DISADVANTAGES OF USING THIRD

PARTY ERP
Direct Cost
This is by far the biggest disadvantage to ERP software. The up-front cost of the entire
implementation process can be prohibitively high, especially for small-to-medium-sized
businesses. This includes the full process of planning, testing, configuring and
customizing the software as well as the cost of actual implementation.

Indirect Cost
Financial cost is not the only associated expense with ERP implementation. Businesses
must also take into account the opportunity cost of manpower and time necessary for a
successful deployment. Planning out a realistic timetable will give you a better idea of
whether or not the cost is worth it for your company.
Understanding the factors that influence the cost of ERP will help give you a better idea
of how much your business can expect to pay. Moreover, it gives you the knowledge to
carefully evaluate estimates that fall significantly below or above industry standards.
Here are a few of the key factors that influence the total cost of ERP manufacturing
software.
Type of business and number of users Most ERP systems are priced on a per user
basis. Specifically, the number of users that will be using the system at the same time
and the level of access they require. You can roughly expect to pay anywhere from
$1,500 to $4,000 per concurrent user. The number of users and the functions that are
included are factors that affect the price. For example a small-to-medium-size job shop
may not require a Master Production Scheduling module or sophisticated warehouse
management, and a large multi-national company would probably require more financial
management applications than a make-to-stock manufacturer. Most robust ERP
offerings have 30-45 applications and it is critical that you assess your requirements so
that you do not purchase unneeded modules up front. An ERP supplier should be ready

and willing to sell you what you need and when you need it. In addition, most ERP
suppliers will take into account the number of users purchased and provide volume
discounts as the number increases.
Third-party software add-ins Many ERP vendors integrate software from other
companies to boost functionality or add value to their ERP systems. For example, ERP
vendors offer third-party software add-ins that allow users to create customized
documentation and reports, generate barcode labels and perform custom data
extractions. Because third-party products are usually designed by a specific vertical
market, their functionality is often first-rate. You can expect third-party software licensing
to be about 10-15% of the overall software cost.
Implementation costs Implementation costs are a significant consideration because
you as the buyer can dramatically influence this expense. First and foremost, carefully
consider who will be supporting your implementation. Some ERP suppliers have their
own implementation resources, others have 3rd party implementation consultants that
they bring to you, and some just sell the software and leave you to find your own
support. It is important that you speak with the person who you will be dealing with to
ensure that he or she has knowledge of your business processes, knows the software
application, and is a good match with your company culture. Implementation costs cover
planning and organizing your project, training, prototyping functional areas of your
business, installing the software, configuring the system, implementing process
changes and completing conversions. Typically, an implementation to software cost ratio
of .75:1 to 1:1 is considered a good planning goal but a ratio of 1.5:1 or 2:1 is not
uncommon for more complex or customized ERP initiatives, especially if the
implementation will cover multiple sites and/or companies.
You can significantly reduce your out of pocket implementation costs by staffing and
supporting the project with your own internal project manager and a core team of
functional area representatives that work with the ERP consultants and assume some of
the tasks such as business process development and training the end users.

The Bottom Line? Small-to-mid-sized businesses can expect the cost of software and
services combined to range anywhere from $150,000 to $750,000. Certainly a
significant investment, but a properly implemented ERP system will pay for itself quickly.

Key pricing factor of the ERP Solutions(INDIA)

1 Licensing the first component of the ERP solution is application software license.
2 Analysis & Customization the 2nd components of the ERP solution pricing is
Deployment and form customization along with business logic managements.

3 Infrastructure the 3rd large cost is infrastructure, the IT infrastructure mean all the
hardware, software and clients hardware requirements to run your ERP solutions
smoothly, the cost of infrastructure can be as per the selected mode of implementation.
If you are going to do it in premises or hosted or saas. There is cost factor that change
for infrastructure. Let say if you are using in premises installation of ERP solution it will
add a burden on in House IT resources, a server and backup system and up front
capital cost will increase.

4 Maintenance and Training the 4th components of any ERP deployment is

maintenance and training, the maintenance cost and training can me very minor and it
can be accommodate in the general operation cost of business.

5 Data data conversion or making data usable for the ERP and your business is again
a cost hurdle and one can safely say that the cost of data conversion is depend upon
your overall preparedness and current use of the software or process. Let say you are
using some accounting and inventory software where we have option to import data on
the excel , then it can be get imported in hardly 10-15 days even for the data that is of 5
years of your business, wherein if you are using any sort of manual system or system
that is not having any option to get data in bulk, then the data conversion cost and time
can be higher. This is also make sense sometime to go with your new ERP system with
all new data only and down the line 1-2 years when your system is completely

established and the finance burden of the ERP reduced from the balance sheet you can
go for archival based data integrations.

Costing Structure of the ERP(WITH CUSTOMIZATION)

In general the cost of ERP system is considered on the above point only, but the
higher degree of customization, licensing fee and other cost will lead the price list.

Our estimate for several industries with 50 users and 5 locations are below.

The price list below for hosted services and on premises services.

Hosted on Cloud ( No monthly Rental / Full Customize ERP solutions) with Separate
hardware and software on cloud.
For Manufacturing Process with up to 5 Locations for manufacturing the standard
cost of deployment of an ERP solution can be in the range of Rs. 4,00,000 to
15,00,000/- where the solution is full customize as per the requirements of business,
using a solution platform and modules.

For the service industry and Consumer Electronics Trading and service providersthe standard cost of the deployment of ERP solution in the range of Rs. 2,50,000 to
12,00,000/- where they can have all the customize module and service management
system integrated.

For real estate Developers builders and developer can deploy the Complete ERP
solution with project managements and sales lifecycle management for the range of
Rs. 800,000 to 20,00,000. The solution is complete customize and will give multi
location, multi projects and managements of your broker networks and employee all
together at single platform.

The on premises will add additional cost of hardware and software infrastructure to
your budget.

Cost. One of the challenges with the ERP industry in general is that companies often
purchase more ERP software licenses than they need or use, which escalates both their
initial investment as well as their ongoing annual support and maintenance costs. As the

business and technology misalignment outlined above becomes greater over time, this
increased cost may not be justified by the diminishing benefits of maintaining a system
that simply isnt a good fit for the business. Companies often will look to third-party
maintenance providers such as Spinnaker Support and Rimini Street, both of which
provide SAP and JD Edwards maintenance and support. Alternatively and more
unconventionally some organizations opt for handling support and maintenance
internally without the help of an outside service provider. It is worth noting that this path
is often not a feasible option.
Complexity of customization and upgrades. Unfortunately, most organizations
customize their ERP systems more than they should. In fact, our 2012 ERP
Report shows that, in our extensive study of ERP implementations across the globe,
89-percent of ERP implementations have some degree of customization, meaning that
only 11-percent of companies implement vanilla, off-the-shelf software without
customization. Not only does this make ERP implementations more costly, difficult and
risky, but it also can create complexities when it comes time to upgrade the software. In
general, each customization needs to be rewritten or readdressed each time there is an
upgrade, so the value of an organizations ERP support largely depends on whether or
not it is able to improve or upgrade the software without worrying too much about the
effects on its customized components.