Will Manufacturing Lead the Cloud Transformation?

Will Manufacturing Lead the Cloud Transformation?

Enjoy this new blog by our new guest contributor in 2014, Cindy Jutras, a widely recognized expert in analyzing the impact of enterprise applications on business performance. With over35 years of corporate experience and specific expertise in manufacturing, supply chain, customer service and business performance management, Cindy has spent the past 8 years benchmarking the performance of software solutions in the context of the business benefits of technology. In 2011 Cindy founded Mint Jutras LLC (www.mintjutras.com), specializing in analyzing and communicating the business value enterprise applications bring to the enterprise. 

One of the trends I am most anxious to watch as Mint Jutras launches its 2014 ERP Solution Study is the interest level in cloud deployments, particularly in the manufacturing segment. Oftentimes manufacturing gets a bad rap and many assume it lags in its ability to understand and utilize technology to support the business. That "technology" includes Enterprise Resource Planning (ERP), which provides the transactional system of record of the business. And with its roots in Material Requirements Planning (MRP), it is that much more critical for a manufacturer.

These naysayers also make broad, sweeping statements predicting manufacturing will lag behind in the transition to cloud.  My research shows these assumptions to be misguided. Just as we have found ERP has deeper penetration in the manufacturing sector, we have also found manufacturers to be more (not less) interested in software as a service (SaaS) than those in other industries. Does this mean manufacturing will lead the cloud transformation?

In August 2012 our Understanding SaaS study collected data from over 300 companies, half of which were manufacturers. We asked what percentage of their business software was SaaS-based at the time. Only 30% of manufacturers had no SaaS solutions as compared to 42% for all other industries (Figure 1). On average, about 22% of business software installed in a manufacturing company was SaaS (17% for other industries).

We also asked respondents to project the future. Will all business software be SaaS any time soon? Probably not. There is simply too much on-premise software currently installed to make that happen in the foreseeable future. But if we look out five to ten years, while other industries project 35% of their business software will be SaaS, manufacturers anticipate that percentage to be 45%.

While the percentage of business software that is deployed as SaaS will grow steadily, it will still not dominate for many years to come. But it appears that manufacturing will lead the way and not lag behind.

The Disconnect Between Perception and Reality

It is true many manufacturers would prefer to spend more of their technology budget automating their shop floors than investing in hardware and software to support front and back office processes. But this only fuels the interest in cloud deployments.  Like many companies today, most manufacturers have limited capital. But very often growth in a manufacturing firm is capital-intensive.

While business software such as ERP indirectly supports these growth efforts through improved efficiency and added visibility, it makes sense that a manufacturer would like to preserve that capital in order to invest more directly in growth opportunities. SaaS-based solutions that require less up-front investment and can be treated as an operating expense simply make a lot of sense.

The Appeal of SaaS

Of course there are other reasons why manufacturers find SaaS solutions appealing. Each year in our ERP Solution Study we ask which potential benefits are appealing. Not surprisingly, cost is a big factor, along with reducing or eliminating the burden of upgrades.  The ability to support distributed environments and remote locations was also a key element in decision-making, along with eliminating the need to purchase and maintain hardware and the reduced need for IT staff.

We suspect this penchant for producing more product and these potential benefits are why we saw such a dramatic shift in interest levels in deployment options for ERP in our 2013 ERP Solution Study. Over the past few years we have been keeping track of actual deployment methods. SaaS-based deployments are still a small percentage overall - about 16% of our survey participants in 2013. But we also ask the question: What deployment options would you consider if you were selecting ERP today? Respondents are allowed to select any number, or all options. In 2013 we saw the percentage of manufacturers that would even consider a traditional on-premise solution shrink dramatically.

Note the elapsed time between the 2011 and 2013 studies was actually about 18 months.

As we launch our 2014 survey it will be interesting to see if this trend continues or whether it was simply a result of the heightened hype cycle of cloud.

Source:  Mint Jutras Understanding SaaS Study

ERP, Business Advice, Cindy Jutras, erp advice, ERP analyst, ERP Trends, erp trends, Mint Jutras