Foxmeyer, a Failure Implementation

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ONLINE FILE W8.4

FOXMEYER CASE: A FAILURE IMPLEMENTATION
1.
1.1

OF

LARGE ERP

BACKGROUND
BUSINESS

OF

FOXMEYER

FoxMeyer was the fifth largest drug wholesaler in the United States (1995) with annual sales of about 5 billion US$ and daily shipments of over 500,000 items. The business of the company was principally in healthcare services, which included the followings: 1. Distribute a full line of pharmaceutical products and health and beauty aids to chain stores, independent drug stores, hospitals, and other health care facilities. In other words, FoxMeyer’s customers were retailers and dispensers. 2. Provide managed care and information-based services to health care facilities, pharmacies and physicians. 3. Conduct business in franchising variety stores and the franchising and operation of crafts stores, and wholesale distribution of products to those stores.

1.2

DISTRIBUTION
The company had 25 distribution centres located throughout USA. It conducted business mainly through two operating units: FoxMeyer Corp. and Ben Franklin Retail Stores, Inc. The latter was engaged in franchising and wholesaling to the franchised stores; while the former was engaged in the distribution to the individual units and chain stores and in the provision of managed care and information-based services.

1.3

BUSINESS STRATEGY
FoxMeyer business strategy was a mix of ‘Cost Leadership’ and ‘Differentiation’. a. Cost efficient operations e.g. automating the physical warehouses b. Efficient inventory management and implementation of cost cutting program. c. Effective Information System Management, e.g. providing customers with electronic data entry. a. Provide innovative services, mostly computer based. b. Focus on quality. c. Complement distribution activities with marketing programs and computer-based services. d. Maintain local responsiveness and national coverage.

Cost Leadership

Differentiation

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e. Strengthen sales and marketing efforts at new customers by expanding value added services. f. Expand private labels, generic brands and specialty distribution programs.

2.

THE PHARMACEUTICAL DISTRIBUTION INDUSTRY
The pharmaceutical industry in the US is one the most dynamic and important segments of the national economy. Due to advances in medical sciences, prescription drugs have become an essential element of modern health system. For example, in 2000, over $125 billion dollars worth of prescriptions drugs were dispensed in the US. Over the last twenty years, there was a continuous growth followed by merger and acquisitions in the industry. Major players have also begun to integrate vertically by acquiring businesses related to the distribution of drugs and related health care products. Only handful wholesalers, included FoxMeyer, were able to provide national coverage through a network of distribution centers. The pressure to reduce cost in the industry as a whole has led wholesalers to use economy of scale. Over two decades, wholesalers have increasingly lowered their price and profit margin in order to compete. For example, from 1980 to 1996, wholesalers’ margins declined from 5.5% to 0.35%, while the retailers’ margin increased from 5.35% to 5.5%. This reflected the increase bargaining power of the retailers. The competition at the wholesaling level, where FoxMeyer operated become very strong.

2.1

COMPETITION
FoxMeyer faced competition from traditional competitors such as distributors and manufacturers, as well as from new competitors such as mail order and self-warehousing chains. As of 1999 a large number of companies started to conduct both retail and wholesale on the web. WHOLESALES:

Wholesalers like FoxMeyer act as intermediaries between manufacturers and retailers (dispensers). They provide fast and cost effective mean for the purchase and sales of prescription drugs. Wholesalers also have a broad range of value added services such as storage facilities and large...
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