Citing Botched ERP System, Fire Truck Maker Says IBM Contributed to Bankruptcy

CIO — American LaFrance, a maker of emergency vehicles such as fire trucks and ambulances, filed for Chapter 11 bankruptcy protection on Jan. 28, and in court papers is claiming that IBM’s work on installing and transitioning to a new ERP system contributed to inventory and production problems.

Officials at the company in Summerville, S.C., said the bankruptcy filing was due to "operational disruptions caused by the installation of a new ERP system" as well as obsolete inventory that was not properly disclosed by American LaFrance's previous owner, Freightliner. A New York-based investment company, Patriarch Partners, bought American LaFrance in late 2005 for an undisclosed sum.

"As a result of the unanticipated obsolesce of inventory and the ongoing ERP problems, American LaFrance (ALF) has incurred approximately $100 million in secured debt since it purchased its business," company officials said in a statement. "These problems have resulted in slowed production, a large unfulfilled backlog, and a lack of sufficient funds to continue operating."

ALF had purchased Freightliner's business in 2005. As part of the purchase agreement, Freightliner had managed inventory, payroll and manufacturing processes until June 2007, according to news reports. "But American LaFrance, which was preparing to take over those functions by creating its own in-house system, fumbled the changeover," wrote The Post and Courier of Charleston, S.C.

Citing company statements, the newspaper added: "The two systems were not entirely compatible, and a wide range of financial information was lost in the changeover. Inventory was in disarray, and workers were unable to find the parts they needed." According to U.S. Bankruptcy Court documents, the new system ALF set up with the help of IBM had "serious deficiencies" that had "a crippling impact" on the company's operations, according to The Post and Courier. The multitude of business and IT problems "forced American LaFrance to seek protection early Monday from its more than 1,000 creditors, who collectively are owed more than $200 million," the paper reported.

Results from a recent CIO survey on ERP systems and their importance to 21st-century businesses explain how and why technology disasters like American LaFrance's can happen. More than 85 percent of survey respondents agreed or strongly agreed that their ERP systems were essential to the core of their businesses, and that they "could not live without them."

Just what role IBM played (or didn't play) is unclear. (A call to IBM Global Technology Services was not returned.) According to The Register, IBM is mentioned only once in the bankruptcy filing: ALF was considering taking action "based upon services provided by IBM in connection with the problem-riddled transition to the ERP system," The Register reported. An IBM spokesman confirmed to the online publication that "its systems had been used by ALF" but declined further comment.

Officials at American LaFrance, which has been in business making fire and emergency response equipment since 1832, stated that "this is a legal 'reorganization' process to make the company stronger."