Foxmeyer Case Study Analysis Information Technology Essay
FoxMeyer worked on idea of installing an ERP system to process the million order requests company received each day. ERP system will manage the packaging and routing of pharmaceuticals from various vendors to thousands of hospitals, clinics, drug stores, and other stakeholders. To pursue with the installation, Company hired Andersen Consulting and other consultants to help with the installation.
Together with ERP, FoxMeyer decided to install a new warehouse-automation system, increasing the complexity of its plan. FoxMeyer bought the software from well experienced vendor. These systems were designed to automatically “pick” more than 80% of outgoing orders from shelves in warehouses.
Ans1a. FoxMeyer pharmaceuticals had certain critical issues in the change management because of poor planning and not putting on extra efforts in implementation of ERP system. There were certain issues involved with employees with implementation for two systems in a huge scale which resulted them threatened over there job assurance.
At FoxMeyer, reports revealed senior management was highly committed in the starting phase but also some users were not as committed. There was some morale problem among the warehouse employees as the project’s Pinnacle warehouse automation integration threatened their jobs. The closing of three warehouses and the transition to the first automated warehouse as disaster. Sabotage done by the employees was huge loss to company. Disgruntled workers damaged inventories, orders were not filed and also there were huge mistakes occurred since a new system struggled with the high level of volumes. A total, amount of around $34million worth of inventory were lost as sabotage.
Ans1b. Change Management is one of the critical steps an organization has to take while implementing an ERP system. Since one the major problem arises in the FoxMeyer was the loss of confidence among employees in their job security. One of the main contributing factors to this loss in the FoxMeyer case is the automation of processes and main contributor being the computerization of tasks. Implementing change without prior planning or proper strategy in FoxMeyer not only created disaster but also chaos and unrest among workers.
Being the Boss of FoxMeyer, I would suggest following strategies in ERP implementation:
Communication Strategy: Management in FoxMeyer should be assigned to discuss future strategies- to ensure a thorough approach. This Strategy will include preparing project plan, project progress report and trainings for employees. FoxMeyer presented the case of one-end communication where Management were seen forcing their decision to workers which created chaos and workers were not committed to change. Having proper communications from both side had resulted in better cooperation and motivation for employees.
Impact analysis: This is a method thoroughly determined the current system and analysis how the ERP system will affect the Human Resource and business environment. FoxMeyer workers were not provided information with the reason for change and nor was consulted for the willingness of ERP system implementation. Business processes needs to be systematically documented especially for the area which may be affected by new system. Information will be documented is job description and job history which will construct organises comparison on how the real business processes may vary from what has been documented. This analysis will help FoxMeyer to analyse how significantly the ERP system may affect the system, which will be the most affected by the implementation and what raining might be required to ensure the smoothness for the implementation of new system.
Skills analysis: Major issues during ERP implementation is training. AS the FoxMeyer workers were not trained properly for the new system, which resulted in poor order processing, inventory lost and greater chaos. This also killed the interests of workers towards change and made them less committed. This strategy will help FoxMeyer to analyse, who needs training to pursue jobs purposes, to find out that needs to be trained and what skills company need to developed. FoxMeyer will pick up and train staff from internal departments accordingly and train them to work with new system.
Ans2a. FoxMeyer Project of implementing ERP system hoped to save $40 million annually and project cost estimated to be $65 million and also with complete installation ERP system and Automation system was another $18 million.
Ans 2b. The Project lead to Bankruptcy for FoxMeyer. FoxMeyer had a budget of $65 million for implementation of SAP but the final implementation bill was more that $100million. Extra cost also includes £34million loss of uncollectable shipping an inventory costs. Other costs that FoxMeyer paid was loss of customers, market reputation, Loss of employees, structure and Loss in Share values.
Ans2c. An Enterprise Resource Planning (ERP) system covers the techniques and concepts employed for the integrated management of businesses as a whole from the viewpoint of effective use of management resources, to improve the efficiency of an enterprise. They have many advantages both direct and indirect. The direct advantages include improved efficiency, information integration for better decision making, faster response time to customer queries etc. The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction, and so on. (Sourced from: http://www.articlesbase.com/software-articles/a-recipe-and-ingredients-for-erp-failure-124383.html)
FoxMeyer advocate ERP solutions as a part of their strategic development plan which would help to re-engineer their business processes in order to accomplish long-term goals.
Actual cost for organisations does not only include installation cost, human cost and licensing cost. There are other costs with the implementation of ERP which as following. These costs are hard to measure but are way higher than actual costs.
Project Costs: FoxMeyer had perception that continued perception will produces large payoffs i.e. the company expected a saving of $40 million annually.
Psychological Costs: the consultants had prior records and history of success which encourages organisations to continue the project and generate high expectation with project, resulting uneven investments. FoxMeyer had more like this with what it could chew but embarking on a fast track project with unskilled staff.
Social Costs: The consulting company did not externally justify projected. De-escalating the project through abandonment would have meant bad publicity.
Organisation Costs: Organizations pay huge losses over delay in projects or lack of usage techniques which results undue investments without any outputs. Lack of change management might also result in order to control the increasing costs of operations and staff issues.
Managers must realize other opportunity cost involve in the ERS system implication for example cash outflows which might result in better outputs in investing in other areas.
Ans3. FoxMeyer had researched and analysed ageing population of America which presented grounds to expand their business and opportunity to grow bigger.
Ans3a. FoxMeyer signed the contract to supply University Health System Consortium (UHC)
Ans3b. FoxMeyer expected a growth in business due to an aging population and anticipated a growth in the pharmaceutical Industry. FoxMeyer’s long-term goals were to lower their operating expenses, manage the inventory more efficiently, gain greater share by expanding market and sales. FoxMeyer after developing and implementing new ERS system wanted to enhance more operations and efficiency and generate more order processing systems.
Ans4. Risks involved in the project Implementation in Fox Mayer:
Technical Risk: High technology always requires extensive capital for development. In Addition high technology needs research and development. It needs extensive testing which takes more time and funding. FoxMeyer tried implementing software with a big bang theory without extensive research or trials.
Organisational Size: FoxMeyer being $5 billion Company working as wholesale distributor and manufacturer of pharmaceuticals product. Company extensively implemented EPR system thought-out its organization as whole instead trying and monitoring success in particular department or area. This resulted in sudden change in business operations and giving employees more tough time with their job without extensive training and skill assessment.
Technical Novelty: SAP system employed by FoxMeyer was presented with high performance and saving company with a $40million per year on its operational costs. Though the technologies were new and have not been implied or tested anywhere in pharmaceuticals. FoxMeyer made a quick decision without reviewing or proper analysis of SAP which later on created havocs and problems for FoxMeyer after implementation. Even the SAP software was not compatible with current hardware and systems used by FoxMeyer. Company even forget to analyse the efficiency of usage in future of large orders since it has plans of expansion.
Technical Expertise: SAP was new technology for FoxMeyer workers and they lack necessary skills to operate the businesses using new technology. SAP was introduced with big bang theory to the workers without proper training and skills assessment.
Ans5a. FoxMeyer used a theory called big Bang Adoptions theory. This theory describes the adoption type of the instant changeover, when everybody with new systems moves to the fully functioning new systems on given date.
Ans5b. FoxMeyer project Risks of customer mandate which relies on commitment from both top management and users. Although senior management commitment was high, reports reveal that some users were not as committed. There was a morale problem among workers especially in warehouse employees as they got threatened with three warehouse closures because of automation of warehouse. With the Big bang adoption theory, FoxMeyer changed all the EPR systems with SAP and also introduced new software for warehouse automation without any prior information to the workers. Workers were threatened by this approach and also felt lack of commitment from FoxMeyer as the company did not informed, revealed its future plans considering its workforce.
Ans6. It can be arguable and quite out of understanding, when a FoxMeyer give allegation to SAP that the bankruptcy is because of the failure of their ERP system. After all how can a software package alone bring a large company down, which already had around 15000 satisfied users around the world? Thus, I believe the company’s management are the reasons for their demise.
On Contrary their can be various point that can be established over the demise of FoxMeyer. I would briefly discuss certain points which I Believe is relevant and to conclude who is responsible for the project failure leading to bankruptcy:
Drawbacks of ERP system used by FoxMeyer:
Problems with business Strategy and Competitive advantage
Over Budgets and Late projects
Organisational Change and resistance to change
Having analysed case I felt the demise was firstly architect by FoxMeyer management. Though even highly committed to this approach but they lack understanding of the consequences of implementation. Company had planned and had well established long term goals. But the vision is not effective unless it is strategically planned and implied. FoxMeyer management relied heavily on the outer sources of consultancies and software without researching any other alternatives or even checking any compatibility with its operations and system hardware. Project implementation was introduced with a big bang approach without even conducting certain trials or effective planning. There were so many risks involved with the project implication.
However, I would not like to blame FoxMeyer for their poor planning; SAP and Anderson Consulting are too responsible for the failure. It can be argued that SAP had made false promises to the FoxMeyer highlighting that SAP is capable of high level order processing for FoxMeyer current system and is compatible with current Business operations and hardware. SAP being very complex software with complex functioning and with certain disability of integration of operation among different departments. Also, With Anderson Consultancy, Company was promised to provide all services, skills and training by consultancy. Which made the FoxMeyer relied heavily on the Consulting services and resisted to developed their skills or implement any change by them selves. Failure of services lead to chaos in FoxMeyer, resulting extensive loses in terms of customers, workers and productivity.
Ans 7. Critical points among SAP and FoxMeyer:
FoxMeyer had expectation with SAP, so much that it started building contracts with other companies like UHC considering high and efficient operations in future. Which resulted a heavy workload in computing of order processing’s when SAP was still being implemented and servers or hardware were not much compatible with such a work load.
SAP too presented that hardware are compatible and SAP can be installed and will provide better techniques of order processing. However system failed to process 10000 audits per night where as previous ERP system could process up to 4000o orders each nights.
SAP was much inexperienced into foray of high distribution technology and the system was not able to handle large volume of orders.
The automation control too had constant bugs and FoxMeyer had to deploy hundreds of workers to work around the issues.
The whole operations between the combined issues snowballed. Thus giving errors in order processing, inventory losses, resentment among workers etc. Which resulted in heavy loses of money, production, market reputation and brand.
According to my Opinion, SAP wasn’t efficient to such a high distribution and order processing ERP which resulted in failure of all operations and leading FoxMeyer to bankruptcy and even to there demise.Order Now