Large drug distributor Wanted to implement ERP FoxMeyer Drug Large drug distributor Wanted to implement ERP This PPT describes implementation of an ERP by FoxMeyer Drug. It is a student project done by Jason Donalson, June Seibold, Matthew Welch, and Sok Woo Yoon in the INFO Department, Texas A&M University, Spring 1999.

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 Long-term strategies: 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 Warehouse system consistently failed 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

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

McKesson Massive changes in 3,000 end user jobs Careful analysis of changes 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