Horror Story #2: FoxMeyer Drugs
In 1993, FoxMeyer Drugs was the fourth largest distributor of pharmaceuticals in the U.S., worth $5 billion. In an attempt to increase efficiency, FoxMeyer purchased a SAP system and a warehouse automation system and then hired Andersen Consulting to integrate and implement the two in what was supposed to be a $35 million project. By 1996, the company was bankrupt; it was eventually sold to a competitor for a mere $80 million.
The reasons for the failure are familiar. First, FoxMeyer set up an unrealistically aggressive time line -- the entire system was supposed to be implemented in 18 months. Second, the warehouse employees whose jobs were affected -- more accurately, threatened -- by the automated system were not supportive of the project, to say the least. After three existing warehouses were closed, the first warehouse to be automated was plagued by sabotage, with inventory damaged by workers and orders going unfilled.
Finally, the new system turned out to be less capable than the one it replaced: By 1994, the SAP system was processing only 10,000 orders a night, compared with 420,000 orders under the old mainframe. FoxMeyer also alleged that both Andersen and SAP used the automation project as a training tool for junior employees, rather than assigning their best workers to it.
In 1998, two years after filing for bankruptcy, FoxMeyer sued Andersen and SAP for $500 million each, claiming it had paid twice the estimate amount only to get the system in a quarter of the intended sites. The suits were settled and/or dismissed in 2004.
The Lesson Learned: A risk assessment is critical to the success of a project. Project Risk identification helps organizations identify significant risks, estimate their probability of occurring and evaluate the impact in terms of cost and time. Risk Management: Planning Ahead and Preventing Project Failure can help you avoid a horror story like FoxMeyer's.