Vinsun Case Submission - Group 17

Vinsun Infra Engineering Case Solution SUBMITTED BY- GROUP 17 Amit Bisai – 0042/52 Amritanshu Singh - 0047/52 Anant Singh – 0051/52 Anirban Kundu - 0057/52 1. 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 company’s 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 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 Vinsun ERP Problem

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

Codeautomat ion Premise ERP

Codeautomation Cloud ERP

Workstation x6 Workstation UPS x6 Laptops x2 Server Backup up server Server UPS x2 Initial Hardware cost Hardware maintenance (yr 1) ERP Software x8 Consulting Deployment/ Installation cost Training Service Fee x8 x12 Data Storage Cost Software Cost Software maintenance (yr 1) Network Router Infra set up Router maintenance Infra maintenance Internet Total network yr1 Total year 1 cost Five year cost Hardware Initial Hardware yearly Maintenance

209700

209700

22290 132488 100000

22290 132488 70000

100000 7750

70000 7750

572228

512228

57222.8

51222.8

960000 80000

240000

520000 180000

200000

1740000

440000

172800

36000

15479 120000

15479 120000

1547.9

1547.9

12000 11988

12000 11988

161014.9

161014.9

2703265.7

1200465.7

572228 286114

512228 256114

rate x5 Software Initial Software yearly Maintenance rate x5 Data Storage Cost (compound) Network Router and infrastructure setup Router maintenance x5 Net Infrastructure Maintenance X5 Internet x 5 Total Cost of Ownership(Yr 5)

1740000

440000

864000

180000

135479

135479

7739.5

7739.5

60000 59940

60000 59940

3725501

1651501

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