Avon Products Inc. AVP -1.29% is pulling the plug on a $125 million software overhaul that has been in the works for four years after a test of the system in Canada drove away many of the salespeople who fuel the door-to-door cosmetics company's revenue.
Avon began using the new order management software system in Canada in the second quarter. While the new system based on software supplied by SAP AG SAP -0.60% worked as planned, it was so burdensome and disruptive to Avon representatives' daily routine that they left in meaningful numbers.
"In light of the potential risk of further disruption," the company decided to halt the software's rollout to other countries, according to a filing with regulators Wednesday.
The company expects to write down between $100 million to $125 million of the cost of the software because it won't be put to use in the rest of the world.
Avon will keep using the software system in Canada and remains committed to upgrading aging technology infrastructure, a spokeswoman said. But the company had intended to expand the system to other markets like Brazil, the U.S., Mexico, the U.K. and Russia over the next four years, according to a recent job posting, and those plans have now been abandoned.
Companies and governments hire contractors like SAP and International Business Machines Corp. to develop software to boost productivity by improving inventory management and streamlining procurement. But sometimes new software has the opposite effect.
Three years ago, Lumber Liquidators Holdings Inc. said a new point-of-sale and inventory management system developed by SAP led to millions of dollars in reduced productivity and lost sales, hurting its 2010 profits. And in early 2011 logistics company Ingram Micro Inc. fingered the implementation of a new SAP software system in Australia for a shortfall in profit.
A spokesman for SAP, Andy Kendzie, said the order management system for Avon "is working as designed, despite any issues with the implementation of this project." The spokesman said the two companies have a "solid and productive relationship."
For Avon, the failed software implementation is the latest problem to hit its information technology department which has been on a push to improve its global systems. Two years ago, the company had problems in Brazil after it pushed out new enterprise management software from Oracle Corp. ORCL -2.78% to help employees manage inventories and marketing activities.
The difficulties in Brazil, which stemmed from moving from a manual operating environment to a computerized process, contributed to disappointing earnings from the country.
An Oracle spokeswoman didn't respond to a request for comment.
Avon Chief Executive Sherilyn McCoy mentioned issues with the software pilot in Canada in the company's October earnings conference call but said the system was working as designed.
"The degree of impact or change in the daily processes to the representative was significant," Ms. McCoy said at the time. "This resulted in a steep drop in the active representative count."
Avon relies on a direct sales model where its representatives aren't employees, which makes it difficult to add new tasks associated with the software system. The company is trying to stabilize its Canadian operations by intensifying recruitment and helping its sales force use the new system.
Write to Drew Fitzgerald at firstname.lastname@example.org