INVACARE STRUGGLES WITH ITS ENTERPRISE SYSTEM IMPLEMENTATION
Invacare headquartered in Elyria, Ohio is the world’s manufacturer and distributor of non-acute health care products, comprising wheel chairs, motorized scooters, home care beds, portable compressed oxygen systems, bath safety products and skin and wound care products. This conducts business over eighty countries, maintaining manufacturing plants in the United States and eleven other nations. Invacare sells its products primarily to over 25,000 home health care and medical equipment provider locations in the United States, Australia, Europe, New Zealand, and Canada, with the remainder of its sales primarily to government agencies and distributors. The company as well distributes medical equipment and related supplies manufactured by other companies.
Invacare does not maintain much inventory. It manufactures most of its products to meet near-term demands and it builds some of its products to order. It is constantly revising and expanding its numerous product lines. In the year 2004, Invacare began working on replacing a collection of home-made legacy systems for purchase to payable processes with modules from Oracle’s 11i E-Business Suite. Invacare had been using Oracle database software and had implemented the financial modules from Oracle E-Business Suite four years earlier. The company experienced no problems implementing and by using the Oracle E-Business financial modules.
Though Invacare ran into problems when it went live with the new order-to-cash modules, which let a company receive an order, allocate supplies to build it, and give customer access to order status. Invacare information systems specialists had tested the software under real-world business conditions and everyone felt the software was ready to be used in real business operations.
When the system went live in October 2005, the software would not perform properly. “Our systems were locking up,” observed Greg Thompson, Invacare’s Chief Financial Officer. Invacare call centre representatives were not able to answer customer telephone calls in a timely manner. When they did talk with customers, they couldn't find complete information in the system about stock availability and shipment dates for products. The company was not able to ship products to customers in required lead times. Invacare’s management never expected the implementation to be trouble-free but it clearly didn't foresee the magnitude of the problems it experienced with the new systems.
As a result of the manufacturing software, Invacare lost sales and had higher than usual levels of returned goods. It as well incurred extra expenses for expediting product orders and for paying for employee overtime it its manufacturing, distribution and customer service departments. Two months of sales disruptions caused Invacare to cut its fourth-quarter revenue estimates to between $370 million and $380 million, lower than the previous year and well below the 2 percent sales raise the company had previously projected. Losses totalled $30 million for the quarter and extended to the first quarter of 2006.
The new system also changed some of the company’s internal controls over financial reporting and some of such controls didn't function as intended. Throughout the financial quarter of 2005, Invacare had to perform a physical year-end inventory count for its North American operations and take special steps to validate the figures used in financial statements. According to Thompson, Invacare’s problems were not caused by Oracle Software but by the way that Invacare configured the software and integrated its business processes with the new system. He and other Invacare management must have done more testing work. Oracle worked closely with Invacare to resolve the problems and Thompson was pleased by Oracle’s response. “Oracle has been very helpful in working with our teams to resolve the issues we’ve identified,” he said. Thompson anticipated all ordering and invoicing problems to be cleared up by early 2006.
Thompson as well expressed hope that the new ERP system will give adequate value to offset company’s losses from the system. Invacare spent $20 million on its ERP implementation. It’s still too early to tell whether Invacare’s’ ERP system will justify its costs.
Source: Interactive Session: Organizations, Managing The Digital Firm-Laudon & Laudon 10/E
a) How did problems implementing the Oracle enterprise software influence Invacare’s business performance?
b) What management, organization and technology factors influenced Invacare’s ERP implementation?
c) If you were Invacare’s management, what steps would you have taken to prevent such problems?
d) In general, what business value do enterprise systems contribute to organizations?