Enterprise resource planning (ERP) systems are indispensable for managing critical business processes and data within an organization. However, the costs associated with ERP software implementation and maintenance can be hefty. To mitigate these expenses without compromising on quality or performance, companies can employ strategic planning and decision-making.
In this post, we will explore various methods to reduce ERP costs while ensuring optimal system functionality.
How to Reduce ERP Costs
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Assess Your Actual ERP Requirements
The initial step towards reducing ERP costs is to evaluate your organization’s specific requirements. By identifying essential business needs and distinguishing between ‘must-have’ and ‘nice-to-have’ features, you can establish a minimum viable product that serves as the foundation for your ERP platform. This approach ensures that the system aligns with your organization’s needs, laying the groundwork for cost reduction.
Avoid investing in unnecessary features or customizations that do not add significant value. Studies show that many organizations utilize only 32% of the functionalities offered by licensed ERP software (source: Businesswire). Therefore, it is crucial to tailor your system according to genuine requirements to minimize licensing and implementation expenses.
Consider Cloud ERP Solutions
Cloud-based ERP solutions present a cost-effective and flexible alternative to traditional systems. By transitioning to a subscription-based model, organizations can eliminate the hefty upfront capital costs associated with hosting applications and infrastructure. This subscription model, offered by leading SaaS ERP vendors like Oracle, SAP, and Infor, allows costs to scale based on usage metrics such as the number of users. Cloud ERP solutions also eliminate the need for costly manual upgrades due to their auto-updating capabilities, making them a cost-effective choice for long-term ERP investments.
Secure Discounted ERP Software Pricing
ERP vendor list prices are often negotiable starting points. Through effective negotiations, organizations can significantly reduce the initial costs quoted by vendors. To secure discounted ERP software pricing, thorough preparation and strategic timing are essential.
Collaborate with IT advisors to benchmark fair market prices for desired ERP solutions. Create detailed requests for proposals outlining required components, implementation services, and potential discounts from target vendors. Consider negotiating multi-year contracts, bundling modules, or increasing volume usage to achieve additional price reductions. Evaluating multiple vendor options allows for better negotiation outcomes compared to committing to a single vendor.
Minimize Customizations
Resist the temptation to customize the ERP platform excessively to match existing business processes. Unnecessary customizations can inflate implementation costs and hinder system upgradability. Instead, align your processes and policies with best practices embedded within the standard ERP software.
Reducing customizations facilitates faster deployments and smoother updates. Embrace the built-in capabilities of the ERP system and adapt your requirements to leverage them for quicker time-to-value.
Carefully Manage Integrations
Modern ERP solutions require integration with adjacent systems such as CRM, eCommerce, supply chain, and analytics platforms to realize their full potential. While integrations are crucial, complex integrations can significantly increase costs over time. It is essential to identify essential integrations early on and keep them simple by leveraging native ERP APIs rather than custom coding.
Cloud-based ERP platforms simplify integration through APIs, bots, and low-code tools. However, excessive integration complexity can lead to challenges during upgrades. Design integrations for resilience, monitor usage to eliminate redundant links, and adopt modern integration tools to reduce lifetime maintenance costs. This approach enhances ERP cost control and flexibility.
How Much Does It Cost to Implement an ERP System?
Successful ERP deployments require skilled implementation consultants and project managers. Attempting to manage ERP projects without adequate expertise often results in quality issues, delays, and cost overruns. Partnering with experienced implementation partners who specialize in your ERP solution is crucial for achieving successful deployments without unnecessary expenses.
Investing in change management is essential for ERP projects to succeed. ERP systems introduce transformative changes to workflows, policies, and organizational culture. Failing to prepare stakeholders for these changes through proper training and education can lead to resistance and dissatisfaction, resulting in hidden costs.
Invest in Change Management
Allocate resources for business-driven change management before and after the ERP system goes live. Focus on educating stakeholders and ensuring a smooth transition to the new ERP platform. Effective communication, tailored training programs, and engagement initiatives can enhance user adoption and maximize ERP ROI.
Insource Ongoing ERP Support
Establishing in-house support capabilities for handling ERP administration, troubleshooting, and end-user assistance can reduce long-term support costs. Designate super users from business teams as system champions and invest in upskilling IT staff on ERP administration. Setting up a Center of Excellence for tier-1 support can minimize reliance on external resources and lower ongoing support expenses.
Upgrade in Regular Cadences
Cloud-based ERP solutions receive regular incremental upgrades, ensuring access to the latest features and innovations without major disruptions. Aligning planned upgrades with these release cycles helps retire legacy functionality and customizations, streamlining systems and lowering upgrade costs.
Review Usage and Adoption
Monitoring ERP software usage and adoption is essential for controlling costs over the system lifecycle. Regularly assess usage across all licensed elements, adjust licenses and resources based on actual consumption, and eliminate unused custom modules to optimize costs.
Final Words
Organizations must strike a balance between functionality and budget when running critical operations on ERP platforms. By implementing the strategies outlined in this article, organizations can reduce their total cost of ownership by 40% or more without compromising on capabilities or service levels. Cost reduction can be achieved through tailored scope alignment, vendor negotiations, minimal customizations, efficient implementations and upgrades, or a combination of these approaches.
