Fox-Meyer Drugs

Following entry is a record in the “Catalogue of Catastrophe” – a list of failed and troubled projects from around the world.

Fox-Meyer Drug – USA
Project type : Enterprise Resource Planning
Date : Aug 1996 (filed under golden oldies)
Cost :
$40B write down in share value – company bankrupt

Synopsis :
A $65M investment in an Enterprise Resource Planning System (ERP) and new warehousing facilities results in the destruction of a $40B business. A project aimed at improving business efficiencies is poorly managed. Delays in delivery and the failure to fully realize the business benefits results in the organization being unable to profitably service contracts it had entered into. Based on an assumption that the project would be delivered on time, that it would improve efficiencies and that it would reduce costs Fox-Meyer, a medical supplies distribution company, committed to a large contract with a customer. When the system was delayed and when it failed to meet performance requirements the company was unable to service the contract profitably and cash flow issues forced the company into Chapter 11 bankruptcy. The company that had been worth $40B prior to the project was then sold off for just $80M to rival McKesson Corp. Fox-Meyer blames the problem on the integrator and suppliers they had engaged to perform the work.

Contributing factors as reported in the press:
Poorly considered and un-validated assumptions. Early adoption of ERP at a time when the systems had not been properly developed for the distribution industry. Lack of stakeholder engagement. Failure to identify and address system performance requirements. Failure to listen to expert advice. Lack of risk management.

Reference links :

  1. Wiley Education – full case study
  2. ERP vendors, implementers could be in for an avalanche of litigation