This content is part of the Essential Guide: The essential guide to ERP for small and medium-sized businesses

Cloud ERP platform becoming likely choice for manufacturing SMBs

Manufacturing SMBs are finding a cloud ERP platform to be their best option. It gives them the advantages of a world-class organization without the cost.

When small and medium-sized business (SMB) manufacturers need to select an ERP platform, not surprisingly, they must consider a number of variables. For starters: size of business, special demands of its vertical industry and likely need for customization.

"We go in and look at their operation, and try to understand what are the key requirements for information systems in that business," said Frank Scavo, president of Strativa Inc., a management consulting firm in Irvine, Calif. "What makes the business different from other businesses? What are the characteristics of the industry? Is it process? Discrete? Hybrid? What about the vertical -- what are the key characteristics that the systems will deal with? Where are its customer touchpoints?"

For example, not every ERP platform will be able to handle a company's configure-to-order product. "This might mean they need more than just standard costing. They might need actual costing on the ERP system," Scavo said. And only a subset of ERPs offer that capability.

Or, a company might need the ability to handle different time zones or multiple business units on a single ERP instance. Many manufacturers today sell to customers directly, while also having a distributor network. All these factors play into ERP selection.

"You might not think of these things; you might find out only after you have implemented," Scavo said. "This is how companies get into 'gotchas.' They make assumptions. Then, you're stuck trying to work around a faulty assumption."

Another potential "gotcha:" Buying the ERP platform without lining up the resources needed to handle system implementation.

Consider EvoShield LLC, a maker of protective wear for athletes. With only 60 employees, EvoShield is the very definition of a small business. But in many ways, it deals with the same issues as a larger manufacturer. It has a manufacturing facility located in Athens, Ga., two distribution centers, and multiple domestic and international suppliers. It sells direct and via independent dealers, as well as through a host of big-box retailers and smaller outlets. About two years ago, it became clear the company needed a full-blown ERP system to handle back office functions. QuickBooks and spreadsheets were not cutting it anymore.

Speed was an issue. We needed something that would scale and grow.
David Shinnvice president of operations for EvoShield

"There was more complexity in the order-to-cash cycle," said David Shinn, vice president of operations for EvoShield. "Speed was an issue. We needed something that would scale and grow."

Despite having a tiny IT staff -- that would be one full-timer -- the company decided to buy SAP Business One, the on-premises ERP system targeted to SMBs. Unfortunately, EvoShield struggled to find the right implementation partner, so the software sat on the shelf for a year.

When Shinn came on board a year and a half ago, an immediate priority was to find a systems integrator that could get the system up and running, stat. He did just that, partnering with Effective Computer Solutions LLC in Jacksonville, Fla. The implementation took only five months, with the system going live in April 2014.

"Now, we have the speed and capacity to handle higher transaction volumes," Shinn said. "We are now able to mine data and pull insights out." Nearly every EvoShield employee uses Business One to better understand how the business is running. For example, the marketing and sales staff can run queries to gain visibility into whether appearance at a sporting event translated into greater sales.

Like EvoShield back in 2013, many small to mid-size manufacturers are facing the need to implement ERP for the first time. Also like EvoShield, they often don't have spare IT resources to handle a major on-premises implementation and subsequent maintenance. That is one reason many SMB manufacturers and distributors evaluate available cloud options when selecting an ERP system.

"Cloud and [software as a service] are where it's at," said Cindy Jutras, principal at consulting firm Mint Jutras. That is increasingly true across companies of all sizes and across industries. According to research done by her firm, 34% of U.S. companies use SaaS-based business software, including ERP. "Within 10 years, that goes up to 61%," Jutras said.

One pixel Change management crucial in an ERP

"On demand and cloud are great for the manufacturers of this size," Scavo said. "As companies implemented and other cloud-based apps, they realized this is an easy way to consume software. They now want to deploy their manufacturing system the same way." Scavo has seen very few engagements over the past few years where companies have not wanted to consider cloud.

"Cloud takes so much responsibility off the shoulders of the small to mid-size business. The vendor is responsible for the infra, the daily management, the upgrades. That frees the internal IT group to just focus on the business systems. They can spend their time helping users," Scavo said.

For its part, EvoShield has gotten the message. Several years after its on-premises implementation of SAP Business One, it is now looking at migrating to SAP Business by Design, the cloud-based version, which will incorporate the HANA in-memory database for high-powered analytics.

"Cost and flexibility are driving our move to the cloud," Shinn said. Broader system access was another driver. By putting it out on the cloud, I can introduce it to people off-site, depending on their network strength. This will give us all the advantages of a world-class organization without the cost."

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