Cost Analysis

The Board of Directors chose to implement SAP’s Supply Chain Management: Warehouse Management Solutions (WMS). Due to the package deals that SAP offers, Heinz Corporation will need to purchase an ERP software that integrates all business units (not only supply). Heinz Corporation will be using SAP’s Business All-in-One solution. The All-in-One solution integrates components based off of the consumer food industry (SAP, 2015). Heinz is a wholesale, manufacturing industry and utilizes SAP HANA. SAP HANA is a specific component of the Business All-in-One solution which focuses primarily for SCM.

The cost of the Business All-in-One solution combines the costs of the hardware, the software and the implementation services (SAP, 2015). Our sample calculation is based off of one of the Heinz warehouses.  The data sample has a company size of 400 employees and 100 SAP users. The data below summarizes the costs of the Business All-in-One solution:

3.1 Variable costs

Variable costs are costs that change during a project’s life cycle. There are several costs that will change during the implementation of SAP Business All-in-One solution, including the implementation service costs and hardware costs. The service costs during implementation are a “per hour” cost basis. The cost and timeline varies depending on the specific needs of each business. The base cost per hour is $195 and operates under Cornerstone SAP (SAP, Cornerstone, 2015). Cornerstone SAP is the consulting firm that performs the implementation services for SAP Business All-in-One (SAP, Cornerstone, 2015).

The implementation service costs are extensive, including (ERPSoftwareblog, 2012):

1.     Installation fees

2.     Integration fees

3.     Training

4.     Testing

The hardware costs will vary depending on the existing hardware in use. Chandler Hutchinson (2015) describes the cost of infrastructure (i.e. hardware) as varying across an organization.

3.2 Fixed costs  

Fixed costs are costs that do not change during a project’s life cycle. The software licensing, software costs and salaries of analysts/programmers are costs that do not change during the implementation of the SAP solution. According to Chandler Hutchinson (2015), the software costs are dependent on three factors including, the number of users, type of industry and number of locations. The salaries and wages of the employees (analysts and programmers) are important to consider when budgeting the fixed costs. The national average salary of a SAP analyst is $66,532 (Glassdoor, 2015). Heinz Corporation needs to hire analysts that are well-versed in functioning SAP systems which will help in cutting down variable costs associated with training. Some consulting firms will help in supplying firms with analysts and programmers that are well-versed in SAP systems.

3.3 Overall implementation costs

The overall implementation costs can be configured by the SAP configuration tool. The SAP configuration tool is used to produce a rough, estimated total of hardware costs, software costs and implementation services (Configurator, 2015). Team SCM used the configuration tool to configure the budget for our sample warehouse that contains 400 employees (company size) and has 100 users (analysts, etc.). The following costs were produced:

Table 1

As we can see, the base features total out at $576,500. These features are the minimum features that are offered to a wholesale, manufacturing company. If we focus on the right side of Table 1, we can see that there were features added onto the rough estimate. The added features are named “specific features” and are not required for implementation but some of these features are recommended for certain business units. Although these features are not required, some are equally important to the functioning of SCM within the Heinz warehouse. Features such as manufacturing cost center planning, stock transfer with delivery, lean warehouse management and logistic planning are all important in increasing profit and productivity at the Heinz warehouse. Image 4 below depicts an estimation of all implementation costs. Table 1 does not give an overall explanation on the categorization of costs. The pie chart in Image 4 enables readers to interpret the amounts of each cost, which is added into the Total Cost of Ownership (TCO).

Image 4

Table 1 and Image 4 consist of overall cost estimations to consider when conducting a cost analysis on the implementation of SAP software at a Heinz warehouse.

The Aberdeen Group (2007) did a study on the Total Cost of ERP Ownership which helps a cost analysis based on ERP systems. Heinz Corporation is implementing a solution for SCM and other business units within an individual warehouse. This study gives average cost amounts on software vendors based off the average amount of users and average number of ERP modules implemented (Aberdeen Group, 2007). Table 2 shows the TCO for SAP:

ERP Vendor	Avg. # of Users	Avg. # of ERP Modules Implemented	Avg. Software Cost		Avg. Software cost per user
SAP	409	11.9	$1,276,667.00		$6,111.00

Table 2

3.4 ROI

Gallaugher (2014) speaks about the importance of Return on Investment (ROI) within his textbook on, “A manager’s guide to harnessing technology.” He explains the importance of forecasting ROI to draw out a cost analysis for an IT solution (Gallaugher, 2014). The textbook uses a clothing manufacturing business to explain the importance of ROI, which can be compared to the Heinz warehouse as a food manufacturer (Gallaugher, 2014). Team SCM uses a ROI calculator to find the profit earned from the induction of SAP Business All-in-One solution. There were three metrics used in finding ROI including, the number of users (100), average salary ($85,000) and estimated initial investment (Winshuttle, 2015). We can use the different totals from Table 1 and 2 to draw out the initial investment. The ROI with cost totals from Table 1 give an annual saving of $131,757, annual time saving of 404 workdays and SAP will pay for itself in 1287 days (Winshuttle, 2015). On the other hand, the ROI with cost totals from Table 2 give the same annual saving of $131,757 and an identical annual time saving of 404 workdays (Winshuttle, 2015). The only difference is the SAP system will pay for itself in 2,520 workdays with the calculations from Table 3 (Winshuttle, 2015).

3.5 Recurring costs

After implementation, the Heinz warehouse must have recurrent maintenance fees. These maintenance fees are fixed costs that include security updates, software upgrades and regular maintenance. The maintenance fees are annual and account for 18% of total software cost (SAPASKENGINE, 2015). The next table shows some possible examples of recurring costs.

       

Table 3

References:

SAP HANA. (2015). Retrieved on October 14, 2015, from http://go.sap.com/product/enterprise-management/business-all-in-one.html

SAP ASKS ENGINE: Business One. (2015). Retrieved on October 18, 2015 from http://ask.cornerstonesap.com/how-much-does-sap-business-one-cost/

ERP Panel Papers: How to Budget the Cost of ERP Implementation Services. ERP Software Blog (2012). Retrieved October 16, 2015, http://www.sherwood.com/downloads/files/

Hutchison, Chandler. (2015). How much Does An ERP Implementation Cost? Retrieved on October 16, 2015, from http://blog.clientsfirst-ax.com/blog-1/-temporary-slug-3c1cb87b-0ca2-44d7-80cd-9394d0699444

Glassdoor. SAP Analyst Salaries. Retrieved on October 19, 2015, from http://www.glassdoor.com/Salaries/sap-analyst-salary-SRCH_KO0,11.htm

SAP SE: SAP Configurator. Retrieved on October 17, 2015, from https://www.sapconfigurator.com/sapcfg/build/index.html?lang=en&campaign=CRM-US08-HUB-TC_FSTWEB&cntry=us

The Total Cost of ERP Ownership in Mid-Size Companies. Aberdeen Group (2007). Retrieved October 17, 2015, from http://www.meritalk.com/uploads_legacy/whitepapers/Aberdeen-TCO_Midsize_COs_0707.pdf

 Gallaugher, J. (2014). Information systems: A manger's guide to harnessing technology (2.0). Washington, DC: Flat World Knowledge.

Winshuttle. (2015). ROI Calculator. Retrieved on October 19, 2015, from http://www.winshuttle.com/resources/additional-benefits/roi-calculator/