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E-Business: MEETING THE TECHNOLOGY CHALLENGE

With Big Software Projects, Firms Find Haste Makes Waste

April 02, 2001|CHARLES PILLER | TIMES STAFF WRITER

SAN FRANCISCO — When Nike Inc. recently saw that it was going to have a terrible quarter, the apparel giant seemed to disavow its famous "Just do it" marketing slogan. Instead, Nike just blamed its software.

The dramatic earnings shortfall was largely due to the failure of its costly new "supply chain" software, the company said.

When it works, such software comprehensively manages orders, manufacturing and inventory, and sends the final product to market. It tracks raw materials and communicates with suppliers with ever-increasing efficiency, often eliminating hundreds of steps in the traditional process.

But Nike's move to upgrade such processes has been a nightmare. Too many slow-selling styles went to the wrong places; the company produced 5 million pairs of spring shoe styles for which it had no orders. Meanwhile, popular models like Air Force One were in short supply or delivered late to impatient retailers.

Pointing the finger at the software's maker, Dallas-based I2 Technologies Inc., Nike Chief Executive Phil Knight reportedly quipped to analysts, "This is what we get for $400 million?"

Both Nike and I2 declined to specify what went wrong. But, in general terms, their experience provides a valuable lesson in e-business: Moving too fast and throwing caution aside can overwhelm even the best technology.

Nike was willing to invest such a large sum on supply chain software because the potential for savings is so huge. Networking equipment maker Cisco Systems claims annual savings of nearly $700 million after an investment of $170 million over five years. Much of the savings derives from shorter time to market for Cisco products.

Nike's recent missteps made the company more determined than ever to implement the sophisticated supply chain software system it had envisioned.

But Knight acknowledged last month that the Beaverton, Ore.-based company has a long way to go.

"I've sat here several times over the last three or four years trying to answer the question, 'Is that light at the end of the tunnel?' " he said. "Actually, the end of the tunnel is an oncoming freight train, and we're sort of there again today."

The Nike episode may have sounded familiar to candy maker Hershey Foods Corp. The company pushed to finish a four-year software project in 30 months, resulting in disastrous product delays just before--you guessed it--Halloween. Profit dropped correspondingly.

Who's to blame for such debacles? Such situations are so complex, said analyst Eric Upin of the investment bank Robertson Stephens, that "it's like trying to analyze how a marriage failed."

Public disputes between a software vendor and a large client are rare. But just as divorce hits as many as half of all marriages, serious problems in the implementation of supply chain software are typical.

"As many as 50% of all major [large-company] software programs have major problems--they're either significantly delayed, significantly over budget or have significant functional problems; they operate too slowly or don't do what they are supposed to do," Upin said.

And those are the ones that ultimately work.

"My guess is about half of these projects fail. Corporations scrap the software and start over," said Charles Phillips, an analyst with Morgan Stanley Dean Witter.

Nike began its project a year ago and recently acknowledged that it will take three more years to come to fruition. Like Hershey, the shoe giant apparently fell into the trap of pushing too much complexity too quickly--before its personnel or factories or shippers were ready for the change.

Why such a phenomenal failure rate--intolerable for most other business productivity efforts? Start with buggy software.

Supply chain applications for major corporations normally start at $1 million, plus customization, hardware and maintenance fees that can push the total into the stratosphere, as Nike painfully discovered. It would stand to reason that such huge sums would buy fail-safe reliability.

Yet the opposite is often true. Complexity breeds mistakes, according to Eric J. Bowden, editor of BugNet, an online publication that tracks software errors.

"It's absolutely impossible to write a piece of code that doesn't have a bug in it," he said. BugNet estimates that on average, for every thousand lines of source code--the digital instructions that constitute every software program--there is one bug. Supply chain software has millions of lines of code.

That means thousands of bugs. All it takes is one to divert 150,000 pairs of Air Garnetts to Indiana when Hoosier teens wanted Air Jordans.

And those programs tend to be far buggier than a typical personal computing application. Part of the reason is that they interact with a range of other software programs--from accounting to ordering to database tools--all of which have their own bugs. The interactive effects can cause calamitous errors and incompatibilities, Bowden said.

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