Wednesday, May 23, 2012

Selecting ERP Solutions Should be About Value, not Price

You get what you pay for”.  This statement and countless variations exist, because so many people have learned the value of a free or low cost solution is often less and will end up costing more (Total Cost of Ownership- TCO) than if they had done their research more thoroughly and invested based on value rather than price.

A few years ago I was working with a prospect who was considering a new system.  We were discussing the implementation to their current system.  Knowing about their past systems, conversions and satisfaction helps to manage expectations and set reasonable budget ranges for a new project.  Knowing the process also alerts us to potential pitfalls that need to be avoided or addressed in the future.

The prospect related that they had a horrible time with the conversion.  They managed the process in-house, it took too much time and money and the process strained everyone with the extra workload.  I related that is not an uncommon story. 

We then discussed budget and the three major categories where monies would need to be invested.  Software, Hardware, and Implementation.  Of course there are subsets to the categories, but these cover the major areas. 

He agreed that the software numbers were reasonable, but lamented a bit, because after all it was already written and he just needed a copy.  Okay, he has a point, but if the company just handed out copies of the software, then they would not have the resources to keep it current, make fixes or plan for future enhancements.

The hardware was a somewhat more than what he had in mind, but the IBM midrange system proposed had far more capability and capacity than the several smaller servers that he used now that would be replaced.  Add in energy savings, reduced maintenance and ease of operation numbers to the TCO and the system made sense. 

What he had trouble most with was the implementation. 

This really surprised me.  He had explained in some detail how the previous implantation they did in-house was arduous, exceeded their budget, time frame and patience.  Yet, when presented with a reasonable budget number range, he became uneasy.  Perhaps the total number was just not what he had in mind to invest in the growth of his company.

Some companies, not just in software solutions, give an estimate of Software and Hardware and hope that you will think it is a good deal.  It probably would be except for the fact the single biggest category is implementation. 

TCO must be factored into the Return on Investment (ROI). 

Is one machine cheaper, but has higher energy usage, or shorter lifespan necessitating early upgrades and updates?  Would he prefer the estimate did not include implantation or we not speak of it or it only lightly addressed issues that we assumed he and his staff would take care of?  What happens when the system is delivered and no one is there to implement it?  ERP solutions are not like software purchased at retail locations where you just insert a disk into your workstation, click and go.

There is a long list of cost factors to include in all three categories we discussed and they will be the subject of future discussions.  The point here is that you will indeed, get what you pay for.  You are not going to change that fact.  You just have to ask yourself if you want to know about them upfront or find out about them later.  When you walk into a new room, is it helpful to have the lights on?

Dolvin Consulting works with manufacturers, distributors and specialty retailers to help them identify areas that can be streamlined with technology solutions, so that their costs are reduced and profits can increase.  Perhaps you are already doing everything you can with your budget, but you might not know that if you do not contact us today.  Reach out to us so that we can start working with your team.

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