Depending on your perspective, ERP cloud computing is a game-changing way to manage IT services economically, or it’s just another over-hyped IT trend.
Manufacturers wanting to do more with their ERP systems for less may be gravitating to the first camp, according to Forrester Research Inc. in Cambridge, Mass. In a recent report, analysts Liz Herbert and Bill Martorelli called the overall cost of ERP systems “one of the major concerns of enterprise applications’ customers today” then added that “cloud computing’s promise to afford greater economic and operational flexibility … is of great interest to sourcing and vendor management professionals.”
Potential like this helps explain why Gartner Inc. in Stamford, Conn., is forecasting worldwide expenditures on cloud services to climb $10 billion this year on their way to nearly $149 billion by 2014.
But despite these growth projections, cloud computing remains a new and quickly evolving area that requires careful planning, especially for mission-critical applications like ERP. Consultants and early adopters say a three-step approach to understanding ERP cloud computing options can help.
Step 1: Understand the business benefits of cloud computing
So-called dynamic provisioning is one reason clouds resonate with ERP users. It enables IT managers simply to click a few menu selections to free up computing power from the cloud whenever manufacturing operations need additional resources for an up-tick in demand or to accommodate new software modules. Contrast this with the weeks or months required to buy a new server, load it with software and get everything working properly.
“Cloud provisioning gives you a way to deploy the solution quicker and see a faster ROI,” said Mike Martin, director of cloud computing for Logicalis Group, a U.K.-based IT services provider.
Clouds can also help organizations reduce capital expenses. Rather than continually buying new equipment and software, users pay a predictable per-user subscription fee to service providers for IT resources.
“Unless you’ve got an extraordinarily large pocketbook, it’s ridiculous for small or medium-sized manufacturers to think they can put those kinds of dollars in IT year after year and have a prayer of being fiscally sound,” said Anthony Chirchirillo, CEO of Chirch Global Manufacturing LLC, a midsized maker of build-to-order dies, metal stampings and assemblies in McHenry, Ill.
Chirchirillo recently signed a contract for a complete ERP system that runs on the Software as a Service (SaaS) model, a form of cloud computing that lets subscribers like Chirch tap into an ERP application running at the software vendor’s facilities. The vendor manages software updates, security patches and the hardware infrastructure for a set monthly fee that is usually based on the number of people using the application.
Step 2: Understand the cloud computing options
Cloud computing takes many forms, and organizations need to understand its different manifestations to find the best fit for their manufacturing operations.
At the highest level, clouds fall into two broad categories: private and public. Private clouds are similar to traditional IT operations because all of the resources remain under the control of the in-house IT staff. But rather than dedicating particular servers, storage units and networks to individual application suites like ERP, private clouds adopt the resource-pooling approach that enables dynamic provisioning and other cloud characteristics.
Public clouds require a bigger leap of faith because customers must rely on a third-party service provider to run the software and manage critical business data. In addition to SaaS, public clouds include Infrastructure-as-a-Service (IaaS), which meters access to processing power, storage and bandwidth, and Platform-as-a-Service (PaaS), which provides an offsite application-programming environment.
SaaS was an easy choice for Chirch Global. In addition to controlling costs, the company wanted an up-to-date ERP system that could work closely with the sophisticated manufacturing systems running at its large, global customers. “Their expectation is that our company needs to keep up with them,” Chirchirillo said. “For this company to achieve its potential, one of our key investments has got to be in information technology.”
Step 3: Start talking about cloud computing choices
When it’s time to choose a cloud provider, talking with the current ERP vendor may be a good start if it offers a cloud option. “But don’t stop there,” said John Hoebler, director of enterprise systems for the McLean, Va.-based consulting firm MorganFranklin. “Good due diligence requires you to see what other offerings are out there in the market.”
These discussions should cover costs for standard services and uptime guarantees as well as charges for premium services. Also, talk about the options for customizing SaaS software for unique business needs, integration services for connecting the ERP application with related programs, security protocols, disaster-recovery capabilities and penalties when service levels aren’t met.
The best advice of all may be to take a cautious approach as cloud computing continues to mature.
“Rather than going with a full ERP suite, a company might subscribe to a demand-planning module or a production-planning program for an overseas plant,” Hoebler said. After a year or two, early adopters can compare actual results to original estimates. It’s a reality check that can avoid the risks of today’s “latest and greatest” technology.
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