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Software-as-a-Service, Cloud Solutions Rival Traditional Enterprise Resource Planning

05/03/2015

There are many enterprise resource planning (ERP) deployment options on the market for process manufacturers. However, it appears that traditional ERP––on-premise and licensed––is giving way to a greater interest in hosted (cloud-based) solutions and software-as-a-service (SaaS), also known as “on demand.” While cloud and on-demand ERP implementations are increasing, it appears that, at least for now, traditional ERP remains the preferred choice of deployment for organizations.

Shift from Traditional ERP

Since 2009, the Aberdeen Group, a provider of business intelligence research, located in Boston, has been looking at the trajectory of cloud and SaaS ERP to observe whether these systems would overtake traditional, on-premise ERP as a preference. According to the researcher’s 2013 ERP Benchmark Survey,1. 80% of its 357 respondents used traditional ERP in 2009, while only 23% utilized SaaS. By December of 2013, the numbers had leveled out––traditional still the strongest at 60%, followed by SaaS at 47%, and hosted options weighing in at 36% for ERP vendor hosting/managing, and 26% for an independent third party hosting/managing.

The Group further discovered that the longer a company had used an ERP solution, chances were it was a traditional solution, while the opposite was true for cloud and SaaS solutions. Of the 64 companies polled, 45% had implemented a SaaS ERP solution within the past two years. Interestingly, of the companies (wholesalers and distributors) that had implemented ERP solutions as recently as two to five years ago, 70% had chosen a traditional solution.

Thus, the study indicates a trend in companies, especially wholesalers and distributors, toward the implementation of cloud-based or SaaS ERP solutions.

SaaS ERP users to increase in next five years

Gartner Research Circle forecasts that the SaaS market will grow by 19.5% through 2016 to $32.8 billion, up from $13.5 billion in 2011.2. According to Gartner’s Survey Analysis: Adoption of Cloud ERP, 2013 Through 2023, 47% of respondents plan to move their core ERP functionalities to the cloud in five years. Thirty percent, predominantly manufacturers, plan to keep their ERP solution on-site. (To review the Gartner survey, click here.)

However, Forbes Magazine contributing writer Louis Columbus believes Gartner’s numbers are conservative. He notes in his article, “Why Cloud ERP Adoption is Faster Than Gartner Predicts,” (February 7, 2014)3. that Garner’s survey didn’t take into account two-tiered ERP, which he calls “a Trojan horse of cloud ERP.” Columbus thinks growth in the use of SaaS will be within a two-tier ERP system adoption.

It’s possible that some companies in the Gartner survey were using traditional ERP for their core functionalities and SaaS to support supplier and social networks, mobile and other innovative applications.

So, the trend toward cloud-based and SaaS ERP will continue for the foreseeable future, but with manufacturers less apt to implement a total solution in the cloud.

Manufacturing taking the lead

SaaS-based manufacturing and distribution software usage is anticipated to increase from 22% in 2013 to 45% by 2023, according to Mint Jutras, an ERP consultancy, based in Windham, NH.4. The research and advisory firm conducted an online ”Understanding SaaS Study” of 300 companies, half of which were manufacturers, in August 2012.

The study also challenged the idea that manufacturers are slow to assume cloud solutions. Mint Jutras found the opposite was true, that manufacturer participants exhibited a better understanding of cloud and SaaS and were more likely to move to the cloud.5. Roughly 22% of business software installed in manufacturing companies was SaaS, versus 17% for companies in other industries.6.

The reasons increasing numbers of manufacturers are choosing SaaS are many:

  1. SaaS gives customers a measure of control over upgrades
  2. SaaS allows for rapid and frequent upgrades
  3. SaaS better supports global operations
  4. SaaS supports distribution operations in multiple, or remote, locations
  5. SaaS requires less up-front investment, which can be handled as an operating expense
  6. Manufacturers do not need to purchase hardware
  7. With SaaS, there’s no need for an on-location IT department.

For these reasons, manufacturers will continue to lead the movement toward cloud-based and SaaS ERP solutions for the flexibility it offers them.

Mid-market companies choosing SaaS

The Aberdeen Group also found in its survey that cloud solutions, whether hosted or SaaS, have increased primarily in mid-market companies from 100 to 1,000 employees. The reasons include greater collaboration abilities among multiple locations and greater agility for global decision-making with a workforce spread over multiple time zones. Interestingly, Aberdeen researchers also found that companies are less apt to base their ERP selection solely on deployment now (as they had in the past) but rather, each deployment has settled into its niche, depending upon the needs of the company.

The trend toward the implementation of cloud-based and SaaS ERP solutions will continue predominantly among mid-sized companies because of the greater agility and collaborative ability these deployment systems provide.

ProcessPro works with small- to mid-sized process manufacturers looking to gain efficiency, productivity, and profitability across their entire enterprise through the implementation of an ERP solution. The type of deployment you choose is dependent upon your company’s unique needs; there are pros and cons to all configurations––on-premise, cloud/hosted, or SaaS. We have the flexibility and depth of experience to offer a single-source on-premise solution as well as our ProcessPro On-Demand, a subscription-based cloud solution.

Call us today to explore which ERP model makes the best sense for your manufacturing enterprise.

 

Endnotes:

  1. The Aberdeen Group 2013 ERP Benchmark Survey,
    http://blogs.aberdeen.com/enterprise-applications/live-now-the-2013-erp-benchmark-survey/

  2. “Gartner Forecasts That the SaaS Market Will Grow to $32.8 Billion in 2016”
    http://qoints.com/2013/09/14/market-insight/gartner-forecasts-that-the-saas-market-will-grow-to-32-8-billion-in-2016/

  3. “Why Cloud ERP Adoption is Faster Than Gartner Predicts,” by Louis Columbus, Forbes Magazine, February 7th, 2014
    http://www.forbes.com/sites/louiscolumbus/2014/02/07/why-cloud-erp-adoption-is-faster-than-gartner-predicts/

  4. Ibid
  5. “Cloud ERP: Helping Manufacturers Keep Up with the Times,” Mint Jutras, June 2013
    http://alttechsolutions.com/wp-content/uploads/2014/10/Cloud-ERP-Helping-Manufacturers-Keep-Up-July-2013.pdf

  6. Ibid
Tags: Cloud ERP,ERP Software Selection