DHL Global Forwarding pulls plug on IT system

What began as a €750 million project to modernize the world’s largest forwarding operation and make a splash in the logistics IT market ended ignobly last week as Deutsche Post-DHL announced that its troubled New Forwarding Environment (NFE) IT system will be completely scrapped, with an expected write-down of €345 million in the company’s first nine months of 2015.

DHL warned its investors that the write-down will adversely affect their profits this year, and said that it will now consider outside software providers to upgrade its forwarding IT system. DP-DHL now expects its 2015 earnings before interest and tax (EBIT) “to be a minimum of” €2.4 billion – down from its original estimate of €3.05 billion.

“The group recognized the need to weigh potential alternatives and will implement a step-by-step replacement and upgrade of its IT set-up,” according to a statement from DP-DHL. “This could rely on a flexible IT architecture, potentially enhancing and converging existing systems and also incorporating advanced ‘off-the-shelf’ solutions that have been commercially proven within the freight forwarding sector.”

The NFE enterprise resource planning system faced mounting problems with implementation earlier this year and was found to lack the flexibility the huge forwarding operation needed, according to DHL-Global Forwarding (DGF). DGF’s CEO at the time, Roger Crook, resigned from his post in April after the IT system’s costs dragged down DGF’s fiscal 2014 operating profits by nearly 39 percent, year-over-year, to €293 million.

DGF suspended the rollout of the NFE system in May 2015, but was still hopeful that parts of the system could be salvaged. By August, DP-DHL’s CFO Larry Rosen said the company was considering moving forward with a scaled-down version of the NFE and had mentioned that the possibility that the program might be scrapped, but added that it would be an “unlikely” scenario. Last Friday, however, the latter scenario ended up being the drastic path the company chose.

The NFE had been a key part of Deutsche Post’s “2020 strategy” to ensure that 85 percent of its revenues came from logistics by 2020. Frank Appel, CEO of Duetsche Post, said on Friday that, “as part of our transition from Strategy 2015 to Strategy 2020, we accept these short-term effects on our results in order to deliver long-term targets. We are taking these measures to underpin our earnings guidance for 2016 and 2020.”

DP-DHL also said it would write off another €200 million worth of expenses incurred during its “reassessment of legal and regulatory aspects” of its postal delivery workforce.

“As we have said previously, 2015 is a year of transition,” the company stated. “Accordingly, we are taking all the measures we can to ensure that our business divisions are optimally positioned for success in the coming years. Our objective for a renewal of our forwarding business remains valid. We are now undertaking further measures to make this renewal business-centric.”