There are a number of benefits to implementing enteprise software systems into a manufacturing enterprise, but the total cost of ownership must be understood before the investment is made.
Cloud software is all the buzz right now and vendors are rolling out new offerings extremely quickly. SaaS models are coming in all shapes, sizes, and application types. The more common value propositions for going cloud are low cost of entry, fewer resources to manage systems, shorter implementation, and almost zero hardware investment. These are great benefits for smb companies to get into enterprise software systems, but is the total cost of ownership for cloud systems and SaaS fully understood by organizations?
When looking at SaaS offerings there are many components that make up the total cost of ownership. To start with a company must look at maintenance, support, training, tenancy, security, integration, implementation resources, and strategic fit, to name a few. Even though the vendor is hosting the software, companies still have to implement the tool, integrate it with other systems, and migrate existing data into the new system. All of which may not be taken into consideration when purchasing the technology.
With the ability to host software, vendors can turn on and off modules, functionality, and measure usage by the user very easily, allowing them to customize offerings and introduce different types of SaaS models. For example, there are some TMS SaaS solutions that bill per transaction usage. It’s more of a pay-per-usage type of model. In this case, if you don’t have an understanding of how many transactions are put through this system, you can drive up your monthly bill. Companies here that are using a TMS can be charged for storage, transaction volume, data ownership, supplier interactions. These can be additional service charges that can be added to your monthly subscription.
The example of owning a car can relate to owning software. The cheapest way to own a car is to buy it cash, after that is to finance the car, after that is to lease the car, and finally the most expensive way is to rent. SaaS, in most cases works the same way. When you add up your monthly cost over a period of time it can become more costly than an on-premise license. Many companies are okay with this. Two common “gotchas” organizations are now facing are:
- If you decide to bring the software in-house, is there a way to export your data and import to the on premise version?
- Is there a cost to release the data created over the several years of systems use? It is not always clear who owns the data. This is usually hidden in the fine print of the SLA under the support and maintenance portion of the contract.
On–premise can offer certain advantages, as can cloud. Organizations must strictly determine their organizational strategy and do their due diligence in conducting a full-blown software evaluation, where SaaS and on-premise are compared from a TCO standpoint. In this case where a SaaS and on-premise vendors are compared, it would be recommended to evaluate two SaaS vendors to assure an impartial software selection process that can provide additional insight to you on if the first SaaS vendor may be out of whack.
In the end it comes down to what is more valuable to the organization: Paying a little more to get the technology right now, or waiting to buy an on premise system later; capital expense, or monthly expense. Can your organization wait to do so? Which fits your strategic enterprise application and infrastructure vision? Is it hampering your ability to do business? These are all questions that will need to be answered before making this type of purchase. Using third-party consultants that offer impartial advice and strategic consulting for your application and infrastructure vision can be a way to lower the evaluation time, achieve maximum ROI, and decrease your chance of IT failure. Nonetheless, total cost of ownership should be investigated in its entirety before a decision is made to purchase any enterprise software tool.
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