Revlon SAP ERP problems result in rare investor lawsuit

An SAP ERP implementation at cosmetic maker Revlon disrupted some operations. After the news came out, the company's stock price suffered. Now, investors are suing.

An ERP implementation created major problems and affected manufacturing operations at Revlon Inc. When it outlined the consequences to investors, Revlon's stock price took a hit. The news has also resulted in at least one investor lawsuit.

The New York-based cosmetics company launched a new SAP ERP system in 2018. It resulted in "service-level disruptions" at its Oxford, N.C., manufacturing facility, the firm stated in a securities filing. The company implemented a "robust service recovery plan" to fix it.

The ERP problems hurt Revlon's ability to manufacture certain goods and fulfill shipments to several large retail customers in the U.S., the firm stated in a financial filing in March. After the announcement, Revlon's stock price fell 6.4%, and investors are now seeking damages.

"As a result of the poor preparation and planning of the implementation of the ERP system, Revlon was unable to fulfill product shipments of approximately $64 million of net sales," claims a lawsuit filed in the U.S. District Court in New York by The Rosen Law Firm on behalf of an investor. The lawsuit was announced late last week and seeks class action status.

Michelle Adams, spokesperson at Revlon, said, "The lawsuit is without merit, and Revlon will contest it vigorously.”

Major reasons for ERP problems

ERP problems, including implementation failures, are common. But an ERP problem that results in an investor lawsuit is "rare," said Jim Johnson, founder and chairman at The Standish Group International Inc., a research and consulting firm that studies ERP projects. The more common disputes are between ERP customers and the implementers, he said.

Bill Baumann, director of expert witness services at Panorama Consulting Solutions, agreed with Johnson, saying an ERP-related investor lawsuit is unusual. As an expert witness, Baumann provides witness services to either side in an ERP court cases.

The top executives don't back the initiative and it flows downhill.
Bill Baumann Director of expert witness services, Panorama Consulting Solutions

He pointed to more generic reasons for an ERP lawsuit. Among the most common is some type of misrepresentation such as a vendor that promises an integration into a third-party service but can't deliver.

ERP problems are also caused by the lack of an organizational change management plan. Employees aren't involved in the ERP changes or trained on the new system, Baumann said.

He also cited a third major reason for ERP problems -- a lack of executive support. "The top executives don't back the initiative and it flows downhill," Baumann said. "People know that, and they don't put their time in there -- they put their time in their regular job."

Baumann estimated that about 90% of all ERP lawsuits settle before a trial.

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