Transcript FoxMeyer Drug - Yuan Ze University

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:
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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
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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 Followup
• Mid-1990s started implementation of SAP R/3
– Cancelled project in 1996 after spending $15 million
• 1997 acquired FoxMeyer
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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
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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