MANUFACTURING IN THE CLOUD IMPROVED PRODUCTIVITY AND COST SAVINGS ARE ON THE HORIZON

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1 MANUFACTURING IN THE CLOUD IMPROVED PRODUCTIVITY AND COST SAVINGS ARE ON THE HORIZON White paper by Bala Adiseshan President & CEO inkumo, Inc.

2 MANUFACTURING IN THE CLOUD: IMPROVED PRODUCTIVITY AND COST- SAVINGS ARE ON THE HORIZON. Cloud services will be a leading driver of productivity for manufacturers over the next decade, according to a new study by IDC Manufacturing Insights. Cloud-based services provide the opportunity to eliminate investment in rapidly depreciating IT capital equipment and systems through the use of pay-as-you-go solutions. These solutions allow small to mid-size businesses to leverage applications previously considered prohibitively expensive and designed for use by large organizations. With its low cost of entry and maintenance, the cloud will essentially level the playing field and ensure that enterprise-class systems are no longer out of reach for even the smallest companies. THE COMPONENTS OF THE CLOUD Cloud services first appeared in the market in 1999 but rapid adoption of cloud computing in mainstream IT began in These services fall into four distinct categories based on their purpose. The most visible category is Software as a Service (SaaS), which enables on demand use of software applications and solutions. While SaaS offers applications at the user level, in contrast, Infrastructure as a Service (IaaS) provides storage space for raw computing power and electronic storage of data. A less familiar category to many users is Platform as a Service (PaaS), which provides the tools and platforms necessary to build, own and operate cloud services. Finally, Business Processes as a Service (BPaaS) provide a single functionality or complete business process such as a customer relationship management (CRM) system. Manufacturing-related solutions are now being offered as cloud applications primarily in the form of SaaS. Early adopters are increasingly considering these solutions when implementing a wide array of applications because they can be implemented at fraction of the cost and offer a variety of other advantages (see figure 1). This rapid shift is unprecedented since utilization of emerging technology in manufacturing processes like automation has traditionally lagged as compared to other industries. Value Rapid implementation Frequent innovation Cost Savings Scalability Productivity Gains Quality and Compliance Figure 1. The advantages of SaaS in manufacturing Benefit Users can be up in weeks, not months, as SaaS applications focus on configuration and integration instead of extensive local IT implementation. SaaS often includes new features and functions as part of an ongoing subscription. Upgrades are handled in the cloud without requiring local upgrades and patches. Subscription pricing reduces the capital burden of common on-premise solutions while eliminating hardware and maintenance costs. Organizations can easily add or subtract user licenses as needed. SaaS can eliminate, automate or reduce data entry while allowing users to add new capabilities and functions. Ease of use is enhanced by the elimination of duplicate entries and reduction of errors. Cloud systems also allow easy, secure integration to partners and regulators.

3 THE EVOLUTION OF AUTOMATION Before the advent of today s cloud-based technology, the evolution of manufacturing automation had historically been a slow process. In the 1970s, disruptions in automation solutions were hardware centric, moving from pneumatic controls to analog, digital control. In the 1980s-90s they became network centric, using distributed control through LAN and integration of Programmable Logic Controllers (PLC) and Distributed Control Systems (DCS). Finally, in the early 21 st century, application centric solutions became the norm, with competitors using the same commercial off the shelf (COTS) components and IT systems, shifting as much value as possible to proprietary applications. Today, virtually everything above real time control has transitioned to open platforms or Windows based systems. A HIERARCHY OF CONTROL Whether they serve as part of continuous production, job production or batch production, automation and information systems fall under a reference model called the Purdue Reference Model of Control Hierarchy (see figure 2). This model maps the data flow from the sensors to the boardroom in 5 distinct levels from the most basic to the most advanced. Figure 2. Purdue 5-Level Reference Model Many of the capabilities present in level 0 through 3 come embedded with devices and are available for use by enterprises of any size. As a result, the majority of small and medium sized businesses (SMBs) in manufacturing have been able to effectively leverage these systems. Sensor, device and machine level interoperability have been achieved using industry and consortium standards, making the plant floor more intelligent with smart instrumentation and controllers. Plants have also adopted mobile hand held devices for data gathering from devices not connected to the control network and can manage mobile workflow on the plant floor. The cost of implementing solutions at level 4 and 5 without the cloud are prohibitively expensive for most small businesses. The resources needed to operate and maintain these solutions have also presented an insurmountable challenge for most small and mid-size companies. As a result, smaller organizations have been unable to implement the most innovative software and systems that improve productivity and streamline business processes. Level 5: Corporate Level - Enterprise Resource Planning (ERP), Customer Relationship Management ( CRM) Level 4: Plant level - Manufacturing Execution Systems (MES) Level 3: Operation Unit Level - Furnace, Caster, Reheating, Hot Mill, Cold Mill, Annealing etc.,) Level 2: Machines - Temperature model, mill set-up model, etc.) Level 1: Controllers (PLC, DCS - Interlock Logic, Open, Closed Loop ) Level 0: Sensors, Drives (Temprature, Pressure, Flow, AC/DC Drives)

4 Figure 3: CMMS Cost Comparison On-Premises vs. Cloud CMMS - On Premise Small 10 Users Mid 25 Users Site License $ 15,000 $ 30,000 Mobility Software $ 5,000 $ 7,500 Server Hardware & Installation $ 10,000 $ 15,000 Annual Maintenance $ 4,000 $ 7,500 Shared IT Resource $ 40,000 $ 32,000 Training $ 3,500 $ 8,000 Implementation $ 7,500 $ 15,000 Total Cost Year 1 $ 85,000 $ 115,000 CMMS -Cloud Small 10 Users Mid 25 Users Site user License Annual $ 7,200 $ 12,000 Mobile User License Annual $ 600 $ 1,800 Training $ 3,500 $ 8,000 Implementation $ 7,500 $ 15,000 Total Cost Year 1 $ 18,800 $ 36,800 *CMMS Computerized Maintenance Management Systems THE FUTURE OF AUTOMATION: INNOVATION MADE AFFORDABLE Cloud-based solutions will help close the gap between large enterprises and SMBs by providing the advantages of economy-of-scale to all users regardless of the company s size. Implementing with cloud solutions makes a wider range of projects possible as a result of lower price points when compared to onpremise solutions. As illustrated in figure 3 above, organizations often save in the range of one hundred thousand dollars in the first year. Cloud solutions also outperform traditional implementations on net present value over a five year period. As a result, small and mid-size businesses can now acquire enterprise level capabilities that were previously out of reach. Overall, improving performance and agility has never been easier or less expensive. SECURING DATA IN THE CLOUD One of the major concerns of all customers is application availability and data security. In cloud computing, this is often exhibited as a reluctance to let valuable data flow outside the physical site. Fortunately, most SaaS business and manufacturing applications offered by vendors today are hosted in data centers that are ISO27001 and SAS 70 Type II certified and most applications offer SLAs of 99% and above. These data centers invest extensive resources for backup, recovery and security and they have large pools of IT resources to meet or exceed service level commitments. Very few SMBs can afford to match and maintain the security levels of these data centers with their limited IT resources. BROKERS OFFER INTEGRATION AND EXPERTISE Keeping pace with this emerging cloud technology, new vendor channels have rapidly opened up for aggregators, brokerages and marketplaces that serve SMBs. Choosing an experienced vendor with expertise in the customer s industry can simplify the procurement and implementation of any SaaS solution. In the manufacturing space, this is especially important as issues with legacy systems, licensing and other administrative challenges can create hurdles for turnkey implementation. Experienced vendors also offer single sign on and role based user access for a variety of cloud-based applications. At the time of this writing, the following applications were commercially available in the marketplace for manufacturers of all sizes: Asset & Maintenance Management including mobile

5 workflow, Laboratory Information Management Systems, Document Management Systems, Manufacturing Management functions (inventory management, production engineering, material requirements planning, scheduling and capacity planning), Project Management, Plant Data Historian and Enterprise Resource Planning, among others. With widespread interest growing in the manufacturing space, it stands to reason that this list represents an industry only in its infancy. As product offerings become more varied and customized, the selection of the right broker will become even more essential for successful implementation. In fact, Gartner believes that cloud service brokers (CSBs) offer valuable enhancements to cloudbased technology and play an important role in its future. "The future of cloud computing will be permeated with the notion of brokers negotiating relationships between providers of cloud services and the service customers. In this context, a broker might be software, appliances, platforms or suites of technologies that enhance the base services available through the cloud. Enhancements will include managing access to these services, providing greater security or even creating completely new services." (Source: Gartner: "Cloud Consumers Need Brokerages to Unlock the Potential of Cloud Services") STEPPING INTO THE CLOUD Businesses focused on reducing costs and improving the quality of manufacturing solutions will increasingly turn to the cloud for SaaS solutions. This new era of technology will dramatically change the processes and productivity of the industry. At some point, using local IT infrastructure to support high level manufacturing applications may be as outdated as pneumatic controls and standalone operator stations. In the meantime, early adopters will have tremendous advantages over competitors thanks to increases in productivity and lower cost of entry and maintenance for these systems. About the Author: Bala Adiseshan is President and CEO of inkumo, Inc. Bala has over 25 years of experience in applied computing serving manufacturing and continuous process industries. He has an MBA from Arizona State University and a double major in Engineering & Physics. bala@inkumo.com