J&J Snack Foods' new ERP system cost an estimated $20M in quarterly revenue

J&J Snack Foods, owner of brands including ICEE and SuperPretzel, told analysts on its May 2022 earnings call that it had lost an estimated $20 million in revenue in the quarter after problems moving to a new ERP system disrupted production. CEO Dan Fachner said the implementation 'created unforeseen temporary, operational, manufacturing and supply chain challenges' that contributed to a $7.6 million rise in operating expenses. The foodservice and retail segments were hit hardest.

The company had timed the transition for what is normally its slowest quarter for volumes, and it was moving to a platform from JD Edwards, owned by Oracle. Fachner said the problems led to 'picking and scheduling issues', and production of some lines, including frozen novelties, was disrupted. CFO Ken Plunk said the ERP delays and ongoing inflation combined to have a 'marked impact' on margins. J&J did not respond to Supply Chain Dive's request for more detail on operational impacts.

Fachner had called the move to the new system the largest and most necessary change required to strengthen the supply chain, as the company sought to build capacity and improve efficiency. The frozen beverage business that includes ICEE was unaffected because it already ran on JD Edwards.

An estimated $20M in lost Q2 revenue, plus a $7.6M rise in operating expenses.

The company changed the system that runs production, picking and scheduling across much of its business in one transition.

Fachner described the problems as 'unforeseen', including picking and scheduling issues that disrupted production of certain lines.

Inflation hit at the same time as the delays, compounding the damage to margins, according to the CFO.

Supply Chain Dive cited McKinsey research that three-quarters of ERP transformations run late or over budget and about two-thirds have a negative return on investment.

A planned changeover in your slowest quarter does not make an ERP rollout safe. Pilot on the lines that matter, and budget for the picking and scheduling that break first.

Fachner said 'all signs' pointed toward the company being out of the worst of it. Supply Chain Dive noted that Mission Produce had also seen a $4.1 million rise in operating expenses after an ERP transition left it without visibility into inventory.