Manufacturing Strategies that Win: Executive View of the Cloud

Manufacturers have been slow to embrace the cloud. But the proven success of cloud-based solutions, along with the promise of a less expensive and more responsive business solution infrastructure, is prompting many manufacturers to take a closer look. This report explores how manufacturers can use cloud-based solutions to transform how they manage their supply chain and internally improve operations, leveraging the cloud to gain real-time visibility into all information across their company.

Executive Summary

To date, manufacturers have been slow to embrace cloud computing. But the proven success of cloud-based solutions, coupled with the promise of a less expensive and more responsive business solution infrastructure, is prompting many manufacturers to give the cloud a closer look. This executive brief explores how those manufacturers can use cloud-based solutions to transform the way they manage their supply chain and internally improve operations, leveraging the cloud to gain the needed real-time visibility into all information across their company.

Also in this report:

  • how cloud solutions address manufacturers’ key business concerns
  • how cloud solutions can steamline operations by connecting manufacturers with partners and suppliers
  • how cloud solutions can help manufacturers respond quickly to variable economic conditions
  • considerations for evaluating cloud service providers

Changing Software Requirements

It’s often said that manufacturers have been slow to embrace cloud-based enterprise software—but that doesn’t tell the whole story. While large manufacturers that have already made significant investments in legacy IT systems might shy away from the cloud, small and mid-sized manufacturers are embracing it.

There are a few reasons for this: concerns about the cloud model have been mitigated to an extent by conceptual maturity generally, as well as by the market entry of solidly branded cloud service providers. Indeed, the cloud computing model has evolved well past the proof-of-concept stage for enterprise software vendors and clients alike. According to TEC’s data on user demand, interest in software-as-a-service (SaaS) enterprise applications has risen from less than 13 percent in 2008 to approximately 16 percent in 2010, indicating that cloud computing is an increasingly serious consideration for enterprise software buyers.

Worries about integration requirements and transaction processing capabilities have been allayed by fuller feature sets, more flexible customization options, and Web service–based application programming interfaces (APIs) that enable fuller integration with workflow requirements.

As for such concerns as service level issues (including data security) and regulatory compliance, increased awareness of just how emptors should caveat means buyers are more careful when negotiating servicelevel agreements (SLAs) (see also Checklist—Nine Considerations for Evaluating Cloud Service Providers, later in this report). And the notion that cloud computing makes compliance more difficult is a misconception: it is relatively straightforward to configure, test, and implement cloud applications. If compliance requirements change, new information can be incorporated and deployed to system users without delay. Naturally, cloud adopters need to configure their business processes to ensure that the new functionality adheres to regulatory and compliance requirements.

Another reason for increased cloud adoption among manufacturers is an emerging manufacturing model that relies on outsourcing to keep operations streamlined and keep costs down. It’s a model that helps small and mid-sized manufacturers stay competitive, but it also demands that they start lean and stay lean. Having seen the way that companies in other sectors have used cloud solutions to reduce spending and streamline operations, these manufacturers see cloud solutions as a perfect fit for their business.

This outsourcing model changes software requirements for small and mid-sized manufacturers, in the sense that connectivity and visibility move to the forefront of IT considerations, as well as the ability to react quickly to unexpected events that might otherwise dry up your supply or revenue streams. Another important characteristic of this outsourcing approach is that IT management consists of managing high-quality service and support rather than IT infrastructure—and with these infrastructure costs reduced or eliminated, your IT department is in a better position to function both as an advocate for your business process requirements, and as a key advisor in managing how these requirements are met by IT service providers.

Like all manufacturing organizations, outsourced manufacturers need to focus on process integration and data visibility, where cloud computing can provide a clear advantage in terms of addressing such issues as order and inventory management, supply chain visibility, spend consolidation, demand/supply synchronization, and management of environmental compliance. The goal is to concentrate data in one location as a repository for all information driving financial, logistics, and legacy systems—and to minimize the need to transfer data from one system to another (or, even worse, from one spreadsheet to another).

The bottom line is that small and mid-sized manufacturers are driven by a requirement to keep costs in check, which is where the cloud model provides immediate benefits, including:

  • the capital cost efficiencies associated with dispensing with the need for IT infrastructure,
  • the opportunity to redeploy IT resources to areas of greater strategic advantage, and
  • the ability to deploy cost-saving tier-one functionality that might have been out of budgetary reach in an on-premise solution.
Ease of implementation for new features also goes hand-in-hand with the reduced procurement time and minimal upfront cash outlay principles of cloud computing.

Management in Real Time

While heavy outsourcing helps small and mid-sized manufacturers stay lean and competitive, it presents significant logistical challenges. Each outsourced business process represents a relationship to manage— be it with a supplier, a manufacturing plant, a shipper, or another partner. With key components of the business spread across many companies, and probably many countries, real-time operational visibility is essential. Equally important is instant access to the financial data and key performance indicators (KPIs) that brand owners need to quickly make well-informed decisions. By offering a complete, real-time view of the business, cloud solutions can help outsourced manufacturing operations run smoothly, and more costeffectively than on-premise solutions.

For instance, cloud solutions can provide smaller manufacturers with new, relatively inexpensive tools to connect with partners and suppliers, offering the ability for small manufacturers to integrate suppliers at a level that was previously accessible only to larger companies. In this sense, small and mid-sized manufacturers can take a step toward an integrated supply chain. Of course, as with any solution, capabilities vary in proportion to price, but the point is that cloud solutions can increase the depth of standardized communication through a virtual platform.

Cloud solutions can also enable small manufacturers to leverage consolidated data from a single system connecting them to their suppliers. This makes it possible to turn data into useful KPIs, which gives executives a clearer picture of operations. Such information helps vastly reduce operational risks, as well as allowing manufacturers to focus resources on value-add activities such as production planning, marketing strategies, and research and development (R&D). Cloud computing solutions also tend to make it possible to integrate more information media (such as mobile platforms) into their solutions, making business management more flexible and responsive for on-the-go executives and front-line employees. This potential also exists in more traditional on-premise solutions, but they are likely to be add-ons as opposed to built-in features.

By its nature, cloud computing involves a less complex deployment process than for on-premise solutions. But every integration project has a learning curve, regardless of platform. Cloud vendors, by virtue of their operating model, have designed support material that is truly intended for a flexible platform, as most of the support and information-sharing will be conducted remotely. In the case of on-premise solution vendors, on the other hand, the shift toward remote training (integrated through online presentations, conference calls, and so on) has been driven primarily—and sometimes awkwardly—by cost pressures. Of course, depending on the scope of implementation, on-site support for cloud deployment need not be dismissed out of hand—it may also be treated as an add-on to be considered on an as-needed basis.

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