Case Study - The McKesson Corporation
The McKesson Corporation is a distributor of non-durable consumer goods in the USA. A large part of its business is the distribution of prescription and off-the-shelf drugs, toiletries, perfumes and sundries to retail drugstores. In overly simplistic terms, McKesson purchases these goods from the large manufacturers of pharmaceuticals and toiletries, stores them in warehouses, takes orders from drugstores across the USA and then distributes the goods to the stores. This is a low margin and competitive industry.
Around 1980 the senior management of McKesson was looking carefully at its corporate strategy. Their view was that competition was largely determined by price and cost and so decided that the key to competitive success was a strategy based on a ruthless efficiency drive. They also decided that IT could help them increase efficiency. At this point in time McKesson used computers for accounting and financial purposes but not for anything else.
The organization then proceeded to put its strategy of improving efficiency through an increased use of IT into practice. The steps it took were in the following sequence.
Step 1. Stock control in the warehouses was computerized. The aim was to reduce working capital costs by cutting stock levels.
Step 2. McKesson computerized the sales/ordering process. This allowed orders received by post or telephone at the warehouses to be entered on a computer, instead of being recorded manually as previously. The anticipated benefits were a reduction in clerical costs and better management information which could be used for internal control purposes so that, in emergencies, customers could know the status of their order.
Step 3. The existing systems - financial, stock control and sales/ordering - were linked together. An order received would now automatically trigger delivery instructions