QUESTION $3(40$ marks$)$

In a trading statement for the year ended $30$ September, issued today, Spar says: $$The unsuccessful launch of Spar$$s new ERP IT system $($SAP$)$ at the KwaZulu$-$Natal $($KZN$)$ distribution centre impacted the KZN trading performance severely, causing a loss of group turnover estimated at R$1\mathrm{.}6$ billion.$$ According to the retailer, the operational impact amounted to an estimated R$720$ million in loss of profits for this region.

But all this might have been avoided. Business Day reported that if Spar Group had listened to the concerns of the whistle$-$blower, who reportedly wrote to former board chair Graham O$$Connor in October $2021$ expressing concern about the project. But the information was not passed on to the rest of the board by O$$Connor and two other directors who knew about it$.$ Directors Andrew Waller and Jane Canny both resigned on the same day auditor PwC reported the irregularity to the Independent Regulatory Board for Auditors. The third director likely to have been involved, O$$Connor$,$ had already left the company,

According to Warehouse Automation, Spar Group encountered multiple obstacles during the rollout of the SAP software, particularly at its KZN distribution centre, which was the first to adopt the new system in February $2023.$ It notes that the transition resulted in various go$-$live and integration issues, significantly impacting distribution operations in the region. These challenges disrupted stock deliveries to retailers$$ stores, leading to reduced service levels and a decline in retailer loyalty.

$$Spar Group$$s botched SAP implementation and subsequent financial losses serve as a cautionary tale for organisations embarking on digital transformation journeys,$$ Warehouse Automation adds.

Its KZN logistics hub was ultimately incapacitated, forcing the retailer to use distribution centres further afield to plug the gap. According to group CEO Angelo Swartz, the Eastern Cape, North

Rand and South Rand distribution centres were used to keep KZN stores supplied. The less efficient logistics led to a $12\mathrm{.}8\%$ increase in fuel and distribution costs that compounded the impact that issues affecting the entire retail sector had on Spar in particular.

Spar has now halted other SAP projects it had planned, leading to a write$-$off of R$94\mathrm{.}1-$million of $$SAP assets under construction$.$

According to the annual report, this decision was taken so that mistakes from the KZN project would not be transferred to the rest of the group$$s operations. Spar identified shortfalls in $$solution readiness$,$master data construction$$ and change management relating to the project as key setbacks to its implementation.

$$At go$-$live, many products had incorrect units of measure and cost price, and the inventory load into production did not work, extending the data migration timeline. User acceptance testing was siloed in that users did not get an end$-$to$-$end view of processes and the impact of their part of the process on others. Our solution readiness problems should have been picked up at both solution sign$-$off stage and user acceptance testing, but were not,$$ it said.

Spar jacked up its governance efforts to get the project back on track, which included an ongoing review of its design and implementation approach, the finalisation of its master data governance and management frameworks and engaging the services of consulting firm EY to perform the IT audit function on the SAP project.

In a newspaper article dated $14$ June $2024$ the Spar CEO reported that parts of its business operations will transition away from SAP$$s software following the implementation difficulties it had in $2023.$We have made the decision to move the warehouse management system away from the core SAP architecture; however, we will keep our core enterprise resource planning $($ERP$)$ system on the SAP backbone, and that accounts for $80\%$ of the system$.$ However, the company has decided to implement a $$more cost$-$effective warehouse management system$$ better suited to its business.

$3\mathrm{.}1$ With reference to an organisation$$s analysis of loss exposures, discuss the relevant aspects of Spar$$s business which were the most at risk owing to the botched SAP implementation. Relate to the following areas:

$$ business interruption

$$ loss of software

$$ loss of data

$$ loss of hardware

$$ loss of facilities

$$ loss of service and personnel

$$ loss of reputation.$(12$ marks$)$