Vendor Reservations, a Full-fledged SaaS ERP, and User Recommendations

How About Full-fledged SaaS Enterprise Resource Planning?

The previous notes in this series have left us in a quandary: Why has software-as-a-service (SaaS) not been fully embraced by the full-fledged manufacturing enterprise resource planning (ERP) world? Sure, the SaaS Showcase features over a dozen SaaS ERP solutions, but such companies as NetSuite, Intacct, Plexus, Workday (a new venture from former PeopleSoft founder Dave Duffield), or Everest Software are not really forerunners of deep and versatile manufacturing capability. Also, their SaaS-only offerings are not appealing to the many conservative enterprises that tend to prefer the reserve option of going on-premise as required. In fact, many such environments exhibit interest in testing on demand applications in a much narrower functional scope as a ramp-up for full-blown use down the track. One would need to see the likes of SAP, Oracle, Infor, Lawson, Epicor, QAD, IFS, Cincom, Exact, etc. wholeheartedly jump on the bandwagon to really believe the traditional ERP vendors have taken up the SaaS religion. One may want to note that vendors like SAP have a number of customers for whom the vendor (or one of its partners) hosts a manufacturing ERP environment. While we may not consider this SaaS, we can at least recognize it as a step in that direction.

Last part of the series SaaS-ing the Manufacturing Opportunity.

The first step in resolving the quandary would be the enormous re-architecting to make the applications work on the Web and in a multi-tenant mode. While certainly a major hurdle, it is not an insurmountable one. Namely, Epicor, accidentally or not, had its Vantage product (see Examples of Microsoft .NET Enablement) rewritten in a multi-tenant architecture, but is still pondering whether to launch the on demand offering in earnest.

For the previous notes see:
SaaS-ing the Manufacturing Opportunity
Software as a Service: Not Without Caveats
Software as a Service's Functional Catch-up

Lukewarm acceptance from prospective customers and the above transitional growing pains would be other reasons for SaaS ERP tardiness. Also, the industry-specific, end-to-end, and cross-departmental nature of ERP processes is another barrier to SaaS entry, which, as depicted earlier on, has so far flourished in mainly "vanilla" customer relationship management (CRM) and supply chain management (SCM) functionality for a specific department. Where complex orchestration and business process integration is involved, SaaS functionality still trails its on-premise counterpart. It is, hence, ironic (but also poignant) that Salesforce.com runs its back-office business on the "old-school" Oracle E-Business Suite, even though Salesforce.com is used for its front office activities, especially opportunity and partner management and marketing campaigns.

Another problem with an ERP SaaS offering stems from the fact that in order to reduce complexity, most ERP systems have come with many templates to fit specific industries so that a plethora of system parameters needs to be set. But once these parameters have been set, subsequent changes would be difficult. Every SaaS product currently available still offers little ability to convert and cleanse data, run test scripts, or document processes, which are tasks that comprise up to 70 percent of implementation costs irrespective of the software product. One should thus look for the built-in logic within an ERP application that would accommodate different manufacturing or planning environments, but which would not become active until the users define what kind of logic is required at the item level. This would mean that a company could have some parts planned using individual work orders and some via repetitive schedules in the same location, whereby some parts in the location can be automatically back-flushed and others would be issued to the order. Having a system that can support mixed-mode manufacturing without the need for artificial constraints would mean that the technology is available to offer on demand manufacturing ERP to the marketplace.

Veteran Enterprise Resource Planning Vendor Makes a SaaS-y Statement

Consequently, it might be refreshing to see the first full-fledged and versatile manufacturing-oriented on demand ERP SaaS solution come from a veteran vendor whose capabilities seem to have always been far greater than its recognition in the global enterprise applications market. Namely, Glovia International, a provider of extended ERP solutions for both engineer-to-order (ETO) and high-volume/repetitive manufacturers, announced the opening of Glovia Services Inc. in October 2006—a new company that is possibly the industry's first provider of SaaS solutions specifically designed to help small to medium businesses (SMBs) manage their manufacturing processes. With its headquarters in El Segundo, California (US), Glovia International is a subsidiary of Fujitsu Limited (TSE:6702 [Tokyo Stock Exchange listing]), a leading Tokyo, Japan-based provider of information technology (IT) and communications solutions for the global marketplace, with consolidated revenues of over $40 billion (USD) in fiscal 2006.

In conjunction with the launch of Glovia Services Inc., Glovia International introduced GSInnovate, a manufacturing solution based on the company's existing and renowned on-premise glovia.com manufacturing product. With its more innovative delivery model, the solution supports the management of many manufacturing processes on a SaaS technology platform that promises to deliver overall business performance with reduced investment and risk. Glovia Services is the rare company that has a comprehensive SaaS solution specifically designed to help manufacturers in the SMB market manage key processes such as inventory management, order management, procurement, and financial/accounting management.

The solution is based on a SaaS delivery model in which there is no actual software, hardware, or infrastructure for the SMB manufacturer to purchase or maintain. A SaaS application is accessed over the Internet with a browser, eliminating the up-front costs of hardware, licenses, and the expensive technical staff required to maintain these systems. Glovia Services will focus its solutions exclusively on this growing marketplace of smaller manufacturers—a market typically underserved by traditional application solution providers, but which nonetheless represents a multibillion-dollar growth opportunity for enterprise technology. The solution is geared for discrete, job shop, and ETO manufacturers with annual revenues of $10 million to $50 million (USD), or smaller subsidiaries of larger companies. The functional and flexible glovia.com's extended ERP suite provides for the needs of ETO, make-to-order (MTO), high volume, and mixed-mode manufacturing environments through a broad functionality that caters to almost every stage of the entire product lifecycle (that is, from the "design" and "make" to the "fulfill" and "service" phases).

Glovia realizes that in order to attract customers outside its limited ERP customer base, the back-office platform agnosticism of its e-business products should be the company's highest priority. Owing to its recently found flexibility through Java and XML enablement, glovia.com may now function well either as a corporate backbone system or as a solution that executes operations and planning at the plant or unit level. With regards to coexistence with other systems in the latter case, the vendor has lately begun to offer integration adapters to link with other enterprise or legacy systems.

Glovia hopes to become a manufacturing service platform that will connect and integrate various business systems that a user company might currently use. Customers should hereby be able to get the answers to "What? When? How many? How much? How to?" for demand throughout the supply chain via such optimized service platform engines.

How the Software as a Service Offering Fits the Bill

The initial target for the Glovia Services' sales operation is brand new customers, although this does not rule out smaller operating units of existing customers, if appropriate. The vendor has analyzed the full glovia.com offering and selected the functional set that it believes will best fit the target customer. This is not to say that the SaaS offering will stay as it is now; Glovia may decide to extend the functionality using other Glovia modules down the track.

Currently, GSInnovate is a broad solution suite built for manufacturers in the SMB market and supports critical manufacturing processes such as inventory management; bill of material (BOM) and material requirements planning (MRP); order management; procurement; sourcing; and financial/accounting management. Key attractions for small manufacturers should include an appealing cost of entry, packaged implementation pricing, low monthly fees, and month-to-month contracts. Manufacturers can operate from a single site, multiple sites in a single country, or multiple sites in countries around the world, since the solution also features multi-language and currency capabilities. One minor downside, though, is that since GSInnovate is a comprehensive and functional suite, full deployment may take somewhat longer, though Glovia Services estimates that three months should be the norm.

Glovia also believes GSInnovate is differentiated with a "direct sell-direct support" philosophy in serving such prospective customers. This might be beneficial in the short term, since the SaaS partners' business model and value proposition is yet to be crystallized in the market. Also, unlike commodity providers, Glovia SaaS customers might realize added value from a direct sales team that knows the manufacturing market and the specific challenges faced by small businesses.

User Recommendations

Prospective customers and competitors of a vendor offering SaaS should take note, since the idea of paying for software (service) based on usage, quicker deployments, and lower start-up costs cannot be ignored. Still, many customers remain adamant about functional scope and vertical focus and the vendor's viability, and want the (reserve) option of bringing the arrangement in-house for whatever reason.

As issues of Internet security, privacy, and multi-vendor product interfaces are addressed, the number of vendors adopting SaaS and other business models will undoubtedly grow. The prospective customers should not get hung up on the semantics and on vendors' marketing gimmicks, but rather view their SaaS or on demand needs as part of the long-term strategy. After identifying which parts of business that could be served well by SaaS or on demand applications, these should be piloted in an isolated part of operations to test the features and identify any possible flaws.

At their end, vendors will have to define and deliver greater customer choice from among perpetual, term, enterprise, and value-based licensing models, and articulate a road map to bidirectional migrate customers between the licensing models as the business needs change. To replace manual and spreadsheet-based processes, aging custom-developed and homegrown software, or aging legacy ERP systems, smaller manufacturers should explore both SaaS and traditional on-premise ERP alternatives. Given that many small enterprises use only a fraction of the functionality contained within a typical ERP system (see Application Erosion: More Causes and Cures), SaaS deployments may be a way to access this core functionality more quickly and for a lower up-front cost while retaining the ability to "turn-on" more advanced capabilities on an as-needed basis.

In general, using hosted arrangements as solutions (and not only as exercises in cost reduction) will make sense for high-tech/electronics manufacturers and similar complex manufacturing segments that are already outsourcing many portions of their manufacturing operations or that are dispersed geographically with their own manufacturing and distribution centers. The decision to adopt hosted applications service or not requires due diligence, as with any other decision of strategic importance. This is pertinent to both providers and potential customers given that although the promise of reduced implementation risk and time, lower up-front costs, etc. might justify the hosting model, this brings an entire new set of issues for the mid-market organization to consider. Consequently, firms evaluating various deployment options should consider doing so for both SaaS and traditional on-premise options beyond the pure cost trade-offs. Depending on the business models and economic drivers, differences in business benefits, flexibility, vertical focus, and risk management are important when comparing these deployment options. The SaaS delivery model has to be embraced by the users for its broader potential value proposition (rather than a mere start-up cost), such as ease of sharing data with trading partners, availability of backup data centers for disaster recovery, and having access to application services and capabilities that would be prohibitively expensive to achieve and maintain in house.

Some of the issues that need consideration include the technical capability of the provider to administer the program; the provider's industry focus; applications customizability; the ability of the vendor or service provider to guarantee connectivity; the pricing model chosen; and how to negotiate a service level agreement (SLA). These issues need to be addressed in conjunction with evaluating the capabilities of the software package, and understanding whether the hosted offering differs from the traditional licensed offering at all. Clients should diligently and comprehensively weigh the benefits against the potential business constraints of the hosted option, and they should make assessments based on other clients that are eager to provide references.

Before making a final decision, prospective users should understand well their business continuity plans and ask such questions as "Who owns the data and how might the vendor be using it in the future? What happens to data when the SaaS arrangement is discontinued? How is data confidentiality and integrity insured and enforced?" Contesting vendors should be vigilantly prodded about their initiatives with regard to intrusion controls; data privacy standards; support for mobile devices; identifying and preventing potential points of network and server failure (via backup, recovery, or something else); and scalability and redundancy, to name a few. Users should ask vendors what SLA guarantees they can promise and have them disclose recent planned and unplanned outages, especially in light of potential cascading failures from using third-party providers (partners). Also, the strength of a vendor's provisioning, administration, single sign-on, and systems management technology should be ascertained. Users should understand the ramifications of future system and infrastructure upgrades and the likely related disruptions (that is, are these upgrades forced across the board, or there is some support for gradual upgrade paths?).