In March 2019, cosmetics giant Revlon announced that it would be late filing its annual financial report for the year prior. The reason behind the delay? The company’s year-old SAP ERP system had been riddled with issues ever since implementation. The resulting fallout cost Revlon valuable retail sales and hindered operations. Upon the announcement of the Revlon ERP failure, the company’s stock fell 6.9% in 24 hours.
How did this derailment happen to one of the most well-known and high-profile consumer brands in the world? Today, we’re sharing the failure story and a few of the key lessons learned. We’ll also explain how your organization can avoid falling victim to the same mishaps.
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The Revlon ERP Failure Story
Revlon first implemented its ERP system in February 2018. Almost immediately, issues became apparent at the company’s manufacturing facility in Oxford, NC.
Among the complaints? Issues with the system hindered Revlon’s ability to successfully manufacture sufficient quantities of finished goods. This rendered them incapable of fulfilling all the orders placed by their major retail clients.
To counter these effects and keep customers satisfied, Revlon expedited product shipping. This resulted in sky-high fees, along with other unanticipated expenses.
At the same time, the Revlon ERP implementation failure created a massive financial backslide. In the fourth quarter of 2018, the company’s net loss reached $70.3 million.
4 Lessons Learned from this Failed ERP Implementation
1. Risk Identification is Key
A careful risk analysis can help organizations ensure they are ready to undergo an ERP project or any type of business transformation.
In Revlon’s case, issues became obvious right after the system went live in Oxford, NC. The rollout resulted in service level disruptions, which directly affected manufacturing and shipping capabilities.
In an announcement, Revlon explained that if these disruptions persisted, they could affect their competitive position. They could also impact their customer relationships, prospects, financial condition and cash flow.
A thorough risk assessment could have prepared the organization for such setbacks. There are inherent risks to any ERP implementation and expecting to go live without any issues is unrealistic.
This assessment can help organizations not only identify possible risks but also quantify them and take steps to mitigate them. This way, they can ensure that go-live doesn’t negatively affect their operations.
2. Design and Controls are Essential
Revlon cited that one of the issues behind its ERP failure was a lack of design. As a result, the company experienced “material weaknesses” in its internal controls.
To minimize the risk of material operational disruption, it’s important to take a close look at your business processes. You may even need to improve them as required to be more efficient.
When improving your processes, be sure to invest in organizational change management to ensure that everyone understands and embraces the changes. This guide can help you understand the basics of change management.
Once you’ve defined your future state and prepared your employees, you should ensure that the implementation team understands these requirements so they can properly configure and test the software.
3. Organizational Instability can Derail an ERP Project
There might not be a perfect time to roll out new software. Still, this certainly isn’t an effort to undertake when your organization is already on shaky ground.
It might seem that an ERP project can serve as a last-ditch effort to rectify instability. However, it’s more likely that the new system will only exacerbate underlying issues.
Before beginning its project in 2018, Revlon was already experiencing operational and financial issues. Most of these were related to its 2016 acquisition of the Elizabeth Arden brand. After the restructuring, Revlon struggled to integrate the disparate processes into one cohesive unit.
Before starting a major project, the brand should have taken the time to resolve these inefficiencies. Doing so could have created a stronger foundation that may not have quaked so easily under the pressures of an inefficient rollout.
Has your company recently experienced a major change? If there are outstanding issues that need to be resolved, we recommend resolving them before investing in new ERP software.
4. ROI is a Critical Consideration
Any time you implement new technology, it’s critical to calculate the anticipated return on investment. Even the most promising solution could put your company in the red.
Revlon experienced this reality as its SAP ERP project resulted in a negative ROI. This led to lost sales that it could never fully recover. These financial setbacks can be devastating, and they’re more common than you might realize.
As their bottom line gave out, Revlon’s customer service levels plummeted. Operational controls broke down, and production issues skyrocketed. Employees became laser-focused on digging the company out.
In return, other company priorities fell by the wayside, including essential reporting and filing requirements.
The lesson learned? A solid financial return on your investment is a must. You should be able to project this result before implementation. Often, this will require developing ERP benefits realization plan. While this effort can take time, it’s the link that can help your company stay focused on achieving organizational goals.
Avoid These ERP Mistakes in Your Own Project
The Revlon ERP failure was a major public misstep for the brand that underscored the importance of ERP implementation best practices that are all too easy to overlook.
From risk identification to benefits realization planning, many factors contribute to a successful implementation. You can learn from Revlon’s red flags and avoid the same issues in your own project.
Our ERP consultants can leverage their ERP expert witness experience to ensure your project goes off without a hitch. Contact us below to request a free consultation.