno Magli put the project on hold, SAP released version 1.0C of AFS, considered by many customers to be far superior to 1.0B.

AFS customers also report trouble with SAP’s Accelerated SAP (ASAP) methodology as a road map for rapid implementations. The much-touted set of instructions is designed as a streamlined guide for implementing R/3 in companies with revenues of $500 million or less. But as with many maps, the instructions have been stashed away in favor of improvisation.

The more than a dozen companies ready to go live with AFS implementations this spring are relying on their own methodologies. And they are moving very slowly to roll out the software. Wolverine originally planned to go live in January 1999 with one AFS module, for sales and distribution, and with SAP’s standard financials. But only the financials will be turned on as planned. Wolverine’s conservative roll-out of just one AFS module has been halted while the company irons out glitches with some of its interfaces. It plans to implement the module later this spring. As for the other AFS modules, they simply aren’t ready, asserts Wolverine CIO Acromite. When they are (Acromite expects them to be ready later in 1999 when SAP releases AFS 1.0D), Wolverine will phase them in. Referring to the implementation, Acromite asks: “Why push it to meet a date on the calendar?”

The Big Bang approach has plenty of support among AFS customers, though. Florsheim Group plans to switch to its new RS/6000 AIX platform on January 30, 1999. When it goes live, Florsheim will dump a dozen mainframe databases in iDMS and COBOL, all of which are being converted to Oracle7. The Chicago maker of men’s footwear expects to have all of its wholesale systems off the mainframe by next summer. Support systems for the company’s 270 retail stores, which represent half the company’s $250 million in yearly revenues, will be running on SAP retail modules by the fall, according to chief information officer Tom Poggensee.

Florsheim is taking the plunge with two modules that other AFS customers have shied away from, materials management and warehouse management. Poggensee says the company has had some trouble with the addition of forecasting to the materials management module, “but overall, we didn’t think it was that bad.” As for the warehouse management, he echoes the sentiments of many of the smaller companies about AFS in general when he says, “It’s a good first step. Where we’re coming from, it’s a giant step.”

Supportive souls

Poggensee expects to do plenty of adjusting even after the new system is turned on. He is holding off on implementing some of the still-unresolved AFS functions, such as the means by which allocations are handled and certain aspects of warehouse processing. “We’re not preventing ourselves from going back” and continuing to refine the original vision, he says. “Change is hard enough to do.”

For his part, Bruno Magli’s Grueterich is pleased with SAP’s handling of the new software and its work with the consortium. “They have been unbelievably supportive,” he says. SAP agreed to add features to assist Bruno Magli with the custom manufacturing that represents 80% of its business. Superior Uniform Group in Seminole, Fla., will implement all of the AFS modules early in 1999. Vice president of MIS Mark Decker won’t comment on the installation, but says his company has worked closely with developers in Germany. “They’re a good group and working well,” he says.

The enormous scope of ERP can be overwhelming, even when your implementation is on course and appears headed for success. Says one CIO overseeing a $20 million reengineering project that includes adopting AFS, “When I look across the abyss, I don’t know if I have the energy to get across it.” //

Deborah Asbrand is a freelance writer in Boston. She can be reached at dasbrand@world.std.com.