MFI hit by IT Failure to the tune of £46m

Issues with a new supply chain system have cost furniture retailer MFI £46m in lost sales, write-offs, additional costs and extra IT work. The company admitted the problems with the multi-million pound supply chain modernisation project in a profits warning earlier this year that led to then COO Gordon MacDonald and finance director Martin Clifford-King being sacked.

In a new trading update MFI has now revealed the full scale of the problems estimating that an increased level of refunds has reduced customer orders by £30m since the introduction of the new supply chain systems in March. MFI has also taken a hit with a one-off cost of £16m on additional deliveries and call centre and technical costs resulting from the systems issues. An additional incremental investment of £8m per year will also now be pumped into additional supply chain resources, including staff.

As a result of the problems the MFI board has also been forced to knock £20m off the "carrying" (book) value of the supply chain system in a non-cash charge. The system was introduced to replace 20-year-old legacy systems but immediately following its implementation technical problems affected MFI's ability to operate supplier ordering processes, which caused lower stock availability, longer delivery times and incomplete orders being sent out to customers. These appeared to have been resolved in July but a further deterioration occurred in August with additional technical problems.

MFI said it has installed extra processing power and memory and undertaken pre-testing of the supply chain system to assess its ability to cope with Christmas and winter sale volumes but admitted it cannot "eliminate entirely" the possibility of new problems occurring. In order to minimise risk and maintain stability no further modifications of the system are planned until after the winter sale. The supplier of the systems has not commented on the exact cause of the problems except to say that it is not the actual software that is at fault.

Key point With any new system care has to be taken during the implementation phase and whilst the exact cause of this failure is not known it does illustrate how quickly losses can rise when issues compound. In this instance both the Supply Chain and IT issues amplified the effect resulting in the loss of not just £46m, but also two key board members. We believe that a Best Practice adoption of BCM would have seriously mitigated the issues and would likely have saved a significant proportion of the money and probably the Board members their jobs!