FoxMeyer was one of the top drug wholesaler-distributors in the United States in 1995. The company specialized in distributing pharmaceuticals at the national market share level. In 1996, FoxMeyer faced life or death as the Delta III project crippled their company leaving a logistics management disaster in their wake.
The Plan
FoxMeyer’s plan began with the Delta III project in 1993. The company needed software that was capable of taking care of high volume transactions and complex pricing models. For this reason, they chose to implement an ERP system (SAP R/3) and an automated warehouse system (Pinnacle).
FoxMeyer planned to invest $65 million over 18 months to implement the system. The system projected annual savings of $40 million. However, management failures and unreasonable deadlines branded this project as FoxMeyer’s downfall and a complete logistics management disaster.
FoxMeyer Logistics Management Disaster
What went wrong:
- Poor Software Decisions: The SAP R/3 system was designed for manufacturing companies, not wholesalers like FoxMeyer. The system was missing key elements that wholesalers need like the ability to handle mass orders. FoxMeyers filled orders from thousands of pharmacies, totalling over 500,000 orders per day that the SAP R/3 couldn’t handle.
- Lack of Consultation: FoxMeyer ignored expert’s advice on the requirements needed in a system for their scale of business. They decided on a system measured by reputation and not on their specific needs.
- Rushed Implementation: Anderson Consulting was hired to implement the systems, but failed to do their job. Implementation pushed its schedule forward to meet customer needs but failed to ensure all system requirements were met. This meant parts of the system were not tested properly and glitches or bugs were not taken care of.
- Poor Management Team: The management team on the Delta III project failed to maintain their support on the project through the implementation stages. During the time of implementation, management did not acknowledge system problems, ignoring the risks associated with the new technology.
- Failed User Engagement: The workers at the FoxMeyer warehouses were not supportive of the system implementation as they feared the automotive system would cause layoffs. Employee morale plummeted as the company’s management failed to involve employees in conversation. The lack of communication caused disgruntled employees to damage inventory and fail to fill orders correctly in protest.
Results
FoxMeyer’s CEO resigned due to project delays. The company lost $34 million worth of inventory due to system failures and employee lash back.
FoxMeyer went bankrupt in 1996 as a result of the ERP system project implementation failure. In 1998, FoxMeyer launched a lawsuit suing SAP and Anderson Consulting for their hand in the company’s downfall.
Lessons Learned
When implementing a new project, the project’s management team must be experienced with a high level of technical expertise. The project must have a contingency plan to avoid the impact of failure. Lastly, all parties should have a voice in the project. Failing to include the advice of professionals and concern of employees ended up costing FoxMeyer their company.
