3 Lessons Learned From The Lumber Liquidators ERP Failure

In November 2010, Lumber Liquidators announced its earnings for the third quarter of that year. They weren’t stellar. In fact, they’d dropped 45% relative to the prior year.

What was going on? The prominent flooring retailer attributed the dip to its recent SAP ERP implementation. The go-live, they explained, had zapped worker productivity and caused performance levels to drop.

Eventually, the company discovered that the root cause of these issues was the lack of an effective organizational change management plan.

Today, we’re diving into the Lumber Liquidators ERP failure to explore how it began, what went wrong, and what you can learn.

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The Lumber Liquidators ERP Failure: What Happened?

In late August 2010, Lumber Liquidators kicked off the most significant part of its ERP project. The SAP solution featured a new point-of-sale system, as well as modules to optimize warehouse and inventory management. The goal was to modernize and automate much of the company’s manual back-end processes.

On paper, it should have worked. All throughout the project, the company’s net sales continued to climb. By the third quarter of 2010, they’d jumped to $147.2 million, which was an overall increase of around $6.7 million since that point the previous year. They even opened ten new stores during those few months.

Yet, before long, it became apparent that a lack of training had left the workforce ill-prepared to embrace the new software. The ERP system was more fixed and rigid in structure than their previous system, and they didn’t know how to adapt.

Unable to use the new tools available to them, worker productivity dropped tremendously. In a press release, Lumber Liquidators announced that the downtime cost between $12 million and $14 million in unrealized net sales in one quarter alone.

Once implemented, the new software sat largely unused. As a result, the company was unable to maintain its typical standards of sales and customer service. Specifically, employees were unable to efficiently:

Identify open orders
Track and process orders
Measure how much inventory was in stock
Complete customer orders on time
Convert prospective leads into sales
Produce the same number of finished goods per hour

Lumber Liquidators tried to divert consumer attention away from these shortcomings by offering generous discounts and promotions. Yet, associated marketing costs were steep.

They were also losing money to higher payroll costs, as employees now required more time to fulfill their job functions.

While operations did improve as more resources joined the project, the impact of the ERP failure was still devastating. The experience taught Lumber Liquidators how important change management can be when you’re changing that many roles and responsibilities.

3 Lessons Learned From This Retail ERP Failure

Executives from Lumber Liquidators were quick to point out that their disappointing financial report had little to do with the technical aspects of the SAP implementation. Rather, it had everything to do with the fact that their employees were not ready to use the new software.

Let’s look at what you can learn from this failure as you prepare for your own ERP project.

1. Organizational Change Management is a Priority

It’s easy to get wrapped up in the technical details of an enterprise software project. This is especially true with ERP software, which provides a variety of configurations and deployment options for simplifying and streamlining workflows.

While technical aspects are important, it’s equally important to devote time, money, and resources to the people who will be using the new tools.

Organizational change management is the process of helping your workforce move forward with confidence. With the right strategy, you can help employees navigate the transition with minimal resistance and maximum enthusiasm.

2. Change Management Starts With Communication

Before implementing SAP, Lumber Liquidators had organized its back-office efforts with a system they described as being “flexible.” In other words, employees could manipulate it in a variety of ways to obtain the same output.

With the SAP solution, this flexibility was lost. The new platform required users to follow certain steps each time they wanted to perform a given action. This was a major shift for the workforce, and it was met with a great degree of resistance and confusion.

Company representatives later explained that the standardization was a good thing, as it ensured that everyone was performing the same action for each function, leading to increased efficiency and cost savings.

Had Lumber Liquidators employees known how these benefits would impact them, it might have changed their perspective. This is why clear communication is a cornerstone of an effective change management strategy.

3. ERP Training Can Increase User Acceptance

End-user training is another important aspect of change management. Technical concepts can sound overwhelming, but giving employees an opportunity to gain first-hand experience with the software can ease their worries.

A lack of proper training is partially to blame for the Lumber Liquidators ERP failure. When the system went live, in-store staff members were already confused about how to use it. Had project leaders spent more time explaining core concepts and training employees on the system, employees may have felt more empowered from the beginning.

Avoid These Mistakes in Your ERP Project

The Lumber Liquidators ERP failure shows the aftermath of a company failing to give proper credence to change management. Flying through this process just to meet a go-live deadline can leave your employees feeling resentful. When they are unsure how to use a new system, they’re likely to revert to their old workflows, which can disrupt work for everyone.

This remains true even if you’re implementing one of the top ERP systems.

If you’re planning an ERP implementation, our organizational change management consultants can help you integrate change management from the very start. If you’re already in the implementation phase and see failure on your horizon, our software expert witness team can help. In either case, you should contact us below for a free consultation.