2013 ERP Study Trends for SaaS/Cloud vs. Traditional Systems

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1 213 ERP Study Trends for Cloud vs. Traditional Systems

2 Table of Contents Introduction 1 ERP Systems and History 2 ERP Licenses and Functions 4 ERP Implementation 6 ERP Value 8 Looking Ahead 1 Profile of Study Participants 11 Methodology 12 About the Manufacturing Performance Institute 12 About Plex Systems 12

3 Introduction M anufacturers are reinvesting in operations facilities, equipment, information technologies as they plan for growth. Enterprise sales of ERP systems are projected to reach $32.9 billion in 216, up from $23.8 billion in More than 1 percent of manufacturers are likely to purchase systems or applications for enterprise management in the next 12 months. 2 Yet growth isn t the only thing driving investment, especially in information technology (IT). Evolving markets are changing the way manufacturers think about their information technology needs in general, and ERP in particular. Enterprises clinging to monolithic, inflexible ERP systems need to re-evaluate how their enterprise computing strategies are serving their customers, before their competitors do, writes Louis Columbus in Forbes. 3 Many manufacturers are looking for that flexibility in the clouds. The 213 ERP Study finds more manufacturers with cloud ERP systems in place in 213 (34 percent) compared to 212 (22 percent). Findings in this year s report also highlight a migration to cloud as: Manufacturers grow their businesses and look for their first ERP system; Current systems age and require replacement; and Customer and market requirements demand functionality and flexibility not available in older systems. The 213 ERP Study assessed: Implementations of traditional and cloud ERP systems; Satisfaction with those implementations; The extent to which ERP systems have benefitted organizations; and Anticipated changes to ERP systems by manufacturers in 213. Conducted by the Manufacturing Performance Institute (MPI) on behalf of Plex Systems, Inc., the study also analyzed implementations based on type of system in place cloud ERP systems vs. traditional systems in which hardware and software are on site as well as other participant characteristics, such as annual revenues of manufacturers. In addition, the study examines reasons that some manufacturers have not implemented ERP systems, and factors that may influence their ERP decisions in the future. 1 Enterprise Application Software, Worldwide, , 4Q12, Gartner, Jan. 31, MPI Manufacturing Study, The MPI Group, January Louis Columbus, ERP Prediction for 213: The Customer Takes Control, Forbes, Jan. 7, ERP Study / The MPI Group 1

4 1. ERP system description 2. ERP system and corporate revenues % No ERP 34.% Softwareas-a-service (SaaS)/Cloud model 53.4% Traditional hardware-software on premises 32.4% 37.3% ERP Systems and History A majority of manufacturers (53 percent) operate a traditional ERP system, one in which hardware and software are on site. One-third of participants (34 percent) operate a software-as-a-service 12.6% 34.% (SaaS)/cloud ERP system, an increase from 22 percent in the 212 No ERP Softwareas-a-service ERP Study. Another 13 percent 4 have no ERP system in place, a decrease from 18 (SaaS)/ percent in 212 (Figure 1). Cloud model These year-to-year findings suggest a migration to cloud ERP from traditional ERP systems, as well as cloud ERP s status as an entry-point technology for manufacturers previously without ERP. 53.4% Smaller manufacturers Traditional ($1 million in revenues) are more likely to operate without hardware-software an ERP system, on premises but organization size does not seem to influence ERP implementation decisions (Figure 2). The geographic distribution of a manufacturer s products does seem to influence system selection: manufacturers with international distribution are more likely to implement cloud ERP systems than manufacturers with smaller spheres of distribution (national, regional, or state/province) (Figure 3) ERP system and product distribution 8 International % 49.7% 8.2% % 54.2% National/Regional/State onal/state or Province % 6.% 25.5% % 8.5% $1 million More M than or less $1 million Software as a service (SaaS)/Cloud d model Traditional hardwaresoftware on premises No ERP 2 Software as a service (SaaS)/Cloud model Traditional hardware-software on premises Cloud No ERP Traditional 4 These participants did not answer questions pertaining to ERP implementation and value ERP Study / The MPI Group

5 Manufacturers without ERP systems typically report that their companies are not big enough (27 percent), have insufficient funds/budget (19 percent), and/or have IT-adverse senior management (15 percent). This group reports reasons that would strongly influence the future purchase of an ERP system as growth requirements (58 percent) and proof that an ERP system can improve operations (39 percent). Approximately 42 percent of manufacturers have migrated from a previous ERP system, with cloud users more likely to have migrated (Figure 4). An average 22.2 percent of traditional ERP system functionality is a remnant of the previous system vs. an average 15.9 percent of cloud ERP system functionality. Manufacturers are most influenced in their ERP selections by ERP companies (45 percent of all manufacturers). Cloud ERP users are more likely to be influenced by industry research/data than traditional manufacturers (39 percent vs. 33 percent), while traditional ERP users are more likely to be influenced by consultants than cloud ERP users (36 percent vs. 26 percent). 4. Migration from previous ERP % 47.1% 39.3% % 6.8% 52.9% Contributed strongly to selection of ERP system ERP company Industry research/data 33.% 38.6% 34.8% 45.9% 44.3% 44.8% Yes Traditional Cloud No Consultant 35.8% 25.7% 31.5% Local or industry peer 3.3% 24.3% 28.2% Service provider Internet search 1.1% 17.1% 12.7% 17.4% 2.% 18.8% Customer recommendation Accountant None of these 11.% 5.7% 8.8% 12.8% 1.% 11.6% 1.1% 15.7% 12.2% 213 ERP Study / The MPI Group 3

6 6. ERP licensing agreement % 65.2% 23.9% 7.3% 65.1% 6 9.5% 45.3% % % ERP Licenses and Functions 12 Two-thirds of cloud ERP users (651percent) have unlimited licensing agreements within their companies, more than double the percentage of traditional ERP users. Overall, 4 percent of companies with ERP systems have unlimited company 8 licensing. Traditional ERP users are far more likely to pay by the seat: 65 percent vs. 15 percent among cloud ERP users (Figure 6). 6 An average 72.3 percent of employees at cloud ERP users are licensed to use their systems, compared to an average 3 percent of employees at traditional ERP system users (Figure 7). One-quarter of manufacturers 4 make their ERP systems accessible to suppliers (27 percent) and customers (24 percent). Cloud ERP users are significantly more likely to make their systems accessible to suppliers (44 percent cloud vs. 16 percent 2 traditional) and customers (34 percent cloud vs. 17 percent traditional (Figure 8). 5.6% 8.7% 3.7% 37% Unlimited within company Unlimited by site Limited by seat purchases Other 7. Percentage of employees that are licensed users 1 1.% % % 51.9% 3.% 39.3% Median Average 8. External licensed users of ERP system or portal % 44.3% 15.7% 23.6% 33.8% 16.7% % 55.7% 84.3% 76.4% 66.2% 83.3% 4 2 Traditional Cloud as/ ional S/ Cloud Traditional Suppliers Customers Yes No Yes No ERP Study / The MPI Group

7 The three most commonly used ERP functions, regardless of the type of ERP system, are accounting (92 percent of manufacturers), inventory control (88 percent), and costing (79 percent) the same ranking as in 212 (Figure 8). Year-to-year usage was most likely to increase for: Document control (52 percent in 213 vs. 37 percent in 212), Product data management (6 percent in 213 vs. 49 percent in 212), Program management (35 percent in 213 vs. 26 percent in 212), and Groupware database (32 percent in 213 vs. 24 percent in 212). 5 Manufacturers with traditional ERP systems are more likely to use costing functions (84 percent vs. 71 percent of cloud users) and supply-chain management functions (68 percent vs. 6 percent of cloud users). Manufacturers with cloud ERP systems are more likely to use quality management (67 percent vs. 46 percent of traditional users), document control (69 percent vs. 41 percent of traditional users), and humanresources functions (61 percent vs. 31 percent of traditional users). Large manufacturers (revenues of more than $1 million) are more likely than small manufacturers to use many ERP functions. Large manufacturers (revenues of more than $1 million) are more likely than small manufacturers to use many ERP functions, including: Ecommerce: 48 percent of large manufacturers vs. 16 percent of small manufacturers, Quality management: 76 percent vs. 46 percent, Groupware databases: 48 percent vs. 26 percent, Human resources: 6 percent vs. 35 percent, Customer relationship management: 58 percent vs. 36 percent, and Supply-chain management: 79 percent vs. 59 percent. 8. ERP functions currently used by company Accounting 91.6% 91.4% 91.6% Inventory control 88.1% 88.4% 88.8% Costing 79.3% 71.% 84.4% Manufacturing execution system 68.9% 7.2% 68.5% Supply-chain management 64.7% 6.3% 67.6% Product data management 6.1% 58.2% 61.9% Quality management 53.9% 66.7% 45.5% Document control 52.1% 68.7% 4.8% Human resources 42.7% 6.6% 31.4% Analytics/dashboarding 42.3% 41.9% 42.9% Customer relationship management 42.3% 41.3% 42.3% Program management 35.4% 38.5% 33.3% Groupware databases/communication 32.3% 39.3% 27.5% Ecommerce 25.3% 25.4% 25.2% Other 26.1%.% 42.9% 5 The 212 ERP Study asked participants to identify functions used; 213 study offered three answer options: currently use, plan to use, and no plan to use. 213 ERP Study / The MPI Group 5

8 9. Years since ERP system implementation was completed % 12.4% 12.4% 12.9% 21.4% 2.6% 19.1% 14.7% 14.7% 3.9% More than 4 years 3 4 years 2 3 years 1 2 years Less than 1 year 54.1% 8.3% 11.% 11.9% 14.7% 1. Company s ERP implementation strategy 1 4.5% 34.8% 44.4% ERP Implementation Amajority of companies with ERP (53 percent) had implemented their systems more than three years ago (Figure 9). Not surprisingly, the percentage of older systems is higher among traditional ERP users: 62 percent of manufacturers using traditional ERP have had their systems more than three years vs. 41 percent of cloud ERP users. A mix of big-bang and phased ERP rollouts have occurred among manufacturers 41 percent and 38 percent, respectively. Phased rollouts are more common among cloud ERP users (48 percent) than traditional ERP users (32 percent) (Figure 1). Software costs are the most common expenses included in ERP implementation fees (84 percent of all manufacturers report software as a fee component), but software is more likely to be a fee for traditional ERP users (92 percent) vs. cloud ERP users (72 percent) (Figure 11). Company licenses, installation, and hardware costs also are more likely to be included among implementation fees for traditional ERP users than for cloud ERP users. IT backup and security, as well as disaster recovery, are implementation fees more likely among cloud ERP users than traditional ERP users % 2.2% 1.1% 47.8% 15.9% 32.4% 22.2% 1.5%.9% Big bang/all users at once Phased rollout Parallel (legacy systems alongside ERP) Other Included in ERP implementation fee 4 Software costs 83.5% 72.1% 91.6% Training 71.% 69.1% 72.9% Company licenses % 6.3% 74.8% Installation 65.3% 47.1% 77.6% Maintenance 61.9% 6.3% 63.6% Hardware costs 41.5% 27.9% 5.5% IT backup and security 3.7% 36.8% 27.1% Disaster recovery 18.8% 27.9% 13.1% Other 4.% 7.4% 1.9% None of these 4.6% 7.4% 2.8% ERP Study / The MPI Group

9 anufacturers are most satisfied with hardware costs and the level of corporate M risks associated with their implementations: The study found satisfaction differentials 6 of +39 percentage points and +36 percentage points, respectively, for those implementation factors. Manufacturers are least satisfied with overall costs of implementations and other costs of implementation, with satisfaction differentials of +14 percentage points and +13 percentage points, respectively (Figure 12). Cloud ERP users report higher satisfaction differentials for all implementation factors. Approximately 32 percent of ERP users report it is easy (very easy or somewhat easy) to customize the functionality of their systems, and 34 percent report it is easy to upgrade functionality (Figure 13). Cloud ERP users are more likely to report that it is easy to customize functionality (38 percent vs. 28 percent of traditional ERP users). 12. Satisfaction differentials for implementation factors % of satisfied users (rated 4 or 5 where 5=satisfied) minus % of dissatisfied users (rated 1 or 2 where 1=dissatisfied) 7 Hardware costs Risks to corporate operations Resource requirements (implementation team) Software costs Quality Resource requirements (non-team workforce) Overall ease of implementation Length of time/duration Adapting existing processes and systems to ERP Overall costs Other costs (not hardware or software) ERP ease % 2.8% 34.8% 22.5% 9.% 17.7% 22.1% 22.1% 29.4% 8.8% 1.1% 2.2% 42.2% 18.4% 9.2% Customize functionality % 13.% 18.5% 36.5% 24.2% 9.6% 17.4% 33.3% 23.2% 13.% 1.2% 19.4% 38.% 25.% 7.4% Upgrade functionality Very difficult Difficult Neither easy nor difficult Somewhat easy Very easy 6 Satisfaction differential equals percentage of satisfied users (rated 4 or 5 where 5=satisfied) minus dissatisfied users (rated 1 or 2 where 1=dissatisfied). 7 satisfaction differentials are reported as percentage-point differentials. 213 ERP Study / The MPI Group 7

10 15. Predictability of company total cost of ownership for ERP % 53.4% 17.4% 47.8% 18.7% 57.% ERP Value M anufacturers have improved their inventory management, deliverability, and workforce productivity with their ERP systems, evidenced by improvement 1 differentials 8 of +67 percentage points, +57 percentage points, and +5 percentage points, respectively. (One-quarter of ERP users indicate that inventory management was significantly better. ) ERP systems are least likely to have positively impacted 8 new-product-to-launch leadtimes (+23 percentage points) (Figure 14) % 8.4% 24.6% 16.8% 1.1% 7.5% Very predictable Somewhat predictable Somewhat unpredictable Very unpredictable Cloud 6 ERP users report higher improvement differentials for inventory management, product quality/reliability, and asset management. Traditional ERP users report higher improvement differentials for order-to-delivery leadtimes, manufacturing 4 costs, administrative costs, and supplier performances. A majority of manufacturers (71 percent) report that total cost of ownership (TCO) 2 for ERP is very predictable or somewhat predictable. A higher percentage of traditional ERP users (76 percent) report that TCO is predictable vs. 65 percent of cloud ERP users (Figure 15). Not surprisingly, manufacturers with younger systems (up to three years old) have less of a track record with their ERP and are, thus, less able to predict their system s TCO (11 percent very predictable) vs. manufacturers with older systems (25 percent very predictable). 14. ERP impact % of significantly better or better minus % of significantly worse or worse 9 Inventory management Deliverability (on time and to all specifications) Workforce productivity Product compliance Order-to-delivery leadtimes Production leadtimes (production start-to-end) Manufacturing costs Product quality/reliability Customer satisfaction Administrative costs Supplier performances Asset management New-product-to-launch leadtimes Improvement differential equals percentage of users responding significantly better or better minus percentage of users responding significantly worse or worse. 9 improvement differentials are reported as percentage-point differentials ERP Study / The MPI Group

11 ew manufacturers (24 percent) measure return on investment (ROI) from F their ERP systems (Figure 16). Of those organizations that do measure ROI, 67 percent report it as greater than 25 percent. 1 A majority of manufacturing executives (69 percent) would recommend their ERP system to others (Figure 17). Eighty percent of executives at companies using cloud ERP would recommend their systems vs. 61 percent of executives at companies with traditional ERP. 16. Measure ROI from ERP % 17.7% 28.7% 17. Recommend ERP system to others % 33.3% 16.5% % 82.4% 71.3% % 46.4% 44.% % 15.9% 31.2% 4 2 Yes No 6.7% 4.4% 8.3% Strongly recommend Recommend Not recommend Strongly not recommend 1 Sample size of 41 participants. 213 ERP Study / The MPI Group 9

12 18. Most likely to do in % 35.2% 5.% 1.5% 15% 37.3% 61.2% 23.2% 33.3% 43.5% Looking Ahead 1 H alf of manufacturers plan some change to their ERP systems in 213: 15 percent will purchase a new system and 35 percent will upgrade an existing ERP system. Traditional ERP users are more likely to change their ERP systems in 213: 56 percent will 8 purchase new or upgrade vs. 39 percent of cloud ERP users (Figure 18). Small manufacturers ($1 million revenues or less) are more likely to purchase a different ERP system (19 percent) than large manufacturers (6 percent). 6 Manufacturers ERP spending is expected to increase by an average 17.6 percent in 213 vs. 212 (median increase of 5 percent) (Figure 19). Traditional ERP users are 4 more likely to spend more on their ERP system in 213: an average increase of 25.8 percent (median increase 1 percent) vs. an average increase of 2.6 percent at cloud 2 ERP users (median 5 percent). Purchase different ERP Upgrade existing ERP No changes to ERP Increased ERP spending is driven by the need for a better system (45 percent of manufacturers), new or big clients/contracts (21 percent), and increased sales (2 percent) (Figure 2). Traditional ERP users are more likely to cite the need for a better system (51 percent) than cloud ERP users (34 percent). 19. ERP-specific spending change in 213 vs % % % 5.% 1.% Median Average 2.6% Cloud Traditional 2. Drivers of increased ERP spending in 213 Need for better system 45.% 34.% 5.5% New or big clients/contracts 2.8% 24.% 18.6% Increased sales 2.1% 22.% 19.6% Merger or acquisition 16.8% 16.% 17.5% Diversification of markets/customers 16.1% 16.% 16.5% Improving economy 8.7% 1.% 8.3% Offshoring 2.7% 2.% 3.1% Onshoring 2.%.% 3.1% None of these 3.2% 4.% 25.8% ERP Study / The MPI Group

13 Profile of ERP Study Participants 9.3% None of the these 7.8% Other (not IT) 1.5% CTO or similar 8.3% IT other 11.2% IT Director/ VP Participant title/role 2% Manager/ Supervisor (not IT) 17.1% C-level executive (not CTO or similar) Company approximate sales 6.8% More than $1 billion 3.9% $51 million to $1 billion 56.3% 6.3% Less than $251 million $5 million to $5 million 11.7% $11 million to $25 million 15.1% $51 million to $1 million 12.2% Director/VP (not IT) 12.7% IT Manager/ Supervisor Geographic distribution of products State/Province or smaller 3.4% Regional 4.9% 19.1% National 72.6% International More than 1, 5.3% 5,1 to 1, 2.9% 1,1 to 5, 8.3% Company employees 15.5% 51 to 1, 37.4% Less than 1 3.6% 1 to ERP Study / The MPI Group 11

14 Methodology The 213 ERP Study was designed to assess manufacturers implementations of ERP systems, satisfaction with those implementations, the extent to which ERP systems have benefitted organizations, and plans for ERP in 213. The study was conducted by the Manufacturing Performance Institute (MPI) on behalf of Plex Systems Inc. The study was conducted using an online questionnaire; Plex Systems promoted the study to manufacturers, including its customers. There were 186 total respondents, with surveys received in February and March 213. Responses were received by the Manufacturing Performance Institute (MPI), and then entered into a database, edited, and cleansed to ensure answers were plausible, where necessary. respondent answers to the survey are confidential. As an incentive, respondents who provided contact information were offered a copy of a Customized Benchmark Report, which compares their responses to respondents with similar profiles. Only MPI has access to participants answers to individual questions. Plex Systems received only aggregate data, along with a file containing contact information for participants who requested a Customized Benchmark Report. About the Manufacturing Performance Institute The Manufacturing Performance Institute (MPI) is a unit of The MPI Group and serves business leaders with research, advice, and performance-targeted solutions that provide a competitive advantage in today s fierce marketplace. MPI combines the disciplines of research, strategic advice, knowledge development, and hands-on leadership to create a difference in performance, in profits, and in the people who make them possible. About Plex Systems Inc. The Plex Manufacturing Cloud ushers in a new era of ERP with a complete system designed to power today s modern manufacturer. Built from the plant floor up, the Plex Manufacturing Cloud enables forward-thinking businesses to increase throughput with existing facilities, squeeze more profits from every order, understand where they are most exposed to risk, respond to customer demand, and keep up with the speed and volume of data on today s plant floor. No other company offers a manufacturing-first, native cloud solution as complete as Plex. Founded in 1995, Plex is headquartered in Troy, Mich., with customers around the globe. Visit

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16 Conducted by The MPI Group Sponsored by Plex Systems Inc

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