8 years, $1 Bn ERP System – Worth It?
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 investment paid my salary).
Questions:
- 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?
1) Dow processes 7 million transactions daily. In order to connect all of its ERP systems from around the world it is going to take a very long time due to the magnitude of their business. 8 years seems like an incredibly long time but when you think of when they began this process in 2009, technology was not what it is today. Like what the CIO said, “the change we’ll see in the next three years is unprecedented.” That shows that if they started this project today there is no way it would take a full 8 years. However in order to do what they did and make it easier for their employees and everyone using their systems it was going to take time and cost alot of money.
2) I think to get where they are today they had to approve the investment. Having everything on the same system helped employee’s see what needed improvement while speeding up the supply chain and decreasing the process cycle time ultimately saving the company millions. Having to pay a billion dollars for this system is the price they had to pay for long run improvement.
1) An implementation this size would cost so much and take longer than normal due to the size of the company. The multiple numbers of transactions and metadata that is involved will be the biggest hurdle and not be easy. In addition, technology has evolved so much and continues to change business. These changes need to be taken into account when undertaking this project.
2) Dow would approve such an investment because of the proposed benefits. Technology will eventually need to be upgraded anyway, so to get a head start is always a good thing. In addition, there will be long term cost benefits that will save Dow money in the future.
1. An implementation of an ERP system would take so long and cost so much because of the shear size of the ERP system. Dow Chemical is one of the largest chemical companies in the world, and having to connect all the departments and information into one takes a lot of money and man hours. With 7 million transactions and 16,000 unique users a day, you can see why it would take a lot more time then a medium sized firm. Especially with a business so big with ever changing aspects, accounting for these changes is a significant time investment.
2. Dow Chemical would agree to such a humongous investment because the benefits of an ERP far outweigh the disadvantages. Being able to have a fully integrated company will increase efficiency throughout the company, specifically the supply chain. With this increased effciency , this will result in improved sales and reduced costs, which will cover the cost of the ERP system quicker then most think.
1. An implementation of this size and scope would naturally take a lengthy amount of time to complete because of its size. Integrating and managing that volume of different users and transactions is a project that would take an extensive amount of labor to be implementing correctly and effectively.
2. Much like any other company, Dow Chemical approved of a transition of this size because the benefits (cost savings and operational efficiency) outweighed the disadvantages of the system. While a $1 billion investment may seem unrealistically large for most companies, Dow Chemical is also one of the largest firms in the world.