cloud computing: what it can do for your manufacturing...

Cloud Computing: What It Can Do for Your Manufacturing SupplyCloud computing can help manufacturers reduce IT infrastructure costs by running ERP and supply chain management applications over the Internet, on servers maintained by the ven-dors. But some worry about the risk of trusting mission-critical systems to outside companies. Read this e-book to gain a better understanding of technical, organizational and budgetary issues.

Are Manufacturing Apps Made for ERP Cloud? Not All, but Change is Afoot

Cloud Maturity Issues Keep Manufacturers Wary of Risks

Industry Looks to the Cloud for Global Inventory Management

Tomorrow’s ERP Cloud Computing Offers More Than Just SaaS

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Cloud Computing: What it Can do for Your manufaCturing SupplY 2

Chapter 1

Are Manufacturing Apps Made for ERP Cloud? Not All, but Change is AfootBy david essex, Site and News Editor

RP and suPPly chain management (SCM) modules are moving to the cloud seem-ingly on a weekly

basis, and the variety of cloud com-puting choices for manufacturers has never been richer. But many compa-nies still keep some enterprise ap-plications on-premises, which makes finding the right functional mix chal-lenging. There’s even more to think about in ERP cloud computing deploy-ment options, which include not just Software as a Service (SaaS), but pub-lic and private clouds and traditional third-party hosting.

Complexity and control are the top-level variables that manufacturers must address when deciding which ap-plications are suitable for ERP cloud computing, according to Eric Kimber-ling, president of Panorama Consulting Group, a Denver-based firm specializ-ing in ERP.

“Generally, the more complex your company is and the more complex your manufacturing operations are, the less likely you are to find a SaaS op-tion,” Kimberling said. “SaaS is gener-ally less flexible than on-premise.” In such cases, large, tier 1 ERP products make the most sense, either hosted or on-premises. Smaller companies with simpler needs—and less money to spend—generally do better with SaaS or a tier 2, niche ERP product.

Control, on the other hand, is more a function of the IT department mind-set. ”A lot of IT departments think they want to be in control of their soft-ware,” Kimberling said. Such compa-nies tend to view business technology as a competitive advantage and prefer the greater control and flexibility that on-premises ERP provides. But to oth-ers, it’s a nuisance best left to SaaS and hosted ERP providers.

For Beija-Flor Jeans, in Greenville, S.C., control turned out to be the decid-

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ing factor when it began pricing lower-tier ERP packages after outgrowing its small-business accounting software. With numerous North American dis-tribution points, a contract manufac-turer in Brazil and an e-commerce site, Beija-Flor runs much of its business through Web browsers, so cloud com-puting was in the mix.

The company looked hard at a prom-inent, SaaS-only ERP suite but balked when the vendor raised its base price and required expensive add-ons and training. “They would have somewhat owned our data,” said company co-founder Emily Whitaker. Despite the substantial setup work involved, Beija-Flor went with an open source ERP with a Web-based user interface, host-ing it at a third-party provider.

Phil Patton, chief information officer at Moulding & Millwork, a manufacturer in Vancouver, B.C., goes to similar lengths to avoid SaaS and won’t even consider it for add-on modules, preferring instead to extend the company’s home-grown ERP. “We’re a bunch of control freaks,” Patton said. “By going into Software as a Service, we’re putting ourselves into the hands of other vendors.”

undeRstanding eRP cloud comPuting technologyThe competitive picture is evolving, however, as on-premises and cloud ERP and SCM products take on some characteristics of their counterparts. For example, SaaS vendors have been

addressing weak spots like security and customizability, and on-premises vendors are adding subscription pric-ing, analysts say.

“Cloud-based, SaaS alternatives are proving to be as reliable and se-cure as on-premise apps, and they are becoming increasingly flexible and configurable by the customer,” said Jeffrey Kaplan, managing director of THINKstrategies Inc., a consultancy in Wellesley, Mass. “Manufactur-ers should consider SaaS alternatives wherever possible.”

The types of applications available in SaaS are also changing. Financials, inventory management and customer relationship management (CRM) have been mainstays, while manufacturing, warehouse management and advanced planning have historically been weak spots, Kimberling said, but they’re starting to improve. Enterprisewide SaaS ERP “still hasn’t lived up to the hype,” he said. Instead, most manufac-turers will find their SaaS opportunity in a few carefully chosen niches.

CRM is still a good place to start, but SaaS offerings that focus on manufacturing and distribution op-erations—including manufacturing execution systems—will have the big-gest impact, Kimberling said. In the supply chain, warehouse management system and transportation manage-ment system software are increas-ingly popular SaaS choices.

Next comes the deployment deci-sion. The primary cloud computing

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choices for enterprise applications are public and private. Public clouds in-clude SaaS, which is an application and underlying infrastructure maintained entirely by the provider and accessed by multiple subscribers. Other public cloud options let users rent just the ba-sic infrastructure and develop or install their own applications.

Private clouds, in contrast, leave all resources under IT control but take advantage of cloud computing’s re-source-pooling features and can reside either on-premises or at a hosting pro-vider. Private clouds are hybrids that strike a nice compromise between the customization and integration of on-premises software and the scalability and cost advantages of cloud comput-ing, Kimberling said. “It certainly is a direction a lot of our clients are head-ing,” with most placing their private clouds at a hosting provider, he said.

saas integRation challengesManufacturers who find niches for SaaS may soon learn they have too much of a good thing. The applications must be tied together, which can make integration more challenging than with a single ERP system, according to Kim-berling. SaaS integration was “terrible”

several years back and has significantly improved, “but even if the products have great integration tools, you still have to integrate data across those tools,” Kimberling said.

SaaS modules also tend to use differ-ent data models, and without reconcil-ing them, manufacturers will lose the “single source of truth” that was ERP’s original purpose. He recommends taking a careful look at SaaS applications’ in-tegration tools and architectures, along with their financial standards, to ensure they fit with on-premises systems.

Another option: third-party SaaS integration software, which works like enterprise application integration tools do for on-premises applications. “The number and functionality of out-of-the-box integration tools is expand-ing rapidly,” Kaplan said, noting some have pay-as-you-go pricing. “Many of these issues are mitigated by APIs [application programming interfaces] and Web services, as well as dedi-cated connectors.” n

daVid esseX is site and news editor for Search-ManufacturingERP.com, writing and editing news, tips, and analysis about manufacturer supply chains. He has covered IT for 24 years and was an editor at BYTE, PC Resource and 80 Micro. His freelance ar-ticles have appeared in Computerworld, PC World and numerous other publications and websites.

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Cloud Maturity Issues Keep Manufacturers Wary of RisksBy alan JocH, Contributor

Chapter 2

RP cloud comPuting looks like a no-brainer for overextended IT departments trying to keep pace with the

crush of business. There’s not much time left for new projects once they upload all the security patches, fix the cranky computers and install the latest software revisions.

But some IT consultants who spe-cialize in manufacturing are still advis-ing clients to move slowly, believing healthy skepticism remains the best way to balance the rewards and risks of a still-maturing technology.

“On a scale of one to five, the ma-turity model of cloud computing right now is about two,” said Nitin Khor-ana, vice president and head of manu-facturing for India-based Mahindra Satyam, an IT and business process outsourcing firm specializing in ERP implementations.

Khorana and other analysts say

the three top areas where immatu-rity has the biggest impact on cloud computing for manufacturing are se-curity, service-level guarantees and data management.

undeRstand eRP cloud comPuting BenefitsAlthough significant, these risks aren’t necessarily deal breakers, partly be-cause well-implemented cloud com-puting technology offers so much potential. Stressed-out IT depart-ments, for example, no longer have to spend time testing and implement-ing new hardware and software. Those chores, as well as routine maintenance, are handled by cloud service providers.

“Cloud IT can represent a signifi-cant cost and agility opportunity as this novel technology can empower IT capacity without the need to invest in additional infrastructure,” Califor-nia-based Frost & Sullivan Inc. wrote

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Chapter 2: Cloud maturitY iSSueS Keep manufaCturerS WarY of riSKS

in a recent report, Cloud Computing: Technology Market Penetration and Roadmapping.

The report points out another ben-efit: Cloud subscribers only pay for the services they use, which eliminates overspending for servers that run at only a fraction of their rated utilization rates, a common problem throughout data centers. “Thus, cloud comput-ing not only helps companies ratchet down their IT budgets by eliminat-ing the need for additional infrastruc-ture, it allows them to solely focus on business activities,” Frost & Sullivan concluded.

Khorana sees another advantage for manufacturers. Large, tier 1 companies are increasingly looking for technol-ogy that can connect them with all lev-els of their supply chains, including the smallest partners. “You cannot export the cost of an ERP system to a tier 4 player to get that kind of visibility and integration,” he said. But Software as a Service-based ERP may be one eco-nomically viable way to link those play-ers to the “mother ship,” he added.

factoRing in the RisksAll this is true enough, but what about the risks? The biggest roadblock to wider adoption remains security con-cerns, according to Bob Parker, group vice president of research for IDC Manufacturing Insights in Framing-ham, Mass. Manufacturers that want to move forward with the cloud should

confirm that potential service provid-ers comply with SAS 70 Type II proto-cols, the accounting industry’s controls for evaluating data management and change processes, Parker added.

Service-level capabilities are another concern for manufacturers. “If Sales-force.com goes down for two hours, your salespeople will be inconve-nienced, but it is not necessarily going to bring your company to its knees,” he said. “But if you can’t send invoices or process orders for half a day, you’ve got a different issue.”

As a result, Parker advises manu-facturers to probe the service levels a provider can deliver and the contract remediation that exists if problems oc-cur. “In addition to financial penalties, I see most of the negotiations focusing on exception handling,” he said. “How are you going to escalate issues that don’t get resolved?”

Escalation starts with the service provider’s primary relationship man-

large, tier 1 companies are increasingly looking for technology that can connect them with all levels of their supply chains, including the smallest partners.

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Chapter 2: tWo marKetS for big data: Comparing Value propoSitionS

ager getting the phone call when ac-cess to the ERP application is slow or if a more serious breakdown occurs. If the problem isn’t resolved quickly, increasingly, senior managers from both companies are called in to find a solution. “If you are the software vendor, you don’t want your presi-dent to have to speak with the presi-dent of your customer to explain why you are not doing your job,” Parker explained.

Finally, given the importance of ERP data, companies need a clearly defined mechanism in place for moving or re-claiming their data if they terminate a contract with a cloud provider. “You need to be able to migrate the data quickly if you walk away,” Parker said.

eRP cloud comPuting: the Big PictuRe How can manufacturers be sure they’re giving enough attention to all the pieces of the cloud puzzle? Mahin-dra Satyam’s Khorana advises clients to look at the big picture. Rather than just comparing the respective features of individual service offerings, step back to decide how cloud computing fits within the larger enterprise archi-tecture of IT operations. “The sooner you create that blueprint, the sooner you’ll be able to transition to the cloud in a prudent manner,” he said. n

alan Joch is a New Hampshire-based freelance writer who specializes in enterprise applications and cloud computing.

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Chapter 3

nVentoRy management becomes a global problem when manu-facturers get their raw mate-rials or subassemblies from overseas. But before they can

manage that inventory, they need know where it is.

They want visibility—an overused buzzword in domestic supply chains that suddenly sounds fresh and mean-ingful, especially when the inventory is as likely to be moving on a freighter in the Pacific or sitting in Long Beach customs as it is to be in the ware-house down the street. And as more companies position their production and distribution overseas to be closer to emerging markets, the need for tight, transparent supply chains only intensifies.

“With the globalization of logistics and longer, more complex supply chains, inventory management becomes more critical,” said Evan Armstrong, president of Armstrong & Associates Inc., an ana-

lyst company based in Milwaukee that specializes in logistics.

The answer, according to Armstrong, most often comes from outsourcing the entire problem to a third-party lo-gistics provider (3PL) that specializes in global shipping.

“It’s important to really align your-self with providers that have signifi-cant capabilities on a global basis,” he said. “A lot of them manage the lo-cal providers and work with them as a lead logistics provider.”

Some of these lead logistics providers function as so-called 4PLs—essentially supply chain integrators that bring to-gether 3PLs and customers while pro-viding support services like contract management and inventory visibility.

Several supply chain management applications are involved in tracking and managing the inventory, according to Armstrong. Most global 3PLs have their own proprietary systems for pro-viding customers with inventory visibil-

Industry Looks to the Cloud for Global Inventory ManagementBy david essex, Site and News Editor

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Chapter 3: induStrY looKS to the Cloud for global inVentorY management

ity, often piecing them together from third-party transportation manage-ment system (TMS) and warehouse management system (WMS) software.

“Every major 3PL has some kind of integrated system suite like that,” he said. “You can get down to the item level with these systems, usually.”

A few 3PLs can even take over func-tions normally performed by manufac-turers, such as demand planning and kitting of related products.

What if you have your own WMS and TMS? “You might just tell your provider to use your system,” Arm-strong said. “But 3PLs can save more money with their system.”

A smaller number of providers specialize in just the computer net-works and don’t own a single truck or warehouse. Their goal is to be a single source of applications and data for all the major steps in global logistics, including inventory, trans-portation and order management, as well as compliance with interna-tional regulations.

moVing towaRd gloBal inVentoRy managementAnalysts and vendors say these global logistics networks make it easier for manufacturers, suppliers and 3PLs to work together to optimize the sup-ply chain and reduce inventory costs. Traceability of subassemblies and raw materials is another important driver of global visibility into inventory.

“If you don’t have that visibility, then you can’t do any contingency planning or workarounds if that component is in the critical path,” said Joseph Kemp, senior solutions architect at Patni Americas Inc., a consulting firm based in Cambridge, Mass.

But companies must first overcome trust and integration issues to use the networks, said Saverio Barbera, associ-ate vice president for the supply chain practice at Patni Americas.

“You have to figure out how to relin-quish the control,” Barbera said, add-ing that many owners of top-tier ERP systems have the misconception that it’s too expensive to push out inventory data to their global suppliers.

Large, multinational manufactur-ers rely heavily on electronic data interchange (EDI) for their inventory-related transactions. For smaller com-

analysts and vendors say global logistics networks make it easier for manufacturers, suppliers and 3pls to work together to optimize the supply chain and reduce inventory costs.

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panies, cloud computing technologies like Software as a Service (SaaS) could help make global inventory visibility more affordable.

“The mom and pops don’t have EDI infrastructure,” Barbera said.

That makes it hard for them to get access to supplier network collabora-tion (SNC), a type of network offered by major ERP vendors that lets suppli-ers and manufacturers share informa-

tion, including inventory data. Patni is working to convince the vendors to offer cloud-based “SNC lite” for easier access—and as an ERP integrator for those same companies, it stands to profit if the idea takes hold.

Barbera said his previous employer, the home-appliance maker Whirlpool Corp., uses just such a cloud-based system to give its suppliers access through Web browsers.

SaaS Helps Anritsu Automate Its Export ComplianceanRitsu co., a moRgan hill, calif., manufacturer of test and measurement equipment, went the Software as a Service (SaaS) route to automate its export compliance pro-cess, significantly lowering days sales outstanding and improving inventory turnover.

“Our products are controlled for national security and anti-terror reasons,” said Jane Solomon, Anritsu’s corporate trade compliance manager. “Inventory is not going to move unless I do my job quickly and efficiently.” The SaaS application largely automates compliance tasks and “doesn’t delay our shipments while we’re making these regulatory decisions and applying them to each and every ship-ment,” Solomon said.

Two-way custom middleware takes sales orders that have been manually en-tered into Anritsu’s ERP system and extracts information about components, recipients, destination, and transport method and sends it along with an export classification number via XML to the SaaS application, which checks it against frequently changing federal lists of restricted entities. The software then identi-fies the relevant controls and makes recommendations that help Solomon’s staff decide how to handle each item.

Salespeople in overseas offices manually enter the same data into the applica-tion to pre-screen prospects. A separate document-management system uses the ERP order information to produce the required government forms.

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ReaPing the Benefits of gloBal tRadeInventory optimization, demand plan-ning and other common methods for lowering inventory costs don’t work as well when goods sit in port awaiting customs clearance.

“If you have truly offshored your manufacturing, it’s very hard to han-dle the regulatory compliance,” Arm-strong said. Manufacturers often turn to freight forwarders who specialize in moving goods across borders and, like 3PLs, maintain their own information systems to give customers real-time views into their inventory.

Other manufacturers use a SaaS global trade management applica-tion to manage security clearances and compliance with import and ex-

port regulations (see “SaaS Helps An-ritsu Automate Its Export Compliance,” page 10).

How should manufacturing IT de-partments respond to the need for global inventory management? “It’s important to be part of the team that helps do the selection for logistics pro-viders,” Armstrong said.

Armstrong also advised hopping on the bandwagon with manufactur-ers that are consolidating their busi-nesses on three or four 3PLs, which gives them more leverage and makes IT’s job easier.

“Most manufacturers are going to have a lead logistics provider,” he said. “The fewer the number of providers, the fewer data sets you have to handle and the fewer the integrations.” n

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Chapter 4

ention eRP

cloud comput-ing today, and many people will immedi-

ately picture a Software as a Service (SaaS) offering, the quick-win way to deliver an application’s capabilities without a lot of up-front cost.

It’s not surprising that SaaS com-mands so much mindshare. A study conducted by Los Angeles-based re-search firm Kelton found that 68% of U.S. companies that have implemented clouds are SaaS users.

But analysts say that while cloud and SaaS may be synonymous to many or-ganizations, this may change in com-ing years as other, more potent options become commonplace. Their advice: Take advantage of SaaS for manufac-turing today if there’s a strong business case to be made, but make sure long-term cloud strategies also include Plat-form as a Service (PaaS), Infrastructure

as a Service (IaaS) and private-cloud models.

“I certainly see a trend where more and more companies will be buying a software license and then leverag-ing a [PaaS or IaaS] provider to run the application,” said Sandeep Walia, chief executive officer of Ignify Inc., a consulting firm and ERP implementer based in Cerritos, Calif. One reason is that by owning the licenses them-selves, organizations can avoid the steep premiums sometimes charged by SaaS providers, Walia said.

More ERP cloud computing adopt-ers might choose to avoid service pro-viders altogether by building private clouds, according to Walia. With pri-vate clouds, they can continue to buy and maintain servers and software in-ternally. But by taking advantage of vir-tualization technology, they can create “pools” of computing power that are shared throughout the company. This approach can reduce capital invest-

Tomorrow’s ERP Cloud Computing Offers More Than Just SaaSBy david essex, Site and News Editor

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Chapter 4: tomorroW’S erp Cloud Computing offerS more than JuSt SaaS

ments in physical servers and storage units by boosting hardware utilization rates. It also mitigates security con-cerns organizations may have about sending sensitive data outside their fa-cilities. Some defense subcontractors are required to guarantee their data remains inside their home countries’ boundaries, Walia said.

the RetuRn of tRading eXchangesIn the years ahead, ERP cloud comput-ing could also spur the return of trad-ing exchanges, which were popular at the height of the e-commerce boom a decade ago.

Exchanges sought to streamline the interactions of buyers and sellers of ev-erything from raw materials to finished components in the supply pipeline. But few of them were large enough to be sustainable, said Bob Parker, group vice president of research for IDC Manufac-turing Insights in Framingham, Mass. Cloud technology may be a game changer in part by making it economi-cal for smaller, specialty exchanges to serve particular industry sectors in-stead of trying to accommodate the needs of every vertical in a single large marketplace.

Building eRP communitiesOne of the biggest cloud computing trends in the years ahead could be the rise of PaaS models and communi-

ties that sprout up around them. These “living, breathing systems” would consist of manufacturers, suppliers, customers, software developers and others whose common interests bond them in a professional community, said Matt Haller, principal at Chicago-based Baker Tilly, a consulting firm that helps manufacturers evaluate, custom-ize and implement ERP systems.

The most extensive current exam-ple is a platform and community that are growing up around a leading sales-force automation application. But the model could work just as successfully

for a popular ERP program. When a manufacturer entered a contract for ERP services, it would receive more than the core software. Developers who were dedicated to the platform would create plug-in modules and ex-tensions exclusively for the application and make them available for purchase at the platform’s own app store. “You

one of the biggest cloud computing trends in the years ahead could be the rise of paas models and communities that sprout up around them.

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can put all those programs together in one cloud solution that’s made up of multiple vendors,” Haller said.

The common interests and close communication among community members could speed the rollout of new capabilities. “The pace of de-

velopment is at an exponential scale compared to vendors of on-premise software,” he said.

Improved availability of new mod-ules and features isn’t the only ad-vantage. Because the platform would be built around a well-defined core application and set of interfaces, de-velopers would know exactly what software “hooks” to write for.

This eliminates the time and ex-pense associated with the custom in-terfaces manufacturers often need to extend traditional applications.

“Being able to connect to dozens of micro-capabilities all out there in the cloud is definitely where the industry is starting to go,” Haller said. n

Cloud Computing: What It Can Do for Your Manufacturing Supply is a SearchManufacturingERP.com

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“Being able to connect to dozens of micro- capabilities all out there in the cloud is definitely where the industry is starting to go.”—matt Haller, principal, BaKer tilly

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