Negotiating Erp Agreements Tactfully To Reduce Tco

You always need to be very careful about making any agreements and negotiating with your VARS while buying ERP

. Because its not a one time buy commodity or use and throw type of system, so you have to manage your vendor very tactfully while making agreements.

Generally a new ERP costs between $5,000 and $10,000 per user. You cannot measure return on investment (or ROI), But it's very important to maintain a budget, where you can understand your cost and your revenue coming from the new system. You must identify the "best fit" product in the industry. Following are the tips of evaluation -

1. Analyze t the number of current users and forecast additional users on the new system. Try to provide the new user count to the vendor.

2. If there are products which are in excess of your budget, review once again that whether you need that genuinely or just an add on.

3. Always consider the Total Cost of Ownership. Don't agree to whatever your VAR is saying.

4. What ever ERP you are considering always ask to provide infrastructure specifications and examine the need of any third party client-server purchases or upgrades will be required.

After watching demos and all once you select your kind of ERP. You will ask your VAR to present two documents on his part. These are license agreement and the implementation services agreement.

The following are the tips for negotiating licensing -

1. VARS should give you some discounts as they have their share of profit margin from the publishers.

2. Remove those modules which are not required for your organization beforehand from the license. So that you can only pay for the modules of your choice.

3. Similarly don't buy the license of more users than you require.

4. AMC contract should be clearly clarified and well denoted. It has been seen that in AMC, there are so many hidden costs are included by the vendor. To finalize AMC contract, you must analyze all pro and cons of the AMC services offered by vendor.

Now coming to service agreement with the VAR they must specify proper rates for implementation and training of the process.

For everything, you must hire a qualified attorney to review all contracts prior to execution. He can only explain the various legalities of the agreement that will be benefited for the company.

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by: Nick Mutt

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