Success in the Cloud
Smart manufacturers are switching to Cloud computing systems to improve business performance
BY MATT HALLER
Do you have access to the real-time information you need to run your business as efficiently and as effectively as you would like? If not, check out how a local manufacturer is using Cloud computing to have access to this real-time information and achieve improved business
Functionality and flexibility that meet the needs of your business
For most manufacturers, the last major ERP upgrade occurred years ago. Like Hiawatha Rubber, many manufacturers use manual work-arounds to help retrieve needed information when the insights are not provided by their existing software systems. Cloud solutions, due to their
flexible platforms and customer-focused product development approach, offer robust functionality out of the box, often eliminating side spreadsheets which are found in nearly all organizations today. In addition, Cloud architecture enables rapid development.
Some vendors have made their development tools available through Platform as a Service (PaaS), creating partner ecosystems of add-on applications. These development partners create industry or functional extensions of the software in the native development technology to meet
needs not delivered out of the box.
Cross-functional visibility and consistent data across functions
Cloud solutions provide integrated data across all functions of an organization, which is a top concern of executives when asked about their company's use of internal information. As a result, this reduces the instances when an order date is changed by the sales team but not
communicated to production. Likewise, no longer will two team members attend a meeting with two versions of the same report because they were using different data.
Faster and nearly no-cost upgrades to new functionality
System upgrades with an on-premise system often take several months to complete due to the testing and re-building required for customizations made in the initial implementation. This type of upgrade timeline and effort is not required when using Cloud solutions. Due to
multi-tenant architecture, upgrades happen seamlessly behind the scenes and customizations are carried through in the new release.
Lower software purchase and operational costs
Traditional on-premise systems charge an up-front license cost plus on-going maintenance fees between 15 and 22 percent of the license cost. They also require highly-paid specialized IT resources and expensive upgrades. Cloud vendors charge a monthly, all-inclusive
subscription fee. The result? Over five to seven years, we often see organizations save 25 to 50 percent compared to on-premise solutions. Hidden costs and opportunity costs are also eliminated. For Hiawatha Rubber, choosing Plex Online meant the sales representative who previously
split his time between sales and maintaining the existing system is no longer spending time maintaining the system and can now fully dedicate his time to field sales.
Improved ease of use and higher user adoption
Cloud software screens are typically intuitive, based on consumer-based web browser experiences. This means the system is naturally familiar and easy for users to navigate. Increased usability and user adoption translates into accurate and complete information efficiently
being entered into the system, resulting in improved decision-making.
Critical customer and internal data is secure
Cloud vendors take the burden of data security and backup off of your company and let you focus on your core competency. Using advanced server authentication and data encryption technology, users access Cloud solutions with more security and safety than most manufacturers can
provide themselves. The vendor runs the software on their servers, in their data centers, with their disaster recovery procedures. Backups and the necessary data center infrastructure are no longer necessary for your company to build and manage.
For years, manufacturing companies have used Enterprise Resource Planning (ERP) systems to manage their finance and shop floor information. Traditionally these systems have been cumbersome, required expensive onsite specialized IT resources to run and maintain the system, and
have not provided quick access to the necessary information to inform decision making. Alternatively, Cloud ERP systems provide deep functionality and flexibility at a much lower cost than traditional on-premise systems. Cloud solutions also offer cross-functional visibility and
consistent data across functions, faster low- or no-cost upgrades, lower operational costs, and guarantee security of critical customer and internal data.
Case in Point
Hiawatha Rubber is a Minnesota family-owned manufacturer with more than 55 years of experience in precision rubber molding. Until recently, the company used an outdated ERP system to support its finance and shop floor processes.
With some effort, this system could provide basic information, but it lacked the ability to provide the detailed, real-time and accurate financial and manufacturing information the company needed for efficient decision making. Specifically, Hiawatha needed more detailed
information in the areas of product costing and quality data tightly integrated with production data. Company leadership recognized that an updated ERP system would provide the needed visibility and accurate information, but was concerned about the cost and effort normally
associated with such a change.
During their review of ERP software, Hiawatha Rubber's leadership learned about new Cloud ERP systems. The cloud solution model provides deep functionality and flexibility at a much lower cost than traditional on premise systems. It offers cross-functional visibility and
consistent data across functions, faster low- or no-cost upgrades, lower operational costs, and guarantees security of critical customer and internal data. And it's easier to use.
Hiawatha chose Plex Online, rated as the number-one ERP system for manufacturers, due to its capability to provide the real-time shop floor, quality, and costing information.
Following a three-month implementation, which is about half the time it takes to install a typical on-premise system, Hiawatha now reaps the benefits of real-time visibility in its operations. Tim Carlson, manufacturing manager, notes, "The plant floor employees now see
upcoming jobs and where materials are located in real-time, enabling them to make quicker and better decisions. Now when a customer calls for a rush order we can tell them in minutes when their order will be ready, compared with several hours and a significant amount of manual
effort when we had our previous system in place."
For Hiawatha Rubber, replacing the obsolete ERP system with a Cloud-based system offers employees and management the real-time information they need to run their business and serve their customers most effectively and efficiently.
Four months after implementation, Hiawatha Rubber employees continue to employ the information they have available to make continuous improvements and invest in future capabilities in order to better serve their customers.
Is Cloud ERP Right for You?
As a manufacturer, you likely use an ERP or other software to manage the customer, production, and financial information to run your business. Unfortunately, like Hiawatha Rubber and many other companies, you may lack insights and miss efficiencies due to the limitations of
your existing software system.
These software systems are intended to improve the efficiency and sustainability of the business process. Regrettably, what often occurs is the software and supporting technology infrastructure itself becomes the focus, rather than a tool to enhance business processes and
customer experience. In other words, your employees work for the system, instead of the system working for your employees and your company.
Rather than providing information to help identify ways to cut costs and become more agile, running and maintaining your ERP software can add costs and impede the business.
Challenges with On-Premise Systems
Very often with the on-premise model, the cost and effort of installing and running the system outweighs the benefits to the business. On-premise software systems start with large up-front costs to acquire software licenses and infrastructure to run the software.
Following these start-up costs, it quickly becomes necessary to add professionals to maintain the system network and application. Add another 15 to 22 percent on top of the purchase price for annual maintenance paid to software and hardware vendors.
These costs, combined with the historical statistics of traditional on-premise software system implementations delivering value to the business only 25 percent of the time. It is no wonder company leadership at your business and at others quickly becomes concerned when
considering an enterprise software project.
An Effective Alternative
Cloud-based or SaaS solutions are delivered by the provider via the Internet and counter many of these issues. Cloud solutions leverage technology to bring agility and speed to the business, rather than maintaining the technology. Significantly lower costs are an additional
When considering on-premise vs. Cloud solutions Nicolas Carr provides a comparison in his book, The Big Switch. His assertion is that companies using on-premise software are comparable to the late 1800s, when every company generated its own power to run its business.
In the early 1900s, nearly all companies switched from producing their own power to procuring power from public electric utilities, receiving higher reliability at significantly lower costs. Moreover, businesses then focused on their core business processes rather than on
producing power. Similarly, today's companies have built in-house IT capabilities to develop and maintain the on-premise software solutions necessary to run their businesses.
Compare this with Cloud solutions where a single vendor provides software to many organizations over the Internet via a common infrastructure. The result is huge economies of scale and communities of excellence. Similar to the "big switch" in Carr's book, many companies can
now switch from on-premise solutions to Cloud solutions, where vendors provide a common service to many customers for a much lower cost. Businesses often save between 25 and 50 percent compared to on-premise solutions over a five to seven year horizon.
The benefits found in the Cloud are based on the underlying structure (or architecture) of the solution. The most valuable model is a pure multi-tenant architecture, where multiple companies use a single set of application code, on one physical database, with individual
company data separated in a secure manner.
This architecture provides vendors significant economies of scale, translating into lower costs for their customers. It also enables rapid delivery of new features and functions to all customers, freeing manufacturers from the effort of installing upgrades. The update alerts
are automatic,allowing the client to quickly decide which upgrades they would like to apply.
Joining the Cloud
The experiences of Hiawatha Rubber summarized at the outset of this article are not uncommon, yet you may be unsure if a Cloud solution is right for your company. How can you decide?
First, determine if your current systems meet your needs.
Ask the employees who develop your income statement, perform the journal entries, manage the production schedule or manage the sales pipeline. Ask questions such as "Are you using spreadsheets to perform calculations or manage information which is not in the system?" or,
"How long does it take you to perform this manual process?" or, "Where are your primary challenges with the current software?"
Second, analyze the direct and indirect costs of your existing systems.
Identify the existing maintenance costs for your software licenses as well as the cost for the staff to support your existing systems. Consider the cost associated with manual processes and workarounds. Indirect costs include lower customer satisfaction due to delays in timely
responses to customer requests, lost production time due to a lack of integrated data across functions, and lack of insights into efficiencies or opportunities to grow with existing customers.
Third, speak with a specialist that knows Cloud technology.
Many external organizations can help review your initial assessment and identify the potential opportunities for little or no cost. Talk with an organization with deep experience in both process improvement and Cloud solutions. In order to maximize value from a Cloud solution,
search for an organization that understands both the Cloud solution and the potential process improvement opportunities when implementing the new solution.
Matt Haller is a Principal at Baker Tilly Virchow Krause. To learn more about Baker Tilly Virchow Krause, visit www.bakertilly.com.