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Which hybrid ERP business processes should you move to the cloud?

Hybrid ERP -- a mix of cloud and on-premises applications -- will be the reality for many companies for years to come. Here's one manufacturer's experience, as well as advice from experts.

In 2012, when Accuride Corp. moved its ERP system to Plex Systems' cloud-based software, the company decided to only move part of its on-premises engineering management and HR to the new system, and to not fully integrate them at that point, essentially creating a hybrid ERP system.

The company was comfortable staying with its stand-alone on-premises applications, said Paul Wright, CIO and vice president of information technology at Accuride, a manufacturer and supplier of commercial vehicle components based in Evansville, Ind.

"The only integration that we've done there is we've taken our cloud data for time and attendance for the clocks and we built something that would take that time and move it to our on-premises PeopleSoft," Wright said. "We are right now in the process of moving that whole PeopleSoft environment to Workday in the cloud. We didn't see that the cloud HR tools were necessarily there [initially]. And it really didn't make sense to move our HR and payroll at the same time. It was just too much risk for us."

Over the past few years, companies have been removing chunks of their ERP and adopting cloud-based apps to reduce cost and become agile, said David Overos, director of product marketing at Darmstadt, Germany-based Software AG, a vendor that integrates on-premises ERP with other cloud apps.

Every company today runs some ERP on premises. Complementing the functionality of the ERP with cloud apps is an approach known as hybrid ERP.

"Hybrid ERP is a reality, and it's here to stay for the next several years," Overos said. "Companies are always looking to optimize operations, and hybrid ERP is a result of that."

Planning a hybrid application design

Deciding which business processes to keep on premises and which to move to the cloud depends a lot on whether a company's processes are standard, said Mike Guay, research director at Gartner, based in Stamford, Conn. If the processes are standard, it's easier to move them to the cloud.

"However, if you have custom processes, or if you've taken software or written your own software that's customized, it's more difficult to move that to the cloud because you don't have access to the source code in the cloud," Guay said. "What you can do to customize and modify is limited in some respects."

Guay said, when he talks to clients about moving to the cloud and integrating applications in the cloud, he advises them to look at their integration requirements and available tools, and then decide what kind of integration competency they need to develop and support.

Overos agreed that integration is a big criterion when it comes to deciding which processes to keep on premises and which to move to the cloud. For example, if an app is tightly integrated with three or four other apps, and all of the integrated apps can't be moved to the cloud for any reason, then it may make sense to keep that app on premises.

"Plant production systems, such as assembly line sequencers, [which are] heavily integrated with the inventory systems, may not be a good fit for cloud," Overos said. "On the other hand, HR systems, B2B systems, payroll and accounting systems may be a very good fit for cloud."

It's clear to most organizations that the ship has sailed on HR and customer relationship management, and those will always be in the cloud going forward, said Mike Brown, principal and U.S. Oracle ERP cloud leader at New York-based Deloitte Consulting LLP, an Oracle partner.

"We're now at the point where that's largely the case with financials and procurement, as well," Brown said. "And we're starting to reach the point where organizations are saying, 'OK, we know our future for supply chain and manufacturing is also going to be in the cloud, [but] it's a question of, is it ready for us to move now, and is it something that we should do?'"

The cloud is where Oracle is investing, and cloud ERP is going to be its flagship ERP product in supply chain and manufacturing, Brown said.

"This is the direction that clients need to go, and it's more a question of timing and phasing," he added.

Cloud ERP the likely final destination for many

When it comes to determining which business processes to move to the cloud, and in which order, companies typically look at it in two ways: migrating to the cloud by geography, business unit or operating company; or migrating by function, e.g., finance, procurement or supply chain, Brown said.

"Traditionally, it's been more common to do it by geography, business unit or operating company because that allows us to only touch that business unit one time, and [to] move them over and be more focused in how we do our deployment," he said.

But that method is shifting, in part because there's a readiness to adopt Oracle's financials and procurement in the cloud first, as those applications are more robust than their on-premises equivalents, according to Brown.

"I tend to look at this as more of a phased implementation strategy than I do as a hybrid approach," he added. "Because I do think, for most organizations, the end goal should not be to live in a hybrid/on-premises cloud architecture. The end goal should be to have the benefits of a single instance ERP combined with the benefits of being in the cloud."

Cost is one of the main drivers for deciding whether to move a business process to the cloud or keep it on premises, said Jack Gold, founder and principal analyst at J. Gold Associates, based in Northborough, Mass.

Going to a software-as-a-service model means companies save money because they're trading a capital expenditure for an operational expenditure -- and that's a big deal for a lot of companies, Gold said.

Indeed, one of the reasons Accuride didn't move everything to the Plex ERP cloud initially was because it didn't want to pay for so much bandwidth, according to Wright.

"In terms of the engineering stuff, one of the things we were trying to do was move much closer to real-time data when we went to a cloud solution for the ERP," he said. "We wanted to get as close to real-time information as we could from the shop floor."

With hybrid ERP, integration issues are unavoidable

However, Accuride's previous ERP system didn't offer a way to take that data and move it across to the cloud easily, according to Wright.

"But with Plex, they had some partners that had done that integration already," Wright said. "There were a couple ways to host that data as kind of a middleware: one was a cloud case and one was an on-premises case. At the time, we made the decision to do that on premises. With engineering, we're now looking at doing a sort of a hybrid"

The company's plan is to put some data in the cloud and use the power of cloud computing to process the engineering data and engineering simulations.

"But the actual solid models and stuff like that, we're going to still leave on premises because it's easier for us to work with," Wright said. "It's really a continually evolving landscape of what you would do and why you would do it."

Brown said Deloitte has put together a framework of the integrations that need to occur, both at a master data level -- things like customer master and product master -- and in how companies develop the right source of truth and integration for the master data.

"Also, what are the transactional interfaces that are required to send the accounting back to the financial system, and to make sure that, if you are receiving into one system, you have the appropriate updates at the transaction level in both systems," Brown said.

One problem that many manufacturing companies have when it comes to integrating on-premises and cloud ERP is that their systems are old, and they've been in place a long time, Gold said.

"Transforming their systems or even building a link is not always an easy thing to do. So they need professional services to come and make that [integration] happen for them," he said.

As more companies opt to run hybrid ERP systems, more vendors are coming out with tools to make the integration process easier, said Bill McBeath, chief research officer at ChainLink Research, which is based in Newton, Mass.

But tools or not, integrating cloud and on-premises ERP apps is just like any other integration technology project, and, as such, will get prioritized with all the other things that are competing for IT dollars and time, McBeath said.

"Ideally, you'd like to think it was a rational decision on the part of an enterprise," McBeath said. "But an enterprise has finite dollars and all these different things they want to do, and that'll just be one among hundreds of improvements that they want to make. So, typically, it'll get measured against all those other investments."

Next Steps

Understand the benefits of hybrid ERP

Get a tip on cloud ERP deployment

Read another case study about replacing PeopleSoft with Workday

This was last published in January 2017

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