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Is your company paying high costs for its ERP year after year?


Articulo ERP High Costs Smart StrategyIf we were to ask most executives today, "Are you paying too much for your ERP?" They would answer yes quickly. Yes, the cost is too high. Yes, the constraints are too severe. No one intends to make efforts and expenses to implement the ERP to the end, to end negatively affecting your business. But unfortunately that is the situation in which many companies are. The initial benefits of implementing ERP have become mass consumed. ERP defects have transformed from annoyances to harmful obstacles.

In this article we discuss the issue of costs of ERP. We want to expose answers to questions like: What are the hidden costs of ERP systems?, How high are these costs?, What is the total cost of a traditional ERP compared to a modern ERP in the cloud?

 

First, what it is a traditional ERP and what is a modern ERP?

The primary difference between a traditional ERP and a cloud base ERP is quite clear: The traditional ERP is deployed on local servers that are part of the infrastructure of the company and technically have to be administered by the IT staff of the company. On the other hand the cloud ERP known as ERP SaaS or Software as a service is in the operating mode. With this difference, the ERP in the cloud and the database will be managed on the Internet or in the cloud by the ERP provider.

What are the hidden costs of a traditional ERP?

The cost problem is that it is extremely difficult (or traditional ERP vendors are very clever ) to make an accurate estimate of operating costs. Let us start with the problem in 2 phases. The initial phase is when the user purchases an ERP. The second phase represents most of the time, is when the traditional ERP is running and has completed the installation phase and adaptation.

Costs Phase 1: Commercial management and installation of traditional ERP

In the beginning, everything is relatively clear. ERP benefits can be estimated as well as initial costs. Due to installation costs, it is estimated that costs and benefits is balanced (although in reality the benefits should always outweigh the costs!).

Grafico1 ERP High Costs. Smart Strategy

Graphic N.1: Benefits ERP are aligned with costs

 

Costs Phase 2: Normal operation of ERP

It is in the routine where traditional ERP begins to demand more than it gives. Integration costs of new features, regular updates, IT staff required to run the system, hardware costs (which are triggered often with software update), license fees and maintenance, operating costs of computing centers and rates of integration between systems ... actually a list that never ends.

The vast majority of these costs are specific to a traditional ERP system. Each customer has to maintain an oversized infrastructure. In a cloud based system, this infrastructure is actually more expensive, but is reused for thousands of customers, being more accessible for customers (and at the same time much more sophisticated and functional).

Grafico2 ERP High Costs. Smart StrategyGraphic N.2: As the ERP began to be widely implemented, the value of benefits decreased, but costs continued to increase

How high are the costs really?

For reasons of confidentiality, I can not publish specific costs and names of my clients. However I present an interesting case of Costa Rica that displays very clearly the magnitude of costs that we move.
This is a big company engaged in import and sales. This company used a traditional ERP. One of the first tasks we had with this client was to collect the total operating costs of its ERP. We could identify our client paid $50,000 per month for licenses, maintenance, support, expansions, upgrades etc.
Once implemented, a cloud based ERP, not only increased the functions and improved service, but also dramatically lowered costs to USD 50,000 per year. In total, an annual reduction of $550,000 was achieved lowering total costs by 92 %.
This example does not present an exceptional case, rather matches a global pattern.
Even the German company Siemens A.G, one of the main customers of SAP (producer of traditional ERP) canceled a millionaire maintenance contract to move to a system of human relations in the cloud, which will be used in its global operation. It is clear that Siemens is a major supplier of SAP, and yet have decided to migrate to something more scalable and above all profitable.

Conclusion

It is more than clear that the benefits of an ERP in the cloud are not simply a modern hype. They are concrete, and affect most importantly our customers pocket. That's why we have designed a comprehensive strategy to promote this technology in Latin America. We do not want companies in highly developed countries the only benefited from these technologies, as we know very well that here we have a lot of potential for growth and this technology can support and accelerate this growth decisively.

If you have more interest in the subject, and how your company can benefit, we invite you to contact us and request advice.

 

Contact us

 

  • Arturo Arrea
  • Arturo Arrea
    CEO Smart Strategy

    Experto en Optimización e Innovación de Procesos empresariales con amplia experiencia en tecnologías en la nube e integración de sistemas.


Tags: ERP

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Smart Strategy

USA (347) 289-3027
Panamá (507) 833-9507
España (34) 9-1188-0039
México (52) 55-5351-3335
Colombia (57) 1-382-4866
Costa Rica (506) 4000-0237