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

Why cloud ERP software is the best choice for manufacturing SMBs

Small and medium-sized manufacturers pursue cloud ERP software for lower costs, easier maintenance and greater flexibility. Learn how some SMBs have benefited by moving to the cloud.

When it comes to ERP systems today, it can be easy to forget that some companies -- even small and medium-sized businesses (SMB) -- still install them on premises. But there is no doubt: Cloud ERP software is taking the world by storm. SMB manufacturers, like their larger counterparts, are increasingly taken with cloud offerings.

Traditional enterprise software vendors have cloud-based ERP products targeted at the SMB space, while pure-play cloud vendors and even open source cloud providers are gaining traction. The whole world of ERP seems to have gone cloud.

"Certainly for new implementations, a lot more organizations are looking for cloud solutions," said Nick Castellina, research director of business planning and execution at Aberdeen Group. "SMBs don't have the money for upfront capital expenditure. And they don't want to focus on owning a large ERP implementation. They want to focus on what they do best: making goods and selling them."

Don't think cloud approach is 'one-size-fits-all'

Of course, there are still situations where a midsize manufacturer might prefer to install and run its ERP software on site. "Cloud is not a one-size-fits-all solution," said Katharine Rudd, managing director at Alsbridge, a global consulting company. "For more complex customized deployments, on-premises or hosted solutions will be a better fit."

On the other hand, many consultants, including Castellina, recommend that companies reduce the amount of ERP customization to a minimum to keep a handle on complexity.

Not so long ago, it was common to hear managers say they could not use cloud ERP software because of reliability and security concerns. Those concerns have largely been put to bed. The fact is a cloud ERP vendor has far more resources to devote to uptime (backed up by service level agreements) and information security than virtually all SMBs.

Manufacturers that have the very highest uptime requirements can use a system that fails over to a network connection, Castellina said. At least one cloud ERP vendor sells an appliance that is installed on premises to buffer transactions between the factory and the cloud.

Moving to the cloud a 'no-brainer' decision for SMBs

By the summer of 2014, electrical manufacturer Scott Fetzer Electrical Group's (SFEG) ERP system was on its last legs. A unit of giant conglomerate Berkshire Hathaway, SFEG produces electrical products, including motors used in everyday items such as blenders. SFEG needed to modernize its operations to support an effort to promote business automation through the use of robotics. In use for 25 years, the existing ERP system was a legacy application, to put it mildly.

Rather than seeking to update its on-premises system, SFEG opted for instant modernization in the form of cloud ERP software from Kenandy, based on the Force.com platform.

"We just didn't have good enough visibility into our data," said Matt Bush, director of operations for SFEG in Fairview, Tenn. "We had accounting-created reports that would come out once a day to give a pulse on what was happening. But we needed real-time insight."

In addition to gaining access to real-time financial, production and shipping metrics, now employees can access the system via smartphone wherever they are located -- a major improvement over the previous system.

"Our ultimate dream was to run the factory from the beach in Cancun," Bush said.

Cloud ERP costs 'an order of magnitude' less than on premises

Now, SFEG executives have immediate insight into what they can and cannot ship at any given moment. Orders are not released to production until all the parts are in place, resulting in fewer delayed orders and a much better experience for customers.

Bush appreciates the quarterly software updates that proceed without much fanfare. His team has customized the interface to emphasize fields that are important to them, such as enabling multiple pick operations for shipping. This customization was accomplished easily and without any need for programming -- an advantage of the embedded Force.com platform, Bush said.

SFEG invested $100,000 in the Kenandy cloud ERP software, which Bush believes is "an order of magnitude" less costly than a new on-premises installation would have been. Although a few advanced capabilities -- including personnel and machine capacity planning -- are missing, they are coming soon. And the cost and maintenance advantages have been superb.

"It's a no-brainer," Bush said. "This is ideal for a small to midsize company."

Next Steps

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This was last published in November 2015

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Has your company chosen cloud ERP software, and if so, why?
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I am somewhat surprised to find that this article seems to gloss over, maybe ignore, the functional fit of the software. Don't you think that unless the software (regardless of being SaaS, hosted or on premise) first passes the functional fit hurdle, all other evaluation factors are irrelevant?

I'm not anti-cloud, it's just that cloud really is a method of delivering functionality to users and it does a great job of offering ease of use from anywhere on any device at any time, but don't think cloud per se equates to better functionality.
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