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Cloud maturity issues keep manufacturers wary of risks

Alan Joch

ERP 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 specialize in manufacturing are still advising clients to move slowly, believing healthy skepticism remains the best way to balance the rewards and risks of a still-maturing technology.  

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“On a scale of one to five, the maturity model of cloud computing right now is about two,” said Nitin Khorana, vice president and head of manufacturing for Mahindra Satyam, an IT and business process outsourcing firm specializing in ERP implementations.

Khorana and other analysts say the three top areas where immaturity has the biggest impact on cloud computing for manufacturing are security, service-level guarantees and data management.

Understanding ERP cloud computing benefits

Although significant, these risks aren’t necessarily deal breakers, partly because well-implemented cloud computing technology offers so much potential. Stressed-out IT departments, for example, no longer have to spend time testing and implementing new hardware and software. Those chores, as well as routine maintenance, are handled by cloud service providers.

Cloud IT can represent a significant cost and agility opportunity as this novel technology can empower IT capacity without the need to invest in additional infrastructure,” Frost & Sullivan Inc. wrote in a recent report, “Cloud Computing: Technology Market Penetration and Roadmapping.”

The report points out another benefit: 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 computing not only helps companies ratchet down their IT budgets by eliminating the need for additional infrastructure, 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 technology that can connect them with all levels 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 economically viable way to link those players to the “mother ship,” he added.

Factoring in the risks

All this is true enough, but what about the risks? The biggest roadblock to wider adoption remains security concerns, according to Bob Parker, group vice president of research for IDC Manufacturing Insights. Manufacturers that want to move forward with clouds should confirm that potential service providers comply with SAS 70 Type II protocols, the accounting industry’s controls for evaluating data management and change processes, Parker added.

Service-level capabilities are another concern for manufacturers. “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,” 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 manufacturers to probe the service levels a provider can deliver and the contract remediation that exists if problems occur. “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 manager getting the phone call when access 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 firms are called in to find a solution. “If you are the software vendor, you don’t want your president to have to speak with the president 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 reclaiming 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? 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 architecture 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.


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