If you happen to be in the midst of evaluating your core ERP software, you may be scratching your head figuring out the different deployment options, user types as well as exactly what, how much and when to purchase the different applications and users. Companies that get experienced guidance through negotiating an ERP contract can reap significant benefits with the initial purchase, as well as structure an agreement that protects them well into the future.
Common Pitfalls When Negotiating With ERP Vendors
The goal of every ERP vendor is to sell as much product as they can as early as possible. As a result, many companies purchase too many modules, users, or applications way before they are needed or that never get implemented. This causes a negative counter balance to any positive concessions obtained in the negotiation process and also has a negative effect on cash flow.
Other companies fail to negotiate the software license agreement in tandem with the implementation proposal. Many times the ERP implementation team may be a business partner of the software vendor and may not actually be selling the software. All leverage is lost by not negotiating both as a joint agreement and many times the ERP vendor will push concessions on their implementation partner to facilitate a license sale.
Companies should also not lose sight of the fact that it is a strategic long-term agreement and they should look for protections well into the future. This would include locking in long-term pricing for additional software and users well into the future (3-5 years) as well as limiting price increases on implementation services, maintenance agreements and other key components of the contract.
It is also extremely important to triple-check the respective user counts as well as the final ERP application footprint. You need to be assured that what you are buying was what was demonstrated, what is needed, and that there are no limitations on the type of user licenses that are being purchased in accessing this critical functionality. ERP Vendors like to demonstrate the flashy functionality but then exclude it from the final proposal to minimize the cost. Conversely other applications may be included that are not needed initially or altogether.
Helpful Tips for ERP Contract Negotiations
- Timing is everything. Make sure you understand year-end and quarter-end for the final vendors.
- Make sure you have two finalists to enhance your leverage.
- Understand there are multiple points to discuss to negotiate in the final contracts and it would be wise to engage a trusted advisor to guide you through the maze of possibilities.
- Understand all the costs (hardware, database and middleware software etc.) prior to making any decisions.
- Have a final legal review prior to executing contracts.
- Establish point a point person(s) for the contract negotiations and instruct other team members not to discuss any details with any of the vendors.
Finalizing a final agreement with your selected ERP vendor can be a very challenging proposition. It is further complicated by the expansive scope, strategic importance, and range of options. Most companies have not structured or negotiated an agreement of this type in quite awhile or ever before.
With the magnitude and complexity of these agreements, it is very wise to get advisement from somebody that understands the totality of all the components but also has a full understanding of the flexibility the respective vendors have in structuring the final agreement.
Many companies have contacted Ultra Consultants for this guidance. Please contact us to discuss how we might be able to guide you through the ERP selection process.