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Negotiating and Managing ERP Package Agreements

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Many organizations going for ERP are not aware of the common negotiation practices followed in the industry and this prevents these organizations from many benefits. The marketing executives should be aware that today the competition for providing ERP solution is very high and a number of small and large vendors are ready to provide many different features at a low cost as compared to the cost which was prevalent some years ago, therefore, it is easy for the marketing executives to ask for the desired price and features.

A study of all the expensive features of ERP should be made so that the marketing executives are aware of how the solution is priced based on technology, hardware features, number of users etc. The ERP system can be priced up to as high as $10,000 per user and the companies going for automation may not get the estimated return on investment because it is difficult to assess the return on investment in the first year. Sometimes the companies may not get any profits at all and may have to continue investing on ERP in the first year of implementation.

Compare the need of the system and cost by following the steps

1. Assess the need for transaction on one time, assess the number of users that will be using the new system and categorize users in heavy and casual users.

2. Only buy the modules which are used by the organizations. It can prevent expense on whole products.

3. Bargain on cost irrespective of the cost on VAR. Determine the features and products which go beyond budget and determine how the product can be exchanged with a cheap option and also analyze the complexities involved in the new changes.

4. To consider the cost the business process design and training of ERP should also be included in the cost.

5. Consider the total cost of ownership considering the hidden cost, cost of implementation and add-on resources.

6. Do not be attracted to cheap options without analyzing the features because it may get expensive in the long run. Always consider the total cost and impact of the vendor selection. Buy software which may directly benefit in terms of ROI.

7. Sometimes small vendors provide a better customized solution and these vendors may not have huge implementation cost as compared to the leading market sellers but the reliability of these software in the long run should also be considered.

Cost reduction at the time of implementation

1. If an ERP has more implementation time, the cost of implementation goes high. To prevent excess investment on ERP the organization should conduct budget review from time to time and see the work order - which includes the process such as modification, customization, documentation and training needs.

2. Sometimes the cost gets high because the end users are not ready to adapt to the new changes. A super user should be created and management team should be involved in the process to prevent delays because delays can add to the total cost. The super user can be given permission to access every report and see the development of the implementation process and get reports about the stage of implementation.

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