Traditionally, small- and mid-sized manufacturers have been laggards when it comes to adopting ERP cloud services, according to industry analysts. But that may be changing.
"We're certainly seeing a lot more interest from SMBs regarding cloud ERP, even compared to just 18 months ago," said Jonathan Gross, vice president with the ERP specialist Pemeco Consulting, Inc. "In fact, the shift to cloud is so strong, it's almost a tidal wave."
Two main forces are driving commitments to ERP cloud services, he and other industry veterans said. First, software buyers are becoming more comfortable with using service providers for core enterprise applications, such as ERP.
"These buyers are starting to understand the ROI, the security benefits of getting regular patch updates and the advantages of not having to manage the IT infrastructure," Gross said.
Second, these decision makers are finding a wider range of capabilities now available through clouds that address particular needs of manufacturing and distribution companies. "They're seeing functionality that just wasn't available a few years ago," Gross said.
Vendors placing bigger bets on ERP cloud services
At the same time, ERP vendors are placing bigger bets on cloud services. "On the product development side, we're seeing vendors who traditionally sold on-premises software all of a sudden jumping ship and going all-in on cloud," Gross said.
He added that SMBs have a large list of possible ERP cloud services to choose from. Vendors include Oracle and SAP -- which formerly catered primarily to large enterprises, but now are courting smaller companies with cloud ERP offerings -- along with Infor and Sage -- which have served this sector for years. Another important trend is the rise of cloud-based platforms, such as Salesforce, that collaborate with a wide selection of third-party vendors of plug-in applications for manufacturing and distribution.
Jonathan Grossvice president with the ERP specialist at Pemeco Consulting
A wider range of ERP choices is good news for SMBs, approximately two-thirds of which still aren't using full-blown ERP, according to Software Advice, a subsidiary of the technology analyst firm Gartner, Inc. The company recently published a report based on input from 250 software buyers, the majority being SMBs in manufacturing and distribution.
Instead of ERP, about 44% of the SMBs rely on a combination of disparate systems to execute ERP processes -- typically a combination of QuickBooks, Excel spreadsheets and basic project management software, the report said. This often results in the need for time-consuming, duplicate data entries and other headaches, Software Advice added.
Subscription pricing makes ERP more accessible
But subscription pricing models are making ERP software more accessible than ever to smaller businesses, whether they're moving to this type of solution for the first time or switching from an existing program, the report's authors wrote.
Some SMBs are switching to ERP cloud services in a quest for new capabilities, including tools designed for manufacturing industry niches. One example is Clarksville, Tenn.-based Clarksville Foundry, a fourth-generation family business that has been producing iron castings since 1847. It specializes in creating low volume, precision parts that may become components in industrial equipment or add decorative flourishes to building facades. The company has produced parts used to repair the dome in the U.S. Capitol, said president Charlie Foust, Jr.
The foundry is moving to Odyssey ERP, a software as a service (SaaS) from B&L Information Systems, Inc., after it learned the vendor will no longer support the legacy system it had been running for 25 years. "The B&L solution is the only package we know of that's designed specifically for metal casters," Foust said.
Specific features that attracted the foundry to the ERP cloud services platform include tools for documenting the various types of metals and chemicals used in its manufacturing processes. "The ERP software can also track each of the patterns we use, including how many times we've used them and the wear and tear on each one," said Mike Dahlke, CFO at Clarksville Foundry.
Implementing ERP remains a challenge
When the ERP service goes live later this summer, the executives expect to significantly reduce scrap -- and in turn, cut costs -- thanks to better material and process management. "Right now, we don't track the percentage of castings that become scrap," said Bill Foust, project coordinator. "The software will help us analyze problems and find ways to adjust the production process to improve the yield."
Manufacturing executives and analysts said there's a lot to like about ERP cloud services. Nevertheless, SaaS doesn't eliminate one long-standing challenge with ERP -- implementation hassles.
"ERP is still ERP is still ERP," Gross said. "With cloud, you don't have to install servers and software, but implementation remains a big undertaking. Make sure that the best people in your organization have the time and resources to support the project. Ultimately, ERP will succeed or fail based on the commitment of the internal team."
Understand how hosting compares to SaaS
Calculate the ROI of SaaS ERP
Choose among midmarket ERP vendors