Analyzing FoxMeyer Drug's ERP Implementation Challenges and Failures

This case study examines the failure of FoxMeyer Drug's ERP implementation, focusing on the selection and implementation of SAP R/3. The company, a large pharmaceutical distributor, faced challenges including inadequate product selection, aggressive timelines, lack of end-user involvement, and integration issues with a warehouse automation system. Despite a substantial budget and the involvement of Anderson Consulting, the project encountered numerous difficulties, including employee insecurity, scope creep, and inadequate testing and training. These issues, compounded by management's overconfidence and disregard for critical success factors, ultimately led to the company's bankruptcy. The case highlights the importance of careful planning, stakeholder engagement, and realistic expectations in ERP projects.

FOXMEYER DRUG ERP CASE STUDY
FoxMeyer Drug ERP Case Study
Student’s name
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FOXMEYER DRUG ERP CASE STUDY
Executive Summary
This report discusses the case study of FoxMeyer drug that was using mainframe systems
and Unisys system for managing its business. Unisys was already phased out by its vendor and
mainframe is devoid of many key functionalities present in the modern day ERP systems. As a
result, it has shortlisted SAP R/3 ERP for the implementation and also chosen Anderson
consulting. This case study describes the company FoxMeyer, ERP system that it decided to
implement along with various challenges, issues in the project and finally followed by the
outcome of the project. Though the top management was over committed for the project, they do
not include the end users, did not give enough emphasis on importance of communication which
raises the insecurity among employees and also reduces their morale. Due to this, employees
were not supportive. So many issues were going on like low morale, warning signs by the
consultants however the management was continually increase the scope of the project by also
including 3rd party warehouse systems and integrating it with ERP systems and ignoring the basic
pillars of success and finally the company had to file bankruptcy and CEO and CFO were
removed.

FOXMEYER DRUG ERP CASE STUDY
Table of Contents
Executive Summary.......................................................................................................................2
1. Describe Subject organization and problem or opportunity it faced...............................4
2. Nature of enterprise system adopted and its selection and implementation
methodology at FoxMeyer Drug...................................................................................................5
3. Explain and analyses any difficulties the organization may have faced in adopting the
system, or preparatory steps that were taken to facilitate implementation.............................7
4. Assessment of adoption of enterprise system......................................................................9
5. Conclusion............................................................................................................................10

FOXMEYER DRUG ERP CASE STUDY
1. Introduction
The usage of software has become quite commercialized in the industry to improve the
productivity, emphasis on collaboration across the department and higher focus on the critical
activities and leaving the non-value adding activities to the software. Generally, organizations
have option of choosing the best of breed software for each of the departments like procurement,
accounting, Order and quotes management and Human resource and then integrate them. The
better option is to implement ERPs that combines all these functionalities in a single integrated
business suite however ERP projects are complex projects. Today, IT strategy has to be linked
with the business strategy of the organization. In fact, organizations would not be able to
optimize their business operations of the IT strategy is not liked to business strategy. The specific
questions of the case study can be discussed as:
2. Describe Subject organization and problem or opportunity it faced
FoxMeyer drug company case study has been selected for the purpose of analysis of its ERP
journey and the key reasons for its failure especially when the SAP was a proven product in the
market, Anderson consulting has already delivered many successful projects in the past and
FoxMeyer also has a huge budget for its ERP implementation project. FoxMeyer Drug Company
was founded in 1903 in Texas. It is a wholesale distributor of pharmaceutical and beauty
products. It was also the 4th largest distributor in the 1993 and has revenue of 5 billion USD and
its budget for ERP implementation is 1 billion USD that includes everything from licensing and
consulting cost to training and infrastructure. Management was expecting to save more than 40
million USD every year by using the new SAP system and able to achieve break even in around

FOXMEYER DRUG ERP CASE STUDY
2 years (Mann, Kumar, Kumar & Mann 2017, 147). As the company is growing very fast, its
existing mainframe systems were no able to cope with the growing business requirements and its
legacy system Unisys system was also phased out by the vendor and needed replacement. Due to
all these reasons, company decided to implement SAP R/3 systems to automate its business
processes. However, due to large number of issues, it declared bankruptcy in 1996 and was
purchased by McKesson Corporation which is among the top 5 companies in US in terms of
revenue having 200 billion USD revenue in 2017.
The problem started from the very beginning when inadequate efforts were spent in selecting
the product and it was selected solely because of the reputation of the SAP and success cases
studies of SAP R/3. However, despite warning by several consultants, company ignored the fact
that it is a wholesale distributor company and SAP R/3 has not been implemented for any such
company in whole industry in past and it is mainly useful for manufacturing businesses (Haddara
2018, 77). Woltz consulting also advised FoxMeyer that their 18 months of ERP implementation
plan is way too aggressive and looks unrealistic (Chua 2009, 32). In spite of so many early
warnings, company did not have a robust contingency plan. Also, most of the planning was done
by the top management and Anderson consultants ignoring the end users who are the real users
of the product. There is no importance given to the communication, training and change
management in the organizations which are the critical success factors for any ERP
implementation project. ERP projects are mission critical project and a complete different ball
game altogether and should be handled with utmost caution due to large number of risks (Vogt
2002, 67).
FoxMeyer management also has a wrong expectation from the SAP R/3 product. They are
thinking that SAP is like a magic wand and will improve the company capabilities drastically

FOXMEYER DRUG ERP CASE STUDY
without realizing that technology is just an enabler and real success depends on the ability of the
company to design business processes that can provide competitive advantage to them and also
aligned with the product. Business people contribution, change management initiatives and end
users support are much important than just the capabilities of the SAP R/3.
3. Nature of enterprise system adopted and its selection and
implementation methodology at FoxMeyer Drug
FoxMeyer drug has selected the SAP R/3 ERP system for the purpose of implementation.
SAP R/3 was launched in 1992 officially and one of the top product of 1990s. Most of the
fortune companies were using the SAP R/3 ERP. During the same time, there are large number
of success as well as failure cases were also come into light about the ERP implementation
projects and it was clear that these projects involves a lot of risk and costly also. SAP R/3 was an
integrated business suite where ‘R’ stands for real time processing while ”3” refers to 3 tiers
structure of client, server and database (Koch & Mitteregger 2016, 91). It was arranged into
distinct functional modules designed for the common business functions in any organization like
purchasing, HR, order processing, finance. Though it has large number of modules designed for
special business requirements, there were only 4 modules that were used most widely due to their
application in almost all the industry. They are Production Planning (PP), Sales and Distribution
(SD), Materials Management (MM) and Financials and Controlling (FICO).
The right wat to select the ERP product is by conducting detailed analysis internally.
Organization has to list their requirements clearly and should have also defined their existing
processes (Conteh, Nabie and Jalil Akhtar 2015, 120). The strange part here is that sometime
organizations do not have the documented process but organizations must prepare before

FOXMEYER DRUG ERP CASE STUDY
embarking on their ERP journey. Once the company has identified the As-is process, it can
improve the traditional way of doing things and design the To-Be business process. People will
often resist but they need to be explained that this change is for making the process more
productive and eliminating the non-value adding activities (Chen 2001, 375). Take simple
example, currently company is keeping the 10% safety stock for every product however as this
also results in stock out for some products while excessive inventory for some other projects. As
a result, company want to improve the inventory management and thus design the new process
where safety stock will be calculated dynamically and different for all the products based on the
product’s earlier sales data (Chaushi et al. 2016, 20).
When company has detailed To-be list of all the processes, it can simply go to the vendor and
check their product capabilities if it is aligned with their requirements and can select the
appropriate product. However, In this case, reputation was the main criteria for selecting the SAP
although SAP product have never been implemented for wholesale distribution business.
Apart from this, Phased implementation are generally considered less risky where the
organizations can decide that first it will go live with the basic products and gradually add the
more modules. However, FoxMeyer do not have any such strategy and instead, they have also
combined the implementation of warehouse automation tool called Pinnacle and asked the
Anderson consulting to integrate this system with its ERP system (Summer, 2000). Thus, it is
clear that this approach involves higher risk and the ignorance of the management and decision
makers about the complexity of ERP implementation projects. It is important that organizations
should talk to various internal and external stakeholders before making any decisions around
ERP implementation. In certain cases, ERP implementation is easy, but organizations find it

FOXMEYER DRUG ERP CASE STUDY
difficult to manage the change the arise from the implementation of ERP systems (Tarhini, Ali,
Hussain Ammar & Takwa Tarhini 2015, 5).
4. Explain and analyses any difficulties the organization may have faced in
adopting the system, or preparatory steps that were taken to facilitate
implementation
FoxMeyer was too much dependent on Anderson consulting and did not take the enough
preparatory steps that it should have taken before the launch of such massive ERP
implementation project for example due diligence analysis before buying the product and many
more. Apart from this, company had already closed the 3 warehouses and selected the remaining
warehouse for automation by the Pinnacle tool. This has reduced the morale of the employees
and they were highly insecure about their job. Disgruntled workers dumped a lot merchandise
into trucks and also damaged the inventory creating inventory shrinkage. There was no
communication by the management about the future plan of company for these employees after
implementing an automated warehouse solution (Aloini, Dulmin, & Mininno, 2007).
The scope of the project is quite risky as FoxMeyer also signed a contract to with University
Health System Consortium (UHC) and dealing with them requires extraordinary systems to
support the unprecedented volume of transactions which were not supported on the HP servers
used by the SAP R/3. HP server was capable of handling 10,000 customers per night as against
the legacy systems that were capable of handling 420,000 orders. Also, the project is already
over ambitious to be completed in an initial timeline of 18 months as warned by various

FOXMEYER DRUG ERP CASE STUDY
consultants (Chung et al. 2015, 107). On top of that, company has increased the scope by also
including the $ 18 million warehouse automation project and integrating it with the SAP
systems. Due to this hurried schedule, testing was not given appropriate time and was skipped.
Training was altogether ignored and people were unsure of using the new systems. Had proper
testing been done, company has proactively figure out the order processing limitation of the new
systems (Wong, et al. 2005, 40).
End users were completely ignored by the management and thus end users lacks motivation
to contribute for the ERP project and cooperating with Anderson consultants. End users were
never communicated about the purpose of the project, their role in the success of the project and
how the project will impact them. Company has to ensure their training needs so that they people
will be comfortable and company also has to ensure that if any job is rendered useless after ERP
implementation, team will be moved to new job and proper training will be provide for the same
(Ghosh 2012, 123). Due to this, end users never felt the ownership of the project and project is
doomed to failure. Management was ignorant and lose control over the project progress and it
was entirely in the territory of Anderson and SAP. It is also possible that though Anderson and
SAP were aware about many issues but they are not revealing them as their reputation is also at
stake. All these problems and risks were not mitigated in a timely manner and as a result, they
have exploded leading to irreversible damages to the company. In general, organizations can also
use benchmarking, as an approach, to implement the ERP system. For example, FoxMeyer can
learn from the successful ERP implementations of other organizations in the same industry.

FOXMEYER DRUG ERP CASE STUDY
5. Assessment of adoption of enterprise system
The project was a total disaster for the company. Company has realized that it has spent more
than 1 billion USD from the beginning and still their requirements are not met and system is not
efficient. The reality is the project plan of 18 months is too aggressive and users were never
trained to use the new systems (Vaidyanathan, Ganesh & Fox 2017, 18).
As a result of all this, CEO of the company, Thomas Anderson, as well as CFO were asked to
resign in February 1996 because the project under them was a fiasco. However, it was too late
for the FoxMeyer. These steps could have helped the company if had taken earlier. Also,
FoxMeyer was blaming SAP and its consulting partner Anderson for the failure however it was
more of a management fault. In 1996, it was acquired by its closes competitor McKesson for the
mere 80 million USD (Sumner 2015, 317).
Trustee of the FoxMeyer Drug sued the SAP for the fraud, lack of transparency and
negligence, as well as consulting partner, Anderson in 1998 each for 500 million USD each.
Though this project has impacted the reputation of SAP and Anderson but not to larger extent
because most of the research and key people have blamed the Management at FoxMeyer for the
failure and there were numerous consulting companies that provide their assessment before the
beginning of the project and whose warning signs have been ignored by the management who is
over committed for the project. However, this project has become an important case study and an
eye opener for the companies planning to implement ERP as now they want to make sure that the
product is suitable for their requirements. In June 2004, the result of the case was that SAP has to
pay a settlement amount to FoxMeyer (Staff 2017, 2).

FOXMEYER DRUG ERP CASE STUDY
6. Conclusion
FoxMeyer was in the business of wholesale distribution of pharmaceutical and beauty
products and decided to implement the SAP R/3 systems that were primarily designed for
manufacturing companies. Despite the warning given by various consultants, Management has
chosen SAP due to its reputation and established credibility in the market and ignored the other
aspects. At the same time, it choses Anderson consulting as its consulting partner to help the
company to implement the ERP. As soon as the project is started, there were large number of
challenges faced by the FoxMeyer. On top of that, FoxMeyer has also decided to rush to
complete the project in predefined time of 18 months and ignoring the importance of training and
testing. It also increased the scope by purchasing warehouse automation software and integrating
with its ERP systems. Higher management was though over committed ignored certain basic
critical success factors for any ERP implementation project and the project was a complete
failure that incurs high cost. FoxMeyer filed for the bankruptcy and sues the SAP and Anderson
consulting. In 2004, court ordered SAP to pay a settlement amount to FoxMeyer. Also,
FoxMeyer was purchased by its biggest rival in 1996.

FOXMEYER DRUG ERP CASE STUDY
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