Compliance is a top priority for today's manufacturing businesses because the results of noncompliance can be severe. Government penalties, market losses, negative publicity and other operational impacts can arise from missing the mark. While cloud computing is attractive because of its cost savings and next-generation technologies, security and manufacturing compliance concerns are holding back many manufacturers from choosing a cloud-based tool.
More on manufacturing compliance
Learn about automated carbon monitoring
Read how one manufacturer is using product compliance tools
Find out how product compliance helps in green manufacturing
Despite those concerns, cloud technology remains a viable option as manufacturers strive to maintain competitive advantages in tough competitive times, and some are making the move. In Central and Eastern Europe, as of May 2012 the current highest cloud technology adoption rates are found among manufacturers, with 44% of IDC respondents stating they have dedicated a portion of their IT budget to the cloud. If European manufacturers can adopt the cloud in countries more regulated than the U.S., then at the very least the cloud is being considered as a technology that complements well within operations where there is already ample tracking of sustainability and environmental compliance.
To determine whether the cloud will make compliance easier or more difficult to manage, identify which compliance issues could be impacted by a switch to cloud technology and assess the degree of potential business improvements against the inherent headaches and risks.
Cloud technology doesn't change everything for manufacturing compliance
Best functionality fit: Any organization can be challenged to find the best business fit when shopping for new software. The requirements process for manufacturing compliance and sustainability functionality -- which includes roll-up reporting, rule repositories and specific processes -- should remain the same when considering either Software as a Service (SaaS) or traditional software, and should remain the same regardless of what type of enterprise application is being used, from supply chain management (SCM) and customer relationship management (CRM) to ERP.
Proceed with caution when adopting cloud technology
When a new technology is adopted, legal and compliance issues can surface.
Laws can change with the cloud: Different jurisdictions and countries have their own laws regarding data, especially when the data includes personal records. A key question to resolve before transitioning to the cloud is, "Where will the laws be in effect for data?" as laws can be associated with the place of contract, the corporate headquarters, where the data originated or where the data is housed.
Tax implications: Taxes can be impacted if procedures are changed, or if the jurisdictions or countries where money is transferred are changed. According to a survey by KPMG LLP, tax departments are too often left out of decisions to move to the cloud, causing issues and increasing manufacturing compliance risks.
Security planning: A security expert is essential for determining which cloud technologies to use for issues such as endpoint protection, identity management and data encryption.
Manufacturing compliance improvements through cloud technology
Increased focus on core business: Moving traditional ERP, SCM and CRM software suites onto a Platform as a Service (PaaS) or Infrastructure as a Service (Iaas) environment can free in-house resources from maintaining underlying platforms and allow for a stronger technology focus on the business, such as finding better tools to meet sustainability goals.
Better supply chain compliance reporting and agility: If a supplier uses emails, simple forms or spreadsheet files to report on product materials, the supplier's own visibility on issues is limited and the manufacturer's processing time can be lengthened. When a change in regulations occurs, such as the Conflict Minerals ruling this past August, any disjointed process throughout a supply chain can cause delays and holes in reporting. Having suppliers use the same software tool as the manufacturer can expedite decisions, and a SaaS-based tool can be affordable and easy to implement across small to large companies.
Potential for improved security: Often, in-house data center operations are treated as cost centers, making them vulnerable to a la carte cost-cutting decisions and resulting in under-funded security protection. Although relying on outside sources for security can be a scary proposition, an in-house system may be more risky. Contracting with a cloud provider takes away the need for cost scrutiny at the detail level and can save an organization from cutting off its nose to spite the face.
Potential for more secure data exchange: Manufacturers often outsource to other manufacturers, and as sensitive and critical information is shared with external partners, securing the data through a common platform increases control and diminishes noncompliance risks.
Increased competitive edge through innovation: SaaS pricing can be more affordable, opening up new collaborative opportunities. Such tools bridge the gap of distance and time so that better communication and visibility can foster collaboration. When a supply chain is integrated together, the opportunity for improving products -- including environmental compliance methods and sustainable designs -- could be enormous.
There is no doubt that considering cloud technology takes a lot of careful work. However, as manufacturers increasingly rely on their external partners' and suppliers' participation for meeting compliance and sustainability goals, the cloud just may be a fundamental technology choice to stay competitive.
ABOUT THE AUTHOR
Liz Garnand is principal analyst at Newport Consulting Group, where she works on market growth and entry, strategy and cloud operations readiness. Liz has more than 20 years of combined experience in B2B technologies in product management and marketing. Email her at firstname.lastname@example.org.
Follow SearchManufacturingERP.com on Twitter @ManufacturingTT.