The Failure Of A Strategic Information System

Essay, Research Paper

FoxMeyer’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 fourth largest drug wholesaler in the United States with an annual sales of approximately $5.1 billion. The company filled orders from thousands of pharmaceutical companies with shipments of up to 500,000 items per day. However, in the same year, due to rapid growth and consolidation of the pharmaceutical industry, FoxMeyer’s management was concerned about competition from the larger competitors. The threat imposed required drastic measures. The whole industry competed on low profit margins. Therefore, FoxMeyer decided to stay ahead of the competition by implementing a new information system.

Previously, the Information Technology department consisted of the Unisys mainframe, which was able to track inventory accounts. In addition, the company’s warehouse had out-dated packaging and shipping technology. FoxMeyer believed that by improving information technology, warehousing and customer service, that the competitors could be outpaced by a wide margin. FoxMeyer decided to automate their inventory and delivery process in an attempt to provide better service at a lower price than their competition.

The bulk of the project was changing the warehouse from manual to automated. They implemented bar code readers and bar coded all their products for faster tracking capabilities. Further efficiency was added with the installation of automated conveyor belts. The belts lifted the products and delivered them to docks were they were placed in the appropriate trucks for shipment.

Also, the new information system tremendously supported FoxMeyer by making the business process of tracking sales and inventory easier and faster. First, it automated the order taking process by allowing hospitals to enter their orders directly into FoxMeyer’s inventory computer system. Secondly, the system allowed robots to automatically gather the orders and send them off to the shipping docks for rapid delivery. This was thought to have the most strategic impact to fill the most orders.

The direct computer order entry system facilitated control over their inventory. The information system was designed to pick up eighty percent of all items automatically, as compared with an industry average of thirty-three percent (Bulkeley, 1996) definitely, giving FoxMeyer an advantage of superior service over the competition. The new information system tremendously supported FoxMeyer by making the business process of tracking sales and inventory easier and faster.

Conceptually, FoxMeyer’s information system planned to conduct business with its customers on a daily basis. FoxMeyer focused its value chain on activities in their business where competitive strategies could be best applied. (Porter, 1985) However, the implementation was inconsistent with the changing business environment. The new system caused problems at every step of implementation. Problems ranged from inadequate time allocation for development, testing, debugging, lack of interaction between management, systems personnel, consultants and low user involvement.

Initially, FoxMeyer’s management were supportive and committed appropriate funding of $56 million to develop and install the newly named Delta Information System. However, to build its new 340,000-square-foot warehouse, FoxMeyer spent an additional $18 million. The company hired Anderson Consulting, a leading international information systems consulting firm, both to advise them about the project and to supply skilled personnel to construct the system.

Also, FoxMeyer purchased R/3, an inventory management software system from SAP AG, a giant German software 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 vendor for the warehouse system was Pinnacle, a system not tightly integrated with SAP R/3. (Caldwell, 1998)

The software had a reliable reputation and was designed to run on client/server hardware. It also enabled its users to replace their old mainframes. The hardware choice proved to not be an issue, as the software ultimately ran well on the Hewlett-Packard equipment. However, the company had serious problems because client/server software is quite complex and was still relatively new at the time. Some difficulties were expected.

However, once the SAP implementation started, management adopted an out of sight, out of mind attitude towards problems that were encountered. In essence, senior management had no desire to know about the problems. This case is a classic example of management over commitment to a project that should not have been undertaken (Neumann and Sabher, 1996). Even management personnel involved in the implementation were discouraged from criticizing the system.

Furthermore, management failed to understand the complexity and risks involved in the implementation process and even fast tracked the project by three months, prior to having the system fully tested. The system, when first installed, was full of bugs and kept shutting down such critical elements as carousels and conveyors. Also, the scanners often failed to

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