IT glitches cost MFI £46m

Problems with the implementation of a new supply chain system have cost furniture retailer MFI £46m in lost sales, additional deliveries and extra IT work.

The company admitted the problems with the multi-million pound supply chain modernisation project, built on various technology, most notably R/3 software from SAP, in a profits warning earlier this year that led to then COO Gordon MacDonald and finance director Martin Clifford-King being sacked.

In a new trading update MFI has now revealed the full scale of the problems estimating that an increased level of refunds has reduced customer orders by £30m since the introduction of the new supply chain systems in March.

MFI has also taken a hit with a one-off cost of £16m on additional deliveries and call centre and technical costs resulting from the systems issues. An additional incremental investment of £8m per year will also now be pumped into additional supply chain resources, including staff.

As a result of the problems the MFI board has also been forced to knock £20m off the "carrying" (book) value of the supply chain system in a non-cash charge.

The system was introduced to replace 20-year-old legacy systems but immediately following its implementation technical problems affected MFI's ability to operate supplier ordering processes, which caused lower stock availability, longer delivery times and incomplete orders being sent out to customers.

These appeared to have been resolved in July but a further deterioration occurred in August with additional technical problems. MFI said it has installed extra processing power and memory and undertaken pre-testing of the supply chain system to assess its ability to cope with Christmas and winter sale volumes but admitted it cannot "eliminate entirely" the possibility of new problems occurring.

But in order to minimise risk and maintain stability no further modifications of the system are planned until after the winter sale.

SAP has not commented on the exact cause of the problems except to say that it is not the actual SAP software that is at fault.