ERP Software Decision: Custom Build versus Buy versus Rent

ERP implementations are enterprise-wide initiatives.  Today, ERP applications define the overall corporate architecture.It is therefore important for a company to decide whether to build the applications itself, buy them from a vendor, or rent them from an application service provider (ASP).

Typically, organizations have had two alternatives when it comes to  selecting an ERP system:

  • A highly complex, custom-designed application to meet the organization’s specific requirements typically developed in a legacy environment.
  • An off-the-shelf application designed that can dynamically adapt to a changing environment and be implemented more rapidly at a lower cost.

Although custom-designed applications provide the desired degree of functionality, their size and complexity require lengthy design, development, and implementation efforts. Both alternatives require substantial resources to maintain and often also the assistance of outside consultants familiar with the technology.

In addition, custom-designed applications have limited flexibility to support diverse and changing operations or to respond effectively to evolving business demands and technologies. To address the limitations of custom applications, off-the-shelf applications have been developed. They provide broad functionality, better integration with existing legacy systems, greater flexibility to change and upgrade, and a lower total cost of ownership.

Most businesses are adopting these tools widely today. MS Dynamics, SAP, Oracle, Epicor offer by far the most popular off-the-shelf ERP packages available today. Many firms are deciding to buy—rather than build or rent—ERP software from third-party vendors, for several reasons.  Only organizations with deep pockets can viably maintain the high total cost of ownership and complexity associated with developing and maintaining custom-designed applications. Many current applications are technically outdated, and the ongoing redesign of business processes makes existing software functionally obsolete and a potential business impediment.  Off-the-shelf solutions integrate the best business practices from a variety of industries. The ability to incorporate these best business practices into your firm’s operations translates into bottom-line improvements.