Bio-Rad Says Net Losses Due to ERP Implementation

Bio-Rad reported net sales losses of 11.4% for the third quarter of 2015. The company said the slowdown in its supply chain processes is "a matter of timing", however, and is not due to sales losses.

The company cited slow growth in emerging markets as well as productivity challenges related to the second phase of deployment of its new ERP system. Christine A. Tsingos, executive vice-president and CFO, said that although a "temporary disruption in productivity while adapting to new systems and processes is not atypical ... the impact to the third quarter revenue was sizeable, especially in North America." Tsingos estimated the disruption negatively impacted sales in its life-sciences division by as much $5 million to $10 million. Despite the reported losses, Tsingos remained positive: "The good news is that bookings remained strong during the third quarter and much of the disrupted revenue was likely a matter of timing and not a change in demand."

ERP, or enterprise resource planning, is a process management software program used across various industries to automate and manage business procedures and activities. For Bio-Rad, the ERP program was launched to plan the requirements of distribution, materials, and capacity. Based on a search of job vacancy postings from Bio-Rad, the ERP launch at the company included initiatives for demand planning and management, material requirements planning, production planning for process industries, production material staging, process management, and flow manufacturing.

Specifically, the ERP implementation has caused problems with backorders, according to Bio-Rad's COO John Goetz, and delays in shipping (mostly of instruments, not consumables) have pushed sales reporting from one period to the next. Goetz described the adoption of the system at its manufacturing plants as "rocky" and said that process timing from order to shipment has taken longer than expected.

In 2014, analyst firm Fitch Ratings estimated the project cost of Bio-Rad's ERP implementation to be more than $250 million during a period of four years, and predicted project roll-out would weigh on margins and would have very little benefit to the company “even upon system completion in North America."

Another big operational surprise affecting Bio-Rad's earnings for the quarter was the "softness" outside of the United States, executives noted. Tsingos commented, "European markets continue to be negatively impacted by the challenges from lab consolidation and pricing pressure."

Sources: Seeking Alpha, BusinessWire