In 2005, Waste Management (WM) began a major, enterprise-wide SAP ERP implementation. The project was set to go live by 2007, and SAP projected that WM would be able to net upward of $220 million per year in annual benefits.
However, in 2008, a $500 million ERP lawsuit was filed, and by 2010, WM and SAP settled for an undisclosed amount out of court.
Today, we’re taking a close look at the Waste Management ERP failure. How did it happen, what went wrong, and how can you avoid these issues at your own company?
Contemplating litigation?
Behind the Waste Management ERP Failure
A company built largely by acquisitions, WM was relying on a large network of legacy systems, many of which were outdated. It sought an ERP solution that would automate and replace its existing order-to-cash processes, including:
- Billing
- Collections
- Pricing
- Customer account setup
According to a public statement issued later by WM, SAP won the initial contract by assuring the trash-disposal giant that its proposed ERP system was an out-of-the-box solution. SAP also maintained that it was adapted around U.S. standards and was capable of fulfilling WM’s business goals without any major customizations.
Throughout the early sales process, WM cited that SAP conducted fraudulent demonstrations using fake software environments, ultimately convincing team leaders that their solution was superior.
In 2005, the WM team began expressing concerns about the software’s functionality. Not only did it not meet their business requirements, but it was increasingly clear that SAP had inaccurately portrayed its features. The actual ERP system was still in the development phase and had never been completely tested in an active environment.
This is a classic case of ERP vendor misrepresentation.
Unable to reap any of the solution’s expected benefits, WM deemed the project a “complete failure”. It sued SAP three years later, incrementally increasing the damages to a maximum of $500 million. The company explained that it had already spent $100 million on the project and had subsequently lost roughly $350 million in benefits that it would have reaped from a successful launch.
Finally, as mentioned earlier, the two entities settled out of court in 2010.
3 Lessons Learned From this SAP Failure
Ultimately, this ERP disaster cost both companies time, money, and brand reputation. Here are a few lessons learned from the experience, and how you can avoid the same issues in your own implementation.
1. Do Your Due Diligence
When evaluating competitive offers, WM referenced SAP’s business case estimates to evaluate the returns and capabilities of the software. $220 million in project annual benefits was understandably impressive.
On SAP’s part, this wasn’t so much a business case as it was a tactic used to land a sale with a major industry client. In fact, many ERP vendors don’t create business cases – instead, they create sales pitches, and it’s the customer’s job to verify if they’re true.
Rather than taking the projections at face value, WM should have researched their viability and accuracy.
For instance, they could have asked, “What other companies in the waste and recycling sector are currently using this software?” They would have found that at the time, the only relevant industry partners SAP had were small European waste companies.
An impartial ERP software consultant could have helped at this juncture, performing an independent analysis that revealed holes in SAP’s plan.
2. Ensure System Stability and Functional Fit
While WM wanted a well-tested and stable system, they also wanted one that was specifically designed to accommodate their business.
According to the court pleadings, WM was told that the ERP software was generic and off-the-shelf, while at the same time, being told that it was developed specifically for their unique business needs.
It was clear from the start that the technology was new. This made it impossible to track or verify its industry track record or overall stability.
3. Keep Communication Open
Most of the issues stemming from the WM ERP failure have their root in one core problem: miscommunication. When no one is asking the hard questions and everyone is making assumptions, it’s all too easy for wires to get crossed.
Building an ERP project team consisting of internal and external resources can help you communicate effectively with your ERP vendor and move forward in confidence.
Whether communicating with your ERP vendor, systems integrator or consultant, ask them to explain their projected timeline and their proposed approach. Only sign on the dotted line when you’re comfortable that you’ve found the right partner for your needs.
Your Key to a Successful ERP Implementation
The Waste Management ERP failure started with a rushed kickoff that led to the purchase of an unstable system. At the same time, muddled communication created the perfect storm.
The main takeaway is this: Before accepting any vendor promises, take the time to ask questions until you’ve understood all the fine-print details.
The WM ERP failure underscored the need for reliable ERP consulting at every stage of digital transformation. Our ERP consultants can help you throughout your transformation by effectively managing vendors and other third parties. Contact us below for a free consultation.
