You’re the IT Director and you’ve been tasked with reducing costs in your department yet again. You already whacked Suzy, Joe and Bill out of the budget last year, which effectively cut 50% of your already depleted staff. Your hardware is so old, moss grows on the sides of the servers and your workstations were just upgraded to some out-of-date boxes you found on Craigslist, which are still much better than what you had before. So, you think, what can I do next?? Then, eureka!! You realize you can cut out the annual software maintenance you’re paying to Way2Big ERP software company. That 18% of list price is a bundle of money every year. Why didn’t you think of this idea before?
You’ve saved the day! You are the new corporate hero and your head is spinning with all the possible accolades you will receive from the CFO, CEO, and anyone else who looks at the financials. Not so fast. Before you rip up that maintenance contract, I’d like you to think long and hard about that decision.
Before you cancel the annual maintenance for your ERP software, there are a few things to consider and contemplate. While the idea sounds good on paper, reality is a whole different story.
Three Things to Consider Before You Cancel Your ERP Software’s Annual Maintenance Contract
- ERP software companies make their money charging their customers maintenance. This is their cash cow. This is where they’ll fight the hardest. Sure, they’ll give you a huge discount on the list price of the software when they sell it to you, but just try to negotiate the price of maintenance. Good luck getting any discount whatsoever. They simply do not budge on annual maintenance fees.
- Canceling maintenance may seem like a cost savings, even if you go with a third party provider, but expect the ERP vendor to play hardball with you should you need any upgrades, fixes or regulatory updates. You will no longer have any access to these things and your ERP vendor will not be sympathetic in any way. You’ve affectively chosen to severe all ties with the ERP company and you need to realize your ERP vendor will view it as such.
- Well, you say, I’ll just go with a 3rd party provider, like YesterdayThen. Sure, they’re cheaper and can provide a lot of services to help you. They have customer support analysts and developers on staff to make modifications and help you with troubleshooting issues. It will save you a substantial amount of money. However, they do not have access to the ERP vendor’s proprietary source code, knowledge base or system architects. Should you find a bug in your ERP system that only the vendor’s developers can fix, you’ll find your ERP vendor no longer cares about fixing it for you. The 3rd party may be able to code a workaround, but if you have more than a handful of these, it gets very difficult to maintain over time. Code becomes out of date and difficult to manage and sometimes it just takes reworking a large chunk of the proprietary code to make it right.
My recommendation comes down to this:
- If you cancel maintenance, do so knowing that you’ll be on your own. You now live on your own little ERP island and your ERP vendor will simply not respond to your requests for help. If this is acceptable to you, then go for it. I would strongly suggest that you do this only if your system is completely stable, you don’t plan to upgrade in the future and you have no regulatory changes to be made. And don’t expect your vendor to welcome you back into the fold once you leave. If they do, expect to see that 18% fee structure become 25% or more.
- If you go with a 3rd party maintenance provider, remember that the ERP vendors pursue, vigorously, any threat they perceive to their maintenance dollars. This means you better find a reputable and forthright 3rd party provider and make sure you follow the rules of your license agreement.
The key to this question is risk. Can you assume all the risks that are associated with having no maintenance and no parachute to fall back on should something happen? You may be the corporate hero when the savings appear, but you will also be the fall guy when your ERP software is unable to ship, invoice, or even run a report.
Take some time to sit for a minute, clean the moss off your server, and think hard about coming up with another option for cutting costs. This one is not nearly as good as it seems.
Blog entry written by Kevin Cahill, an ERP Consultant at Panorama Consulting Group.