Spar Group directors, including its chairman, failed to take heed of a warning by a whistle-blower that the retail group’s SAP project was heading for disaster, according to a report.

The botched upgrade to SAP at Spar’s KwaZulu-Natal distribution centre was largely responsible for R1.6-billion in lost turnover in 2023. The group also lost R720-million in profit for the year to end-September as a result of the project’s problems.

But all this might have been avoided. Business Day reported on Friday (paywall) 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.

According to the report, the whistle-blower contacted Spar in May, asking why their tip-off had not been acted on. Spar then hired a law firm to investigate the allegations. It found that the three directors had breached the Companies Act and their fiduciary duties.

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, Business Day reported.

The refusal to heed the whistle-blower’s warning resulted in various integration and distribution issues that caused interruptions in stock deliveries to stores and lost sales, as stores were forced to use other distribution centres to fulfil orders in the province.

“Resolving all outstanding SAP software implementation challenges remains an urgent priority for the business and for our retailers in the KwaZulu-Natal region,” the group said.

Under new management

The distribution centre in KwaZulu-Natal was the first regional distribution centre to deploy the SAP software, in February 2023. But the group reported that the transition resulted in various go-live and integration issues, negatively impacting distribution operations in KwaZulu-Natal. Spar had to spend millions servicing KwaZulu-Natal from warehouses in other provinces.

Read: Spar confident worst of ERP disaster now behind it

Retailers also had to order directly from individual suppliers instead of using the software, causing interruptions in stock deliveries to retailers’ stores and reducing service levels, which had a significant impact on retailer loyalty in the region.

Latterly, the group has worked to improve its leadership since Spar’s governance issues made headlines and has hired a new CEO, a new chair and new board members.  – © 2023 NewsCentral Media

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