Under Armour faces losses after ERP update
- Under Armour's third quarter sales have declined 4.5% due to a tougher than expected ERP upgrade, The Wall Street Journal reported last week. The company's supply chain was disrupted as a result.
- The company's profits fell 58% to $54.2 million in this first sales decline. January marked the end of 26 consecutive quarters of sales rising by at least 20%.
- Although the new SAP system is considered a success, training vendors and other outsiders has been a slow process. Under Armour believes the decline is a one-time event.
ERP upgrades can frequently be bumpy, and no company is immune to implementation difficulty, not even a big brand like Under Armour.
In the company's Q3 2017 earnings call, Under Armour President and CEO Patrik Frisk said the upgrade will certainly increase efficiency in the long-term, but also said that "During this system migration, we have encountered a number of change management issues impacting our workforce and manufacturing partners as they adapt to the new platform and processes."
Consumer-oriented ERP is designed to require minimal training for users, as well as provide stronger electronic links with suppliers when functioning properly. Improper function can occur with a mismatch, such as pairing a small company with a legacy technology company such as IBM, Oracle or Microsoft.
In the case of Under Armour, however, there were companies close in size — Under Armour paired with SAP for this upgrade — enduring a knowledge gap. Yet the real issue is not the amount of training needed; the problem is that Under Armour did not budget sufficient time for everyone involved to learn the new system, but that's an understandable problem given the enormity of the upgrade.
Chief Financial Officer David Bergman said the management change was a significant factor in the supply chain disruption, but the "operating system is stable." Furthermore, he noted that the rocky implementation journey isn't over yet.
"So, we expect that in Q4, we won't have the same level of impact that we had in Q3, but they won't be completely gone yet," Bergman said in the earnings call. "We'll continue to work through it, and they continue to fine tune as we move into 2018."
Under Armour will likely struggle with the ERP implementation for a while, but as the company adjusts, profits are likely to bounce back.
- The Wall Street Journal Under Armour Links Sales Decline to Software Upgrade
- Supply Chain Dive ERP systems evolve in a cloud-dominated world
- Supply Chain Dive Survey: EDI efforts are growing in the supply chain