Problems with a new computerised management information system have been dogging Grove Worldwide to such an extent that sales of its cranes and access equipment fell 8% in the three months immediately following Conexpo, the showcase US exhibition for construction equipment. Figures from Grove Holdings show that drastic restructuring of the crane and access equipment manufacturer has yet to show significant results, with sales down and an order book showing a net decline, in spite of Conexpo.
Results for the 13 weeks starting on the Monday after the show ended until 3 July – the third quarter of Grove’s financial year – show sales of $207.4m, compared with $225.1m for the same quarter in 1998. Grove Crane president Jeffry Bust attributed the startling inability to follow up the show with a rise in sales on problems with the new Enterprise Resource Planning system (ERP), implemented in October 1998. ERP is designed to harmonise and integrate the systems of all Grove departments. Development work began in 1994 and five years later the system is still not operating effectively.
The company was already committed to implementing the new system when the new owner, Keystone, took over last year. Bust said that ERP could not be dropped at that stage because there was not enough time to return to the previous system and make it Y2K compliant. Grove would never get a payback on ERP, he said.
Bust said that Grove had turned away business, as it was unable to commit to meeting delivery schedules. “People have talked to us and gone away because we couldn’t meet delivery times, especially on work platforms. We’ve turned business away because we don’t want to let people down”, he said. Production of Manlift aerial work platforms has also been disrupted by the closure of the UK manufacturing plant.
Unavailability of product has played right into the hands of Grove’s major competitor, Terex, whose business strategy is based on its “simple, available and cost-effective” creed.
Bust explained that in the first four months of ERP implementation, from October 1998 to February this year, efforts were focused on getting product support and parts delivery on schedule. “We just poured all of our resources into making that right and just started looking at production around February/March,” he said.
Bust said that there were three key problems encountered with the new system:
Calculating lead times for manufactured components. “Some decisions were overly aggressive. For example, a carrier frame was given a lead time of two days when previously it was 10 to 12 days, so we had to straighten that out”, he said. Assumptions were based on theoretical supply times, without any margin for “real life” scenarios, Bust explained.
Order quantities: it is appropriate to have some components delivered singly, some in batches of perhaps a dozen, and some in greater volume. Initially, components were being bought in single unit orders.
Inventory accuracy: “There were a fair number of transactional errors,” Bust said. “We normally go for 95% or 97% inventory accuracy. We were down in the 83% range.” Bust added: “Our suppliers are a significant part of the problem but it’s not all their fault either. From October to May we were sending out schedules to them that were changing daily.” On the positive side Grove does report that its order book backlog is up 6% on the previous three months. But the company claims that the fall in sales was “primarily associated with a reduced production unit volume”. Does this mean that the order book actually suffered a year-on-year net fall directly after Conexpo, Bust was asked. “I think you can look at it like that,” he concurred. But he said that the order book was up 38% on the start of the financial year in October 1998.
In spite of a major cost-cutting programme, which included closure of the Sunderland plant, gross margins also fell in the third quarter from 21% to 19%. “This decrease was primarily associated with the reduced production unit volume and higher costs caused by inefficiencies with the company’s business systems startup. The company’s selling, engineering, general and administrative expenses for the third quarter of 1999 were $31.8m compared to $36.9m for the third quarter of 1998 as a result of the company’s cost-cutting initiative”, Grove Holdings reported.
Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) in the third quarter were $13.5m, compared to $20.8m for the same period in 1998. During that time, $1.6m was spent on management consultants from the George Group, which holds shares in Grove.
Post-Conexpo results were not as bad as the pre-Conexpo performance, however. Net sales for the first three quarters were down $73.3m, or 11.6%, to $557.7m on 1998. This was attributed primarily to weak sales in the first quarter and the transition of Manlift manufacturing operations from Sunderland, UK to the USA. For the first nine months, EBITDA was $33.6m, down from $56.8m. The cost-cutting programme resulted in selling, engineering, general and administrative expenses coming down from $103.5m to $95.7m.
Better news is that Deutsche Grove has now overcome its ERP implementation problems at its Wilhelmshaven plant. Last year it had “a very poor performance”, Bust said, but there had now been a turnaround and 1999 would be “a record year” because of ERP problems had been beaten.
As for Shady Grove in the USA, “it’s a challenging type of environment”, said Bust. Of the ERP problems, he said: “You can probably imagine that it’s very frustrating for me.”
