The Legacy ERP Money Pit

  • Jim Shepherd
  • Feb. 05, 2016
  • Modern Manufacturing

Manufacturers face churning market conditions – changing commodity prices, fluctuating energy and transportation rates, and labor challenges. Avoiding unanticipated expenditures, focusing on driving down costs, and improving agility are imperative.

We consistently talk to manufacturers who have a legacy ERP system that has repeatedly stung them with unforeseen costs and look to cloud ERP as a better way forward. Consider this: legacy ERP system vendors make a lot of money from lucrative annual maintenance contracts. They charge anywhere from 18–40 percent of the total software license values annually, giving customers the “right” to receive bug fixes, customer support and access to new software versions. These maintenance payments are sunk costs and offer little value.

Those charges, however, don’t include the true cost of ownership. Consider a software upgrade, which is not an easy undertaking. You can’t just flip a switch. It involves a lot of resources, time (and overtime), and probably a few business disruptions.

It also isn’t a one-time thing. Every time you upgrade, this cycle repeats itself. Additional planning, consultant fees, and time away from core activities are unnecessary burdens. And all of the software customizations manufacturers pay for? Many of those will need to be rebuilt.

How about just retrofitting new features to existing software versions? In most cases you can’t, legacy ERP system vendors don’t like to back-port new features to old versions. You’re then either stuck with an inability to leverage new features or having to incur high customization costs to make those new features work with old versions, if that’s even possible.

These unforeseen and unwanted ERP system costs deal manufacturers a blow, either by letting old software run and not taking advantage of new capabilities or in wasting money and time on recurring software upgrades. This is money that could be used to fund other business initiatives. This waste impacts employees – it is money that could be used to pay bonuses, offer new perks, or hire additional staff. Legacy ERP systems are a money pit.

Cloud ERP provides a different path. With cloud ERP, you don’t fall behind as the ERP system is always current for all customers. No more wasteful upgrades, no more surprise costs, no more worrying about how to take advantage of new capabilities, they are delivered automatically as a service as part of your subscription at no additional cost. New features are simply opt-in allowing manufacturers to try them in a test environment and turn them on in production when desired, instead of requiring an impactful upgrade.

All data runs on a highly secure, consolidated, elastic cloud infrastructure that scales as business needs change without your company having to build additional infrastructure. And with the entire company on a single database, your users have access to one set of consolidated information from anywhere over any device, ensuring data accuracy and timeliness.

We encourage prospects to consider the cost and system simplicity inherent in cloud ERP which deliver continuous value and enable manufacturers to focus on their core purpose: making great products for their customers.

About the Author

Jim Shepherd, Vice President of Strategy, Plex Systems

Jim Shepherd serves as vice president of strategy, responsible for defining our strategic direction across multiple industries and global markets. Jim previously served as vice president and distinguished analyst for Gartner Inc., the world’s leading information technology research company. Among his many accomplishments, Jim was named the first AMR research fellow. He holds a Bachelor of Arts degree in English Literature from Wesleyan University.

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