Pushing traditional ERP systems behind the clouds

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1 Pushing traditional ERP systems behind the clouds Senior Developer, Training Head, Production Designer Pushing traditional ERP systems behind the clouds by Sharayu Page 1

2 Pushing traditional ERP systems behind the clouds Sharayu Zolekar Senior Application Developer, Soham Consultants, Amravati, Maharashtra, India Abstract Businesses in this highly competitive environment need the most appropriate technology solution for performing their operations and transactions. ERP till now was a clear leader in business implementations for larger to smaller organizations. But with the recent advancements like cloud computing, free open technologies and high speed mobile networking, ERP s are losing their charm. 70% of ERP customers are diverting budget from on-premise infrastructure to fund cloud-based solutions. Poor customization, high cost and complex maintenance in ERP systems are making the business organizations to think about other relevant solutions. Cloud with its broad array of advantages has an ability to replace the traditional ERP systems. Keywords: Cloud, internet, ERP, TCO, ROI, SAP, SAP, Dynamics, Odoo, Social Enterprise The traditional ERP Systems Enterprise resource planning (ERP) is a business management software usually a suite of integrated applications that a company can use to collect, store, manage and interpret data from many business activities. ERP is business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back office functions related to technology, services and human resources. ERP software integrates all facets of an operation, including product planning, development, manufacturing, sales and marketing. ERP software is considered an enterprise application as it is designed to be used by larger businesses and often requires dedicated teams to customize and analyze the data and to handle upgrades and deployment. In contrast, Small business ERP applications are lightweight business management software solutions, customized for the business industry you work in. The business activities that the ERP systems include are Production Distribution and Supply Chain Management Sales Human Resource Accounting Customer Relationship Logistics Corporate Governance Assets management Reporting and Information delivery ERP provides an integrated view of core business processes, often in real-time, using common databases maintained by a database management system. ERP systems track business resources cash, raw materials, production capacity and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across the various Pushing traditional ERP systems behind the clouds by Sharayu Page 2

3 departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data. ERP facilitates information flow between all business functions, and manages connections to outside stakeholders. Enterprise system software is a multi-billion dollar industry that produces components that support a variety of business functions. IT investments have become the largest category of capital expenditure in United States-based businesses over the past decade. Though early ERP systems focused on large enterprises, smaller enterprises increasingly use ERP systems. The ERP system is considered a vital organizational tool because it integrates varied organizational systems and facilitates error-free transactions and production. However, ERP system development is different from traditional systems development. ERP systems run on a variety of computer hardware and network configurations, typically using a database as an information repository. Popular ERP system SAP ERP Figure 1: Implementation of Traditional Single Client ERP System It is enterprise resource planning software developed by the German company SAP SE. SAP ERP incorporates the key business functions of an organization. With more than 40 years of experience and nearly 50,000 customers, our market-leading enterprise resource planning (ERP) software is a proven, trusted foundation built to support the world s largest organizations as well as small and midsize companies in 25 different industries. Leverage role-based access to critical data, applications, and analytical tools and streamline your processes across procurement, manufacturing, service, sales, finance, and HR. For a company, software, hardware, and consulting costs can easily exceed $100 million (around $50 million to $500 million) and need to spend $50 million to $100 million on upgrades. Need for changing the traditional ERP A major disadvantage of ERP is its overall startup cost. The implementation requires new hardware, training and consultants to give instruction in addition to the software itself. This creates a high price tag that may not be acceptable to a company especially for a Pushing traditional ERP systems behind the clouds by Sharayu Page 3

4 system that cannot guarantee profit. Economies of several companies were found to be in deep trouble due to high investment on IT. Customization is problematic. ERP system due to their huge size of implementation, it becomes difficult to customize the system different for different client companies. Customization is something that the business companies need regularly these days due to economic and functional instability. Re-engineering business processes to fit the ERP system may damage competitiveness or divert focus from other critical activities. It is not easy to modify the working style of a process as it is a part of large system and it can affect other parts of the application badly. High ERP switching costs can increase the ERP vendor's negotiating power, which can increase support, maintenance, and upgrade expenses. Not all modules of every ERP is suitable to a business but switching from one ERP to another is a big economic decision. Once in contract we can t break it, if done so the switching costs are very high and will surely be an unprofitable deal. Overcoming resistance to sharing sensitive information between departments can divert management attention. Redundancy of development of similar services for different clients due to lack of facility of sharing. Each module is independently used by a client company. Extensive training requirements take resources from daily operations. The ERP systems are vast and complex in design. Even technical people require lot of knowledge of the working of the system. It becomes difficult or almost impossible for someone to understand the system without extensive training. Complex working architecture makes it difficult to operate for non technical staff in the companies Coordination of ERP systems can be a mammoth task (especially for big companies) and requires a lot of time, planning, and money. Due the large size of the ERP software, to establish proper coordination needs big investment in terms of time and cost as well. In ERP systems, Return on Investment (ROI) may take too long to be profitable. As the overall costs in ERP purchase and implementation are high it will take long to recover these costs. Many times it is observed that the client companies can manage this slow ROI and have gone bankrupt. Modern substitutes for traditional ERP systems Cloud ERP Affordable collection of highly customized services with low total cost of ownership (TCO) and high return on investment (ROI) is becoming the modern trend in business computing. The cloud has been advancing steadily into the enterprise for some time. Companies are switching to cloud services and replacing their traditional computing tools which they had to manage on their own. Cloud keeps a company free from all the maintenance and security issues. Mobile ERP Executives and employees want real-time access to information, regardless of where they are. It is expected that businesses will embrace mobile ERP for the reports, dashboards and to conduct key business processes. Mobile is the most popular gadget these days and with the speed of internet and services available on a mobile it is expected to become more popular in the time to come. Companies are getting business apps developed which can run anywhere on a smartphone. This will remove all the restrictions on access of business processes. Social ERP Pushing traditional ERP systems behind the clouds by Sharayu Page 4

5 More than 150 million people regularly use social sites. Concept of a social enterprise is becoming very popular with great customer involvement. There has been much hype around social media and how important or not it is to add to ERP systems. Certainly, vendors have been quick to seize the initiative, adding social media packages to their ERP systems with much fanfare. But some wonder if there is really much gain to be had by integrating social media with ERP. Free & Open ERP Free open source ERP softwares like Odoo are gaining great popularity all over. It is used by 2 million users worldwide to manage companies of all different sizes. The main Odoo components are the server, 260 core modules (also called official modules) and around 4000 community modules. Odoo was formerly known as OpenERP until May These free open ERP s are developed by communities using free open source softwares which do not require high cost of licensing and deployment. These are delivered through a fully functional transactional web application or a web site. The most recent versions of open ERP are mostly implemented as a web application. This includes an application server/web server that focuses on ERP business logic, stores data through an interface with a database, and web client for web browsers access. The server and business logic portion of Odoo is primarily written in the Python programming language. The web client is primarily written in JavaScript. Cloud computing: Next generation business solution Cloud Computing provides a simple way to access servers, storage, databases and a broad set of application services over the Internet. Cloud Computing providers such as Amazon Web Services or Microsoft Azure own and maintain the network-connected hardware required for these application services, while you provision and use what you need via a web application.cloud computing is computing in which large groups of remote servers are networked to allow centralized data storage and online access to computer services or resources. Cloud computing is typically defined as a type of computing that relies on sharing computing resources rather than having local servers or personal devices to handle applications. It is types of Internet-based computing where different services such as servers, storage and applications are delivered to an organization's computers and devices through the Internet. Pushing traditional ERP systems behind the clouds by Sharayu Page 5

6 Figure 2: Integration and Delivery of business services in the multi tenant cloud Clouds can be classified as public, private or hybrid. Deployment models Public Cloud A cloud is called a "public cloud" when the services are rendered over a network that is open for public use. Public cloud services may be free or offered on a pay-per-usage model. Private Cloud Private cloud is cloud infrastructure operated solely for a single organization, whether managed internally or by a third-party, and hosted either internally or externally. Hybrid Cloud Hybrid cloud is a composition of two or more clouds (private, community or public) that remain distinct entities but are bound together, offering the benefits of multiple deployment models. Hybrid cloud can also mean the ability to connect collocation, managed and/or dedicated services with cloud resources. Community Cloud Community cloud shares infrastructure between several organizations from a specific community with common concerns (security, compliance, jurisdiction, etc.), whether managed internally or by a third-party, and either hosted internally or externally. The costs are spread over fewer users than a public cloud (but more than a private cloud), so only some of the cost savings potential of cloud computing are realized. Multi Cloud Pushing traditional ERP systems behind the clouds by Sharayu Page 6

7 Multi cloud is the use of multiple cloud computing services in a single heterogeneous architecture to reduce reliance on single vendors, increase flexibility through choice, mitigate against disasters, etc. It differs from hybrid cloud in that it refers to multiple cloud services, rather than multiple deployment modes Service models in Cloud Software as a service (SAAS) Software as a Service (SaaS) is a software distribution model in which applications are hosted by a vendor or service provider and made available to customers over a network, typically the Internet. Software as a Service allows organizations to access business functionality at a cost typically less than paying for licensed applications since SaaS pricing is based on a monthly fee. It is sometimes referred to as "on-demand software". SaaS is typically accessed by users using a thin client via a web browser. Infrastructure as a service (IAAS) Infrastructure as a Service is a provision model in which an organization outsources the equipment used to support operations, including storage, hardware, servers and networking components. The service provider owns the equipment and is responsible for housing, running and maintaining it. The client typically pays on a per-use basis. Platform as a service (PAAS) Platform as a service (PaaS) is a category of cloud computing services that provides a computing platform and a solution stack as a service. In this model, the consumer creates an application or service using tools and/or libraries from the provider. The consumer also controls software deployment and configuration settings. The provider provides the networks, servers, storage, and other services that are required to host the consumer's application. Communication as a service (CAAS) In the CaaS model, multi-platform communications over the network are packaged by the service provider. The services could be in different devices, such as computers and mobile devices. Services may include IP telephony, unified messaging, video conferencing and mobile extension Advantages of cloud services Flexibility The second a company needs more bandwidth than usual, a cloud-based service can instantly meet the demand because of the vast capacity of the service s remote servers. In fact, this flexibility is so crucial that 65% of respondents to an InformationWeek survey said the ability to quickly meet business demands was an important reason to move to cloud computing. Disaster recovery When companies start relying on cloud-based services, they no longer need complex disaster recovery plans. Cloud computing providers take care of most issues, and they do it faster. Aberdeen Group found that businesses which used the cloud were able to resolve issues in an average of 2.1 hours, nearly four times faster than businesses that didn t use the cloud (8 hours). The same study found that mid-sized businesses had the best recovery times of all, taking almost half the time of larger companies to recover. Automatic software updates Software once created needs to be updated with new features regularly. In 2010, UK companies spent 18 working days per month managing on-site security alone. But cloud computing suppliers do the server maintenance including security updates themselves, freeing up their customers time and resources for other tasks. Pushing traditional ERP systems behind the clouds by Sharayu Page 7

8 Cap-Ex Free Cloud computing services are typically pay as you go, so there s no need for capital expenditure at all. And because cloud computing is much faster to deploy, businesses have minimal project start-up costs and predictable ongoing operating expenses. Work from anywhere Device and location independence enable users to access systems using a web browser regardless of their location or what device they use (e.g., PC, mobile phone). As infrastructure is off-site (typically provided by a third-party) and accessed via the Internet, users can connect from anywhere. As long as employees have internet access, they can work from anywhere. This flexibility positively affects knowledge workers' work-life balance and productivity. One study found that 42% of working adults would give up some of their salary if they could telecommute, and on average they would take a 6% pay cut. Security Some 800,000 laptops are lost each year in airports alone. This can have some serious monetary implications, but when everything is stored in the cloud, data can still be accessed no matter what happens to a machine. Security can improve due to centralization of data, increased security-focused resources, etc., but concerns can persist about loss of control over certain sensitive data, and the lack of security for stored kernels. Security is often as good as or better than other traditional systems, in part because providers are able to devote resources to solving security issues that many customers cannot afford to tackle. However, the complexity of security is greatly increased when data is distributed over a wider area or over a greater number of devices, as well as in multi-tenant systems shared by unrelated users. In addition, user access to security audit logs may be difficult or impossible. Private cloud installations are in part motivated by users' desire to retain control over the infrastructure and avoid losing control of information security. Competitiveness The cloud grants SMEs access to enterprise-class technology. It also allows smaller businesses to act faster than big, established competitors. A study on disaster recovery eventually concluded that companies that didn t use the cloud had to rely on tape backup methods and complicated procedures to recover slow, laborious things which cloud users simply don t use. Multitenancy enables sharing of resources and costs across a large pool of users thus allowing for: centralization of infrastructure in locations with lower costs (such as real estate, electricity, etc.), peak-load capacity increases (users need not engineer for highest possible load-levels),utilisation and efficiency improvements for systems that are often only 10 20% utilised. Environmentally friendly Businesses using cloud computing only use the server space they need, which decreases their carbon footprint. Using the cloud results in at least 30% less energy consumption and carbon emissions than using on-site servers. And again, SMEs get the most benefit: for small companies, the cut in energy use and carbon emissions is likely to be 90%. Trade capital expense for variable expense Instead of having to invest heavily in data centers and servers before you know how you re going to use them, you can only pay when you consume computing resources, and only pay for how much you consume. Benefit from massive economies of scale By using cloud computing, you can achieve a lower variable cost than you can get on your own. Because usage from hundreds of thousands of customers are aggregated in the cloud, providers such as Amazon Web Services can achieve higher economies of scale which translates into lower pay as you go prices. Stop guessing capacity Pushing traditional ERP systems behind the clouds by Sharayu Page 8

9 Eliminate guessing on your infrastructure capacity needs. When you make a capacity decision prior to deploying an application, you often either ends up sitting on expensive idle resources or dealing with limited capacity. With Cloud Computing, these problems go away. You can access as much or as little as you need, and scale up and down as required with only a few minutes notice. Increase speed and agility In a cloud computing environment, new IT resources are only ever a click away, which means you reduce the time it takes to make those resources available to your developers from weeks to just minutes. This results in a dramatic increase in agility for the organization, since the cost and time it takes to experiment and develop is significantly lower. Stop spending money on running and maintaining data centers Focus on projects that differentiate your business, not the infrastructure. Cloud computing lets you focus on your own customers, rather than on the heavy lifting of racking, stacking and powering servers. Go global in minutes Easily deploy your application in multiple regions around the world with just a few clicks. This means you can provide a lower latency and better experience for your customers simply and at minimal cost. How cloud can solve the on-premise ERP issues? Cloud computing is considered as the best solution to all the problems of the traditional ERP systems. Most of the business processes are getting migrated to cloud these days. It is designed to suit to all business needs, processes and of any size. Gartner expects adoption to hit $250 billion by Majority of the IT spending worldwide will be in the cloud adoption. Gartner also suggested that the worldwide software as a service (SaaS) market would grow at an astounding yearly growth rate of 20.2 percent! This means it will be growing from $18.2 billion in 2012 to $45.6 billion in With that kind of growth expected, it is no wonder that many are companies are rebranding anything that makes sense as a service to get a piece of the pie. If you're considering an ERP system for your business, chances are you're being bombarded with choices. As you consider your options, one of the most important decisions you'll need to make is whether to select a cloud-based ERP solution or one that's installed locally. The basic difference between on-premise ERP and cloud ERP is clear: On-premise ERP solutions are installed locally on your company's hardware and servers and then managed by your IT staff while cloud ERP also called SaaS, or Software as a Service is provided as a service. With this type of deployment, a company's ERP software and its associated data are managed centrally (in the Internet "cloud") by the ERP vendor and are accessed by customers using a web browser. What may not be so clear is that the type of ERP deployment model you choose can have a significant impact across your business. Here are some key factors that you need to consider when weighing whether to use on-premise or cloud-based ERP software. System Upgrades and Enhancements On-site ERP software can be customized, but those customizations are tied to your current software deployment and are not easy to reimplement with future versions. As your ERP provider releases new product updates and enhancements, your previously implemented customizations will be wiped out when you upgrade and your IT team will have to start customizing from scratch again. That's the main reason many companies simply avoid upgrading their on-site ERP software and just settle for running their business on out-ofdate technology. In fact, two-thirds of mid-size businesses are running outdated versions of their ERP software. In contrast, cloud ERP solutions like NetSuite are continually upgraded by the provider so you can be sure you're always using the latest, most advanced version of your ERP software. Because of the cloud platform today's leading cloud applications are built upon, your previously implemented customizations and integrations automatically carry forward when the solution is updated without additional investment. Improved System Performance and Accessibility Pushing traditional ERP systems behind the clouds by Sharayu Page 9

10 Cloud ERP often delivers better performance than on-premise solutions. Cloud software architecture is designed from the ground up for maximum network performance, which can mean better application availability than traditional on-site ERP systems. Cloud-based ERP also offers optimized performance that can adapt to your needs. If there is a spike in your business, cloud ERP automatically adjusts and dynamically provisions additional resources to handle the surge. For example, NetSuite commits to 99.5% availability for its customers, has 99.98% average uptime performance over the past 12 months, and makes uptime performance information available to all customers at all times at A local IT department is unlikely to be able to achieve these results, and may not even be able to regularly report their system uptime results to management. It's also important to note that a cloud-based ERP solution provides real-time data that can be accessed via the Internet anywhere at any time. That means that staff at your company can see accurate information on laptops, smartphones, and tablet devices while they travel or telecommute all without extra setup fees or ongoing costs. Not only can cloud-based ERP provide better performance and greater accessibility, but better security as well. Because it's their core competency, Cloud ERP providers like NetSuite make securing their systems a top priority by providing strong, industry standard data security certifications such as compliance with PCI DSS and SAS 70 standards. Moreover, NetSuite follows other rigorous security, disaster recovery, and back-up procedures that would be cost-prohibitive with on-site ERP solutions. Deployment Speed Every ERP deployment takes time and requires careful planning, but cloud ERP offers clear advantages when you consider speed of deployment. Since cloud ERP requires no additional hardware, your business doesn't have to waste time procuring and installing IT infrastructure. With cloud ERP, you can easily roll it out across multiple regions, subsidiaries, and divisions, avoiding the cost associated with those rollouts. If you chose a cloud-based ERP system, these differences can add up to a significant time savings: Cloud ERP deployments usually take 3-6 months compared to the 12 months that it typically takes to implement an on-premise solution. Cloud-based ERP systems are also easier to scale, giving you the flexibility to add more users as your business grows. On-site ERP solutions don't offer the same freedom to give more employees access to an on-site system, it's often necessary to provision additional hardware. Every business is unique, so taking the time to consider how different ERP deployment options will affect your company is critical. Fully utilized resources Cloud computing brings natural economies of scale. The practicalities of cloud computing does mean high utilization and smoothing of the inevitable peaks and troughs in workloads. Your workloads will share server infrastructure with other organizations' computing needs. This allows the cloud-computing provider to optimize the hardware needs of its data centers, which means lower costs for you. Costing High startup costs and high cost of maintenance of the ERP systems is the biggest disadvantage. When you run your own servers, you're looking at up-front capital costs. But in the world of cloud-computing, financing that capital investment is someone else's problem. On-premise ERP systems usually require large upfront and ongoing investments to purchase and manage the software and the related hardware, servers, and facilities necessary to run it. If your company doesn't have a large or experienced IT staff, you may also have to also invest more time and money in additional personnel and train them. Even more importantly, on-premise systems require that your IT team spend a significant amount of their time and budgets ensuring your system are up-and-running when you need it, including maintenance of hardware, server rooms, and more. When its time for your ERP system to be upgraded, IT must then redeploy the system across the various users' computers and re-implement various customizations and integrations that your business installed on your previous software. For cloud-based ERP, initial costs are typically much lower because you simply implement the software to your requirements and then access it through your computer's internet connection. The cloud ERP provider hosts and maintains all of the IT infrastructure for you, ensures the system is always running, that the data is secure, and that product enhancements are rolled out painlessly to your solution Pushing traditional ERP systems behind the clouds by Sharayu Page 10

11 without breaking your previously implemented customizations. Ultimately, this all allows your IT resources to focus on innovating and helping grow the business more effectively, rather than spending a disproportionate amount of their time on maintaining and managing your on-premise systems. Cloud ERP also offers a predictable, pay-as-you-go subscription model that can make cash flow management and planning much easier. Over time, those IT savings add up. When comparing the total cost of ownership of on-premise ERP solutions relative to cloud systems, one industry analyst study found that cloud-based ERP can cost 50 percent less than on-site ERP for a 100-employee company over a four-year period.1 Customization Different companies can have different expectations and demands from the same software application. Needs of the organization keep on changing with changing working style. Cloud applications can accept changes easily and these change don t affect the quality and working of other modules of the software. Re-engineering Cloud computing supports Business process re-engineering. It is a business management strategy, originally pioneered focusing on the analysis and design of workflows and business processes within an organization. BPR aimed to help organizations fundamentally rethink how they do their work in order to dramatically improve customer service, cut operational costs, and become world-class competitors. As many as 60% of the Fortune 500 companies claimed to either have initiated reengineering efforts, or to have plans to do so. Maintenance In traditional ERP s companies have to look after the maintenance of the application or have to pay a big amount for this purpose But in cloud computing the client companies are least worried about it and don t pay money or attention on this critical issue. A common perception of maintenance is that it merely involves fixing defects. However, one study indicated that the majority, over 80%, of the maintenance effort is used for non-corrective actions. This perception is perpetuated by users submitting problem reports that in reality are functionality enhancements to the system. More recent studies put the bug-fixing proportion closer to 21%. Switching In traditional ERP once a locked in a contract a client company has to stick to the provided services even if any of the services are not applicable to the client. In cloud computing the service can be any time discontinued and can be switched to a better service provider without changing other services. Redundancy The same functional module written once and hosted once will be used by all the clients. With great amount of sharing of hardware and software resources cloud computing avoids redundancy and saves time of development and implementation. During in house delivery of softwares like in ERP the functionalities are redundantly put on several servers for several clients access. Complexity of architecture ERP s though contain several modules but it is developed as single unit large software, in this process increased dependencies and complexities can be clearly seen which become a difficult issue to tackle over a period of time. Cloud is developed as separate individual modules running on different servers sharing the same database for transactional requirements of the modules running separately. So the architecture of the cloud services remains simple to manage. Return on Investments Purchasing an ERP system is a decision of the lifetime for a company due to its huge cost involvement but the nothing to buy in cloud. No need to put high cost on purchase. Services are available on a rental basis and no need to access all services at a time. Pay for what is used. Any time any service can be stopped or activated depending on the requirements and budget. Cloud gives excellent Return on investment as the investment is low and manageable. Case studies of Cloud services Pushing traditional ERP systems behind the clouds by Sharayu Page 11

12 SalesForce.com: CRM cloud service Salesforce Inc. is a global cloud computing company headquartered in San Francisco, California. Though best known for its customer relationship management (CRM) product, Salesforce has also expanded into commercial applications of social networking through acquisition. Forbes magazine ranked it the most innovative company in America in 2012, and it ranked 19th in Fortune magazine's 100 Best Companies to Work For in Microsoft Dynamics is part of Microsoft Business Solutions. Dynamics can be used with other Microsoft solutions, such as SharePoint, Yammer, Office 365, Azure and Outlook. The Microsoft Dynamics focus industries are retail, service, manufacturing, financial services and public sector. Microsoft Dynamics provides business solutions for both small & medium businesses and Enterprise. It has more than 80,000 customers and it is sold through a strong vendor network. Conclusion Cloud computing is now a proven, mainstream alternative for traditional expensive and complex in house ERP systems. Sharing of resources makes it possible for multiple companies to share the overall IT infrastructure costs. Integration of independent and low cost services in cloud put no extra burden on the company s economy and very high quality software applications are now available to smaller and mid range companies which couldn t afford to buy ERP in the past. The future of business IT is in cloud for sure. References aws.amazon.com/ Pushing traditional ERP systems behind the clouds by Sharayu Page 12