Merger marries 'old' ERP to new

The second-largest chemical firm in the US, Dow Chemical, may be the Goliath in its merger with No. 5 Union Carbide in a $US9 billion stock deal announced last week. But Union Carbide has a leg up when it comes to enterprise resource planning (ERP) systems.

Union Carbide went live April 1 with a massive implementation of SAP AG's R/3 software in North America, according to Ernst & Young LLP, the consulting firm that was heavily involved with the implementation.

Dow Chemical, meanwhile, is struggling to mark a return on investment with its SAP R/2 software that was installed in the early 1990s. The company is still adding reporting and sales support systems to its global SAP infrastructure. It's also patching in R/3 vertical applications for its customers in the automotive, electronic, packaging and forest-products industries. But Dow officials said they don't plan to fully upgrade to R/3 for several years.

"[R/2] is just now recouping the investment we've made in it. Our philosophy is, our major IT activities ought to have a return on investment," said Catherine Maxey, a spokeswoman for Dow.

Stephen Cole, a research director at Forrester Research, said SAP's advancements in customer, supply-chain and performance management and e-commerce have been applied to R/3, not R/2. So though "the core ability to total up numbers at the end of each quarter isn't going to be that different" for either system, R/3 offers more functionality, he said.

Also, the two ERP suites run on two different systems, said Robert Dorin, an analyst at Aberdeen Group. R/2 is built on a centralised mainframe, whereas R/3 has a client/server infrastructure.

If the merger is completed, Cole said, the new company will have to create another R/3 system at the highest level for rolling up results from all business units. That means more work for Dow's alliance partner, Andersen Consulting.

The alliance, which began in 1996, teams 550 Andersen and Dow information technology staffers on application development and support projects, including year 2000 remediation, SAP support, e-commerce and networking. Alliance manager Bill Lehrmann said Union Carbide projects haven't yet been discussed, but the alliance usually handles new projects from Dow acquisitions.

As part of the merger deal, the two companies plan to cut 2000 jobs, or 4 per cent of the combined workforce, and expect to save $US500 million annually. Analysts said the cuts will likely come from overlapping administrative and sales staff.

Union Carbide officials, who closely guard their IT strategy, were unavailable for comment except for a recorded phone message that said the company is in the midst of a new corporate strategy calling for "the replacement of all IT and telecommunications infrastructure and applications." Observers said the company has kept a low profile since the deadly gas leak that killed 6500 people in Bhopal, India, in 1984.

Dow Chemical employs 1000 IT workers and spent $US400 million on IT last year.

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More about Aberdeen GroupAndersenAndersenAndersen ConsultingDow Chemical AustraliaErnst & YoungErnst & YoungForrester ResearchSAP AustraliaUnion Carbide

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