Problems during an SAP AG software installation have hit Rowe Furniture Inc."s bottom line as it scrambles to fill a backlog of customer orders that arose from the rollout of new technology.

Late last month, the custom furniture maker"s parent company, Rowe Cos., announced that production levels and shipments had been "adversely affected" by changes in manufacturing processes made in connection with the rollout of SAP R/3 ERP software. Unable to keep up with customer demand, the company announced its biggest backlog ever and a net loss for the first quarter of US$149,000. That compared with a profit of $72,000 in the same quarter a year ago.

Rowe Cos. sales totaled $295 million in 2004.

The SAP implementation was aimed at making the Maclean, Va.-based company more competitive with cheaper overseas rivals, in part by cutting furniture delivery times to retailers from 45 days to 10 days by early 2006. The SAP applications installed in 2004 included human resources, payroll and production scheduling software. The company is also planning to install supply chain management and CRM modules, as well as a customer portal.

In a webcast held on March 31, Rowe Cos. Chairman and President Gerald Birnbach said that swapping in the new technology and processes had "proven to be much more difficult than planned." The resulting problems led to a drop off in deliveries, he said, and a backlog of orders that, as of March, was up 115 percent over a year ago.

"We have to be better, because we"ve got people who want our goods something terrible," Birnbach said.

The SAP software replaced a number of legacy third-party and homegrown systems that had reached their end of life, according to Chief Financial Officer Gene Morphis, who spoke during the webcast and in a subsequent interview. The SAP software generally worked as planned, Morphis said, albeit with a "couple of interesting, curious little technical problems" that weren"t "hugely disruptive."

Since IBM, the integrator on the software upgrade, and SAP sent in consultants, "the problems that we could blame on software [have been] diminishing pretty dramatically," Morphis said during the webcast.

Company employees are "now making sure we are effectively using the software," he said. "We learned during the quarter [that] we had a couple programs we just weren"t using correctly. Now that we"ve figured those things out, we think that by the end of this quarter, we should be making pretty good headway."

In an interview, Morphis said the most persistent problem has been the inability to supply furniture frames, which are manufactured internally, in a timely manner. The delays arose from a change in the way the 5,500 wooden pieces that are assembled into the frames are stored and handled. It was also difficult to get accurate data to predict demand, in part because SAP requires real-time information feeds on inventory usage while Rowe"s staff was accustomed to doing batch downloads at the end of each day.

Moreover, there were difficulties in converting from a system that handled inventory at the subassembly level, such as a completed backrest, to one that functioned at the individual component level, said Morphis. "We didn"t anticipate these problems as well as we should have. We got behind in the physical manufacturing process."

He declined to divulge the overall cost of the system or how much the resulting problems will cost to fix. But he said the latter would probably not be "significant."

As part of the company"s ongoing turnaround, Rowe employees are getting additional training on the system. The company has also made production more efficient by pooling similar orders instead of running the line in a one-off way.

"We are, we believe, almost out of the woods," said Morphis, adding that the backlog should be fulfilled over the next two quarters. Even with the recent problems, the new ERP system should provide a backbone for the company to find further savings.

William Wohl, a spokesman for SAP Americas Inc., said SAP knows from experience that any company that goes through such an enormous business transformation almost always faces short-term challenge. Nevertheless, such companies ultimately achieve "those objectives to transform the business, and Rowe has indicated to us they see the light at the end of the tunnel."