A leading Australian company cuts 380 jobs after blaming a new software package for part of the problem.
What a miserable lot they are at plumbing and building supplies company
Crane Group, which revealed a $51 million write down on Tuesday.

Earnings will be 15 per cent down on the previous year’s record result
(which still makes it a good result) and the dividend is still strong.

And yet around 380 jobs will go in Australia and New Zealand, including
some 200 in the Tradelink plumbing supplies company, where the
incompetently-handled introduced of the new ERP (Enterprise Resource
Planning) software from JD Edwards, now PeopleSoft, has had the
greatest impact.

Similar experiences with similar types of software from other vendors
have been experienced at Goodman Fielder and Southcorp over the past
four years, while PBL is still struggling to fully integrate its new
payroll and HR system called Kiosk, with the PeopleSoft-based platform
installed over the last year or so.

In the cases of Southcorp and Goodman, the losses were substantial from
higher processing costs, delays, lost sales and orders and higher
labour inputs.

In Crane’s case a project that was supposed to take two years, took
four, with a few more months to go to fully bed down the
software. But investors were relieved the final bill wasn’t
bigger. So what did they do on Tuesday? Bought the shares with their
ears pinned back, pushing the price sharply higher closing just under
$9, up 14c after touching $9, the highest for some weeks.

It’s enough to make you wonder about the motivation of the review and
the ability of the board, led by well-known professional director, Leo
Tutt, who was the controversial chairman of MIM Holdings during last
year’s assault by the Swiss-based Xstrata plc.

It looks more like a case of a new boy’s here so clear the decks, get
rid of people, trim costs and provide a nice base for the bonus for the
new bloke, and the new guys at the head of the four divisions when the
next year’s bonuses and other payouts are worked out. No wonder
shareholders and others are a cynical lot these days.

Fancy using an appallingly bad management execution of a new computer
platform in the Tradelink division to turf more than 200 jobs there and
around 180 elsewhere, without the board or senior management paying the
right price.

It would have to be one of the crummiest decisions by any company in
recent times. The axings in Crane’s four divisions, follow a
review begun after CEO Greg Sedgwick joined Crane Group in January this
year. Yet another example of a new broom clearing the decks and
blaming previous management.

Besides the jobs going, 13 “non-performing” Tradelink plumbing supplies
stores in Australia will be closed. Crane claims Tradelink is its worst
performing division. A further 100 positions will be cut at Crane
Distribution NZ, which will close or merge seven stores. And more than
80 jobs lost from Crane Group’s metals division, which manufactures and
distributes copper, aluminium and brass products.

The restructure will cost the group $51.4 million this financial year,
but there’s no change to its forecast full year earnings (before
goodwill and significant items) – expected to be down 15 per cent on
last year’s record result.

Sedgwick says the stores probably should have been closed earlier as
part of the normal course of business but management had been
distracted by problems associated with implementing a new computer
system.

And whose decision was it to introduce the new computer program? Why
the board and senior management. But no mea culpas. He’s the new boy on
the block and the old management is no longer around. Long time CEO
John Ingram having retired earlier this year.

The new ERP system is now expected to be completed by next month.
Currently, it links 207 of the 230 Tradelink outlets, as well as all 42
of the group’s manufacturing and warehouse sites.

Crane Group has now decided to write down the carrying value of the IT
system by $28.8 million for the current financial year. “The group is
currently examining its position with regard to a claim against
PeopleSoft, the vendor of the system,” Crane Group said in a
statement. Well duuuuuh.

A total of 30 jobs will go in the IT division, with management there
being streamlined as well, but costs next financial year will still
rise by at least $15 million, including depreciation and amortisation.

No mention from Greg or the board of a comparison between the savings
originally envisaged versus the actual costs now apparent, but some
reports put the cost at $80 million (before any write-downs).

In Crane’s metals division, where rationalisations will be made with
the closure of warehouses and outlets, write-offs will total $18.5
million before tax.

The metals business suffered earlier in the year when the rapidly
rising Australian dollar made export conditions more difficult but Mr
Sedgwick said that had “plateaued” now.

However the management structure of all four divisions will be overhauled, at a cost of $5.1 million before tax.

Crane Group on Tuesday also announced its dividend for the second half
would match that of the first half at 30 cents per share, fully franked.

CRIKEY: The thing with ERP systems is that they work when the company
installing it has a modular style of business, with not too many
products and not too many small fiddly bits. Tradelink in the Crane
Group, has lots of fiddly bits. Tens of thousands in fact. Washers,
pipes, solders, hammers, screw, bolts and many many more. It is very hard
for a computer system to accurately track all that if there is not
enough people tagging or following stock levels and other procedures.
Many of the products were too small to have barcodes, so the codes had
to be found then inputted manually, which takes time. Because of the
problems in tracking and keeping accurate stock levels, ‘out of stocks’
would have been a problem, as well as ordering from manufacturers.
Goodman Fielder and Southcorp all had similar problems.

Even in companies where the software is introduced successfully, many
executives swear ‘never again’ such is the complexity involved.
For Crane and its shareholders, the savings, if and when they flow,
will probably be quite a while in coming.

Peter Fray

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