The ERP/CRM Decision

Assumptions
ERP (1) or ERP and CRM (2)
Initial sales
Sales growth ERP
Sales growth CRM
Legacy maintenance initial
Legacy maintenance increase
ERP hardware 2005
ERP hardware 2006
ERP software 2005
ERP software 2006
CRM hardware 2008
CRM software 2008
Consultant days
Inventory turns without ERP
Inventory turns with ERP
Management optimism (O,N,P)
Efficiency gains O
Efficiency gains N
Efficiency gains P
Hurdle rate
COGS
Cost of inventory

NPV Gains
($Millions)

1
5,000,000
0.01
0.02
5,000,000
100,000
5,000,000
1,000,000
10,000,000
1,000,000
1,000,000
1,000,000
225
11.0
13.0
O
7,000,000 O
0N
-5,000,000 P
0.10
0.75
3.50
2005

2006

2007

2008

No ERP
ERP only
ERP and CRM

5,000,000
5,000,000
5,000,000

5,000,000
5,000,000
5,000,000

5,000,000
5,050,000
5,050,000

5,000,000
5,100,500
5,100,500

No ERP
ERP only
ERP and CRM

454,545
454,545
454,545

454,545
454,545
454,545

454,545
388,462
388,462

454,545
392,346
392,346

3,375,000
0
10
1,000,000
5,000,000
3,000,000
5,000,000
10,000,000
0
0
22,375,000

2,727,000
0
18
1,890,000
5,100,000
2,000,000
1,000,000
1,000,000
0
0
8,617,000

2,065,500
0
24
2,646,000
5,200,000
1,000,000
0
0
0
0
5,711,500

1,390,500
695,250
28
3,241,336
5,300,000
500,000
0
0
1,000,000
1,000,000
7,827,086

Sales

Inventory

Costs
ERP consultants
CRM consultants
Added employees
Cost of added employees
Legacy maintenance
Training costs
ERP hardware
ERP software
CRM hardware
CRM software
Total
Net Gains

Income increase
Inventory decrease
Legacy cost savings
Efficiency gains
Cost
Net gain

0
0
0
0
-22,375,000
-22,375,000

0
0
0
0
-8,617,000
-8,617,000

12,500
231,294
5,200,000
7,000,000
-5,711,500
6,732,294

25,125
217,698
5,300,000
7,000,000
-7,827,086
4,715,737

Net Gains from ERP

15,000,000
10,000,000
5,000,000
0
-5,000,000
-10,000,000
-15,000,000
-20,000,000
-25,000,000

$18.04

2009

2010

2011

2012

2013

2014

2015

2016

5,000,000
5,151,505
5,202,510

5,000,000
5,203,020
5,306,560

5,000,000
5,255,050
5,412,691

5,000,000
5,307,601
5,520,945

5,000,000
5,360,677
5,631,364

5,000,000
5,414,284
5,743,991

5,000,000
5,468,426
5,858,871

5,000,000
5,523,111
5,976,049

454,545
396,270
400,193

454,545
400,232
408,197

454,545
404,235
416,361

454,545
408,277
424,688

454,545
412,360
433,182

454,545
416,483
441,845

454,545
420,648
450,682

454,545
424,855
459,696

702,000
351,000
30
3,646,500
5,400,000
200,000
0
0
0
0
4,899,500

354,375
354,375
31
3,956,437
5,500,000
100,000
0
0
0
0
4,765,187

0
0
32
4,288,256
5,600,000
0
0
0
0
0
4,288,256

0
0
32
4,502,656
5,700,000
0
0
0
0
0
4,502,656

0
0
32
4,726,656
5,800,000
0
0
0
0
0
4,726,656

0
0
32
4,964,160
5,900,000
0
0
0
0
0
4,964,160

0
0
32
5,212,352
6,000,000
0
0
0
0
0
5,212,352

0
0
32
5,472,960
6,100,000
0
0
0
0
0
5,472,960

om ERP

37,876
203,965
5,400,000
7,000,000
-4,899,500
7,742,342

50,755
190,096
5,500,000
7,000,000
-4,765,187
7,975,664

63,763
176,088
5,600,000
7,000,000
-4,288,256
8,551,594

76,900
161,940
5,700,000
7,000,000
-4,502,656
8,436,184

90,169
147,650
5,800,000
7,000,000
-4,726,656
8,311,163

103,571
133,217
5,900,000
7,000,000
-4,964,160
8,172,628

117,107
118,640
6,000,000
7,000,000
-5,212,352
8,023,395

130,778
103,918
6,100,000
7,000,000
-5,472,960
7,861,735

2017

2018

2019

2020

2021

2022

2023

2024

5,000,000
5,578,342
6,095,570

5,000,000
5,634,125
6,217,481

5,000,000
5,690,466
6,341,831

5,000,000
5,747,371
6,468,667

5,000,000
5,804,845
6,598,041

5,000,000
5,862,893
6,730,001

5,000,000
5,921,522
6,864,601

5,000,000
5,980,737
7,001,893

454,545
429,103
468,890

454,545
433,394
478,268

454,545
437,728
487,833

454,545
442,105
497,590

454,545
446,527
507,542

454,545
450,992
517,692

454,545
455,502
528,046

454,545
460,057
538,607

0
0
32
5,746,592
6,200,000
0
0
0
0
0
5,746,592

0
0
32
6,033,920
6,300,000
0
0
0
0
0
6,033,920

0
0
32
6,312,117
6,400,000
0
0
0
0
0
6,312,117

0
0
32
6,592,597
6,500,000
0
0
0
0
0
6,592,597

0
0
32
6,873,077
6,600,000
0
0
0
0
0
6,873,077

0
0
32
7,153,557
6,700,000
0
0
0
0
0
7,153,557

0
0
32
7,434,037
6,800,000
0
0
0
0
0
7,434,037

0
0
32
7,714,517
6,900,000
0
0
0
0
0
7,714,517

144,585
89,048
6,200,000
7,000,000
-5,746,592
7,687,041

158,531
74,029
6,300,000
7,000,000
-6,033,920
7,498,641

172,617
58,860
6,400,000
7,000,000
-6,312,117
7,319,360

186,843
43,540
6,500,000
7,000,000
-6,592,597
7,137,785

201,211
28,066
6,600,000
7,000,000
-6,873,077
6,956,200

215,723
12,438
6,700,000
7,000,000
-7,153,557
6,774,604

230,381
-3,347
6,800,000
7,000,000
-7,434,037
6,592,996

245,184
-19,289
6,900,000
7,000,000
-7,714,517
6,411,378

Year
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024

Number of Number of Cost of

Number of
Cost of added
ERM
CRM
consultants added
programmers/y
Consultants Consultants /day
programmers ear
10
0
1,500
10
100,000
8
0
1,515
8
105,000
6
0
1,530
6
110,250
4
2
1,545
4
115,762
2
1
1,560
2
121,550
1
1
1,575
1
127,627
0
0
1,590
1
134,008
0
0
1,605
0
140,708
0
0
1,621
0
147,708
0
0
1,637
0
155,130
0
0
1,653
0
162,886
0
0
1,669
0
171,030
0
0
1,685
0
179,581
0
0
1,701
0
188,560
0
0
1,717
0
197,254
0
0
1,733
0
206,019
0
0
1,749
0
214,784
0
0
1,765
0
223,549
0
0
1,781
0
232,314
0
0
1,797
0
241,079

Training
costs
3,000,000
2,000,000
1,000,000
500,000
200,000
100,000
0
0
0
0
0
0
0
0
0
0
0
0
0
0

$49.29
$39.29
$29.29

($Millions)

Efficiency gains O ($Millions)

1,000,000
($20.71)
1,500,000
($17.48)
2,000,000
($14.25)
2,500,000
($11.02)
3,000,000
($7.79)
3,500,000
($4.57)
4,000,000
($1.34)
4,500,000
$1.89
5,000,000
$5.12
5,500,000
$8.35
6,000,000
$11.58
6,500,000
$14.81
7,000,000
$18.04
7,500,000
$21.26
8,000,000
$24.49
8,500,000
$27.72
9,000,000
$30.95
9,500,000
$34.18
10,000,000
$37.41

$19.29
$9.29
($0.71)
($10.71)
($20.71)
1,000,000

3,000,000

5,000,000

7,000,000

Efficiency gains O

9,000,000

9,000,000

Tornado Sensitivity Chart

Output Measure
1.89

2.89

3.89

4.89

5.89

Legacy maintenance initial

Efficiency gains O
Hurdle rate
Inventory turns without ERP
Consultant days
ERP software 2005
Inventory turns with ERP
ERP hardware 2005

Parameter

Legacy maintenance increase

Initial sales
COGS
Cost of inventory
ERP hardware 2006
ERP software 2006
CRM hardware 2006
CRM software 2007
Sales growth ERP
ERP (1) or ERP and CRM (2)
Sales growth CRM
Efficiency gains N
Efficiency gains P

-10 Pct

+10 Pct

t Measure
5.89

+10 Pct

6.89

7.89

DATA TABLE
Parameter
Legacy maintenance initial
Efficiency gains O
Hurdle rate
Inventory turns without ERP
Consultant days
ERP software 2005
Inventory turns with ERP
ERP hardware 2005
Legacy maintenance increase
Initial sales
COGS
Cost of inventory
ERP hardware 2006
ERP software 2006
CRM hardware 2006
CRM software 2007
Sales growth ERP
ERP (1) or ERP and CRM (2)
Sales growth CRM
Efficiency gains N
Efficiency gains P

-10 Pct +10 Pct Range

1.89
8.35
6.46
1.89
8.35
6.46
7.41
3.03
4.38
6.26
4.19
2.08
6.15
4.09
2.06
6.12
4.12
2.00
4.10
5.96
1.86
5.62
4.62
1.00
4.69
5.55
0.87
4.97
5.28
0.31
5.26
4.98
0.29
5.01
5.23
0.21
5.21
5.03
0.18
5.21
5.03
0.18
5.20
5.05
0.15
5.20
5.05
0.15
5.12
5.12
0.01
5.09
5.09
0.00
5.12
5.12
0.00
5.12
5.12
0.00
5.12
5.12
0.00

Base Case Result

5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12
5.12

PARAMETER INFO
Base Case
% Sensitivity
5000000.00
10.00
5000000.00
10.00
0.10
10.00
11.00
10.00
225.00
10.00
10000000.00
10.00
13.00
10.00
5000000.00
10.00
100000.00
10.00
5000000.00
10.00
0.75
10.00
3.50
10.00
1000000.00
10.00
1000000.00
10.00
1000000.00
10.00
1000000.00
10.00
0.01
10.00
1.00
10.00
0.02
10.00
0.00
10.00
-5000000.00
10.00

-%
+%
4500000.00 5500000.00
4500000.00 5500000.00
0.09
0.11
9.90
12.10
202.50
247.50
9000000.00 11000000.00
11.70
14.30
4500000.00 5500000.00
90000.00
110000.00
4500000.00 5500000.00
0.68
0.83
3.15
3.85
900000.00 1100000.00
900000.00 1100000.00
900000.00 1100000.00
900000.00 1100000.00
0.01
0.01
0.90
1.10
0.02
0.02
0.00
0.00
-4500000.00 -5500000.00