Lidl-SAP Inventory Management System Failure: Lessons Learned

Challenges Faced by Lidl

Read the case that you are assigned to and answer 3 open questions at the end of the case. 

• While answering the questions, you must make reference to the theory studied in class and provide examples to support your points.
• It is a take-home assignment. The written answers should be upload to the Moodle via Turn-it-in. The submission deadline is 10th Dec, 2019 (23:59).
• The answer for each question should not exceed one page (Times New Roman, font 12, double space, margin normal). Each question is worth 33% of the assignment grade. 

This task is worth 30% of your overall grade for this subject.

• Distinguish between the main types of information systems and innovative methods of reducing costs and improving service through management information systems.
• Assess challenges related to (1) the adoption of new technology by employees and customers, and (2) the implementation strategy and processes.

It was to be a great digital leap for Germany’s biggest discount grocer. Instead, after seven years and €500 million, Lidl’s new inventory management system with SAP is dead on arrival. Now everybody‘s asking why. It was to be a grand, transformative project for the company, the biggest in grocery chain Lidl’s history. And success appeared certain. Lidl and German software giant SAP are leaders in their respective fields. About a thousand staff and hundreds of consultants implemented a new company-wide system for inventory control for the discount grocery chain, which has close to €100 billion in annual revenue. The system, in planning since 2011, even got a cute nickname — eLWIS (pronounced like Elvis in German). In April 2017, SAP awarded Lidl a prize for being one of their best customers. 

But by May 2017, Lidl’s head of IT, Alexander Sonnenmoser, had left, and in July this year, eLWIS was pronounced dead on arrival. Lidl would need to revert to its old inventory system. “We are practically starting from scratch,” a company insider told Handelsblatt. All this after spending an estimated €500 million on eLWIS. Neither Lidl nor SAP will confirm that number. Apparently one of the biggest problems was a “but this is how we always do it” mentality at Lidl. Changing the software necessitated reassessing almost every process at the company, insiders say. But Lidl's management was not prepared to do that. 

Unlike many of their competitors, Lidl bases its inventory management system on purchase prices. The standard SAP for Retail software uses retail prices. Lidl didn’t want to change, so the software had to be adapted. Many more accommodations had to be made, and the more changes there were to the code, the more complex and more susceptible to failure the Lidl software became. Performance fell, costs rose. Altering existing software is like changing a prefab house, IT experts say — you can put the kitchen cupboards in a different place, but when you start moving the walls, there’s no stability. “The strategic goals as originally defined were not possible at an acceptable expense,” Lidl boss Jesper Hoyer wrote in letter to staff.  “If a company wants to use the standard software, it has to adapt its own processes,” suggests Jean-Claude Flury, an IT manager who works in the pharmaceuticals branch and also heads a SAP-user group, DSAG, which includes more than 3,300 SAP clients. His implication: It’s the company’s fault, not the software’s.

Missed Opportunities for Lidl

This sector is also particularly problematic, explains Mario Zillmann, a partner at IT consultancy Lünendonk. In-house software systems are often cobbled together over decades and outdated. Not using standard software already makes “the adaptation of new technologies and transformation difficult,” he notes.

Communication may have also been a problem. The challenges the new system needed to overcome may not have been properly defined, say IT experts. Perhaps the IT department and those doing the actual work did not talk about this enough, they suggest. Also noted: Ongoing changes in senior management at Lidl, from digital technology and e-commerce divisions right to the top. After ex-Lidl chief Sven Seidel left, his successor, Mr. Hoyer, cancelled a number of planned digital initiatives, such as an online ordering service named Lidl Express.

Some have taken SAP to task, asking whether its software really is the best long-term solution for inventory at such a large company. Nobody at SAP wants to talk about the Lidl drama, pointing out only that a large proportion of German retailers use SAP for Retail without these kinds of problems. Another supermarket chain, Aldi Nord, is already working with SAP software in some regional stores; a new system for Aldi's international outlets remains a work in progress.

The cancellation of the project at Lidl is doubly annoying to SAP: They've lost some big business, and all the rumors are casting doubt on their own work. Officially Lidl has said that the eLWIS project ended because Lidl decided to stick with its own internal software. Unofficially, the backbiting is apparent.

Gossips are scapegoating German IT consultancy KPS, which was supposed to guide the transformation. SAP only provided the software — KPS was supposed to manage the adaptation procedures for Lidl, they say. Critics inside Lidl say that KPS was too slow. But Matthias Nollenberger, a senior manager at KPS who was responsible for overseeing the eLWIS project, says his company was working too short deadlines compared to other similar projects, and that the pilot phases in Austria, the US and Northern Ireland were all achieved on time.

One of Lidl’s biggest challenges now, apart from keeping its old inventory management system afloat, will be retaining all the IT experts it hired. Software engineers are highly in-demand all over Europe, and talented professionals may not want to keep fiddling with 30-year-old in-house code.

If they leave Lidl, the discounter will really only have one thing left after the death of their eLWIS — and that’s a big bill. 

1. After accepting the ‘turn back to old state’, what are the retailer’s challenges? Will the situation be fixed for once or will the circumstances triggering the first attempt to migrate platforms appear again at some point?

2. Besides the missed opportunity to move to an integrated ERP system, what other collaterals (intangible benefits) may Lidl have missed? 

3. Identify what lessons the ERP software house should learn from this experience and explain how they might influence changes to their sales approach in the future.