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Cloud ROI: Finding the value of investment

Cloud ROI comes in many forms, including faster deployments and reduced maintenance fees.

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Northeast Lantern, a mid-level manufacturer of copper and brass lanterns based in Exeter, New Hampshire, was seeking a flexible ERP package that would primarily manage inventories and control operational flow. The company also needed a system that would be scalable and enable continuous growth. When it made the switch to cloud ERP, Northeast Lantern became another manufacturer to discover the potential of cloud ROI.

For mid-level manufacturers, the many advantages to a cloud ERP system are quite attractive. "The benefits of cloud ERP speak for themselves," said Pat Garrehy, CEO of Rootstock Software in San Ramon, California. Rootstock was the software provider for Northeast Lantern's ERP system.

"Cloud ERP deploys faster. It's easier to use. Access to information is from anywhere, at any time and by any device," Garrehy added. Cloud ERP deployments bypass the typical up-front costs of an in-house ERP system, spreading those costs over the life of the software, he explained.

"Companies that implement a cloud ERP system are yielding cost reductions in both IT staff and hardware infrastructure. Because of such impressive benefits, the interest in cloud ERP is growing and installations are multiplying," Garrehy said.

Determining total cloud ROI

Cloud ROI can be realized quite quickly. Those who embrace the cloud are finding cost reductions in IT staff as well as hardware infrastructure, according to Garrehy. 

The two most obvious installation savings of cloud ERP come from the result of yielding significant and tangible cost reductions associated with reduction in servers required for on-premises software.

There are other intangible benefits as well. For example, using cloud ERP means that the system can be accessed from anywhere, at any time, from any device. This is significant, as a dispersed workforce may use it throughout the manufacturing facility and environment without returning to a workstation.

But, according to Garrehy, the biggest savings and driver for cloud ERP is that it does not have the initial outlay and investment for maintenance fees and perpetual license that an on-premises system would demand. In addition, a cloud implementation may be completed more quickly and with minimal disruption.

Cloud ERP training

For a mid-level manufacturer especially, cloud ERP comes with additional benefits in the form of user training.

"From a training and implementation cost perspective, one major advantage of cloud versus on-premises is that cloud ERP typically has a healthy portion of its training and implementation support done over the Web," Garrehy said.

Training is usually done in bite-sized chunks, with both users and the software vendor participating at a mutually convenient time. While this doesn't necessarily shorten the time needed to implement the software or reduce the hard dollars associated with instructors' training hours, the ROI is obvious when one considers work productivity savings and reduced travel costs. 

Another benefit of cloud ERP is that fewer organic servers are required by the manufacturer to run the system, which in turn means fewer labor hours needed to attend to those servers.

"With that said, the two most obvious installation savings of cloud ERP come from the result of yielding significant and tangible cost reductions associated with reduction in servers required for on-premises software," said Garrehy. "Depending on the size of an organization, there is either the elimination or reduction of IT staff hours that formerly had to tend with the hardware infrastructure, as well as the cost of the servers themselves."

Garrehy pointed out that the total cost of software is significantly less with cloud ERP. "In fact, in many cases, it is recorded simply as an operating expense," he said. "Cloud ERP software vendors are keeping an eye on the maintenance subscriptions of legacy ERP systems and, in some cases, are claiming that the investment in ongoing software subscriptions for the cloud is equivalent to the cost of the software maintenance of the on-premises systems."

Mid-level manufacturers are continuously trying to reduce their cost of operations and strive for lean processes. An on-premises ERP system can be more costly while being no more effective for them. The benefits afforded by cloud-based ERP -- ease of implementation, training, maintenances, software fees and reduced servers -- all add up to make the ROI of cloud ERP crystal clear.

About the author:
Jim Romeo is a freelance writer based in Chesapeake, Virginia.

Follow SearchManufacturingERP on Twitter @ManufacturingTT.

Next Steps

Understand the challenges of cloud procurement

Learn how cloud business intelligence measures up

Find out how to choose between cloud and on-premises ERP

This was last published in July 2014

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Interesting article, and it certainly points out the benefits of mid-level manufacturers to going with a cloud ERP system. I’m wondering how the ROI would work out for mid-level manufacturers using cloud for applications other than ERP, as well as for larger companies in manufacturing and other industries, and how that would compare to the total cost of ownership in the long run.
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