Why Businesses Go Bankrupt: Shane Company

Shane Company, a family-owned $200 million jewelry retailer filed for Chapter 11 bankruptcy early in 2009, partly attributing “cost overruns and functionality problems on an SAP software implementation,”  “ComputerWorld” reported.  The company also acknowledged that the recession, and slow holiday sales were the biggest cause of its problems, as sales slumped from $275 million in 2007 to between $207 and $210 million in 2008.  The SAP implementation had cost Shane $36 million by the time they pulled the plug vs. an original cost bid of $8 to $10 million, and had also caused Shane to become “substantially overstocked with inventory, and with the wrong mix of inventory.”  But here’s a question for Shane management: What systems and business practices were they using to manage inventory on their way to becoming a $275 million company, and why didn’t they keep things in place as they were until thoroughly testing the new SAP system, and then cutting over, to protect against the ensuing problems.

Lesson Learned:  Company managers have to take responsibility for the business systems they recommend for purchase and their subsequent implementation.   While competitor Blue Nile was riding out the recession with less than a 6% revenue decline in 2008, Shane’s 25% revenue decline meant there was little or no leeway for a botched  SAP implementation.