In a related post I copied an WSJ article that discusses a very large ERP system implementation at Dow Chemical. The system processes ~ 7 million transactions / day and counts > 16,000 unique daily users.
Note: I was a member of this implementation team (i.e. a very small portion of the $1Bn paid my salary).
You can answer one of these questions as an alternate ? for this week:
- Why would an implementation take this long and cost so much?
- Given the information shared – why would Dow Chemical company approve such a large investment?
Why would an implementation take this long and cost so much?
I think the implementation was long and costly because of the size of Dow Chemical. The company does business in 180 countries. I imagine that implementing an ERP system that would consolidate the company data would take long. First, they will have to try it on small scale; probably in one of their subsidiaries to test the efficiency of the system. Then, they will implement it to bigger offices. Also, getting employees to get used to the system is a time and financial challenge as training is time consuming and expensive.
Furthermore, the type, complexity and volume of transactions that this company makes everyday would require some time to implement an ERP system and consolidate everything.
Finally, it was costly because of the hardware and software (servers and licences) that the company needed in order to have an operational system. Plus, I think that the salary of technicians and consultants who have worked on the implementation was highly costly.
Given the information shared – why would Dow Chemical company approve such a large investment?
I just think that it is a strategic move. The company has certainly conducted a cost-benefit analysis and found out that the benefits will be greater than the cost. And frankly, I don not think they would have approve such a large investment than this one without being sure of the positive outcomes. I believe they are looking to increase their productivity which in the long run will increase their earning. It is just a long term investment with a long term goal. I guess they were thinking ahead and looking to the future.
Said, this is exactly what I was going to state. The implementation of such a large international organization would take a lot of careful planning and time for implementation. This would be done in a very slow roll out testing it in certain groups as their ERP system would be very complex. They would want to ensure that everything is able to be completed in the ERP system and then that the transactions are correctly recorded and consolidated.
Said, agreed. In terms of being proficient and productive, it was definitely beneficial to take their time and be as efficient as possible with this implementation. 8 years definitely proved to be beneficial for the greater good of the company and their future.
Said, this is exactly what I was going to state. The implementation of such a large international organization would take a lot of careful planning and time for implementation. This would be done in a very slow roll out testing it in certain groups as their ERP system would be very complex. They would want to ensure that everything is able to be completed in the ERP system and then that the transactions are correctly recorded and consolidated.
This was supposed to be a comment.
There are many factors that could influence the actual cost of implementation
– the company’s industry
-the size of the company
companies should expect to pay around $4,000 per concurrent user for a manufacturing or complex distribution company and around $2,000 per concurrent user for a professional services or light distribution company.
-the anticipated transaction volume
-scope and complexity of the implementation
-the number of third-party integration
Third-party add-ons typically account for 10% to 35% of the overall software cost.
Source: http://www.erpsoftwareblog.com/2012/09/how-much-does-a-typical-erp-implementation-cost/
Why would an implementation take this long and cost so much?
An implementation of this size will take several different resources, including human or labor to complete the tasks. The goal was to combine consolidate 4 regional systems into a single global ERP system. SAP had to create a system tailored to Dow Chemical business processes. The system would populate data fields and improve reporting.
Consolidating data over different systems would be like picking a person from US, China, Mexico, and Russia, and telling them to communicate. It would be difficult because they all speak separate languages. The same is true for these data bases. Professional programmers (Highly Paid) are needed to create the system. It takes time to build, test, and deploy a system of this size.
They also spent about $15 million of making employee changes, training, and other changes along the way. This Proved to be very costly as well.
Given the information shared – why would Dow Chemical company approve such a large investment?
The reason Dow approved the investment was future gains. The idea was to put DOW on a centralized system, helping employee productivity and streamlining business processes. In theory, the improvement made business sense. However, the expected changes and coding issue costs were not properly identified. Therefore it is important to consider every variable. Expect the worst and hope for the best.