Posted at 12.19.2018
FoxMeyer worked on idea of installing an ERP system to process the million order requests company received every day. ERP system will take care of the product packaging and routing of pharmaceuticals from various sellers to a large number of hospitals, clinics, drug stores, and other stakeholders. To follow with the unit installation, Company appointed Andersen Consulting and other consultants to benefit the installation.
Together with ERP, FoxMeyer made a decision to use a new warehouse-automation system, increasing the complexity of its plan. FoxMeyer bought the program from well experienced vendor. These systems were designed to automatically "pick" more than 80% of outgoing purchases from racks in warehouses.
Ans1a. FoxMeyer pharmaceuticals got certain critical issues in the change management because of poor planning rather than gaining extra attempts in implementation of ERP system. There have been certain issues associated with employees with execution for two systems in an enormous scale which resulted them threatened over there job assurance.
At FoxMeyer, information revealed older management was highly determined in the starting period but also some users weren't as committed. There is some morale problem on the list of warehouse employees as the project's Pinnacle warehouse automation integration threatened their careers. The closing of three warehouses and the changeover to the first programmed warehouse as devastation. Sabotage done by the employees was huge loss to company. Disgruntled personnel damaged inventories, requests were not submitted and also there have been huge mistakes occurred since a new system battled with the advanced of volumes. A total, amount of around $34million value of inventory were lost as sabotage.
Ans1b. Change Management is one of the critical steps an organization must take while implementing an ERP system. Since one the major problem occurs in the FoxMeyer was the loss of self-confidence among employees in their job security. One of the key contributing factors to this damage in the FoxMeyer circumstance is the automation of techniques and main contributor being the computerization of duties. Implementing change without previous planning or proper strategy in FoxMeyer not only created catastrophe but also chaos and unrest among personnel.
Being the Supervisor of FoxMeyer, I recommend pursuing strategies in ERP implementation:
Communication Strategy: Management in FoxMeyer should be allocated to go over future strategies- to ensure an intensive approach. This Strategy will include preparing project plan, project progress report and trainings for employees. FoxMeyer shown the situation of one-end communication where Management were seen forcing their decision to workers which created chaos and employees were not committed to change. Having proper marketing communications from both part had resulted in better co-operation and motivation for employees.
Impact research: That is a method carefully determined the existing system and examination the way the ERP system will have an effect on the Human Source and business environment. FoxMeyer staff weren't provided information with the explanation for change and nor was consulted for the willingness of ERP system implementation. Business processes must be systematically documented especially for the region which might be influenced by new system. Information will be noted is job information and job history which will develop organises comparison on how the true business processes may vary from what has been documented. This analysis can help FoxMeyer to analyse how significantly the ERP system may impact the system, which will be the most damaged by the implementation and what raining might be required to ensure the smoothness for the implementation of new system.
Skills research: Major issues during ERP implementation is training. AS the FoxMeyer personnel were not trained properly for the new system, which led to poor order control, inventory lost and higher chaos. This also wiped out the passions of personnel towards change and made them less devoted. This strategy will help FoxMeyer to analyse, who needs training to pursue jobs purposes, to learn that needs to be trained and what skills company need to developed. FoxMeyer will grab and train staff from interior departments accordingly and teach them to work with new system.
Ans2a. FoxMeyer Task of implementing ERP system hoped to save $40 million each year and job cost approximated to be $65 million and also with complete assembly ERP system and Automation system was another $18 million.
Ans 2b. The Task lead to Bankruptcy for FoxMeyer. FoxMeyer possessed a budget of $65 million for implementation of SAP however the final implementation bill was more that $100million. Extra cost also contains 34million loss of uncollectable shipping a listing costs. Other costs that FoxMeyer paid was lack of customers, market reputation, Lack of employees, framework and Reduction in Share worth.
Ans2c. An Organization Reference Planning (ERP) system protects the techniques and concepts employed for the designed management of businesses all together from the point of view of effective use of management resources, to enhance the efficiency of an enterprise. They may have many advantages both direct and indirect. The direct advantages include upgraded efficiency, information integration for better decision making, faster response a chance to customer concerns etc. The indirect benefits include better commercial image, better customer goodwill, client satisfaction, and so forth. (Sourced from: http://www. articlesbase. com/software-articles/a-recipe-and-ingredients-for-erp-failure-124383. html)
FoxMeyer advocate ERP solutions as part of their proper development plan which would help to re-engineer their business operations in order to perform long-term goals.
Actual cost for organisations does not only include installation cost, individual cost and licensing cost. There are other costs with the execution of ERP which as following. These costs are hard to evaluate but are way higher than real costs.
Project Costs: FoxMeyer possessed perception that persisted conception will produces large payoffs i. e. the business expected a cutting down of $40 million yearly.
Psychological Costs: the consultants got prior records and history of success which promotes organisations to keep the job and generate high expectation with task, resulting uneven ventures. FoxMeyer had similar to this using what it could chew up but getting into a fast trail task with unskilled staff.
Social Costs: The talking to company didn't externally justify projected. De-escalating the project through abandonment would have meant bad publicity.
Organisation Costs: Organizations pay huge loss over hold off in assignments or insufficient utilization techniques which results undue purchases without the outputs. Insufficient change management might also lead to order to regulate the increasing costs of procedures and staff issues.
Managers must realize other opportunity cost entail in the ERS system implication for example cash outflows which might bring about better outputs in buying the areas.
Ans3. FoxMeyer experienced researched and analysed ageing human population of America which provided grounds to increase their business and possibility to grow bigger.
Ans3a. FoxMeyer signed the contract to provide College or university Health System Consortium (UHC)
Ans3b. FoxMeyer expected a growth in business credited to an ageing population and expected a rise in the pharmaceutical Industry. FoxMeyer's long-term goals were to lessen their operating expenses, control the inventory better, gain greater share by increasing market and sales. FoxMeyer after growing and putting into action new ERS system wanted to enhance more businesses and efficiency and create more order finalizing systems.
Ans4. Risks mixed up in project Execution in Fox Mayer:
Technical Risk: High technology always requires considerable capital for development. FURTHERMORE high technology needs research and development. It requires extensive assessment which takes additional time and financing. FoxMeyer tried utilizing software with a large bang theory without comprehensive research or studies.
Organisational Size: FoxMeyer being $5 billion Company working as general distributor and supplier of pharmaceuticals product. Company thoroughly integrated EPR system thought-out its organization as whole entire instead hoping and monitoring success in particular division or area. This resulted in sudden change in business operations and offering employees more difficult time with their job without intensive training and skill diagnosis.
Technical Novelty: SAP system utilized by FoxMeyer was offered high performance and saving company with a $40million per calendar year on its functional costs. Though the systems were new and also have not been implied or tested any place in pharmaceuticals. FoxMeyer made a quick decision without researching or proper examination of SAP which later on created havocs and problems for FoxMeyer after implementation. Even the SAP software had not been appropriate for current hardware and systems utilized by FoxMeyer. Company even forget to analyse the efficiency of use in future of large purchases since it offers plans of enlargement.
Technical Experience: SAP was new technology for FoxMeyer workers and they lack necessary skills to operate the businesses using new technology. SAP was presented with big bang theory to the staff without proper training and skills diagnosis.
Ans5a. FoxMeyer used a theory called big Bang Adoptions theory. This theory details the adoption type of the instant changeover, when everyone with new systems movements to the totally functioning new systems on given particular date.
Ans5b. FoxMeyer project Hazards of customer mandate which relies on determination from both top management and users. Although senior management commitment was high, studies show you 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. Using the Big bang adoption theory, FoxMeyer improved all the EPR systems with SAP and also unveiled new software for warehouse automation without any previous information to the staff. Staff were threatened by this process and also felt lack of dedication from FoxMeyer as the business did not prepared, exposed its future plans considering its workforce.
Ans6. It could be arguable and quite out of understanding, whenever a FoxMeyer give allegation to SAP that the personal bankruptcy is as a result of failure of their ERP system. After all how do a program alone bring a huge company down, which already acquired around 15000 satisfied users round the world? Thus, I really believe the business's management will be the reasons for their demise.
On Contrary their can be various point that can be established on the demise of FoxMeyer. I'd briefly discuss certain details which I Believe that is relevant also to conclude who is in charge of the project inability leading to individual bankruptcy:
Drawbacks of ERP system employed by FoxMeyer:
Problems with business Strategy and Competitive advantage
Over Costs and Past due projects
Organisational Change and level of resistance to change
Having analysed circumstance I experienced the demise was firstly architect by FoxMeyer management. Though even highly focused on this approach nevertheless they lack knowledge of the results of implementation. Company decided and had more developed permanent goals. However the vision is not effective unless it is strategically prepared and implied. FoxMeyer management relied greatly on the exterior sources of consultancies and software without researching other alternatives or even verifying any compatibility with its operations and system hardware. Job implementation was created with a huge bang approach without even performing certain trials or effective planning. There have been so many hazards associated with the task implication.
However, I'd not like to blame FoxMeyer for their poor planning; SAP and Anderson Consulting are too in charge of the failure. It can be argued that SAP possessed made false guarantees to the FoxMeyer highlighting that SAP is capable of high level order control for FoxMeyer current system and works with with current Business businesses and hardware. SAP being highly complex software with complicated working and with certain impairment of integration of procedure 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 execute any change by themselves. Failure of services lead to chaos in FoxMeyer, producing comprehensive loses in conditions of customers, employees and production.
Ans 7. Critical factors among SAP and FoxMeyer:
FoxMeyer possessed expectation with SAP, so much that it began building deals with others like UHC considering high and useful businesses in future. Which resulted much workload in processing of order processing's when SAP was still being applied and servers or hardware were not much compatible with such a work insert.
SAP too shown that hardware are appropriate and SAP can be installed and can provide better techniques of order handling. However system didn't process 10000 audits per night where as earlier ERP system could process up to 4000o purchases each evenings.
SAP was much inexperienced into foray of high syndication technology and the system was not able to handle large level of orders.
The automation control too had constant pests and FoxMeyer was required to deploy a huge selection of employees to work around the issues.
The whole functions between the put together issues snowballed. Thus giving errors in order processing, inventory deficits, resentment among staff etc. Which resulted in heavy loses of money, production, market reputation and brand.
According to my estimation, SAP wasn't productive to such a high circulation and order control ERP which led to failure of all procedures and leading FoxMeyer to bankruptcy and even to there demise.