Group A17

VINSUN Infra Engineering: ERP on Premise or on Cloud

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1. What are the pros and cons associated with each of the options being evaluated by VINSUN?

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 companys 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

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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

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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

Codeautomation Premise ERP

Codeautomation Cloud ERP

Workstation x6 209700 209700 209700

Workstation UPS x6 22290 22290 22290

Laptops x2 132488 132488 132488

Server 100000 70000

Backup up server 100000 70000

Server UPS x2 7750 7750

Initial Hardware cost 572228 512228 364478

Hardware maintenance (yr 1) 57222.8 51222.8 36447.8

ERP Software x8 960000 240000

Consulting 80000

Deployment/ Installation cost 520000 200000

Training 180000

Service Fee x8 x12 192000

Data Storage Cost 60000

Software Cost 1740000 440000 192000

Software maintenance (yr 1) 172800 36000

Network

Router 15479 15479 15479

Infra set up 120000 120000 120000

Router maintenance 1547.9 1547.9 1547.9

Infra maintenance 12000 12000 12000

Internet 11988 11988 11988

Total network yr1 161014.9 161014.9 161014.9

Total year 1 cost 2703265.7 1200465.7 813940.7

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5 Year Costs

Hardware Initial 572228 512228 364478

Hardware yearly Maintenance rate x5 286114 256114 182239

Software Initial 1740000 440000 960000

Software yearly Maintenance rate x5 864000 180000 0

Data Storage Cost (compound) 366306

Network Router and infrastructure setup 135479 135479 135479

Router maintenance x5 7739.5 7739.5 7739.5

Net Infrastructure Maintenance X5 60000 60000 60000

Internet x 5 59940 59940 59940

Total Cost of Ownership(Yr 5) 3725501 1651501 2136182

The Total Cost of Ownership for 5 years for Bluechips on Premise ERP Solution is around Rs 37.25 Lacs, where as for Codeautomations on Premise ERP solution is around Rs 16.51 Lacs only while for Codeautomations 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.