FoxMeyer Drug

1. FoxMeyer Drug Large drug distributor Wanted to implement ERP

2. 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

3. 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

4. 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

5. 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

6. 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)

7. 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

8. 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

9. 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

10. 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

11. 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

12. McKesson • Massive changes in 3,000 end user jobs • Careful analysis of changes • Surveys • Focus groups • Demonstrations • Computer-based training

13. Lesson • Implementing ERP a major undertaking • Can easily bankrupt a company • However, it can also be done • Opportunity for great benefits