Manufacturing Cloud Sense: Improving Business Management with Cloud ERP

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1 Manufacturing Cloud Sense: Improving Business Management with Cloud ERP May 2015 A research report prepared by: Publication sponsored by:.

2 TABLE OF CONTENTS TABLE OF FIGURES Introduction 1 The Cloud ERP Reality 1 The Business Triggers for Cloud ERP 2 Real-world Business Improvement 3 Critical Considerations 5 Call to Action / First Steps 6 Sponsor Perspective: Cloud ERP as a Viable Choice for All Buisness 8 Figure 1: Cloud-based Business Management is Here and Growing Fast 1 Figure 2: Cloud Business Management Software Benefits 3 Call-Out: Cloud, Security, and Control 6 About this Report Saugatuck Technology Inc. is solely responsible for the content of this report. Unless otherwise cited, all content, including illustrations, research, conclusions, assertions and positions contained in this report were developed by, and are the sole property of, Saugatuck Technology Inc. The research and analysis presented in this report includes research from ongoing Saugatuck Technology research programs, including our global survey and interview work with user enterprise business and IT leaders, briefings with providers, and analysis of publically-available market information from multiple sources. The publication of this report was funded by Epicor. About Saugatuck Technology Saugatuck Technology, Inc., provides subscription research and advisory consulting services focused on key market trends and disruptive technologies driving change in business computing. Founded in 1999, Saugatuck is headquartered in Westport, CT with resources in metro Boston, Washington D.C, Silicon Valley, and Wiesbaden, Germany. For more information, please visit or call i

3 Introduction Just a few years ago, most firms were asking Why ERP? and Why Cloud? Today, the increasingly important questions about both Cloud and ERP that we encounter from companies of all sizes and types, in all industries and markets, are When? and How? The advent and evolution of Cloud-based ERP has catalyzed the adoption of increasingly powerful business management software among firms that previously did not feel it was useful or practical for a firm of their type or size. This management paper uses survey and interview research by IT business consultancy Saugatuck Technology to examine and understand what it is that drives Cloud ERP adoption today, including by smaller and mid-sized manufacturing firms that traditionally have not taken advantage of ERP. We look at the realities of Cloud and ERP use; the business triggers that drive these firms toward Cloud ERP; and the business improvements experienced most often, including what these companies can do with Cloud-based ERP that they could not accomplish without it. We close with guidance about what to look for in solutions and providers in order to maximize the business value that can be accomplished. The Cloud ERP Reality We increasingly see firms with as few as 20 employees implementing and benefiting from a variety of Cloud-based ERP applications. Saugatuck s ongoing global survey and interview research indicates that by yearend 2014, at least some Cloud-based business management solutions have been implemented and in use by an average of 50 percent of all types and sizes of businesses, with another 20 percent to 25 percent planning / expecting to implement solutions within the next 24 months after that. Figure 1 uses Saugatuck s data to illustrate the substantial presence and significant growth in use across all major categories of Cloud-based business management systems including ERP. Figure 1: Cloud-based Business Management is Here and Growing Fast Source: Saugatuck Technology global Cloud / SaaS surveys,

4 The Business Triggers for Cloud ERP What drives any business to acquire and adopt any type of IT will vary. Saugatuck research among firms having from 2,000 employees down to fewer than 50 employees indicates that there are a handful of triggers that push IT and business leaders to consider, and then adopt, Cloud-based ERP solutions. The most-frequently-cited triggers are as follows: Getting Control, Improving Output. We now have much better monitoring of our production, says the president and founder of a metal fabrication plant in the Rocky Mountain area of the U.S. We built and customized dashboards that are displayed in the shop that can show bottlenecks, production for the day / week / month and our goals. We have a Sales dashboard in office as well. It s all directly tied to our database in real time, so when it comes to productivity, everyone can see what s happening and everyone is getting more involved. Competitive need. Most manufacturers already run lean and do everything possible to maintain and improve profitability. But more and more, manufacturers also face competition from low-cost firms located in far-flung markets that may have significant advantages in regulatory, labor, shipping, currency, and other elements of business. Seeing, knowing, and being able to act on and manage real and possible costs, availabilities, shortages, delays, operational efficiencies and other business factors can mean the difference between competing for, or passing on, opportunity. Collaboration capabilities enabled in the cloud help manufacturers communicate such information immediately and directly with employers, suppliers, and customers. New markets. Global presence today as a manufacturer begins as simply as setting up a website. Coupled with historically low transportation costs and readily-available market data, web-based commerce enables more cost-effective sales and supply chains in new or different markets (including suppliers previously unknown or unusable). The founder and CEO of a 20-person Indian firm recycling and remanufacturing household appliances credits his decision to implement Cloud-based ERP with enabling relationships with hundreds of domestic and foreign supply sources. We re far from a typical ERP customer, I know. But there is no way that we could even have a business, let alone have a growing business, without having such a cost-effective ability to communicate and manage inquiries, orders, shipping, payment, and compliance in so many markets, he argues. I don t need to manage it, I don t need to update it, and I don t have to integrate it with other apps. Change in ownership, leadership, customers, partners, or business model. Even the largest firms are willing to rethink and restructure how they do things if their largest customers demand it, especially when they demand lower costs which typically require that efficiencies improve, and a core means of improving efficiency is improving the availability and visibility of all aspects of business information which is what Cloud-based ERP enables. And while Saugatuck research indicates that even one of these factors is typically enough to trigger a need for, or at 2

5 least examination of, Cloud-based ERP, most often we see several or all of these factors at work in one company. Changes in ownership, for example, tend to bring new leadership and new ways of doing business, which often shuffle the customer and partner relationships. Growth. As firms grow, and as their business evolves, current software, systems and processes may not be able to grow with the business costeffectively. One Asia/Pac-based, internationally competitive engineering and manufacturing company implemented a new Cloud-based ERP system from Epicor to enable it to improve its ability to manage some of the simplest, yet most demanding, tasks. We engineer to order, and some of our assemblies were to the point where they had more than 7,000 parts, states the founder and managing director of the firm. Our original accounting software simply could not manage the intricacies of parts ordering, tracking, cost, and everything else. We simply outgrew it. The firm sought out Cloud-based ERP in large part due to its attractive cost structure, speed of implementation, and low ongoing costs compared to most on-premises systems. Real-world Business Improvement Saugatuck research among process and discrete manufacturers, engineering firms, fabricators, and similar firms shows that Efficiency is the password to competitive presence in a Cloud-enabled business world. Even when not competing in global markets, feeling the pressure/need to improve efficiencies which tend to start with improving ability to see and use business data from multiple systems and operations. Efficiency builds on data, information, insight, and the ability to readily act on these, and Efficiency is the primary benefit realized from adopting and adapting Cloud-based ERP. How does Efficiency translate into repeatable, measurable, real-world business improvements accomplished using Cloud-based ERP? Figure 2 collects the most-frequently-cited examples from Saugatuck research into a single chart. Figure 2: Cloud Business Management Software Benefits Source: Saugatuck Technology global Cloud / SaaS surveys,

6 Reduced costs. Not only do Cloud-based solutions themselves tend to cost significantly less than comparable, traditional ERP solutions, they help to reduce overall capital and operating expenditure by enabling significant improvements in efficiency. We have the data that we need everywhere, and it s in the same format, with proven accuracy. That allows us to see, plan, and manage spending and investment much better than we could have done before, states the head of business analysis for a US-based manufacturer of industrial refrigeration equipment. Speed of implementation. With traditional ERP and with most traditional business management software the time required to specify, acquire, implement, and utilize the software averaged months. Most Cloud-based ERP solutions enable implementation and utilization within weeks, if not less. And as business changes and grows, changes to solution functionality can usually be implemented even more quickly, often by turning on functions or modules from the provider s platform. Time to market. Because we can see accurate and up-to-date data on financials, processes, output, inventory, costs, and everything else, we can make the decisions to go to market, and be in those markets, in a matter days where it used to take us months or longer, declares the managing director of a UK-based beverage bottling and distribution firm. We can also get more and better data from those markets faster, so we can decide whether or not to stay, invest, or leave. Business process improvement. Cloud-based ERP enables a single version of the truth, i.e., reliable, accurate business data presented in the same manner everywhere. This is most frequently cited by firms as a means to enable and enforce improved business management overall. While this may seem at first like an abstract concept rather than a real benefit, we see firms improving response times and accuracy for quotes and bids, improving (or, in many cases, implementing) project and job scheduling, and integrating production tasks, teams, and resources to improve overall performance and to improve profitability. We have improved inventory control, parts availabilities, and our overall business process and accounting management from all aspects, states the CEO of a custom fabrication firm located in southeast Asia, adding, That has improved margins enough to win a half-dozen more jobs in the past 18 months. Increased functionality/ease of use. Being able to access any and all relevant order, customer, job, pricing, and other data via PC, tablet, or smartphone from anywhere a web connection is available makes a dramatic difference in sales effectiveness and customer satisfaction. Also, with Web browser and mobile app access, there s no need for potentially fickle and time-consuming VPN access. We can access information on customer jobs and solve problems without being in the office. We can even change production schedules if we need, explains the VP of Sales for a metal stamping firm in the 4

7 Midwestern U.S. We re not tethered to any physical location, so we can focus more, and better, on the customer. Critical Considerations What are the critical considerations in moving to or implementing Cloud-based ERP? What is different from the considerations in buying or acquiring other types of IT? Core considerations repeated most frequently in conversations with manufacturers worldwide include the following: Map processes to the software, and vice-versa. Know your own processes, cautions the general manager responsible for engineering at a manufacturing firm specializing in high-tech energy and mining equipment and tools. Think about all of your end-to-end processes. Ask, and answer, two questions: How can you mold those processes to suit what is available in the Cloud package, and how can you adapt and configure what is available in the Cloud package to suit your processes? Suitability, Adaptability, Scalability. Mapping solution capabilities to your processes is critical to enabling business benefits from solution acquisition and use. But that suitability is likely to change over time as business operations, processes, markets, and other factors change. Make sure that the solution and provider of choice is able to adapt as your business changes over time. Also make sure that both the solution and its underlying platform can scale as your business grows, changes, and possibly even shrinks at different times. You may not know what you will need from your solution and provider next year; look to the best ones to help you see how your business needs and their offerings can adapt and scale with one another. Solution performance versus Network performance. The more complex and powerful any software solution becomes, the more a company will require it to be available and responsive. Cloud ERP solutions today are among the most robust, built on secure platforms engineered for availability and reliability well beyond what the majority of in-house/on-premises systems can deliver. That being said, some firms in different areas do report issues of availability and performance. However, these are often issues of Network bandwidth and reliability, something that needs to be considered when developing the business case for any Cloud-based solution(s). Cloud can be a double-edged sword, according to the founder of the AsiaPac engineering and manufacturing firm. We can log on anywhere, there are no hosting servers to worry about, and upgrades are done predominantly by someone else. But in our case, we are 3,500 kilometers from the Cloud provider s servers, so network latency can be a challenge. Look for Cloud ERP providers that can help you understand bandwidth readiness -- the networking that will be required in order to realize the best possible performance. 5

8 Cloud, Security, and Control Cloud is possibly the most perfect technology metaphor. Up in the sky, real-world clouds are constantly in motion, impossible to grasp, continuously changing shape and consistency, with their potential predictable yet largely undefined. This amorphousness describes Cloud-based IT in all its forms and potential and is the basis for some debate about data security and control. When it comes to control over company information, owners and executives need to be reassured that they still own, and have complete control over, their data. The systems are engineered to enable and manage control over the data far in excess of what most traditional, existing business management systems can accomplish. And in more and more instances, business data can remain wherever the company desires it and in most cases, the most secure and reliable place for data is in the Cloud. Most on-premises business software and systems are typically installed on hardware developed more than a generation ago. Human errors proliferate due to differences in data, formats, user interfaces, and access management. And because of all this, security tends to be an amalgam of traditional perimeter-based technologies and 1980s-era policies and practices that lead to tens of thousands of data center breaches annually. Meanwhile, fewer than 1 percent of data breaches reported to date have directly involved Cloud-based systems or software. When speaking to clients about Cloud-based ERP and other management systems, Saugatuck consultants put it this way: Unless one s existing systems were built from the transistors out with the most current and integrative data management and security, and have been upgraded as required to maintain and manage those capabilities, you cannot achieve the cost effectiveness and security available via Cloud. Even if you believe that you have the most complex and unique organizational and data needs possible, Cloud enables and delivers scales of integration, management control, and security unachievable otherwise. There are legitimate reasons for not moving business management systems to Cloud. Established business requirements, regulatory requirements, software preferences, and just plain comfort are among these. And frankly, we do not expect all business management systems to move to Cloud soon. But the improved security, reliability, and manageability inherent in well-engineered Cloud systems will continue to accelerate competitive advantages for those that do. Call to Action / First Steps Why Cloud-based ERP? It offers a cost-effective means to make business easier to manage in an increasingly complex, inter-connected, short-reaction-time business environment. Business is not going to get simpler or less competitive, because we connect more entities in more ways using more devices to share more information, and this increases almost daily. That s the reality of networked business in the 21 st century. Cloud helps to both enable and manage the interconnectivity that is increasingly required of businesses and business systems. There s advantage and profit in organizing, managing, and optimizing how these interactions occur, including supply and sourcing, e-commerce, collaboration, payment, cataloguing, inventory management, and other business and Finance management operations and apps via unified services platforms. 6

9 Where to start? The Critical Considerations noted earlier are a great place to begin understanding what Cloud-based ERP can offer your firm, and how to prepare so that the most value will be realized. Understanding, and mapping your internal processes will identify not only what needs to be managed, but how and likely also identify areas that will benefit from operational and management improvement, providing you with useful insights into how and where business advantage will be gained. Outlining how your business has scaled up and down in the past, how you have adapted to market changes (or not), and how you (realistically) expect it to do both in the future, will help shape the scope of resources and functionality most suitable to your business. Given that this is about Cloud, assessing network needs and availability will be paramount for the reasons discussed earlier. Add to this the need to evaluate existing software and systems, and how these will be linked with, replaced by, complemented by, or separate from, the Cloud ERP solution. Cloud-based ERP software, in short, is more complex than simply subscribing to a software subscription. It costs substantially percent less than most comparable traditional software; it can enable substantial if not dramatic improvements in business management and operations; and it can enable opportunity and growth otherwise unattainable. And it can start doing all of this in days or weeks rather than the months or more that traditional business management software requires. But it is still a significant strategic investment in technology and in provider relationships for any firm, and must be approached accordingly. We ve had to approach [ERP] the same as we would approach any engineering project, concludes the founder and managing director of the AsiaPac design-build firm noted earlier. It takes some time and effort up front to make it work for years to come. 7

10 SPONSOR PERSPECTIVE: CLOUD ERP AS THE NEW NORMAL Few technological shifts have been as sudden or broadly accepted as the role the cloud has earned in our personal and professional lives. Accelerated by the pervasiveness of mobile computing and validated by the success of increasingly complicated workloads migrated to the cloud, it s now time for businesses to ask Why not ERP in the cloud? Epicor has long been a leader in providing our ERP clients true freedom of choice, including choice of deployment model. Today the importance of choice remains, and for an increasing number of our clients that choice is to deploy their ERP in the cloud. Economic-based buyer behaviors drove early cloud migration decisions: The cloud is cheaper, so more attractive financially! The opportunity to improve IT efficiency drove the second phase of cloud adopters: I m tired of having my IT staff tied up with the care of feeding of our servers and the perpetual upgrade cycle! In our experience, cloud-deployed ERP clients are quick to point out that, Yes, the IT and economic benefits are real. But they are far more interested the benefits of business effectiveness that surround collaboration, universal access, mobility, and improved opportunities for business innovation. Today, conversations are about when and how rather than if the cloud will play a role in ERP. Epicor remains committed to our clients, committed to choice, and committed to the cloud. Learn more about Cloud Deployed Epicor ERP at 8

11 Month Day, xxSSR SAUGATUCK OFFERINGS AND SERVICES Saugatuck Technology provides subscription research / advisory and consulting services to senior business and IT executives, technology and software vendors, business / IT services providers, and investors. Our Mission is to help our clients make better business decisions and create new business value through trusted and objective insights into the key market trends and emerging technologies driving real change. Over the last few years, this has included a major focus on the emergent new master architecture, that includes not only Cloud applications and infrastructure, but mobile, social, advanced analytic and sensor / IoT technologies. More recently, the firm has also focused on Digital Business transformation. CONTINUOUS RESEARCH SERVICES (CRS) Subscription research / advisory services that provide independent / unbiased analysis, insights and guidance into the most important emerging technologies driving change in business computing. We are experts in Cloud IT and Digital Business, among other key market trends / technologies with a balanced view that is valued by both providers and consumers of technology-enabled products / services alike. USER STRATEGIC CONSULTING SERVICES Leadership and Planning Workshops Digital Business Strategy and Program Assessments Vendor Selection / Evaluations Cloud Transition / Migration and Best Practices VENDOR STRATEGIC CONSULTING SERVICES Market Assessments Strategy Validation Opportunity Analysis / Emergent White Spaces Positioning & Messaging / Go-to-Market Strategies Routes-to-Market Competitive Analysis THOUGHT-LEADERSHIP PROGRAMS Custom research programs targeting key technology and business/it investment decisions of CIOs, CFOs and senior business executives, delivered as research reports, position papers or executive presentations. VALUE-ADDED SERVICES Competitive and market intelligence Investment advisory services (M&A support, due diligence) Primary and secondary market research. To learn more about Saugatuck research and consulting offerings, go to or Chris MacGregor. While there, signup to receive our complimentary Research Alerts and Lens360 blog posts, and purchase select premium subscription research. Saugatuck Locations Saugatuck is headquartered in Westport, CT (USA), with resources in metro Boston, metro Washington D.C., Silicon Valley, and Wiesbaden, Germany. To reach Saugatuck Technology, please call:

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