Cost Estimation of an ERP Software for Your Foundry
The most typical question that emerges when adopting Enterprise Resource Planning (ERP) software is, "How much an ERP software will cost our foundry?" Yes, we all know that ERP systems aren't cheap. However, an online search for price estimation is likely to produce more questions than answers. This raises a problem for potential ERP software buyers: how can they budget for such a sizable investment without even a ballpark figure?
If you are in the process of selecting an ERP system to optimize your melt-shop operations, price estimation is likely to be a major dilemma. Estimating incorrect ERP project costs is more common than you may think. As per our observations, many melt-shops typically outline just a single-dimensional estimate of ERP implementation cost. However, you must examine not only the cost of the software but also the total cost of ownership (TCO), while estimating the complete ERP project cost.
So, it's important to realize that evaluating the cost of ERP software required a thorough consideration of the factors that drive the overall ERP cost. Understanding these factors - which can vary from one foundry to another - will help you better determine the accurate budget for your ERP project. Let’s go through all the key costing factors one by one:
5 Factors Driving the ERP Cost for a Foundry: :
1. Deployment Method and Licensing:
While some vendors also provide cloud-based ERP software as a monthly or annual subscription, on-premise (regular) ERP software is often chosen as a perpetual license, which means you'll pay for the software license upfront, based on the number of users and additional modules required. After that, you're free to use it for an indefinite period, i.e. lifetime. On the other hand, subscription fees for a cloud-based system for just 3 years will typically be 60% to 80% more than that of the perpetual license.
2. Additional Modules & Total Number of Users:
The base package of most generic ERP systems is less expensive at first, but you'll have to pay more for each industry-specific module you need, for example, CRM, Finance, Production, Computerized Maintenance Management System (CMMS), etc. As a result, you must determine all the required modules based on what you expect your ERP to do. After that, analyze the total licensing cost based on the number of users and modules selected, which forms the cornerstone of budget estimation.
Small foundries with fewer employees would often pay less on user licenses and free up some budget for a few additional modules. But purchasing superfluous modules in a hurry can quickly make the purchase expensive. So, keep this trade-off in mind and strive to strike the right balance between functionality and the number of users. Foundries can start with a limited number of users initially and purchase additional user licenses as and when required.
3. Implementation / Installation Cost:
Trying to figure out how much your vendor would charge for installation service is difficult. Software installation cost can be influenced by the number of locations, configuration of additional modules, complexity of your production and QC process flow, user access levels, etc. No two installations are the same. This installation charge generally includes requirement analysis, consultation, actual software installation, the standard configuration of built-in options, and data migration. In the case of vendors like iCast, the installation cost is included in licensing cost itself, so that customers don't need to pay the exaggerated amount for installation. Apart from this, customization and training charges may or may not be included in the overall installation charge.
In case of on-premise deployment, you'll also need to assess your existing hardware infrastructure to make sure that it's capable of hosting the software & database. If not - then figure out, how much it'll cost to expand or upgrade it (e.g. server, storage, bandwidth, etc). System requirement details are generally provided by the vendors along with the proposal.
4. Customization Cost:
Detail product demo and gap analysis can reveal the limitations of functionalities offered by the proposed ERP and the target functional requirements of your foundry. Although modern ERP software is thoroughly customizable and capable of being tailored to your business needs, these customizations involve new developments through coding - which is expensive (not to be confused with standard configurations). It may eat up a substantial part of your ERP budget and implementation time. Despite this, the cost of customization is frequently overlooked at the time of ERP selection. Please note that the lesser the need for customization, the better it is. Which is one of the biggest reasons to select foundry specific ERP solution over a generic ERP. There have been many cases of generic ERP implementations, where even the customization has failed to satisfy the unique needs of the foundry industry, mainly due to the lack of vendor’s domain expertise in the casting industry.
5. User Training and Technical Support/Maintenance:
Yearly support and maintenance expenses often account for 10-20% of the total software budget, making them an important factor to consider while estimating your ERP expenditures. Many ERP vendors offer an upfront AMC package, which includes yearly remote support for any technical issues along with free software upgrades to satisfy changing business needs and government regulations. You can verify the exact AMC cost with the vendor itself, but it is strongly advised to have the maintenance contracts in place, to keep your ERP up to date & keeping the technological issues at bay.
Some vendors provide on-site user training to your internal team while others provide online training through remote screen sharing. However, depending on the vendor you choose, this training cost may or may not be included in the final software price. Specific hands-on training alternatives, such as having a professional trip to your place of business to help employees learn more about the software, are often more expensive than online training. So you must discuss all the training options and associated costs with the ERP vendor.
In short, the cost of ERP isn’t just based on the number of users but includes a variety of aspects such as the additional modules required, deployment method, customization, and training. You must consider these many diverse factors while evaluating how much it will cost your foundry. Based on the understanding of these key factors affecting your total cost of ownership (TCO) for an ERP project, you will be able to better understand now – why it’s hard for even the ERP vendors to directly provide you accurate pricing without taking your key business details and requirements into consideration.
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