Download FoxMeyer Drug

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