Revlon and SAP: the 2018 go-live, and what it cost
Lidl had stopped its SAP project part-way. Revlon went live. In 2018, according to its own estimates, switching on its new software cost it around $64 million in sales and $53.6 million in additional charges. Most of that was not decided on go-live day, but in the months that followed.
Author
Tudor HilcuFounder & CEO, THG Conseil
Published
Reading time
7 min
Topics
Projects, ERP, Go-live
Contents8
In early February 2018, Revlon switched on a new integrated management system in the United States, an ERP from the software vendor SAP. According to its chief operating officer, the software went live across a large part of the North American business: planning, sourcing, manufacturing, distribution and finance. Very quickly, the plant in Oxford, North Carolina, could no longer make certain quantities of finished goods or ship to several large US retailers.
The figures below come from Revlon’s reports to the SEC, the US market regulator. For the first quarter of 2018, Revlon estimated it had lost around $20 million in sales and taken on around $10 million in additional costs. Over the year, the estimate reached around $64 million of sales it could not ship and $53.6 million of additional charges, mainly to restore service levels to customers.
This is case study no. 02 in my LinkedIn series, published the day after the Lidl case. Lidl had stopped its project part-way. Revlon went live, and it was the switchover that cost money.
What happened, according to Revlon’s filings
In the first quarter, the additional costs had two sources: the plant’s fixed overheads, poorly absorbed because it was producing less than usual, and one-off labour costs incurred to restore customer service. Revlon stated that the plant was back to normal production capacity by April 2018.
That was not the end of it. Of the roughly $64 million of sales lost over the year, around $20 million were lost in the first quarter: the rest came later, when the plant was running normally again. Stocks had run down and had to be rebuilt. At the end of 2018, Revlon wrote that it was still refilling inventories across its retail partners, particularly internationally. Its annual report also lists expedited shipping fees among the unplanned expenses.
Internal control, then the shareholders
On 18 March 2019, Revlon announced that it could not file its annual report on time: it had identified a material weakness in its internal control over financial reporting, linked to the SAP implementation in the United States. The share price fell sharply.
In its annual report, filed on 28 March 2019, Revlon set out the causes. It had not effectively and continuously assessed the risks the new software posed to its controls. It did not have enough trained staff, in the operations concerned, to run those controls. As a result, the controls meant to ensure that inventory, receivables, net sales and cost of goods sold were properly recorded were not designed or operated reliably. These failings did not lead to any material misstatement in the 2018 accounts, but the group’s auditor issued an adverse opinion on that internal control.
In May 2019, shareholders brought a class action in the federal court in Brooklyn. They accused the executives of playing down the risks before the launch, then the scale of the damage afterwards. Among other things, they quoted an executive who, on the analyst call of 10 May 2018, explained that Revlon had expected, at the outset, to execute “flawlessly” at Oxford. In September 2020, the court dismissed the complaint, finding that the plaintiffs had not adequately supported their claims. They did not refile, and the case was closed in October 2020.
What this case says about a switchover
The first people hit are not the IT team: they are the retailers whose orders do not arrive. A switch of management software shows up first in deliveries.
The plant getting back to normal does not close the incident. Stocks still have to be rebuilt, late orders caught up and customers’ confidence won back. At Revlon, the plant was running normally again in April, and retailers were still being restocked in December.
The new software also changes the way the business records its stock, its sales and its receivables. Without enough trained people, the figures themselves become less reliable.
None of this is reserved for large groups. An SME changing its management, till or warehouse software runs the same risks, often with less room to absorb the shock.
Six points to check before your switchover
Write the go-live criteria before you set the date. Tests passed, data migrated and checked, teams trained. If a criterion is missing, the date moves, not the criterion.
Run a full test on your real data, from order to invoice. A real order, picked, shipped, invoiced, paid, then traced in the accounts.
Build a stock buffer for your largest customers. A few days’ or weeks’ worth of deliveries, to absorb a slower start than planned. Tell those customers the date.
Train enough people, and name a go-to person in each department. Revlon itself acknowledged it lacked staff trained in internal control in the operations affected by the new software.
Write down the rollback rule: who decides, on what criteria, and until when. Beyond a certain point, going back to the old tool is no longer possible. You need to know that before you start, not find out on day three.
For the first month, track orders received, shipped and invoiced every day. A short committee every morning that looks at these figures and decides the day’s actions. Also prepare the first month-end close on the new tool with your accountant: stock, customer receivables, reconciliations.
Fictitious example, in round figures: an SME’s daily committee table, the first week after go-live
Day
Received
Shipped
Backlog
Mon
120
95
25
Tue
110
104
31
Wed
130
140
21
Thu
115
125
11
Fri
100
105
6
Orders received and shipped each day; the backlog is cumulative from Monday.
On Monday, one order in five does not go out, and the backlog grows again on Tuesday. The committee sees it that same evening, adds people to picking, and the backlog shrinks by the end of the week. Without this table, the problem would have come to light at the end of the month, at the customers’ end.
What I learnt
I have led critical go-lives at TotalEnergies. There, go-live day is prepared well in advance: criteria written beforehand, critical tests signed off, a checklist, a rollback plan ready, a daily steering committee, and a support team for the days that follow. On The Walt Disney Company’s ERP and WMS programme, I also saw what comes after: remediation plans after major incidents, and trade-offs between fixes and enhancements.
To my mind, a switchover is judged on the deliveries of the weeks that follow. Go-live is only the beginning.
What the filings do not say
The amounts are Revlon’s own estimates, published in its reports to the SEC. They measure lost sales and additional charges, not the total cost of the project, which I have not found published. The shareholder complaint was dismissed: no court has found any wrongdoing by the executives. Nor do I apportion responsibility between the vendor, the integrator and Revlon. If your own switchover affects your accounts, your internal control or your contracts, take it up with your lawyer and your accountant.
Where to start this week
Write down the date of your next change of tool, however far off: management software, till, invoicing, warehouse.
List your ten largest customers and what you will need to deliver to them in the first month.
Write the rollback rule on one page: who decides, on what criteria, until when.
Two lists and one page, and you already know what has to hold on go-live day, then in the weeks after.
A switchover is judged on the deliveries of the weeks that follow.
The previous case, Lidl and SAP, shows the other risk: a project that stops part-way. To prepare your switchover, the free go-live checklist covers what must be ready, the committee’s decision, the rollback plan and the first days. If a go-live is coming up, Project leadership explains how I work; if it has already gone wrong, so does Coming through a crisis. The rapid assessment takes two minutes, and nothing is sent: you then choose whether to call me or write to me.
