Cloud computing and Software as a Service are rapidly gaining popularity among manufacturers. In this guide, learn the basics of cloud services and find out how to apply the technology to manufacturing environments.
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Manufacturers aren’t known for going overboard investing in advanced IT, so it’s ironic that leading-edge cloud computing technology seems tailor-made for them. Indeed, despite tight budgets, manufacturers have been deploying cloud computing software precisely because it can reduce capital expenditures and IT labor costs.
The attraction of using cloud computing services is obvious. Cloud computing technology transfers the responsibility for running on-premises hardware and software out to the Internet, where cloud computing providers handle the hassles that would otherwise burden IT departments, such as software upgrades and hardware maintenance.
Besides cost savings, cloud computing benefits typically include quicker deployment and superior ease of use. “Many SaaS ERP vendors grew up in a thin client, browser-based model with a strong focus on selling to the business and leveraging an easy-to-use look and feel,” said Liz Herbert, principal analyst at Forrester Research.
Another key advantage of cloud computing is operational flexibility. Cloud computing technology lets IT managers click a few menu selections to free up computing power from the cloud whenever manufacturing operations need additional resources or to accommodate new software modules.
But cloud maturity issues prevent some manufacturers from running mission-critical applications in a cloud computing environment. “On a scale of 1 to 5, the maturity model of cloud computing right now is about 2,” said Nitin Khorana, vice president and head of manufacturing for Mahindra Satyam, an IT outsourcing firm.
The disadvantages of cloud computing technology center on security, reliability and customization. Experts advise manufacturers to make sure that cloud computing companies meet industry standards for security and provide adequate service-level agreements. “If Salesforce.com goes down for two hours, your salespeople will be inconvenienced, but it is not necessarily going to bring your company to its knees,” said Bob Parker, group vice president of research for IDC Manufacturing Insights. “But if you can’t send invoices or process orders for half a day, you’ve got a different issue.”
Because users typically share the same instance of cloud computing software, the application may not be as customizable as on-premises software or traditional hosted ERP. But that can be an advantage, according to Warren Wilson, research director for Ovum Summit. “[SaaS ERP] needs to be considered in the context of whether it’s better to customize to your business processes or whether the built-in best practices of the SaaS are better for your business to adopt,” he said.
Cloud computing basics
What is cloud computing? Fundamentally, it’s any hosted service delivered over the Internet, and it derives its name from the cloud symbol often used to depict the Internet.
Cloud computing services usually differ from traditional hosted services in three ways. First, cloud computing technology is purchased on demand, typically in per-minute or hourly increments. Second, it is elastic, with dynamic provisioning that lets users buy only as many cloud computing services as they need. Finally, the provider completely manages the cloud computing services, which means users typically only need a computer and Internet connection to access them.
Understanding cloud computing basics
At the highest level, cloud computing technology falls into two categories: private and public.
Private cloud computing is similar to traditional IT operations because control of the resources remains in-house. But rather than dedicating particular servers, storage units and networks to individual applications, private cloud computing adopts the resource-pooling approach that enables dynamic provisioning and other characteristics that define cloud computing.
In public cloud computing, a third-party cloud computing provider runs the software and manages the data.
A hybrid cloud mixes some combination of public cloud computing with private cloud computing.
Cloud computing services are typically divided into three further categories:
Some manufacturers are already getting started with ERP cloud computing and running their most mission-critical applications in a cloud computing environment. Other are worried about the security and reliability risks of cloud ERP and are taking a more cautious approach. Experts advise taking six key differentiators into account -- simplicity, flexibility, control, accessibility, cost and integration -- before scrapping on-premises ERP for SaaS ERP.
Getting started with cloud computing software
Before jumping into a cloud computing initiative, it’s important to first decide whether cloud computing software would really be a good fit for your company. Manufacturers should examine their business models to determine how viable an option SaaS ERP is for manufacturing environments. Factors such as organizational size, custom requirements and data location all come into play.
Take a close look at both the advantages and disadvantages of cloud computing. As Chris Carter, CEO of HiLn Solutions explained, “hosted ERP can alleviate your existing network and hardware staff and is typically better for a bigger company. With SaaS ERP, you don’t need new hardware or new staff, and its cost is better for a smaller company.”
Perhaps the most attractive benefit of cloud computing is the price. Many manufacturers have to make do with conservative IT budgets; the low cost of cloud computing gives these manufacturers access to software that they couldn’t afford to install in-house. As SaaS ERP becomes more popular, SaaS providers are offering more flexibility to sweeten the deal.
Manufacturers making the switch from in-house ERP to a SaaS ERP model also need to decide if they plan to stay with their current ERP provider -- assuming the provider offers a cloud version -- or find a new one. “I advise factoring in the costs of training and skill sets as plusses in favor of staying with your existing vendor,” said Ray Wang, principal analyst at Constellation Research.
Choosing cloud computing vendors and applications
Once your business has decided to move to a cloud computing environment, it’s time to begin the software selection process. Facing increased competition, cloud computing vendors are adding more functionality, simplifying integration and lowering costs to offer the best cloud computing software possible.
Cloud computing services are particularly attractive to manufacturers running global supply chains because they provide visibility into multiple facilities and aid in business process management (BPM) -- boosted by vendor mergers like IBM’s acquisition of Sterling -- as well as product lifecycle management (PLM) and inventory management.
Evan Armstrong, president of Armstrong & Associates, recommends finding a cloud computing provider with global connections. “It’s important to really align yourself with providers that have significant capabilities on a global basis,” he said. “A lot of them manage the local providers and work with them as a lead logistics provider.”
The SaaS model is also making headway into mission-critical manufacturing technology such as warehouse management systems (WMS) and transportation management systems (TMS). It’s even finding a place in the analytics side of manufacturing, from demand data in SaaS point of sale (POS) systems to SaaS business intelligence (BI).
To find success with SaaS BI, manufacturers must be willing to learn some new tricks. "You can't take the old way of doing it and assume a successful BI implementation,” said Dyke Hensen, chief marketing officer at PivotLink. “To deliver BI in a SaaS environment, you almost have to forget about the way you did it in the past."
Trends in cloud computing technology
Cloud computing technology is a shifting landscape, and industry analysts have numerous trends in cloud computing to examine when predicting the future. IDC Manufacturing Insights has referred to mobile analytics as one of the next big IT platforms. While private cloud computing currently poses fewer security risks, public cloud computing is becoming a viable hosting alternative, according to Michelle Bailey, IDC’s research vice president for data center trends. “The public cloud may take a while, but we definitely see it coming on the horizon,” she said.
Advances in SaaS ERP have made the cloud a more attractive option to technology-wary manufacturers. “The modern SaaS player can give you as much configuration as the on-premise guys,” said Roman Bukary, a NetSuite industry marketing spokesman.
Microsoft is one cloud computing vendor that has been focusing on SaaS ERP recently. It unveiled a new ERP cloud computing roadmap at its latest Convergence conference and offers a cloud enterprise architecture framework aimed at discrete manufacturers.
SaaS isn’t the only area of cloud computing infrastructure that is gaining popularity. PaaS holds increasing appeal for companies that operate multiple SaaS applications, and PaaS vendors are cutting prices to attract new customers.
“It’s going to become difficult to handle a bunch of SaaS options,” said ERP industry expert Steve Phillips. “To get the benefits of the SaaS world and the Infrastructure as a Service world without the management costs, PaaS will be the pivotal part of the market.”
The following terms are commonly used to discuss cloud computing. Find out how to define cloud computing and become familiar with the lingo of manufacturing cloud services.