Manufacturing Strategies that Win: Executive View of the Cloud Executive Brief

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1 Technology Evaluation Centers

2 Executive Summary To date, manufacturers have been slow to embrace cloud computing. But the proven success of cloud-based solutions, coupled with the promise of a less expensive and more responsive business solution infrastructure, is prompting many manufacturers to give the cloud a closer look. This executive brief explores how those manufacturers can use cloud-based solutions to transform the way they manage their supply chain and internally improve operations, leveraging the cloud to gain the needed real-time visibility into all information across their company. Also in this report: how cloud solutions address manufacturers key business concerns how cloud solutions can streamline operations by connecting manufacturers with partners and suppliers how cloud solutions can help manufacturers respond quickly to variable economic conditions considerations for evaluating cloud service providers 2

3 Changing Software Requirements It s often said that manufacturers have been slow to embrace cloud-based enterprise software but that doesn t tell the whole story. While large manufacturers that have already made significant investments in legacy IT systems might shy away from the cloud, small and mid-sized manufacturers are embracing it. There are a few reasons for this: concerns about the cloud model have been mitigated to an extent by conceptual maturity generally, as well as by the market entry of solidly branded cloud service providers. Indeed, the cloud computing model has evolved well past the proof-of-concept stage for enterprise software vendors and clients alike. According to TEC s data on user demand, interest in software-as-a-service (SaaS) enterprise applications has risen from less than 13 percent in 2008 to approximately 16 percent in 2010, indicating that cloud computing is an increasingly serious consideration for enterprise software buyers. Worries about integration requirements and transaction processing capabilities have been allayed by fuller feature sets, more flexible customization options, and Web service based application programming interfaces (APIs) that enable fuller integration with workflow requirements. As for such concerns as service level issues (including data security) and regulatory compliance, increased awareness of just how emptors should caveat means buyers are more careful when negotiating servicelevel agreements (SLAs) (see also Checklist Nine Considerations for Evaluating Cloud Service Providers, later in this report). And the notion that cloud computing makes compliance more difficult is a misconception: it is relatively straightforward to configure, test, and implement cloud applications. If compliance requirements change, new information can be incorporated and deployed to system users without delay. Naturally, cloud adopters need to configure their business processes to ensure that the new functionality adheres to regulatory and compliance requirements. Another reason for increased cloud adoption among manufacturers is an emerging manufacturing model that relies on outsourcing to keep operations streamlined and keep costs down. It s a model that helps small and mid-sized manufacturers stay competitive, but it also demands that they start lean and stay lean. Having seen the way that companies in other sectors have used cloud solutions to reduce spending and streamline operations, these manufacturers see cloud solutions as a perfect fit for their business. This outsourcing model changes software requirements for small and mid-sized manufacturers, in the sense that connectivity and visibility move to the forefront of IT considerations, as well as the ability to react quickly to unexpected events that might otherwise dry up your supply or revenue streams. Another important characteristic of this outsourcing approach is that IT management consists of managing high- 3

4 quality service and support rather than IT infrastructure and with these infrastructure costs reduced or eliminated, your IT department is in a better position to function both as an advocate for your business process requirements, and as a key advisor in managing how these requirements are met by IT service providers. Like all manufacturing organizations, outsourced manufacturers need to focus on process integration and data visibility, where cloud computing can provide a clear advantage in terms of addressing such issues as order and inventory management, supply chain visibility, spend consolidation, demand/supply synchronization, and management of environmental compliance. The goal is to concentrate data in one location as a repository for all information driving financial, logistics, and legacy systems and to minimize the need to transfer data from one system to another (or, even worse, from one spreadsheet to another). The bottom line is that small and mid-sized manufacturers are driven by a requirement to keep costs in check, which is where the cloud model provides immediate benefits, including the capital cost efficiencies associated with dispensing with the need for IT infrastructure, the opportunity to redeploy IT resources to areas of greater strategic advantage, and the ability to deploy cost-saving tier-one functionality that might have been out of budgetary reach in an on-premise solution. Ease of implementation for new features also goes hand-in-hand with the reduced procurement time and minimal upfront cash outlay principles of cloud computing. 4

5 Management in Real Time While heavy outsourcing helps small and mid-sized manufacturers stay lean and competitive, it presents significant logistical challenges. Each outsourced business process represents a relationship to manage be it with a supplier, a manufacturing plant, a shipper, or another partner. With key components of the business spread across many companies, and probably many countries, real-time operational visibility is essential. Equally important is instant access to the financial data and key performance indicators (KPIs) that brand owners need to quickly make well-informed decisions. By offering a complete, real-time view of the business, cloud solutions can help outsourced manufacturing operations run smoothly, and more costeffectively than on-premise solutions. For instance, cloud solutions can provide smaller manufacturers with new, relatively inexpensive tools to connect with partners and suppliers, offering the ability for small manufacturers to integrate suppliers at a level that was previously accessible only to larger companies. In this sense, small and mid-sized manufacturers can take a step toward an integrated supply chain. Of course, as with any solution, capabilities vary in proportion to price, but the point is that cloud solutions can increase the depth of standardized communication through a virtual platform. Cloud solutions can also enable small manufacturers to leverage consolidated data from a single system connecting them to their suppliers. This makes it possible to turn data into useful KPIs, which gives executives a clearer picture of operations. Such information helps vastly reduce operational risks, as well as allowing manufacturers to focus resources on value-add activities such as production planning, marketing strategies, and research and development (R&D). Cloud computing solutions also tend to make it possible to integrate more information media (such as mobile platforms) into their solutions, making business management more flexible and responsive for on-the-go executives and front-line employees. This potential also exists in more traditional on-premise solutions, but they are likely to be add-ons as opposed to built-in features. By its nature, cloud computing involves a less complex deployment process than for on-premise solutions. But every integration project has a learning curve, regardless of platform. Cloud vendors, by virtue of their operating model, have designed support material that is truly intended for a flexible platform, as most of the support and information-sharing will be conducted remotely. In the case of on-premise solution vendors, on the other hand, the shift toward remote training (integrated through online presentations, conference calls, and so on) has been driven primarily and sometimes awkwardly by cost pressures. Of course, depending on the scope of implementation, on-site support for cloud deployment need not be dismissed out of hand it may also be treated as an add-on to be considered on an as-needed basis. 5

6 The Takeaway As with any other type of manufacturing company, outsourced manufacturers are looking to grow their business, and need to be able to expand quickly when times are good whether that means serving new customers, delivering larger orders, or adding partners and employees. But they also need to be prepared to scale back during an economic downturn. With less of a financial buffer than larger players, these small and mid-sized companies need an IT infrastructure that can cost-effectively handle rapid change. From this perspective, cloud-based software is the ideal solution, offering outsourced manufacturers the flexibility to add and remove licenses and functionality at will, without the cost of on-premise hardware and installed software. Cloud solutions can also help manufacturers respond quickly to variable economic conditions elsewhere in the supply chain. For example, enhanced visibility across multiple partner sites and data systems should allow manufacturers to respond quickly to the kinds of supplier-driven exceptions that can result from economic pressures. This is especially critical given the intense time constraints brought on by economic challenges, where slow and manual decision-making processes are only exacerbated by the which version should I believe? problem. Bottom line: cloud solutions allow manufacturers to scale functionality and capacity as needed, and help keep costs down by offering consistent and predictable IT expenditures. 6

7 Checklist Nine Considerations for Evaluating Cloud Service Providers 1. Complete Coverage You need a solution that can manage your entire business. In many cases, you ve come from an environment of disjointed systems and manually synchronized data. The last thing you want is a new system that requires you to again perform manual processes to synchronize data. 2. Flexibility and Extensibility Understand how you can configure the business solution to meet your internal business processes. Ensure you understand how workflows are created (point-and-click versus technical programming); how to customize screens, add fields, and create reports; and what kind of integration and technical services are provided. 3. Security Determine the layers of security that exist within the application and the server. How will your cloud service provider protect your data from viruses, hackers, and theft? 4. Backups and Recovery When evaluating a cloud provider, learn about its contingency, backup, and recovery plans and liabilities. 5. Upgrades Cloud service providers typically provide quicker access to new features, since deployment cycles are shorter than for on-premise applications. However, ensure that these upgrades are indeed applied regularly and free of charge. Assess the provider s road map of product upgrades, and determine how often they are expected. 6. Service-level Agreements Clear service level expectations must be documented within your SLA, including penalty clauses for undelivered services or unmet expectations. Ensure that the cloud vendor provides services beyond application delivery (e.g., business issues resolution, training, implementation support, customer service). 7

8 7. Training and Support For the cloud model to be used to its fullest potential, training is required. Make sure the cloud service provider has well-developed training programs. Determine what kind of training is provided for new users, as well as for upgrades. Also, determine how your service provider will handle support inquiries if your organization runs into problems or has specific questions. 8. Scalability Evaluate the cloud service provider s scalability through such infrastructure points as bandwidth, load balancers, servers, data warehouses. Analyze its long- and short-term growth strategy and level of service. Will the provider be able to maintain and improve service levels with the growth of its business and clients? 9. Reference Checks with Existing Customers To evaluate a cloud provider s ability to handle your organizational requirements, conduct reference visits to established clients that have been with the provider for longer than their original contract term. This will help demonstrate how the provider maintains its customer base. On-site visits will also let you see the technology in action, and get personal feedback about the system and its provider. 8

9 About SAP Business ByDesign SAP Business ByDesign is a complete, integrated on-demand solution that helps you run your entire business. With no software or hardware to buy, install, maintain, or upgrade, your IT department can focus on what is important: your business, not your software. Report sponsored by SAP Business ByDesign 9

10 About Technology Evaluation Centers Technology Evaluation Centers (TEC), the leading advocate for the enterprise software purchaser, helps private- and public-sector organizations choose the best enterprise software solutions for their unique business needs quickly, impartially, and cost-effectively. TEC delivers an unmatched range of online software evaluation and selection services that minimize the costs, risks, and duration of software selection projects, and bridges the gap between enterprise decision makers and the vendor/value-added reseller (VAR) community. TEC s proven approach combines extensive online IT research; a proven software selection methodology; state-of-the-art Web-based software selection technology; and the experience of its analysts and software selection experts. 10

11 Technology Evaluation Centers Inc. 740 St. Maurice, 4th Floor Montreal, Quebec Canada, H3C 1L5 Phone: , ext. 404 Toll-free: Fax: Web site: TEC, TEC Advisor, and ERGO are trademarks of Technology Evaluation Centers Inc. All other company and product names may be trademarks of their respective owners. Technology Evaluation Centers Inc. All rights reserved. SAP080211

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