The ERP Elephant

An ERP system is like an elephant. It's up to the owner to make it work
like a powerful beast or keep it like a pet, spending tons of money on it. Many
companies have burnt their fingers and got a white elephant on their hands. As a
solution provider, it's in your best interest to look at the long-term
interest of the customer, help him make a wise ERP decision and walk him through
the processes.

Many people look at an ERP system as a white elephant, but this is based on
generalization of failed implementations. This metaphorical elephant can give a
healthy return on investment if handled skillfully by an expert mahout.

There is one serious mistake that needs to be avoided right at the evaluation
stage by the solution provider. This is the realization that ERP implementation
is not a one-time sale. It is a lifelong relationship that you must build on a
sound  foundation.  

TRANSPARENCY MATTERS

Don't take advantage of your customer's ignorance and try to sell him a
white elephant. A failed ERP implementation can haunt you as a solution provider
for many years to come-even if you are a well-established company.

An
unsuccessful SAP implementation is always looked at as the failure of a
customer, but if you are a small player, a failure may point to you as well.
Therefore great caution and care must be taken about the commercial proposal
that you will offer to a prospective customer.

Never hide any costs from the customer or try to make the proposal attractive
by keeping the words ambiguous. Be very precise about the costs involved from
day one of the project till the go-live date. If the customer doesn't know how
to arrive at a reasonably accurate figure, educate him and make him understand
the complete cost structure.

Even if the customer doesn't know what questions to ask, give him all the
answers to the unasked questions. Many customers have no idea about finally how
much they will end up spending till the go-live date and beyond.

COSTING STRUCTURE

Consider a hypothetical Rs 100 crore company that has no existing
infrastructure to implement an ERP system. A company with one headquarter, five
manufacturing plants and around 20 to 30 users for the ERP system. The project
cost for such a customer may run over Rs 75 lakh, for a basic ERP package
costing just Rs 25 lakh.

If as a solution provider you have to start from scratch, the entire project
cost must include the servers and other related hardware, operating system,
database application, messaging application, etc. Additionally, you have to look
at the connectivity, security, redundancy and other networking related costs. As
a solution provider may not charge the customer for all these, but the customer
has to spend this much money to get the system up and running and you must make
him aware of this.

Licensing policies of various application vendors are different and even the
definition of a 'user' varies from vendor to vendor. Even for a low-cost
Indian ERP solution, the customer will have to shell out a lot of money by way
of licensing fees to software vendors like Microsoft, Oracle or Symantec.

CHOOSING THE RIGHT HARDWARE

A very sensitive decision area for any ERP implementation is the choice of
hardware. The customer may want to save on hardware costs by purchasing the
hardware from his nephew, but it's your duty to educate him about the pitfalls
of such a decision if the nephew happens to be just a small-time assembler.

Don't leave such important decisions to the customer. Never say "Go
ahead and buy the hardware, but don't blame me later if things go wrong".
Advise the customer on all aspects of the implementation wisely and educate him
wherever necessary. It will be a good investment in your future relations with
the customer.

PERIPHERAL COSTS

Add the implementation and customer training cost to the total project
investment. If you have an outstation customer, it's a very complex task to
forecast an accurate cost on this account. Actual expenses is an invitation to
future disputes. If possible, work out a maximum limit to this and say 'Actual
expenses not exceeding Rs X'.

If you are offering a web-based interface for the users, those at the
headquarters are going to be on the LAN. But other users will connect externally
through whatever connectivity is made available to them.

It is important to specify what kind of connectivity is acceptable for proper
functioning of your ERP application. When you say web-based, a customer may
think that remote users can be on dial-up line, which may not be acceptable to
you. Be very clear about this and let the customer know about the cost of
providing proper connectivity initial as well as recurring. Recurring cost of
connectivity may turn out to be higher than that of running the ERP application.

Another recurring cost, which the customer may not factor in, is the cost of
hiring and retaining competent personnel for smooth functioning of the ERP
system. A database administrator can be costlier than your customer thinks.

Very good ERP projects have failed in stages after successful implementation,
as the company didn't replace the key ERP personnel when they left, and later
on the connectivity was downgraded to dial-up lines at remote locations. The
central database is now updated once every week. It will be no surprise if they
start updating the database through couriered floppies soon! It is your job to
avoid such a scenario, so make a good effort at it.

Ashok Dongreis an independent
consultant

ERP Cost Indicators

Considering a mid-level Indian ERP application for a company with one
headquarter, five manufacturing plants and 20 to 30 users:

• ERP application, implementation, user training: Rs 50 lakh or more
• Central server, related hardware/software: Rs 9 lakh
• Connectivity for central server (first year): Rs 3 lakh
• Router, firewall, switch (one time): Rs 3 lakh
• Connectivity for five locations (first year): Rs 10 lakh

Recurring costs (second year onwards):

• ERP AMC: Rs 4 lakh
• Connectivity: Rs 8 lakh
• Salaries of a database administrator and assistant: Rs 5 lakh