SCDigest Editorial Staff

SCDigest Says:

The lawsuit itself is interesting, and provides some valuable lessons for all companies in their evaluation and selection of supply chain software. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

While many technology initiatives fail to meet expectations, it’s extremely rare for a company to sue its software provider over the results, in part, because usually by that time, the company is in deep enough that it is still dependent on the software provider to make a tough situation better.

In addition, most software license contracts state that in the event of any dispute, the most the software provider can be liable for is the amount of money spent with the vendor. They are not liable for any ancillary damages for operational miscues. For example, if a new distribution system fails and a company loses revenue from a failure to ship product for some period, the software vendor cannot be held liable for those damages.

So, it is interesting to read the lawsuit filed in late March by trash collection giant Waste Management against SAP for what it terms was a “complete failure” of an attempted ERP implementation in 2005-2007, alleging “fraud.”

The heart of the complaint is related to the increasing “verticalization” of SAP solutions – tailored versions that are targeted at different industry groups, from consumer packaged goods to utilities. In this case, SAP was pitching to Waste Management a version of its ERP system tailored for the needs of Waste and Recycling companies.

Waste Management alleges that SAP positioned the product as “mature” and usable “out-of-the box,” while the reality was far different. The company says that after $100 million in project expenses and two years of effort, even the first pilot site is not up, and that SAP has said the version of the product Waste Management has been trying to install will have to be swapped out for a newer version of its ERP platform.

A copy of the lawsuit filed in Harris County, TX is available here: Waste Management-SAP Lawsuit Filing.

(Supply Chain Trends and Issues Article - Continued Below)

The lawsuit itself is interesting, and provides some valuable lessons for all companies in their evaluation and selection of supply chain software.

The crux of the alleged “fraud” is that while SAP was positioning the solution as “proven,” and working with Waste Management’s team to vet the solution against the company’s business needs, it was, in fact, using a doctored version of the product in these evaluation stages that did not reflect the actual product to be installed. Interestingly, part of SAP’s sales team apparently included an ex-controller of Waste Management, hired by SAP to help it penetrate the US Waste and Recycling market.

The suit claims that “SAP presented Waste Management with a series of pre-contract product demonstrations consisting of what SAP represented was the actual waste and recycling software. Yet, Waste Management has discovered– and, in internal documents, SAP has admitted — that the pre-contract demonstrations were, in fact, nothing more than fake, mock-up simulations that did not use the software ultimately licensed to Waste Management. SAP’s senior executives... participated in these fake product demonstrations, which were rigged and manipulated.”

If true, this is far from the first time a software vendor has used this technique.

“While most supply chain software demos are above board, a sales team under pressure to win a deal where they don’t really meet functional requirements often has some tricks available to them,” said SCDigest editor Dan Gilmore. “One software vendor I knew in the past internally used to refer to which projects were “sold but not built,” meaning commitments or representations were made in the sales process that had to be delivered, but didn’t really yet exist.”

At the “screen” level of functionality, without real processing and integration behind it, it is relatively easy to make software look like it is doing something in demo mode that doesn’t reflect the huge effort it will take to actually fully develop that functionality in a working product.

What can companies do?

• Specifically ask what it is you are seeing: An entire software sales team may have trouble with a bold face lie that says the demoed version is what exists as real product today. But many prospects never really ask the question.
• Do Reference Calls/Site Visits that Ask the Tough Questions: If you can’t find another company using the functionality you need and that is promised, start to be wary. Even if a reference is using the functionality, ask the hard questions about whether it was custom-developed for them, or truly part of the base package.

Who Owns the ROI?

Another interesting aspect to the suit is that in addition to problems with the functionality and the inability to install the system, Waste Management is also alleging misrepresentations about project ROI.

The suit alleges that SAP helped Waste Management develop a business case that SAP “knew was defective... Based on SAP’s specific representations concerning the purported capabilities of its software, the Business Case generated net annual benefits to Waste Management of between $106 and $220 million per year,” the lawsuit claims.

A couple of things stand out. First, that’s a very broad range of expected ROI. Second, it begs the question of how strong a role a software vendor should play in developing the business case. Some are happy to play a strong and active role to help push sales through. Others are reluctant to do so because they believe there are too many factors that ultimately impact cost savings or other benefits.

The Waste Management case is unique in that it stemmed from what appears to be a total project failure, not a project disappointment. Nonetheless, buyers of any software would do well to study the suit to minimize their chances of surprises and problems after the sale.

What’s your take on the Waste Management-SAP lawsuit. How could either or both parties have acted differently to avoid this mess? What lessons are there in this case about buying software in general? Let us know your thoughts at the Feedback button below.