For more than six years, Under Armour was on a steady upswing. However, near the end of 2016, this growth came to an abrupt end. Stock prices dropped nearly 27% and profits fell 58%. The problems snowballed throughout 2017.
At the root of the decline? A flawed SAP implementation that caused massive disruptions in the company’s supply chain. Though it was ultimately redeemed, the Under Armour ERP failure impeded productivity and profitability.
Today, we’re taking a closer look at how the project unraveled. We’ll also share the steps your company can take to avoid such issues.
We have multiple software expert witnesses available for provision of reports, depositions, and testimonies.
The Under Armour ERP Failure: What Happened?
The Under Armour brand encompasses more than just sportswear. It’s a virtual fitness community that includes various digital platforms, including:
- UA Records
Seeking to unify and simplify operations, the company partnered with SAP to initiate a software project. The goal? To upgrade Under Armour’s existing SAP ECC 6 platform to S/4HANA.
The ERP upgrade officially launched on July 1, 2017. It was designed to integrate the following Under Armour functions across North America and Europe:
- Warehouse management
- Point-of-sale transactions
- Inventory control
- Product allocation
There was little reported on the project when it first rolled out, but an October 2017 third-quarter earnings call brought many core issues to light.
On the call, newly-appointed president and COO Patrik Frisk explained that the brand’s declining sales numbers were attributed to a decrease in demand, coupled with critical operational challenges.
That quarter alone, net profits were only $54.2 million, down from $128.2 million in the third quarter of 2016. Likewise, total revenue dropped 4.5% to $1.41 billion.
As a result, Under Armour slashed full-year outlook projections, lowering them significantly to be more in line with real data.
4 Lessons Learned From This Retail ERP Failure
What issues occurred in the Under Armour SAP ERP implementation that caused so many internal disruptions? Let’s take a closer look at the problems surrounding the project and how you can avoid similar setbacks in your own organization.
1. Change Management is Imperative
Frisk shed light on the most critical problem that plagued the Under Armour SAP upgrade: While the new software would require employees to learn how to use a new platform and new business processes, Under Armour failed to allocate an adequate amount of training time to cover the S/4HANA suite.
This created a knowledge gap among employees, vendors, and manufacturing partners, which caused system adoption to lag. As a result, shipments were delayed and employee productivity waned.
The takeaway is that organizational change management, especially the training component, matters. Users should be well-versed in every aspect of the new system, and they should understand how it will alter their current workflows. This is true even if you’re upgrading and not implementing a new system.
Under Armour rushed an important step that could have mitigated user confusion.
2. Plan for System Disruptions
Rarely does an ERP system go live without any hiccups. However, by planning ahead, you can anticipate risks and take steps to mitigate them.
As Under Armour stakeholders struggled to adapt to the new system, the loss of productivity was apparent. For example, communication between the brand’s internal workforce and external partners became difficult, which led to issues with inventory management.
You can’t always anticipate every problem that may occur with an ERP software implementation, but you can ensure that unforeseen issues are easier to address when they do occur. The key is making sure your team is informed and appropriately trained.
3. Prioritize ERP System Testing
In addition to change management issues, Under Armour CFO David Bergman also reported issues with the reporting features of the new system. Though the specific issues weren’t clarified, this reveals the importance of ERP system testing.
While there are many different types of testing to perform, one of the most important types is user acceptance testing. This ensures that the software is as user-friendly and accessible as possible. During this time, you can also identify any gaps that exist and make adjustments as necessary.
4. Conduct a Technology Assessment
Many companies struggle to migrate their SAP systems to S/4HANA. The reason? They often fail to analyze the readiness of their internal systems to accept the HANA infrastructure.
Establishing an SAP HANA roadmap can help you understand any adjustments that must occur to your existing systems and processes before moving forward. This roadmap also can paint a clearer picture of the time and costs involved.
Key steps involved include:
Assessing the readiness of your systems and process can help you better understand what’s required to move from Point A to Point B. This also helps you understand how the new system will help your company achieve its short and long-term business goals.
Your Key to ERP Upgrade Success
The Under Armour ERP failure revealed how extensive the damage can be when an enterprise software upgrade fails to live up to its potential. In this case, key steps were missing or undermined, including end-user training, system testing, and conducting a technology assessment.
As your company moves forward with any ERP implementation or upgrade, we can help you stay on track. Our team of ERP consultants will help you navigate every stage of the project, so no deliverable gets missed. Contact us below for a free consultation.