Save costs by understanding your ERP licences

One area companies rarely consider for cost saving, but where there is a lot of potential, is ERP software licences…

In the current economic climate there is a wide range of conflicting opinion on what we should do next. One thing everyone does seem to agree on though is that we should tighten our belts, cut unnecessary expense and ensure we operate as efficiently as possible, getting more from what we already have. All sensible business practice in good or bad times, writes Ian Anderson, director at DNAStream.

One area companies rarely consider for cost saving, but where there is a lot of potential, is ERP software licences.

ERP Software providers, such as SAP and Oracle, regularly change their software license categories (user types, software engines etc) and the functionality each of these covers, to reflect their current sales offerings at a point in time.

Companies invest in ERP software on a long-term basis, resulting in regular purchases of licences over a number of years, for different projects and divisions and a variety of ERP solutions.

Invariably this leads to several ERP contracts and contract addendums and a variety of licence categories and types - each with different functional usage rights. Additionally, to meet a specific requirement, new user types are created with specific conditions which are only obvious in the small print of the contract. Discussion with a large ERP customer recently revealed that, over time, they had bought 18 different types of licence.

These different licence types make it very difficult to know exactly what each user is allowed to do and can lead to a high degree of confusion and inefficiency.

Furthermore, companies often manage their ERP licences separately in different organisational units and each User Administrator must decide how to classify each user on his ERP system at the time of registration.

All of this makes it very difficult for companies to:

  • Maximise usage of the existing licenced software
  • Achieve consistency across organisational divisions
  • Negotiate from a point of strength on future ERP software requirements
  • Ensure accurate cross charging across the organisation
  • Achieve compliance with regulatory or internal controls

In short, a confusing picture with huge potential for inefficiencies, unnecessary cost and missed opportunities to maximise ERP investment.

The way to overcome this is to undertake an annual review on each ERP system (you should only really have one - but that's a subject for discussion at a later date). This review should include the following steps:

  1. Consolidate your current ERP user licence information.
  2. Determine actual user behaviour through system reports.
  3. Identify under/over usage and incorrect user type classifications.
  4. Establish short to mid-term additional ERP requirements.

This will identify any opportunities to save costs by optimising your software investment in each ERP system. You can then consolidate the information from all ERP systems (if you have more than one) to see if there are common functions where licences could be usefully used across these areas, saving further expense.

It will be helpful to engage experts with knowledge of ERP software sales, contract and audit processes, pricing methodologies, licence types, functional capabilities etc. and how these apply over different time periods - but the outcome should bring a number of significant benefits including:

  • Enabling you to gain a consolidated view of your ERP contracts
  • An up to date view of what you can, and can't, do with your ERP software investment
  • Allowing you to make best use of what you have - before buying any further licenses
  • Helping you become more efficient and reducing costs by getting more from your existing investment.
  • Identifying and addressing duplicate, unused or misclassified licences
  • Enabling you to identify any licences which can be re-allocated across projects or divisions
  • Ensuring accurate allocation of costs across projects and organisational units
  • Helping you comply with statutory, regulatory and internal controls.

With the current focus on saving costs this remains an area of untapped potential - so when did you last review your ERP licences?

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