GTSI's trips over its own ERP implementation

ERP implementation difficulties crippled GTSI's daily operations

Software intended to help boost sales and productivity instead slowed operations at GTSI, a government reseller. A series of snags crippled GTSI's ability to take and ship orders, according to the company. Revenue took an immediate hit, and company officials are now unsure whether they can fulfill their ambitious long-term growth plans.

The difficulties centered on a deployment of Oracle's PeopleSoft enterprise resource planning (ERP) software. Software bugs, users' unfamiliarity with the software and the distractions associated with adopting new technology are among the problems GTSI encountered. The company started using the system in April.

Last month, GTSI said fewer bookings and shipments would adversely affect its second-quarter financial results. The company blamed the ERP project.

In 2004, company executives announced their plan to double revenue to $2 billion by 2007. They cited the new ERP system as an important tool for getting there. Now, company leaders say their ability to meet that goal is in doubt.

"That's what you get when you do this kind of massive upgrade," said Dendy Young, GTSI's chairman and chief executive officer.

Brian Kinstlinger, an analyst at Sidoti and Co., said GTSI's ERP difficulties could have repercussions beyond the dampened revenues' effects. Customers unhappy about delayed shipments could take their business elsewhere, he said.

In a July statement, GTSI reported difficulties in product delivery and acknowledged disruptions to some customers.

But Young said that the worst of the company's ERP issues are behind it. "On a scale of 1 to 100, we are operating at the lower 90s," he said.

The system will be ready to handle the government's upcoming peak buying season, he said. GTSI historically has generated more than two-thirds of its sales between July and December.

However, the difficulties come as GTSI is facing other changes and challenges. Terri Allen, GTSI's veteran senior vice president of sales, left the company in July, forcing it to reorganize its sales team. A market research survey conducted earlier this year suggests that, when asked to name a reseller, government officials think of GTSI less often than they once did.

Only 26 percent of the Market Connections survey respondents named GTSI this year, compared with the 38 percent who named the company in the same survey last year. The company badly trailed rival CDW Government, which rated 46 percent.

Critical component

An ERP system is one of the most critical components for an organization. It handles everything from processing customer quotes to generating financial reports. An ERP miscue can have broad ramifications for a company.

ERP deployments often prove perilous. Installation takes months — sometimes years — and there are often rough waters to sail before the systems begin to pay off. An infamous ERP project at Hershey Foods hindered the company's ability to ship orders during the crucial period before Halloween in 1999.

Alan Bechara, president of PC Mall Gov, described ERP as the root canal of information technology projects: No matter how one goes about doing it, it is going to hurt.

Some of the pain comes because off-the-shelf products almost always demand customization, Bechara said.

"Nobody wakes up at SAP ... or Oracle and says, 'Let me design a system around a reseller's business model,'" he said.

Michael Taffe, a research director with AMR Research, said ERP projects are disruptive almost by definition.

"If ERP is done right, it affects virtually everybody in the organization," he said. "If it is not disruptive, I would question whether you are doing it correctly."

GTSI officials began to warn investors in May when they announced their first-quarter results that the ERP project might cause some difficulties. In their quarterly report to the Securities and Exchange Commission, company officials noted the issues.

"We were pleased with the smooth cutover to our new system," they wrote in the quarterly report. "However, we anticipate some minor disruptions and short-term productivity issues as our teams get up to speed on new processes. This adjustment period may impact near-term sales and bookings."

Quantifying the impact is difficult at this point. In the first quarter, which ended March 31, before GTSI started to use the system, the company logged a 12 percent decline in revenue, to $157 million compared to $178.6 million in the first quarter of 2004. The bottom line showed a $5.8 million net loss, compared with a loss of $1.4 million for the first quarter of 2004.

In the first-quarter report, GTSI officials wrote about the costs of implementing the system and training employees to use it as factors contributing to the net loss. In July, the company issued a press release warning investors that the company had had difficulties delivering some orders on time due to problems with the ERP system. It was then that Young, in a statement in the release, said that the issues might affect not only short-term results but the company's long-term vision.

The second quarter ended June 30. Those numbers are not yet available.

Critical issues

GTSI ran into several snags in implementing and activating the ERP system, Young said. For one, the software had bugs that had to be tracked down and solved, he said. Then third-party software that was supposed to integrate easily with PeopleSoft proved to be more trouble than expected.

User inexperience was another obstacle. Although GTSI spent $750,000 on training in the first quarter of this year, employees still had trouble acclimating to the system. "Until you use it time and time again, you don't really understand it," Young said.

The company had planned to initially install the system with few modifications and then tweak it to boost functionality.

Despite the difficulties, the company has had to keep to that plan and has made about 1,900 changes so far. Each time it does, it introduces new variables that could potentially cause new problems.

The ERP system also has preoccupied the company's sales force, and that may have affected sales, Young said.

"Salespeople don't like disruptions, and we have disrupted them greatly over the past six months," he said. Company officials asked the sales team to help design the system's quoting module, he added.

Critical results

Now signs indicate that the system may be reaching equilibrium. The company is giving out more price quotes than it did by this time last year, Young said, "and that is exactly where we want to be."

GTSI can expect to eventually derive additional benefits from ERP. Taffe said ERP promotes greater cohesion because it gets all elements of an enterprise working toward the same goal. Another plus is the ability to more effectively interact with other entities in the chain of commerce.

But those pursuing ERP must be willing endure the disruption. "This is the ante to get into the supply chain and demand-driven network game," Taffe said.

Other resellers find sluggish market

As GTSI navigates its rough patch, other resellers are finding the federal market a bit soft this year.

Alan Bechara, president of PC Mall Gov, said the federal sector was generally flat this year, although the intelligence community provides a few bright spots. He said his colleagues report a similar pattern.

CDW Government may be the exception. The company reported an 18 percent uptick in public-sector revenue in its second quarter, which ended June 30. Still, CDW-G found that its federal business experienced lower growth and a longer sales cycle in May. Company officials said deals that lagged in May were closed in June, however.

Dell, the reseller's primary direct marketing rival, reported a lackluster federal market in a recent Securities and Exchange Commission filing.

"Our federal business experienced weak demand, resulting in a decline in revenue from a year ago," the filing states, describing the company's quarter that ended April 29.

Brian Kinstlinger, an analyst at Sidoti and Co., said anyone selling hardware to the federal government is having a rough time. But he added that the state and local sides show some growth.

Bechara said federal business started to pick up in July and suggested that the peak buying season may be getting off to a late start this year.

— John Moore


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