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Manufacturers begin to embrace cloud ERP software

Manufacturers have been slower to embrace cloud ERP software, but more options and familiarity with the technology are spurring more companies to move to the cloud.

Manufacturing has been one of the slowest enterprise segments to move their ERP systems to the cloud, but more options and more familiarity with the advantages of the cloud may be changing this.

The reasons manufacturers have been reluctant to run cloud ERP software are as varied as the companies themselves, but they generally boil down to two main issues: security and control. Now, however, it appears that manufacturers are going to the cloud for the reason that most other segments do: It's simply less hassle to have someone else run ERP. This is particularly attractive to smaller manufacturers who often lack the IT resources to run ERP systems on-premises.

Options abound now for any company that wants to run cloud ERP software systems. Large vendors like SAP, Oracle, Microsoft and Epicor have come out with cloud versions of flagship ERP systems or ramped up new cloud-first products. Smaller players in the ERP market also offer cloud versions, some that have been born and raised as cloud-only systems. Some of these smaller vendors may be more attractive to manufacturers because they offer targeted functions for manufacturing or specific industry segments.

Luxury van builder finds cloud worth investment

Waldoch, based in Forest Lake, Minn., a company that builds luxury vans and customized trucks, moved to the cloud with Epicor ERP two years ago. The results have been somewhat mixed, but satisfying for the most part, according to Billy Waldoch, the company's general manager. Not worrying about managing the system is a plus, but Waldoch is concerned with diminished control over the system.

"Any ERP has struggles with upload time, but the nice thing about having it in the cloud is that we don't have to worry about it going out -- they do -- so when it does go out we're calling them wondering why we're down or vice versa," he said. "The bad part about that is that it's not as fast, and we can't always do what we want to do with it because it is in the cloud. When it's on-site we can mess with it and do what we want, and it's a lot faster because when you're going over the Internet, you're dealing with how fast your Internet speed is."

Although cost effectiveness is often touted as a major reason to move to the cloud, Waldoch cautioned that this may not always be the case. Implementing Epicor ERP on the cloud cost much less upfront than any of the on-premises systems that Waldoch considered, but there have been significant ongoing costs. Nevertheless, on balance, the system is worth the investment, Waldoch said, and it allows the company to run ERP with far fewer management issues.

"If everything works right, you will save money with a cloud-based system, but it's the initial getting it up and going is what a lot of people don't realize," he said. "I would say to anybody else that's looking for one, get the salesperson, get the IT person, get the person that you're going to be communicating with [from the vendor], and if there's a problem, you get all those people involved before you make the decision."

Cloud-based ERP frees up IT department

Freeing up the IT department has been a major benefit of running ERP in the cloud for AMVAC Chemical Corporation. The company, based in Newport Beach, Calif., develops, manufactures and markets crop protection and other agricultural products, with three manufacturing facilities in the U.S. and three in other countries. AMVAC has been running QAD's ERP system since 1996 and moved everything to the cloud in 2012, which has helped them improve business processes, according to Ranier Laxamana, AMVAC's IT director.

AMVAC, a relatively small company that competes against giants like Dow, DuPont and Monsanto, does not have the resources to employ a large IT department, Laxamana said. When the company ran QAD on-premises his two-person IT staff spent most of their time on database and system administration issues. Now that AMVAC is in the cloud, all that administration is done at the QAD data center, and the IT staff focuses on more important tasks.

"Why were we spending so much of our time keeping QAD up and running, when somebody that does that for a living can do that for us?" Laxamana said. "Freeing up their time allowed them to help the business grow because now we spend most of our time sitting with our business unit managers and asking them what their pain points are, what we can automate for them. We ended up implementing a lot of projects within QAD, some modules that we'd never used before."

The cloud frees up ERP for smaller manufacturers

The cloud may be an option worth considering for large organizations with fully staffed IT departments, but it might be the best option for small companies. This was the situation for National Circuit Assembly (NCA), a small electronic manufacturing services (EMS) firm that builds electronic products, primarily for the military and automotive companies. The company, based in Garland, Texas, recently implemented a cloud ERP system from IQMS to tie together its headquarters and two manufacturing facilities.

"One of the reasons we implemented IQMS is because of our multiple plants and being able to run from a central location, where we have the individuality for each plant to have their own PLM [product lifecycle management], but at the same time someone here in corporate can look at the combined for both," Raul Cantero, NCA's vice president of operations, said. "You can do that with an in-house server, but a company like ours doesn't really have an IT department."

Cantero explained that NCA needed to replace an aging and inadequate ERP system, and after considering several on-premises and cloud systems, decided that IQMS' cloud system made the most sense given its available resources.

"My IT group here is two -- and one of them is me -- so running the ERP system in house is something we can't afford right now," Cantero said. "We are obviously paying for it to have it on the cloud, but it puts it with somebody else. I don't have to worry about it. The updates are automated, and the backups are automated, so if we ever have a hiccup I don't have to panic, so that peace of mind is worth the price."

Changing regulations spur a move to the cloud

The major ERP vendors are revamping their cloud strategies with a variety of products and deployment options. SAP offers the SAP HANA Cloud Platform and the cloud-first SAP Business ByDesign, an ERP product aimed specifically at the SMB market. Microsoft earlier this year released a cloud-first upgrade of its Dynamics AX ERP, which is deployed from the Microsoft Azure cloud platform.

This means that Dynamics customers are going to the cloud eventually, whether they want to or not. Umbra Group, an Italian aerospace manufacturing company, has run Dynamics AX on-premises since 2006 and has been an early adopter of the new cloud-first version. The company has no choice in the move, according to Giacomo Bonora, Dynamics AX application consultant and developer at Umbra, but this is only possible now because of industry regulation changes that allow cloud deployments.

"In our business, you have strict laws and market requirements about document segregation, security and access, and because of these regulations, we couldn't do cloud before," Bonora said. "But now the Dynamics AX solution is certified by the major authorities like the FAA in the U.S., so it's compliant with their requirements."

Bonora said that when the regulations changed, Umbra began to evaluate an upgrade to the cloud-first Dynamics AX. "We did an analysis about cost, maintenance and everything, and it appeared to be better in terms of cost control, in terms of investment and so on," he said. "I can't say yet that if, in the end, we will decide to keep everything on cloud or not or take advantage of the hybrid solution they're offering up next year; it depends."

These moves to the cloud by manufacturers are not that surprising as they grow more comfortable with the technology, explained Adam Boyce, manager of IT strategy for Panorama Consulting, a Denver-based firm that provides ERP-related services.

"Traditionally, a lot of manufacturing companies have a lot of positive control over their systems and information, especially veteran companies that have an established IT. For them, a lot of it is being able to become comfortable and transition," Boyce said. "One of the bigger advantages that you hear about the cloud structure is that because there's minimal hardware and infrastructure and you're using thin client, there's a cost benefit. So for a company to have that established IT, [they] might have a concern on how they adopt this new model because they're familiar with what they have."

Next Steps

Is the hybrid cloud a good option for businesses?

What are the drivers of cloud migration for SMBs?

How is the cloud sparking innovation in financial ERP systems?

Why did this software vendor move to cloud ERP?

This was last published in May 2016

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