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Erp Failures Essay

1601 words - 7 pages

Case Study ERP Implementation Failures

ERP systems are an integrated software solution that is typically offered through a vendor as packaged software that supports the organization’s supply chain and other business functions, such as, receiving, inventory management, customer order management, production, planning, shipping, accounting, and human resource management. The use of ERP is very widespread across a multitude of industries. As a matter of fact, a report by Computer Economics Inc. states that, “76% of manufacturers, 35% of insurance and health care companies, and 24% of Federal Government agencies already have an ERP system or are in the process of installing one.” Over 60% of ...view middle of the document...

We see these reasons cited over and over again in case studies on why organizations fail in implementing ERP systems. Other major reasons include, poor ERP package selection, miscalculation of time and effort it takes to implement an ERP solution, the software doesn’t fit with business processes, unrealistic expectations of benefits and return on investments, and, cost cutting (Ligus, 2007). Let’s examine our own examples of failed ERP implementation and discover what went wrong for two large organizations and what lessons can be learned from their experiences.

The first organization that we will examine is FoxMeyers Drugs. FoxMeyer was the fifth largest drug wholesaler in the United States with annual Sales of about 5 billion and daily shipments in excess of 500,000 items. As any large corporation, they faced increasing competition from other distributors and manufacturers as well as from new competitors entering the market with a large number of companies finding a presence in the emerging e-commerce market. Because of increased competition, FoxMeyer knew they needed a new solution to support a complex supply chain and to meet the challenges ahead of them. In 1993, FoxMeyer contracted with SAP, Andersen Consulting, and Arthur Andersen & Co. (AA), to implement R/3 software. This was a multimillion dollar project covering the entire supply chain, including warehouses, inventory control, customer service, marketing, strategic planning, information systems, and shipping and handling. The ERP system was projected to save FoxMeyer $40m per year. They soon found out that the system was inadequate and could not handle the volume of transactions that the old system could. The final bill was more than $100m. In the end, the R/3’sperformance was unacceptable, was completed late, went over budget and failed to deliver the expected benefits. What went wrong?

FoxMeyer Drugs failed ERP implementation can be contributed to poor planning and implementation. Poor planning incorporates poor selection of the software, not listening to another consultant’s advice, lack of contingency planning and no end user involvement. The implementations process suffered because no restructuring of the business process was done, insufficient testing, over ambitious project scope, dominance of IT specialist’s personal interests, poor management support, and lack of end user cooperation.

In this case FoxMeyer failed to plan properly. Their first mistake was that they did not choose the right software. SAP R/3 was not designed for wholesale companies especially those doing large numbers of transactions. It lacked many of the requirements needed for successful wholesale distribution. SAP R/3 was inflexible, and any customization cost time and money. The legacy system could handle 420,000 orders per day but SAP could only process 10,000 orders per day. FoxMeyer also chose to ignore the advice of another outside consultant that warned them that SAP would not be able to...

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