With SAP, there are no fixed costs. Everything a customer pays for will vary depending on its size and needs. All rates are negotiable depending on the terms of the agreement. In discussions with the representative, Brian, from SAP, there is not an option for leasing. If purchasing the software, the following costs are variable: implementation costs due to changes and modifications needed to IT infrastructure (hardware, processing software) in order to meet IVK’s needs if purchasing the product, cost for potential recruiting IT talent to manage the product, training of current and future employees, cost of manufacturing and software updates, and cost of support and repairs. Subscribing offers the benefit of no implementation costs. The monthly rate is variable, depending on how often the system is “touched”. Training, which can consists of online courses, instructor sessions in house, or even classes for multiple companies in large cities, varies in cost. This can depend on size of the company, number of employees, and in how many ways the system will be utilized. Another variable would be maintenance and support of the system. Premium subscriptions offer 24/7 help. If subscribing, maintenance and updates are included. When new versions of the product are created, with subscriptions, you will most likely have to adapt to the new versions which will require additional training of employees and a potential of decreased productivity during the adjustment period. With purchasing, companies can stay with older versions.
Source: SAP Configurator
(https://www.sapconfigurator.com/sapcfg/build/index.html?lang=en&campaign=CRM-US08-HUB-TC_FSTWEB&cntry=us)
The ERP implementation costs are only a part of the total ERP system cost. According to a general rule, software would be about 30% of total implementation cost, hardware another 20%. The rest of the total costs is caused by training, implementation services, data conversion and consulting. Of course, these percentages might vary from 30-20-50 but the software is usually about less than half of the total cost. Sometimes it could be as little as 10% of the total. The larger, more complex solutions have a reputation for high implementation costs due to the complexity of the solution. This (high cost) might be challenging. Vendors try to simplify the process and reduce the implementation burden, with varying success. Less complex solutions are generally easier to implement, at a lower services cost, and quicker time-to-benefit.
Most system providers of ERP would charge a fee for annual maintenance of 18-20% of the purchase price. A maintenance subscription makes sure that you have both phone and online support, services for fixing bugs, and system updates, so that the supplier continues investing in the product and can take advantage of new functions and technologies. We have estimated the size of IVK based on their net income of 69,645,107 USD to be approximately 92 users per the estimations provided in Sector Insight in Table 1.
Source: http://www.meritalk.com/uploads_legacy/whitepapers/Aberdeen-TCO_Midsize_COs_0707.pdf
IVK spends about 8 percent of sales on IT per year which is about 18.5 million USD. Historically the company has run closer to 5 to 6 percent of sales on IT spending. The current expense for ERP (including customer service) is 363,000 USD, therefore there is at least this amount available in order to purchase the new ERP system. Maybe it is also possible to save other applications and development costs with the new ERP system.
Sources:
Aberdeen
Group, Inc. (July 2007). In Sector
Insight. Retrieved Oct 19, 2015, from
Austin,
R., & Nolan, R. (2009). The
adventures of an IT leader. Boston, Mass.: Harvard Business
Press.
Kaniyar,
S., Peters, P., & Vogelgesang, U. (May 2015 ). Transitioning to standard software: Lessons from ERP pioneers. Retrieved from: http://www.mckinsey.com/insights/business_technology/transitioning_to_standard_softw are_lessons_from_erp_pioneers
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