By Guest Blogger Tom Garske
With increasing frequency I am evaluating a growing range of cloud-based solutions that are both realistic and reasonable considerations during client ERP planning and selection engagements. While traditional on-premise ERP still dominates the landscape, SaaS/cloud-based ERP options are projected to see growth of 20% and probably much more annually according to many industry pundits. When you contrast that with the projected low single digit growth of traditional on-premise ERP it is easy to conclude that Cloud will continue to be “hot.” It has gone from some nebulous, far out idea and is steadily becoming an acceptable alternative as an ERP platform in corporate America.
On every ERP software selection engagement we now include an educational primer for the client and then discuss the strategies and potential benefits of including Cloud-based offerings into the mix. To date, what we have seen proposed has fallen into four distinctive categories:
- Pure cloud/web-based SaaS model – single source provider for ERP software, support and the managed hardware operating environment. Services are purchased through a subscriber model based upon user counts and module choices.
- Cloud/web-based ERP vendor hosted model – single source provider for software, support along with a managed hardware operating environment. ERP software is an upfront purchased license similar to on-premise while operating support and managed hardware are subscribed to based on user count.
- Cloud/web-based 3rd party hosted model – multi-source providers. Software is typically a front-end purchased license with hosting fees charged as a monthly subscription.
- Hybrid blend of Cloud/web-based SaaS model along with on-premise ERP – which may be more suitable for time-zone and language-challenged domestic organizations with global branch offices.
From the Field Considerations:
During final ERP software selection with two SMB client engagements, cloud based solutions were selected. The following are some of the notable outcomes:
Client Case #1 – mid-market consumer packaged goods fulfillment/distribution company. Implemented an industry-fit solution with the ERP company providing managed hosted services.
Client did not want to create nor staff an IT department and opted toward developing operationally focused and enterprise application savvy staff. Experienced none of the challenges normally associated with recruiting/retaining and managing competent IT staff. Estimated savings of at least 1 FTE (full time equivalent employee).
Prior to implementation of the new cloud solution, heavy EDI demands stretched existing staff with the need to hire an additional person. ERP hosted cloud services include managed EDI services reducing internal EDI support needs to less than .25 FTE from 1.5 FTE.
Needs for internal ERP servers (3) along with operating software and subsequent upgrades were eliminated.
Wireless warehouse management system (WMS) is totally supported via the Cloud. Realtime performance is good and equivalent to an on-premise solution.
Hosted Cloud provider supports both technical and application issues for either standard or extended hour work-weeks.
Client Case #2 – automotive parts manufacturing company implemented a cloud browser-based SaaS ERP solution moving from legacy and highly modified applications. There was no need for custom code as the ERP solution already included/exceeded features/functions they had to customize in the legacy system.
No upfront capital outlays for software licenses, totally subscription based with no upfront licensing costs, locked in a monthly subscription amount fixed for three years except additional modules. Subscription fee included unlimited users.
Existing IT and support staff phased out from 1.5 FTE to less than .25 FTE to support occasional technical issues. Relieved management of the need to recruit and grow an IT function, preferring to focus on business process and lean operating improvements.
Minimized business operating disruptions because of ERP version upgrades. Subscription includes a continuous application upgrade process with options to opt in/out of functionality changes. You then select whether you want to activate the feature or not. No big new version rollouts.
SaaS/Cloud service included 24/7 application and technical support
Other SaaS Cloud Attributes:
24/7 Operational uptime, 800 support is offered. Web browser based applications, provide remote anywhere access. VPN’s, like Citrix or Terminal Services, are not required if the applications are true browser based. If it is a hosted thin client via Citrix then you will still be dealing with a managed VPN which can still be a plus as support comes from the hosted provider. This is especially important when you have mobile employees who could be attempting to sign on from most anywhere.
There are no upfront capital acquisition costs for software licenses although implementation and training costs are equivalent to an on-premise approach.
Hardware technical, backups, redundancies, upgrades, system and network load balancing, security are all managed by the cloud provider.
No upgrade nor extended rollout costs are involved with new versions.
Shorter implementation to go-live timeline. 11 vs. 6.7 months on an average (source, Aberdeen Group).
Continued refinement and more competitive SaaS pricing models including earning subscription credits applied towards the purchase of the software.
Increasing industry recognition of the importance of SSAE16, ISAE3402 or SAS70 Type II (SSAE16 is the replacement for SAS 70) compliance Covers compliance with internal controls, documentations, physical facility, personnel background/training, failover/redundancy of physical facility and circuits, backup systems, backup power systems, firewall management, antivirus/spamming/etc. management, hardware/redundant physical systems, load balancing, circuit monitoring, etc. ( http://www.ssae16.org/white-papers/reporting-on-controls-at-a-service-organization-relevant-to-security-availability-processing-integrity-confidentiality.html.)
User organizations considering placing mission critical information with any cloud/hosted provider will be well advised to obtain the related independent auditors attestation report. We have had ERP companies claim to be bidding a solution in the cloud and, upon further investigation, they were simply offering their software being hosted by a 3rd party (in this case it was one of their resellers).
There are an ever-growing number of 3rd party application module extensions and interoperability API’s embedded with Cloud ERP suites that extend core functionality (e.g., product lifecycle management (PLM), quality, advanced manufacturing modules, MES)
Rising interoperability among specialized cloud based providers (CRM, social media and ERP being all Cloud-based from multiple providers). Salesforce.com claims they can interoperate with most anyone.
Continued growth and maturation, a majority of the respondents to the Software CEO/CFO Outlook 2011 study commissioned by Sand Hill Group believed that cloud computing and SaaS will demand the largest amount of spending for the next 12 months. Meanwhile, a recent Aberdeen report estimates the market for Cloud based services to double during the next 2 years.
You can expect to see a steady decrease in total cost of ownership with increasingly more competitive pricing structures and packaged module offerings.
Tom Garske is the principal of Consulting Associates in Minneapolis, MN, he can be reached at (612) 305-4321 or firstname.lastname@example.org.