I am coming to the end of my service contract with my ERP vendor, is it more cost effective to upgrade to the most recent version or completely replace the system with something that is hosted?

Don't forget some hidden costs of a new system like training and lower productivity to start out with. When you say your contract is coming to an end, how far away is the end? If it is less than a year you may not have enough time to do the conversion to a hosted solution.

I do have a difference of opinion with Ian with regards to his statement "implementations never go as scheduled". Depends on the vendor and Tier. If you are talking about Oracle or SAP, then no arguments, but there is no reason for a TIER II system not to be deployed on time and within budget. If a vendor can not demonstrate successful deployments with numerous references, then suggest you factor in some significant extra dollars or go find another ERP vendor.

Depending on how big of company you have, a hosted solution could save you money in the area of employee resources being dedicated to managing the solution.Their time might be better spent elsewhere. Hosted solution can be less expensive as far as contracts as well, but you don't own the software.

Be prepared for the realities associated with adopting an entirely new system. There are significant costs associated with training and implementation. All ERP systems will require some customization depending on your business. Training takes time and implementations never go as scheduled

If your current ERP is meeting your requirements then I would seriously reconsider any decision to switch. If however, your current ERP solution is lacking in functionality or scale then now may be the right time to switch to a better solution as doing it later may prove to be even more costly.

I agree with Alex that the monthly fees for a hosted solution may end up costing you a lot more than having the software on your site. One key consideration is to find out how many people are really managing your current on-site solution or is the ERP of such high quality that minimal IT support is required.

This is probably a little bit of an over-generalization, but it has been our experience that while a hosted solution may cost less initially... and might cost less even over the course of its life... you may get less functionality, slower speed, and more nickle-and-diming. You may not be able to add features you want or are used to.

By using the software in-house, you're generally not subject to internet slow-downs, and you can usually tweak the software and apply add-ons ad infinitum... but the initial cost is almost certainly higher.

(To be fair, I should add that cloud computing is getting an enormous amount of press; but, as an example, if you're used to Microsoft Word and Excel, you might be disappointed in the functionality of some of the current online solutions.)

Kirk Alexander
http://www.ceoteams.com

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