Fox Meyer Drug Large drug distributor Wanted to

Fox. Meyer Drug Large drug distributor Wanted to implement ERP

Fox. Meyer 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

Fox. Meyer • 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 Fox. Meyer 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

Fox. Meyer 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)

Fox. Meyer 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 • Fox. Meyer 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

Mc. Kesson Followup • Mid-1990 s started implementation of SAP R/3 – Cancelled project in 1996 after spending $15 million • 1997 acquired Fox. Meyer – – – 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

Mc. Kesson • 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