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FoxMeyer Drug Large drug distributor, wanted to implement ERP Jason Donalson; Julie Seibold; Matthew Welch; Sok Woo Yoon Enterprise Resource Planning • 1960s MRP (materials reqts. planning) • 1970s MRPII (added planning) • 1980s Just-In-Time • 1990s ERP integrated communications & control system modules enable same system handling everything for the organization ERP • Integrate financial, logistics, marketing • can handle multiple sites worldwide, with global sourcing • integrate decision making • coordinates all functions (makes them use same computer software) ERP Market • Compound annual growth of 37% 19972002 (AMR Research) • Top tier vendors: SAP AG PeopleSoft Baan J.D. Edwards Oracle • top tier growth 61%/year, have 64% of market • SAP $5 billion, rest near $1 billion SAP • Systems, Applications & Products in Data Processing • founded 1972, Walldorf, Germany • #1 vendor of standard business-application software in the world - 32% market share • PRODUCTS: R/2 (mainframe; 11 modules) R/3 (client/server - 1992; now > 1 million users • over 9000 customers in 90 countries 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