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Learn how FoxMeyer, a large drug distributor, faced obstacles and successes in implementing an ERP system, impacting its operations and ultimately being acquired by McKesson. Discover the lessons learned and the importance of careful planning in ERP implementation.
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FoxMeyer Drug Large drug distributor Wanted to implement ERP
FoxMeyer Corp • Holding company in health care services • wholesale distribution of drugs & beauty aids • served drug stores, chains, hospitals, care facilities • US: 23 distribution centers • Sought market niches, such as home health care
FoxMeyer • Due to aging population & growth in health care, expected high growth • Market had extreme price competition, threatening margins • Long-term strategies: • efficiently manage inventory • lower operating expenses • strengthen sales & marketing • expand services
Prior FoxMeyer IS • 3 data processing centers, linked • included electronic order entry, invoice preparation, inventory tracking • 1992 began migration of core systems • Benefits not realized until system fully integrated
FoxMeyer Process • Customer fills out electronic order • Order sent to 1 of the 3 data processing centers • Orders sent to the appropriate distribution center (within 24 hours) • Orders filled manually and packaged • Had just completed national distribution center with multiple carousels & automated picking • Could track inventory to secondary locations
New System • Needed new distribution processes & IS to capitalize on growth • Wanted to be able to undercut competitors • Replacing aging IS key • PROJECT: 1994 - hoped to save $40 million annually (estimated cost $65 million) • complete ERP installation & warehouse automation system (another $18 million)
FoxMeyer Project • Select ERP • hundreds of thousands of transactions • meet DEA & FDA regulations • benchmarked & tested for months • picked SAP R/3 • hired Andersen Consulting to integrate • hired Pinnacle Automation for warehouse automation system
Operations • 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
Problems • SAP & warehouse automation system integration • two sources, two installers - coordination problems • New contracts forced change in system requirements after testing & development underway • Late, Over budget • SAP successfully implemented
Outcomes • Lost key customer - 15% of sales • To recoup, signed new customer, expected $40 million benefit from ERP immediately - pushed ERP project deadline ahead 90 days, no time to reengineer • Warehouse system consistently failed • late orders, incorrect shipment, lost shipments • losses of over $15 million • August 1996 filed for Chapter 11 • McKesson bought
McKesson Followup • Mid-1990s started implementation of SAP R/3 • Cancelled project in 1996 after spending $15 million • 1997 acquired FoxMeyer • Carefully designed new R/3 implementation • Dropped a number of modules • Implemented modules one at a time • Cautious rollout schedule, rigorously followed • Separate testing group formed • At last report $50 million system on time, in budget
McKesson • Massive changes in 3,000 end user jobs • Careful analysis of changes • Surveys • Focus groups • Demonstrations • Computer-based training
Lesson • Implementing ERP a major undertaking • Can easily bankrupt a company • However, it can also be done • Opportunity for great benefits
