Your ERP system: Should it be custom-built or off-the-shelf?
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Is it time to go shopping for an enterprise resource planning (ERP) system for your business?
One of the most common questions confronted by entrepreneurs is whether to buy an off-the-shelf system—or get one customized for your company.
It’s a tough choice. And while it’s tempting to buy a customized system—after all, it’s often cheaper than off-the-shelf versions, and what’s not to like about a system tailored to your specific business needs—there is wide consensus among IT practitioners that minimizing the level of customization within any given technology system is an effective way to reduce risks and costs for buyers.
Here are the major elements you should consider before deciding whether to invest in a custom or off-the-shelf ERP system.
Customization can be costly
Comparing and understanding ERP pricing can be a complex task for business leaders. One thing to keep in mind, however, is that the cost of an ERP system must be judged over the long term.
The initial cost of a custom system, for instance, may seem very reasonable. However, the custom route often ends up costing far more over the life of a system and can lead to other unexpected challenges. Especially if you need to make changes to the system and continue to maintain it.
That’s why a lot of businesses don’t have a good return on their custom developed ERP solutions. Even when starting with an off-the-shelf ERP system, upgrades can be expensive if the system has been highly customized.
Most ERP systems get upgraded once or twice a year. If you have a highly customized system, each upgrade will require the customizations to be redone. In many cases, if you decline to upgrade, you may lose technical support for your system.
Extra costs are also hard to estimate beforehand when customizing ERP systems, since it depends on what you customize and what is affected by future upgrades.
Business continuity risk
In most cases, a highly customized system creates a dependency on the system developer. In these cases, smooth operation in your business becomes dependent, in part, on the quality of the relationship between your business and the technology system vendor.
Conversely, off-the-shelf systems are typically supported by a number of vendors and little effort is required to switch from one to another.
To deliver a highly customized solution, software vendors must strike a difficult balance between project scope (system functionality), quality (absence of system bugs) and cost (development effort).
For vendors working on a fixed project budget, cost will often trump quality and scope of the final deliverable. Conversely, packaged systems already have defined and pretested functionalities that can often be implemented by any number of resellers with few or no surprises.
Long-term ownership risk
To function properly, ERP systems are dependent on other technology components, including hardware, operating systems and software applications.
As these other components evolve or vendors stop supporting them, a highly customized solution will require frequent updates to continue to operate properly. Even when vendors start with a packaged solution, they often need to redo customizations each time an upgrade is released. Therefore, the less customization is done on a mainstream packaged system, the easier it will be to maintain over time.
Off-the-shelf systems are often better for smaller companies
Smaller companies are usually better off doing research to find the best off-the-shelf ERP system for their needs. It costs less in the long run and is less risky.
For most businesses, an established, tested solution often already exists that meets their requirements. However, with an off-the-shelf system, it’s important to resist the urge to customize when possible.
An off-the-shelf system’s full lifetime cost is also easier to determine upfront and industry best practices are generally incorporated into these solutions.
Finally, in the event you are not receiving the level of support you need, changing technology vendors for support services is generally easier with an off-the-shelf system.