FoxMeyer's program

Group D4

Introduction
FoxMeyer drugs
$5 billion company
Fourth largest distributor of pharmaceuticals

Delta III project

Started in 1993
Use of technology to improve efficiency
SAP R/3 by SAP
Warehouse-automation software by Pinnacle

Andersen Consulting integrated and implemented two systems

Objective
Study reasons for FoxMeyer Drugs failure
Suggest steps to avoid ERP failure

Project Factors
Project was expected
save $40 million
Measurable evidence
that it can handle
FoxMeyers transactions

Psychological
factors
Andersen and SAP had
a prior history of
success
Emotional attachment
of CIO Robert Brown

Rationales
for Delta III
Social factors project
Organizational
factors
Delta III project was
important for Anderson
and SAP
De-escalation of project
could have caused
negative publicity

CEO and CIO of

FoxMeyer were strong
advocates of the project

Risks in Delta III project

Customer mandate
Morale problem of Warehouse users as automation software threatened their
jobs
$34 million inventory wasted during automation

Scope

System was able to handle only 10,000 customer orders in 1994 compared
with 420,000 under FoxMeyer's original mainframe system
UHC contract signed later needed high volumes

Execution
Shortage of skilled and knowledgeable personnel
Relied on Andersen Consulting to implement R/3 and integrate the ERP

Environment
Project was in trouble from start, still it continued due to its dependence on
consultants and vendors
UHC project increased volume but decreased profit margin

Why project failed?

Shortage of sophisticated users to handle a fast-track
installation
Two different vendors for two most important business
systems of Company
Continuous change in requirements like decrease in
shipping time and increase in throughput capacity of
SAP
Correction measures were perceived as FoxMeyer had loose
management controls

Implications
Software implementation
FoxMeyer should have tied consultants compensation with
project results
Dependency on consultants must be minimized by including
knowledge transfer in contract
Adequate testing must be done before implementation

Minimize risks
Company should not bet its future on one project
Phased implementation with one vendor would have reduced
project complexity and risks

Morale problem in the warehouses must be avoided by

reallocating workforce

Implications
Adaption of new technologies is very risky if they
cant be adequately tested

Customers should be aware of the risks

associated with new technology and must be
compensated with discounts or other incentives

Although a lack of management commitment

can result in project failure, management overcommitment can be even more disastrous.

References
http://www.uta.edu/faculty/weltman/OPMA5364TW/FoxMeyer.pdf
http://www.slideshare.net/jmramireza/the-foxmeyer-drugs-bankrupt
cy-was-it-a-failure-of-erp2332065

Thank you