FoxMeyer ERP failure and analysis

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FoxMeyer ERP failure and analysis

• Group11
• By
• Mohamed Mohamoud
• Jing Lei

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What is ERP

• ERP means Enterprise Resource Planning.
• ERP uses ERP software applications to improve the
  performance of companies using multi-module
  application software that integrates activities
  across functional departments.
• ERP systems streamline internal business
  processes

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The Components of an ERP System

• There are several components to an ERP system
• ERP software-The core of the ERP system is the
  ERP software. Each software module automates
  business activities of a functional area within
  an organization.

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The Components of an ERP System

• Business Processes- The business process within
  an organization falls into three levels
• Management control
• Operational control
• Strategic planning
• ERP is used to streamline and support business
  process at all three levels

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The Components of an ERP System

• ERP Users- The employees that use the ERP systems
  within an organization
• Hardware and Operating Systems- Operating systems
  to run ERP software and any hardware used to run
  the system

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Implementing ERP

• The implementation process a can take many years
  to.
• The process can be delayed or derailed completely
  by poor planning and execution.
• Business are always changing or requesting
  changes during the project a well established and
  executed plan is crucial

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Understanding why your implementing ERP

• Understand the value proposition and the business
  case for your ERP system.
• What are the key deliverables and objectives?
• What is driving the project and who is driving
  your project?
• Where is the win and your benchmarks?

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Gap analysis

• What is the difference between the as-is and
  to-be systems?
• Is you current system customized or is it a
  generic system
• Identify the existing functional and
  nonfunctional gaps between ideal and current
  system
• Most vendors provide a generic off the shelf
  system a gap analysis allows it so there are no
  surprises and allows you to find a system that
  has the functionality that you are looking for. A
  gap analysis helps to avoid delays due to
  misunderstandings.

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Generic is best

• A good rule to make sure to follow is to stay
  with a generic system
• Once the company has implemented the core modules
  it can slightly customize its system around the
  edges.
• Integrating a generic system into a customized
  system is extremely difficult.

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FoxMeyer

• Large pharmaceuticals company
• 5 billion company and the nation's fourth
  largest distributor of pharmaceutical drugs
  before going bankrupt
• It served hospitals, drugstore and anything
  having to do with pharmaceutical wholesale

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FoxMeyer Old Process

• Three linked data processing centers
• Customers filled their orders electronically.
• The order was then received by 1 of the 3
  processing centers it had. The orders where then
  sent to the appropriate distribution center. The
  order was then filled manually, packaged then
  shipped out to the customer.
• National distribution center with multiple
  carousels and automated picking

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FoxMeyer Reasons for a new system

• FoxMeyer expected a growth in business due to a
  aging population and anticipated a growth in the
  pharmaceutical industry
• FoxMeyer processed over 300,000 items a day
• FoxMeyers long-term goals
• Lower their operating expenses
• Manage their inventory more efficiently
• Gain greater market share by expanding sales and
  new marketing tactics

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FoxMeyer Reasons for a new system

• FoxMeyer old system was Unisys mainframe but it
  wanted scalable client/server system
• FoxMeyer tested SAPs software against certain
  benchmarks that they set.
• FoxMeyer planned to implement its new system with
  18 months
• Each module was planned to be implemented in 2
  months which was unrealistic

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FoxMeyer plan

• FoxMeyer named its implementation project Delta
  III
• The project began in 1993
• The implementation of Delta III project took
  place between 1994 to 1995
• FoxMeyer did some product research and choose its
  vendors and consultants in December 1993
• FoxMeyer purchased SAP R/3
• It purchased a warehouse automation from a vendor
  called Pinnacle
• It hired Andersen Consulting to implementation
  and execute the project
• FoxMeyer's goals where to technology to increase
  efficiency.

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Operation Goals

• FoxMeyer expected the new systems to improve
  operational efficiency
• Signed several giant contracts
• counted on savings, underbid competitors
• Counted on being up and running in 18 months

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PROBLEMS

• The Delta III project at FoxMeyer had several
  problems that put the project at risk for failure
• Commitment was a problem with the Delta III
  project
• Senior management morale was high but morale was
  low with rest of company
• Warehouse employees were against project since
  the Pinnacle warehouse automation integrated with
  SAP R/3 threatened their jobs
• Three warehouse closed with transition to the
  first automated system. Warehouse workers damaged
  34 million dollars worth of inventory

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PROBLEMS

• Another problem was the capability of the systems
  that FoxMeyer implemented
• FoxMeyer signed a large contract to supply
  University Health System Consortium this pushed
  the new system beyond its limits
• Prior to implementation FoxMeyer could process
  over 420,000 but after implementation the R/3 on
  HP9000 servers could only cope with 10,000
  transaction a night.

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PROBLEMS

• FoxMeyer also had a problem with not having
  enough skilled employees.
• The lack of skilled employees meant that FoxMeyer
  was relying on Anderson Consulting to implement
  and integrate the systems.
• At the height of the project there were over 50
  consultants at FoxMeyer many were inexperienced

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PROBLEMS

• The main Problem with FoxMeyer was problems with
  management
• FoxMeyer realized the project was having problems
  but due to its own lack of skilled employees
  meant it had to rely on Andersen consulting
• With FoxMeyers new contract the direction of the
  project

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FAILURE

• The reasons for the Delta III failure at FoxMeyer
• Project did not stay on course
• Project went over budget because of new contract
  that FoxMeyer got
• Implemented SAP R/3 and warehouse automation from
  Pinnacle at the same time
• Technical issues with the ERP software and lack
  of efficient hardware
• No open communications
• Unrealistic expectations when it came to launch
  date

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FAILURE

• Management failure
• Lack of skilled employees relied on Andersen
  consulting to much
• Operational methods and techniques
• Business management and style
• Leadership and communications

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IN THE END

• The FoxMeyer drug ERP system implementation
  failure lead to the collapse of the entire
  company and it went bankrupt and it got bought by
  McKesson Drug.
• FoxMeyer also sued Andersen Consulting for 500
  million. FoxMeyer accused Andersen of fraud,
  breach of contract and negligence, among other
  charges.