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Not Yet Sold on SaaS ERP in Manufacturing? Take a Hard Look at Plex Online - Part 1

Written By: Predrag Jakovljevic
Published On: May 26 2010



The software as a service (SaaS) model is now mainstream in many functional areas of business, quite outperforming its on-premise counterpart in this tough economic environment. Consider customer relationship management (CRM), transportation management, talent management, payroll processing, travel and expense (T&E) management, strategic sourcing and procurement, and many other point (or departmental) solutions in many sectors.

But what about a comprehensive multi-tenant on-demand enterprise resource planning (ERP) solution for manufacturing companies? Well, the choices are still quite slim in that regard.



Namely, Glovia On Demand is yet unproven and is certainly a functional skeleton compared to its much more functional and broader on-premise sibling Glovia ERP (formerly Glovia.com)QAD On Demand and Infor ERP SyteLine are recent on-demand ERP alternatives, but both are still very nascent and not established offerings (and it appears that they are still not truly multi-tenant update: Infor ERP SyteLine is multi-tenant, while QAD does not appear to be). For its part, Datasul, which leverages the Progress OpenEdge platform, is certainly a proven SaaS ERP player, but confined to its native Brazil and Latin America region.

SAP has been “threatening” for quite a while to take the market by storm with SAP Business ByDesign, but this SaaS offering has yet to be unleashed in full force (i.e., to be generally available [GA] rather than in a limited release in six countries, currently live at over 100 customers under a so-called "chartered program"). Another question mark is how manufacturing-oriented the product will be in its first generations of truly multi-tenant offerings.

The established SaaS providers, Salesforce.com, NetSuite, Workday, Taleo, SuccessFactors, Concur, and ADP are far from being manufacturing-centric. For now, many other renowned on-premise manufacturing ERP providers, such as Oracle, Microsoft Dynamics, Lawson Software, IFS, SYSPRO, and so on and so forth, are missing in action (MIA) when it comes to multi-tenant SaaS for manufacturing. At best, they might offer single-tenant hosted versions of their on-premise software.

Alternatively, when they do offer true SaaS solutions, it is mostly for niche functionality in a “software plus service” manner (only as a SaaS fringe to their on-premise software), such as to enable credit card payments, exchange rates retrievals, contact management, maps, Web storefronts, electronic signatures, etc. Thus, I concur with Frank Scavo’s assertion that, for the time being, there is only one true SaaS provider that offers a complete ERP solution for manufacturing companies: Plex Online [evaluate this product] from Plex Systems (formerly Plexus Systems).

Manufacturers and SaaS: Is There a Need? You Bet!

Legacy software is a business inhibitor in any environment, and manufacturing companies also want business-related innovation, rather than having to manage IT infrastructures on their own. Traditional on-premise enterprise software is static and inflexible, in sharp contrast to the businesses that run on such software.

On-premise ERP deployments have been problematic in terms of time, cost, and features/functions enhancements. As for the troublesome deployments, an average ERP or supply chain management (SCM) deployment project is close to three years, whereas a whopping 70 percent of ERP/SCM deployments are considered failures (according to Gartner).

Given the fast pace of IT innovation, some on-premise technology can become obsolete before the deployment is completed. But while the total cost of ownership (TCO) far outweighs the benefits, the average lifespan for an ERP/SCM deployment is between 7 and 10 years (according to Forrester). As the best gauge of technology obsolescence, one should ask any on-premise ERP vendor the following question: “How many companies are actually using the latest version of your software?”

In addition, maintenance of on-premise solutions is a nightmare for IT departments, whereby the “hamster wheel” of patches, upgrades, backups, and so on far outweigh the original cost of software. New features and custom requests, which take months to implement, often are not supported in upgrades. Last but not least, in traditional on-premise deployments, not every user has access to the ERP system (especially not the plant-level users), in which case data moves slower and visibility is hindered.

Why So Few SaaS ERP for Manufacturing, Then?

For one, it is not an easy feat to completely rewrite a fully functional on-premise manufacturing ERP solution to a multi-tenant SaaS model. But the rewrite is only one part of the equation, as discussed in my earlier blog series. Namely, for its part, Epicor has long been SaaS-ready in terms of technology (multi-tenancy), but not yet logistically and mentally ready (i.e., in terms of channel enablement, its ability to run data centers with compliance to stringent service level agreements [SLAs], and the transition to a recurring revenue stream).

In other words, giving up the upfront perpetual license fee model (with subsequent annual service and maintenance royalty stream) for a deferred but recurring (i.e., more predictable) subscription model of SaaS is a financial disincentive for many on-premise providers and their investors to make the switch. Thus, the Epicor Express SaaS offering was just recently launched, and it reportedly has a handful of live customers and a dozen implementing it. Epicor Express seems like the real deal in terms of multi-tenancy and functional scope for job shop manufacturers, but, needless to say, it is a nascent offering.

The next logical step would be to look at nimble SaaS startups that don't have the burden of an installed customer base. However, manufacturing is not an easy place to start getting one’s feet wet, as these environments require domain expertise. In fact, many traditional on-premise ERP systems are largely not optimized for manufacturing, as they prevailingly support an accounting-centric model rather than manufacturing-centric model.

What I am talking about here (and in my previous blog series) is that data from the shop floor is disconnected from the top floor (ivory tower), and these ERP offerings typically miss key manufacturing features, such as lean manufacturing principles, integrated quality management, traceability, etc. All these facts might explain why the abovementioned pure-play SaaS providers have started by tackling the services sector first.

Plex Systems’ Secret Sauce

In contrast, Plex Online was literally born on the shop floor in 1989. The vendor (at the time called Plexus Systems) was spun off from an ERP implementation project at an automotive supplier (a metal stamping and forging plant) in 1995. Initially, the product was on-premise and based on Progress OpenEdge, sold only to similar automotive manufacturers. In fact, today Plex’ customer base consists of nearly 500 manufacturers (about half of which are automotive suppliers).

Plex switched to on-demand, single-source, multi-tenant architecture in 2000, but it chose Microsoft’s .NET technologies for the rewrite (as Progress wasn’t SaaS-ready at the time). For some time after the vendor re-architected its formerly on-premise client-server system to SaaS, it continued to keep new on-demand customers paying upfront license fees. This has allowed Plex to transition more smoothly to the recurring subscription model and fund its operations, until the company felt comfortable enough to convert every customer to a subscription model and SaaS delivery a few years ago (no new client-server system has been sold since 2000).

This transitioning business model helped the fledgling company achieve financial stability, as subscriptions now provide a long-term, stable financial model. In fact, Plex claims to have been Earnings Before Interest, Taxes, Depreciation, and Amortization (EBIDTA)-profitable every year since its founding, with a compound annual growth rate (CAGR) of between 40 and 50 percent since 2003. Its investors include the original founders, and, from 2006, Apax Partners, a private equity group with 30 years of global investing experience and US$40 billion under advisement.

As a privately held firm, Plex does not publicly report its financial performance, but my estimate is that the company’s revenue will be between US$30 and US$40 million in 2010.  Plex openly talks about 33 percent growth in the top line for 2008, and 14 percent for the generally difficult 2009, and cites a good outlook for 2010. During these times when nearly all on-premise ERP providers are showing negative license sales growth, Plex's results are outstanding. The company is a rare shining light in economically ravaged Michigan state, in light of its ongoing hiring and expansion to new facilities.

Plex Online: Up Close and Personal

Founded in 1995, Plex Systems, Inc. is headquartered in Auburn Hills, Michigan (US), and has nearly 150 employees. The Plex Online solution offers more than 350 functional modules that give high-precision and high-liability manufacturers (e.g., automotive, aerospace, medical devices, food, and electronics) instant access to vital information and management functions via a simple Web browser.

Plex Online offers features for virtually every department within a manufacturing operation, including manufacturing operations management (MOM) and quality management systems (QMS) for the shop floor; CRM for sales and marketing; SCM for procurement; and ERP for finance and management.

In terms of capabilities, the on-demand solution features product lifecycle management (PLM) functions such as program and change management; CRM features such as order entry and tracking; manufacturing execution systems (MES) functions such as production scheduling and programmable logic controller (PLC) and supervisory control and data acquisition (SCADA) machine integration; and SCM functions such as supplier quality, traceability, and electronic data interchange (EDI).

Look here for more details on the product’s functional scope and here for a variety of the product's screenshots. It is interesting that Plex Online’s footprint and shop floor focus resembles those of IQMS, with the major difference between the two solutions being their deployment models. For now both vendors are growing at great paces, but my guess is that in a few years IQMS will start exploring the on-demand model.

Plex Online’s Sweet Spot

Plex claims to have two major groups of customers. One group consists of manufacturers that appreciate the product’s functional fit and comprehensive feature set (especially in terms of quality, traceability, and costing). In other words, the functional fit (the “shop floor DNA”) is so compelling for these manufacturers that the deployment model (within or outside the firewall) is no longer an issue.

The other group consists of the early adopter customers that insist on SaaS and are willing to work with Plex to make its product a fit to support their differentiating strategy of outperforming status quo. These companies want to extend their ERP system to everyone relevant (due to Plex’ site licenses that even include suppliers’ access to the system) and automate top-floor to shop-floor. They also want to track physical reality by capturing and tracking every transaction in near real-time.

Plex customers report the ability to move data faster and make decisions faster due to their ability to see every relevant fact. Also, the Web access enables universal adoption across these companies’ entire ecosystem of trading partners.

Fostering Community-based R&D

In addition to the attraction of no up-front license costs for customers, Plex Online is a “living system” that enables IT systems and processes to change with business. Plex Online is purpose-built for enterprises to fit their business, and yet it can and will be changed on-demand (as required). New features are introduced into Plex Online on a daily basis and implemented at once in the system for all customers.

Still, these chances are not necessarily imposed, since each customer can choose to opt in (or not) to the new functionality according to the company’s needs. Once new features become part of the base application, they are never rendered obsolete by subsequent product releases (or service packs, rather).

Plex also allows a high degree of configuration for individual customers and provides a visual composition environment to allow customers to create their own custom displays and reports. Daily opt-in (or opt-out) enhancements obviate the traditional on-premise upgrade treadmill (i.e., endlessly waiting for the next “latest & greatest software release”), the use of customized code, or simply settling for a sub-optimal “plain vanilla” product implementation.

Plex's research & development (R&D) model has some similarities to the community-driven development (accumulated compounded knowledge) philosophy of free and open source software (FOSS), but without being free of charge. Namely, Plex claims to not have the overhead cost of internal product managers per se, since a vast majority of the new features are driven by online requests from customers.

When a customer asks for some feature, Plex first checks whether there is something similar already available (perhaps called differently, but doing the same function). If not, than that customer pays some affordable fee for the R&D enhancement, and that feature is then available to everyone in the community for free. Some customers may insist on the intellectual property (IP) rights to that feature, but that is rare and it costs much more.

About 28 percent of Plex's revenues comes from these R&D actions and implementation services, and the remaining 72 percent from SaaS subscriptions. Plex calls this methodology Rapid Application Development (RAD) or the process of creating or improving software by involving the user community in all phases of the system development. The vendor's R&D department is a profit center, as customers pay for the majority of R&D. In 2006, Plex claims to have completed over 10,000 requests for new features and customizations.

The vendor is forthright about its challenge of how to communicate and broadcast the hundreds of daily/weekly changes to the software to its customers. To that end, Plex has recently formed a Customer Advisory Board (CAB), while there is also a Wiki-based help system to which end-users have been tirelessly contributing (in a crowdsourcing manner). In addition, the deployment system is tied directly to the documentation system and to the “New Features” thread in the forum.

As a result, Plex is quite open about its list of customer references. The overall customer satisfaction (measured in mid-2007) was reportedly 100 percent among the customers that had been on the system for 6 months or longer.

The next part of this blog series will zoom in on Plex Online’s capabilities. Your views, comments, opinions, particular experiences with Plex and its product are welcome in the meantime. Are you becoming more open-minded and ready for an on-demand manufacturing ERP product?
 
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