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URBAN DESIGN
Vinsun Infra ERP calculation
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Vinsun Infra Engineering Case Solution SUBMITTED BY- GROUP 17 Amit Bisai – 0042/52 Amritanshu Singh - 0047/52 Anant Singh – 0051/52 Anirban Kundu - 0057/52 1. PROS AND CONS OF EACH OPTION AVAILABLE TO VINSUN There are two options available with VINSUN. First is ERP on premise platform and second is ERP on cloud. ERP ON PREMISE Definition: On-Premise ERP is an ERP software in-house maintained in a physical office, rather than over the web PROS 1. NO REQUIREMENT OF INTERNET CONNECTION – ERP on premise works on intranet and hence the connectivity and speed has no effect on the operations of ERP. 2. DATA SECURITY AND PRIVACY – Since it is on premise, data is secured by the company’s firewall mechanism as against on-cloud platform where data is kept in the hands of service provider. 3. CUSTOMIZATION – ERP can be heavily customized to suit the needs of the company as every control on the features is transferred on to the buyer once the ERP is bought. 4. LONG TERM ADVANTAGE – Over the long term, if VINSUN goes for integration, the size of organization will increase dramatically. In such case, it is wiser to use ERP on premise as data security and use-as-you-wish feature will be an advantage. CONS 1. HIGH INITIAL INVESTMENTS – The price of an ERP system is quite high, especially, for an organization like VINSUN who has mere 60 employees. 2. EMPLOYEE TRAINING – More the customization of the ERP system more is the training required to shun the repulsive attitude of employees towards the ERP. 3. MAINTENANCE COST – Entire maintenance cost will be borne by the IT department (or will be covered under IT expenses) of the company. 4. BUSINESS DISRUPTION – As the complete ERP is designed by the company, the testing, training and bug clearing makes business disruption imminent. Thus, the loss of working hours is comparatively very high for this platform.
ERP ON CLOUD Definition: Cloud ERP is an ERP software that is hosted on a platform over the Internet, particularly using SaaS model PROS 1. LOW INITIAL INVESTMENT – As no infrastructure is required for ERP (entire cost borne by service provider), only expense is the contractual cost and the first installment. 2. NO SEPARATE ERP TEAM – Separate ERP rolling team is not needed in this platform and the higher managers can focus their energy on their activities. 3. STANDARD, TRIED AND TESTED FEATURES – As the features provided by this platform is standard and been used for many times. The bugs and errors in the ERP would be less. 4. LOW BUSINESS DISRUPTION – As the ERP is ready to use at any moment the loss of business hours is less. Thus, there is low business disruption. 5. ACCESSIBILITY – Work can be done from anyplace, anywhere as ERP available on cloud. CONS 1. DATA SECURITY AND PRIVACY – Keeping the data secure and private is the major concern in this platform. As the “Trust” on the service provider is the only firewall available, competitive advantage can be lost if the data is leaked out to the competitors. 2. HIGH RECURRING COST – The installments paid is quite high. Over the long term, the ERP on premise is much more profitable after the break even is reached. Hence, a costlier option by Cost-Benefit Analysis. 3. INTERNET DEPENDENCY – Speed and Connectivity affect the usage of ERP, as no connectivity or low speed means no ERP and hence no work. 4. TECHNICAL DIFFICULTIES AND CONNECTIVITY ISSUES – Technical issues and connectivity issues are encountered which can stall the progress of the work for a quite longer duration Vinsun ERP Problem
2. Evaluate TCO (Total Cost of Ownership) over a period of five years for the options available to VINSUN The Total Cost of Ownership of Vinsun for the three alternative are given below in the table :
Item
Bluechip's on Premise ERP
Codeautomat ion Premise ERP
Codeautomation Cloud ERP
Workstation x6 Workstation UPS x6 Laptops x2 Server Backup up server Server UPS x2 Initial Hardware cost Hardware maintenance (yr 1) ERP Software x8 Consulting Deployment/ Installation cost Training Service Fee x8 x12 Data Storage Cost Software Cost Software maintenance (yr 1) Network Router Infra set up Router maintenance Infra maintenance Internet Total network yr1 Total year 1 cost Five year cost Hardware Initial Hardware yearly Maintenance
209700
209700
22290 132488 100000
22290 132488 70000
100000 7750
70000 7750
572228
512228
57222.8
51222.8
960000 80000
240000
520000 180000
200000
1740000
440000
172800
36000
15479 120000
15479 120000
1547.9
1547.9
12000 11988
12000 11988
161014.9
161014.9
2703265.7
1200465.7
572228 286114
512228 256114
rate x5 Software Initial Software yearly Maintenance rate x5 Data Storage Cost (compound) Network Router and infrastructure setup Router maintenance x5 Net Infrastructure Maintenance X5 Internet x 5 Total Cost of Ownership(Yr 5)
1740000
440000
864000
180000
135479
135479
7739.5
7739.5
60000 59940
60000 59940
3725501
1651501
The Total Cost of Ownership for 5 years for Bluechip’s on Premise ERP Solution is around Rs 37.25 Lacs, where as for Codeautomation’s on Premise ERP solution is around Rs 16.51 Lacs only while for Codeautomation’s on Cloud ERP solution it is Rs 21.36 Lacs.
3. Given your analysis, suggest what Satav should do? Justify your suggestions. It may not be a sensible decision to choose ERP on Cloud over ERP on premises as the variable costs in case of ERP on cloud are too high and keep on increasing at a compounding rate as the data storage requirement increases. The ERP over cloud appears to be 32% cheaper than on premise ERP in the 1st year. However the variable costs keep on increasing at a compounding rate in case of Cloud ERP and the total cost of ownership surpasses the Premise ERP and increases by upto 29.3% in year 5. Thus in view of long term planning VINSUN should not opt for the ERP on cloud option. The only strategic advantage gained by Cloud ERP is its accessibility over internet. If VINSUN is of the opinion that this advantage can surpass the cost advantage by on premise solution then it may consider cloud ERP, otherwise On Premise ERP solution is the best option for VINSUN.
