Essay, Research Paper

FoxMeyer & # 8217 ; s Delta Information System

CASE STUDY:

The Failure of a Strategic Information System

Cara Roken

IRM 100

October 23, 2000

In the year1994, FoxMeyer was the 4th largest drug jobber in the United States with an one-year gross revenues of about $ 5.1 billion. The company filled orders from 1000s of pharmaceutical companies with cargos of up to 500,000 points per twenty-four hours. However, in the same twelvemonth, due to rapid growing and consolidation of the pharmaceutical industry, FoxMeyer & # 8217 ; s direction was concerned about competition from the larger rivals. The menace imposed required drastic steps. The whole industry competed on low net income borders. Therefore, FoxMeyer decided to remain in front of the competition by implementing a new information system.

Previously, the Information Technology section consisted of the Unisys mainframe, which was able to track stock list histories. In add-on, the company & # 8217 ; s warehouse had out-dated packaging and transportation engineering. FoxMeyer believed that by bettering information engineering, warehousing and client service, that the rivals could be outpaced by a broad border. FoxMeyer decided to automatize their stock list and bringing procedure in an effort to supply better service at a lower monetary value than their competition.

The majority of the undertaking was altering the warehouse from manual to automated. They implemented saloon codification readers and saloon coded all their merchandises for faster tracking capablenesss. Further efficiency was added with the installing of machine-controlled conveyer belts. The belts lifted the merchandises and delivered them to docks were they were placed in the appropriate trucks for cargo.

Besides, the new information system enormously supported FoxMeyer by doing the concern procedure of tracking gross revenues and stock list easier and faster. First, it automated the order taking procedure by leting infirmaries to come in their orders straight into FoxMeyer & # 8217 ; s stock list computing machine system. Second, the system allowed automatons to automatically garner the orders and direct them off to the transportation docks for rapid bringing. This was thought to hold the most strategic impact to make full the most orders.

The direct computing machine order entry system facilitated control over their stock list. The information system was designed to pick up 80 per centum of all points automatically, as compared with an industry norm of 33 per centum ( Bulkeley, 1996 ) decidedly, giving FoxMeyer an advantage of superior service over the competition. The new information system enormously supported FoxMeyer by doing the concern procedure of tracking gross revenues and stock list easier and faster.

Conceptually, FoxMeyer & # 8217 ; s information system planned to carry on concern with its clients on a day-to-day footing. FoxMeyer focused its value concatenation on activities in their concern where competitory schemes could be best applied. ( Porter, 1985 ) However, the execution was inconsistent with the altering concern environment. The new system caused jobs at every measure of execution. Problems ranged from unequal clip allotment for development, proving, debugging, deficiency of interaction between direction, systems forces, advisers and low user engagement.

Initially, FoxMeyer & # 8217 ; s direction were supportive and committed appropriate support of $ 56 million to develop and put in the freshly named Delta Information System. However, to construct its new 340,000-square-foot warehouse, FoxMeyer spent an extra $ 18 million. The company hired Anderson Consulting, a taking international information systems confer withing house, both to rede them about the undertaking and to provide skilled forces to build the system.

Besides, FoxMeyer purchased R/3, an stock list direction package system from SAP AG, a elephantine German package company. Although SAP had been designed to run on Digital Equipment Corporation hardware, FoxMeyer purchased a Hewlett-Packard Company client/server system at a cost of $ 4.8 million. The seller for the warehouse system was Pinnacle, a system non tightly integrated with SAP R/3. ( Caldwell, 1998 )

The package had a dependable repute and was designed to run on client/server hardware. It besides enabled its users to replace their old mainframes. The hardware pick proved to non be an issue, as the package finally ran good on the Hewlett-Packard equipment. However, the company had serious jobs because client/server package is rather complex and was still comparatively new at the clip. Some troubles were expected.

However, one time the SAP execution started, direction adopted an out of sight, out of head attitude towards jobs that were encountered. In kernel, senior direction had no desire to cognize about the jobs. This instance is a authoritative illustration of direction over committedness to a undertaking that should non hold been undertaken ( Neumann and Sabher, 1996 ) . Even direction forces involved in the execution were discouraged from knocking the system.

Furthermore, direction failed to understand the complexness and hazards involved in the execution procedure and even fast tracked the undertaking by three months, prior to holding the system to the full tested. The system, when foremost installed, was full of bugs and kept closing down such critical elements as carousal

cubic decimeter and conveyers. Besides, the scanners frequently failed to read the saloon codifications on the boxes. The warehouse opened in August 1995, three months tardily, and with many of the same bugs still non corrected.

As the system at the new warehouse repeatedly failed during the busiest working hours, the operators had to halt and so re-start it. Boxs did non make their loading place on clip. Much of the work had to be done manually with the informations being entered into the computing machine, taking to many mistakes in the system.

However, the most important job was that many orders were shipped with points losing, but with an bill for a complete order. In most cases, the losing points had arrived at the dock tardily, due to system jobs, and they were so put on a follow-up truck. Customers saw service quality deteriorate, as they did non have invoiced points when the original cargo arrived. The clients called FoxMeyer & # 8217 ; s client service, which ordered the losing points and shipped the points the undermentioned twenty-four hours. Subsequently, the missing points would get on trucks.

The consequence was that when the cargo of losing points ordered by client service arrived the following twenty-four hours, many clients had received many duplicate points. However, because the SAP stock list system produced accurate measures based merely on the order, clients were non billed for the extra bringings. ( Caldwell, 1998 ) The expected consequence was that many of the clients did non trouble oneself describing the excess bringings. The outrageousness of the extra orders was non clear until stock list, but the job led to immense loses to FoxMeyer. The company was forced to denote a $ 34 million charge to cover the non-collectible losingss from client orders. The fact was that the company did non cognize to whom the extra orders were sent or what was the content of those orders.

The most serious ground why the system was dysfunctional can be seen in FoxMeyer & # 8217 ; s direction of the undertaking. Their execution of the undertaking entailed a top-down attack, whereby direction, Andersen Consulting and few proficient people planned and implemented the undertaking right from the beginning. User engagement was non solicited and client engagement was losing. Few terminal users participated in the analysis, design and execution of the system. Therefore, the communicating spread that developed between users and system forces was predictable.

The deficiency of all sections & # 8217 ; engagement in the undertaking left workers threatened by the execution of the system, peculiarly at the warehouse degree. The workers had zero input into the machine-controlled system. Consequently, workers left for chances elsewhere. As the workers left, the company replaced them with temps until the new warehouse opened, but the temps were non able to manage the occupation and service deteriorated significantly. FoxMeyer was forced to open the new warehouse before the jobs were corrected. The consequence was the crippling of the warehouse stock list direction system and finally client service.

The Delta Information System failed because FoxMeyer & # 8217 ; s direction neglected to understand the complexness of the undertaking. They besides did non acknowledge the hazards, timelines, resources and proving in the execution procedure. Furthermore, the technological factors related to the deficiency of understanding and cognition of the elaborateness of the system. The consequence was a system that was nonfunctional and unequal.

FoxMeyer & # 8217 ; s stock suffered to a great extent from the mechanization jobs. Their stock, which reached a high of $ 26 per portion in 1994 when the Delta Information System undertaking was announced, dropped to about $ 3 per portion by December of the undermentioned twelvemonth. ( Bulkeley, 1996 ) The company finally filed for tribunal protection under Chapter 11 of the Federal Bankruptcy jurisprudence. A interpreter for FoxMeyer, claimed that & # 8220 ; basically, the computer-integration jobs we had were a important factor taking to the bankruptcy filing. & # 8221 ; ( Madden, 1998 )

Subsequently, the McKesson Corporation purchased the FoxMeyer Drug Company. They bought the company at the deal monetary value of a mere $ 80 million in hard currency. Interestingly, it is obvious that the Delta Information System & # 8217 ; s engineering was capable of working as designed, since McKesson Corp made the engineering work, including the mechanization of the warehouse.

In the competitory universe of concern, alterations must be made to remain on top. Often, information engineering is the alteration a company needs to go up them in front of the remainder. In the instance of FoxMeyer & # 8217 ; s Delta Information System, the engineering was ready and capable ; nevertheless, the direction was faulty. FoxMeyer bet its company on the new system and lost.

Bibliography

Resources

1. Bulkeley, W. ( 1996, November ) & # 8220 ; When Things Go Wrong & # 8221 ; The Wall Street Journal.

2. Caldwell, Bruce. ( 1998, July ) & # 8220 ; FoxMeyer Sues Andersen Consulting Over Flawed SAP R/s Implementation & # 8221 ; InformationWeek Online.

3. Madden, John. ( 1998, November ) & # 8220 ; SAP Dismisses as & # 8216 ; Unfounded & # 8217 ; a $ 500 Million Lawsuit Filed by the Trustee of a Bankrupt Drug Company & # 8221 ; Philadelphia Business Journal.

4. Neumann and Sabher ( 1996 ) & # 8220 ; How Information Can Help You Compete & # 8221 ; Harvard Business Review.

5. Porter, M. ( 1985 ) & # 8220 ; Competitive Advantage & # 8221 ; New York: Free Press.

6. The SAP Home Page hypertext transfer protocol: //www.sapinfo.net/