The focus of this study is the implementation of an ERP project at FoxMeyer Drugs in 1993. The objective is to highlight the main lessons learned from the project’s failure, as well as analyze both successful and unsuccessful elements. According to Scott’s case study (n. d), FoxMeyer Drugs was valued at more than 5 billion dollars in 1993, making it the fourth largest pharmaceutical distributor at that time.
In 1993, FoxMeyer Drugs initiated a project called Delta III to enhance efficiency using technology. The project involved hiring SAP to supply and install SAP R/3, as well as commissioning Pinnacle for warehouse automation software. The objective was to integrate these software programs and improve efficiency by implementing the project directly. Anderson Consulting was hired as consultants with the responsibility of ensuring the integration and implementation of both systems.
The project commenced in early 1994 with an estimated completion time of 18 months by 1995. Unfortunately, the company faced financial difficulties and filed for bankruptcy in 1996, two years after the project initiation. The failure of the project can be attributed to various factors involving FoxMeyer management, SAP (the project vendor), and Pinnacle (the integrator).
The failure to mitigate risks associated with a large project was shared by both FoxMeyer and Pinnacle Consulting. The management of Pinnacle accused FoxMeyer of not following up on the project, but in reality, both SAP and Pinnacle had a greater responsibility. From the beginning, the project was doomed due to FoxMeyer being one of the first companies to adopt such technology on a large scale. Additionally, important factors were overlooked during the implementation process.
The implementation of the project was hindered by low morale and lack of support from management. The warehouse staff, in particular, showed little commitment as they believed the project would put their jobs at risk. Consequently, the transition to an automated warehouse was unsuccessful, resulting in staff negligence that led to damaging stock and inability to fulfill orders. As a result of this initial failure, over 34 million worth of inventory was destroyed, dealing a significant blow to the project.
Despite FoxMeyer’s initial success in implementing technology, the company faced challenges after signing a major contract with UHC (University HealthSystem Consortium). The servers of the company were unable to handle the large volume of transactions required by the contract. While previously capable of processing over 420,000 transactions per night, the limit was set at just 10,000 transactions. Furthermore, FoxMeyer underestimated the importance of having skilled staff during project execution and had to rely solely on the project vendor and integrator.
As a consequence of the high turnover rate at FoxMeyer, numerous individuals responsible for project implementation were no longer available. Furthermore, the work environment at FoxMeyer was unsuitable for the project. The company placed significant reliance on the vendor and consultant for project execution without prioritizing skill development within their own staff. Despite being aware of the potential failure of the project, management lacked foresight in addressing this issue, leading to valuable lessons learned.
The project implementation deviated from the established procedures and lacked sufficient time to complete a large-scale project. The commitment of both management and employees is crucial when implementing a project, but in this case, employees were unhappy due to job security concerns. It would be advisable to reconsider proceeding with the project entirely. Additionally, the project failed to meet desired standards in terms of customer requirements, scope, environment, and execution.
Project integrators considered it essential to prevent customers from escalating issues during project implementation. They acknowledged the significance of caution and implementing FoxMeyer software gradually, rather than all at once, as they were early adopters. However, executing this approach posed a significant challenge. Despite recognizing the necessity for skilled personnel, FoxMeyer did not initially offer training to their staff during the project’s early stages and had to rely on consultants.
To ensure the participation of all staff and management, it was essential for the company to maintain control over the project from its inception. Regrettably, despite recognizing that the project would not succeed as intended, the management neglected to take charge or stop its execution. FoxMeyer made an error by implementing the project solely relying on its potential cost-saving benefits. It was crucial to evaluate all aspects of the project prior to proceeding.
It is essential for the project vendor and consultants to not solely rely on successful projects’ track record. Instead, they should thoroughly assess each company before proceeding with a project. Previous success does not guarantee future success, so it is important to be willing to abandon a project lacking potential, regardless of past achievements. This decision should not consider its impact on publicity. Additionally, the commitment of both staff and management is crucial for successfully implementing a project. Executing a project that poses a threat to certain job positions may prove challenging.
When dealing with high-risk projects involving new technology, it is important to conduct thorough testing. To mitigate the risks involved, it is advisable to collaborate with project consultants and vendors (Turban et al, 2008). It is vital for the buyer to have skilled individuals in their team who can handle such projects effectively. Knowledge transfer should also be prioritized, along with maintaining control over the project. Furthermore, the customer must be able to make necessary modifications to the project while adhering to agreed-upon standards (Ellen & Brett, 2009).
References
Ellen, M. , Brett, W. (2009) “Concepts in Enterorise Resource Planning” 3rd. ed. Course Technology Cengage Learning. Boston. 2009. Scott, J. , E. (n. d). The FoxMeyer Drugs’ Bankruptcy: Was it a Failure of ERP? Cited on 19 Feb. 2011. Accessed from < http://www. uta. edu/faculty/weltman/INSY5375/FoxMeyer. pdf. Turban, E. , Leidner, D. , McLean, E. , Wetherbe, J. , C. , (2008). Information Technology for Management, Transforming Organizations in the Digital Economy. Massachusetts: John Wiley & Sons, Inc. pp 319-321.
Ellen, M., Brett, W.’s “Concepts in Enterprise Resource Planning” (2009) discusses the importance of ERP in organizations (Course Technology Cengage Learning). Scott, J., E.’s analysis of the FoxMeyer Drugs’ bankruptcy questions whether it was a result of ERP failure (n.d.). Turban, E., Leidner, D., McLean, E., Wetherbe, J.’s “Information Technology for Management, Transforming Organizations in the Digital Economy” (2008) also touches on the role of ERP (John Wiley & Sons, Inc., pp 319-321). Access the full text from http://www.ut.edu/faculty/weltman/INSY5375/FoxMeyer.pdf (cited on Feb 19, 2011).
