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Case Study, Active Cycle Procurement™ Oracle 5 Yr. TCO Reduced

and the resultant effect to the projected 20 year reduction to support...

Prospective, first time Clients always ask how we do what we do and even after an engagement is completed, how we “pulled off” what we did cannot be explained to the point where it may be repeated, or taught, but at the same time, the curiosity a Client once had, seems to vanish.

 

Having worked with dozens of Large Enterprise Clients over the last 4.5 years and also a few large Universities, not one single engagement has ever been handled in the exact same way and while there are general principles which you will see in this Case Study, it is the most simple engagement we ever became involved with and unusual, since this Client already had a PO Cut for Oracle® and the only reason we became involved, is due to the Client's in-house General Council believing at the time the Company had to have an attorney more specialized go over what, at that time was called an Oracle License & Service Agreement ("OLSA"). That delayed the deal by about 8 days and to date, I have no idea why, but the Client and we were very happy. It's now called an Oracle Master Agreement, or ("OMA") and we ended up removing 3/4 of the changes the "specialist Attorney" demanded and added 7 Amendments. This specialist attorney failed to recognize is was critical to "Remove order of precedence language from ordering document" leaving the Client open to an LMS Audit.

 

We've discussed our methodologies as best as possible on the Active Cycle Procurement™ page. This is 1% of what we do for Clients and what we did for a Client in 2011, who negotiated an excellent discount and as we mentioned, had a PO Cut.

 

Every Client who has seen a 10 minute DEMO of how we accomplished this example case study, combined with an "on the fly" 5 minute Demo, (much more revealing), immediately understands what we can do for them and engages us.

 

To begin the Case Study

 

Here is a public link where you may download the most updated US Oracle Applications price list for Oracle E-Business Suite, it has not changed since 2011, except for added products:

 

US Oracle Applications Commercial Price List (PDF)

 

Within the Oracle Price list, you will find a number of Applications and License Metrics one of which is called Application Users (basically an authorized individual user licensed to use an Application). On the top of Pg. 13 you will find an expanded definition and below it you'll find many other metrics such as licensing based on CPUs, Cost of Goods Sold (“$COGS”), Freight Under Management (“$FUM”) and about 50-60 more. There are two metrics for Technology, NUPS and Processors.

 

What follows is 1% of what we do.  

 

Our example is of a Client who wished to deploy Two Applications on 6 Clustered Servers, each of which were configured with 2 x 6 CPU's for a total of 12 Intel® Xeon® Processors. 

 

Here is what our Client Negotiated with Oracle:

 

Application 1:

 

Metric: Processor, Total: 12 List License: $1,380,000 discount: 64% Net License: $496,800 1st yr. Support: $303,800

 

Application 2:

 

Metric: Processor, Total: 12 List License: $2,070,000 discount: 64% Net License: $496,800 1st yr. Support: $455,400

 

Totals: List License: $3,450,000 discount: 64% Net License: $1,242,000 1st year support (22% of Net License): $273,240

 

Initial Spend Budget Net License + First year Support: $1,515,240 ($1,242,000 + $273,240)

 

Purchase Order Cut by Client: $1,515,240

 

Our Intervention:

 

Application 1:

 

List License: $108,720 1st yr. Support: $24,116.40 Discount: 20% Net License:$87,696 1st year support (22% of Net License):$19,293

 

Application 2:

 

List License: $280,140 1st yr. Support: $24,116.40 Discount: 20% Net License:$87,696 1st year support (22% of Net License):$49,305

 

Totals: List License: $389,760 discount: 20% Net License: $311,808 1st year support total (22% of Net License): $68,598

 

Initial Spend Budget Purchase Order Cut by Client: $1,515,240

 

Initial LOWERED Spend Budget Revised Purchase Order Cut by Client: $380,406

 

Initial Budget savings produced: $1,134,834 ($1,515,240-$380,406)

 

Five Year Total Cost of Ownership Savings (simplified):

 

To make things simple we are using Flat support costs for years 1-4 and for projected support savings. In the actual deal, there were support increases, yearly, and we also negotiated support caps, however, using only Flat support, (although it lessens the actual 5-Yr. TCO and long-term Support Savings), we believe it is enough to make the the two points which dozens of our Clients have come to know.

 

High Discounts are meaningless

Third Party Support is not only a Risk, it is not necessary

 

The initial PO out Client had justified and committed to spend, was no doubt a well negotiated deal and also provided a fast ROI. Financial justifications typically look out to 5 years and while this practice will not change, it is always good to understand what will happen in 10 or 20 years, since ERP Investments are kept most times, for the life of business and are continually updated and added to.

 

This was the Clients first year support agreed to: $273,240 x 4 years = a total cost of: $1,092,960

 

This was the Clients first year support after our intervention:$68,598 x 4 years = a total cost of: $274,392

 

Now we come to the 5-Yr. TCO Savings:

 

Initial 5-Yr. TCO: $2,608,200 ($1,515,240 + $1,092,960)

 

5-Yr. TCO based on our intervention: $654,798 ($380,406 + $274,392)

 

The total 5-Yr. TCO Savings: $1,951,402

 

The savings in FLAT yearly support costs: $204,642 ($273,240 - $68,598)

 

Although with support increases a 20 Year projected savings to a First Year support reduction of: $204,642 would be much greater.

 

Initial First Year Support of: $273,240 x 20 = $5,464,800

 

Reduced First Year Support of:$68,598 x 20 = $1,371,960

 

Total FLAT support reduction over 20 years: $4,092,840 or a 74.89% support reduction over 20 years.

 

The above was an unusual deal, our average 20 year projected support savings range between 43-58%, or over a 50% reduction.

 

If we return to the Original List License Cost for both Applications using the processor metric: $3,450,000 in order to obtain a Net License of $311,808, the Client would have needed to obtain a discount from Oracle of 90.962%. That would never happen.

 

Summary via questions:

 

1. How helpful are high discounts when the objective are deep cost reductions to an Oracle Net License?

2. Why would anyone RISK third party support, with no "legal" patches and and the dangers I've outlined here: NO RISK

 

If longtime Oracle Clients are reading this, most, but not all have likely guessed what I have done to help this Client who in 2011 had about $700MM in annual sales and today has grown to over $1.4B. However, I talk to friends still at Oracle and I asked one of them if they had JD Edwards EnterpriseOne Client, small but growing, $220MM in annual sales, and they wanted to add 100 users of JDE E1 Financials, for which the List Price is $4,595 per user, $70 for 100 users of System Foundation and $225 for 100 users Core Tools, total list price comes to $489,000 + $107,580 support total: $686,500 List.

 

I asked, let's say you can manage an Approval of 50% (very difficult on a list license of $489,000) and get a price for the Net License of $244,500 + $53,790 in first year support, for a total of: $298,290.

 

Did you get a good deal for the Client for 100 users of Financial with that 50% discount, or would I get a better deal, with a no Approval 50% discount, except I've added Project Costing, something the Client needed, but was not budgeted (same cost as Financial, ($4,595) and my no approval Net License is: $100,550 + $22,121 in support, for a total of: $122,671?

 

My friend who still works at Oracle shakes his head and says, Dean, I know you do odd stuff, but you're nuts that's impossible.

 

That is what I show Clients in a 15 minute DEMO, and every one who has seen it over the last 4.5 years has engaged me when the time came for them to make a large Oracle® ERP investment and I did not fail to deliver for even one Client.

 

 

Please Contact Us for a DEMO at your site, or for a Webinar to see exactly how the above reduction was accomplished and to "LEARN MORE." You may also reach us at 888-970-5222. Thank you.

 

 

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