Dive Brief:
- Lamb Weston has started transitioning its North America operations to a new enterprise resource planning system, CFO Bernadette Madarieta said on the potato products supplier’s Jan. 4 earnings call.
- The shift, aimed at boosting productivity while limiting expenses, has involved systems managing supplier payments, inventories, warehousing, customer invoicing and customer shipments to SAP. The company accelerated some payments to its suppliers ahead of the system's launch.
- Lamb Weston instituted a temporary production pause and an increase to planned downtime at processing facilities to aid in the transition, Madarieta said. The shift will also cause reduced shipping activity due to short-term inventory visibility challenges at third-party warehouses.
Dive Insight:
Lamb Weston's ERP transition has been years in the making. President and CEO Tom Werner said in 2019 that the new system will "drive productivity and reduce costs by streamlining supply chain, commercial and back-office processes, while also improving our demand in operations planning across our global manufacturing footprint."
The company had to pause its work on the transition in fiscal year 2021, as it focused more on pandemic-related challenges. That pause is now in the rearview mirror, with the transition in North America slated to be complete in 2026, according to an investor presentation.
The new ERP system will replace Lamb Weston's existing operating and financial systems, providing it with an accurate account of financial records, a boost to operational functionality and timely information for management, per its annual report.
The increased production downtime due to the transition will pressure Lamb Weston's gross margins in its next earnings report, Madarieta said. The negative impact will be short-lived, however, as the company doesn't foresee any major hit to its financial performance going forward.
"We're experiencing the usual bumps associated with these highly challenging large-scale projects, but don't expect that the cutover will have a material impact on our full-year business or operating results," she said.
While upgrading an ERP system offers plenty of upside, implementation challenges and delays have led to revenue losses, increased labor costs and operational hiccups for a mix of companies such as J&J Snack Foods, Funko and Mission Produce in recent years.
