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Nonetheless, today on-premise ERP remains king of the installed base, even though many of these systems are 10, 20 and 30 years old - ancient in the world of software applications. So, with the knowledge of the benefits of cloud ERP, which include reduced IT operational costs by outsourcing hardware and software maintenance and support to the cloud provider among others, what is causing manufacturing cloud ERP to presently trail in the market?
One major obstacle is that the larger ERP vendors, especially those investing big marketing dollars, are on-premise providers who continue to focus on their on-premise systems, even if they could offer a cloud ERP solution. The second obstacle is that end users with on-premise systems are not being quick to replace them. Either they are trying to wring a little more ROI out of their former investment or, remembering the implementation frustrations of their present suite, don't want to change regardless of cloud ERP benefits. However, industry analysts report that an increasing number of companies in the market for a replacement ERP will consider a cloud solution. Two years ago, it was estimated that 25 percent would consider a cloud solution; today, that estimate has grown to 40 percent.
Who Is Implementing Cloud ERP Now?
Cloud ERP is presently being embraced by three different types of organizations. The first are new, emerging businesses that have never had an on-premise system and want to immediately harness the benefits of cloud ERP. Astrum Solar, a full-service residential solar provider headquartered in Annapolis Junction, Md., is such a company.
"Astrum Solar's rapid expansion facilitated our requirement for a solution that could interweave the ever-changing environment of the solar industry with the rapid development in our company," said Vadim Polikov, president and chief executive officer of Astrum Solar. "We chose [cloud ERP] "¦ because [it will] enable our organization to sustain our flexibility and commitment to the customer as we continue to grow our business and spread solar power to roofs across the country."
The second customer group is those smaller plants of larger corporations that never successfully implemented the larger on-premise solution installed at corporate.
EBARA International, a Japanese world leader in the engineering and production of specialized cryogenic liquefied gas pumps and turbine expanders, is typical. Frank Lowery, director of IT at EBARA International, has a highly functional on-premise system but knows that the cloud is the wave of the future and EBARA can invest in expanded capability at a reduced cost with it.
"EBARA needed to move away from the closed and rigid processes of legacy ERP to the very flexible and open workflows possible [with cloud ERP]" said Lowery. "[We needed a] cloud platform that [could] support our complex, project-oriented, engineer-to-order manufacturing environment today."
The third group comprises companies that are experiencing the end of life of their on-premise systems, such as Oclaro (formerly Xtellus), a San Jose, Calif.-based supplier of scalable Wavelength Selective Switches (WSS) for reconfigurable optical networks. Oclaro grew rapidly and could no longer afford to depend on disparate systems, one for accounting and the other for manufacturing.
Given Oclaro's expansion into a global multi-facility manufacturing and engineering operation, it required an integrated manufacturing, planning, sales, accounting, purchasing, inventory and shop floor control ERP system with standard cost and project cost capabilities. Oclaro also wanted a contemporary, SaaS ERP system which insured that could minimize investment in an IT infrastructure.
Many On Premise ERP Users Staying Put - For Now
There are a number of ERP systems developed 20 and 30 years ago that are still effectively running today. In addition, there are ERP vendors that are continuing to profitably reap software maintenance fees from these systems, keeping a small support development crew to maintain these systems, at least for a few more years.
As a result, when considering replacing on-premise ERP with cloud ERP, one must take the longer view. Massive investments similar to the Y2K challenge that spurred spending on ERP systems in the late '90s will not happen with cloud ERP. Even though there are many benefits from a cloud ERP solution, the eventual replacement of on-premise systems will take time.
While the adoption rate for cloud ERP solutions increases year by year and while new system buys are predominantly falling to cloud ERP vendors, the replacement of on-premise ERP (especially manufacturing cloud ERP) has not yet reached the tipping point and will not do so for several years. Once present on-premise ERP software maintenance practitioners either retire or leave for better job opportunities, the momentum will switch to cloud ERP. As a result, within 10 years, the majority of ERP investments will be in in the cloud.
Keywords: enterprise resource planning, legacy systems, supply chain management IT, supply chain solutions, ERP in manufacturing SaaS ERP, ERP in the cloud
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