A popular series of TV commercials features Ticket Oak, a strange tree that gives its human buddies the event tickets they want. Cloud computing is like that oak, presenting full-featured manufacturing applications as ripe for the picking in a software-as-a-service (SaaS) model. Manufacturing users don’t have to worry about buying an orchard, growing their own applications, tending to the grounds or planning for upgrades. They just purchase what they need as they need it, and continue bottling their liquids or assembling their widgets.
The seemingly magical nature of cloud computing may be one reason why manufacturing industries have, until recently, been slow to embrace it. After all, plant personnel who have historically worked directly with machinery and on-site systems can be skeptical of anything they can’t see and manipulate. But the reluctance to consider cloud computing seems to be over: Following years of limited capital spending during the recession, many industrial companies are ready to invest in SaaS and other software development and deployment methods that deliver industrial software over the cloud.
Success stories from early adopters are attracting the attention of manufacturers of all sizes and types. For example, IPICO (www.ipico.com), a global manufacturer of radio-frequency identification (RFID) tags and readers for industrial, logistics and sports-competition applications, found that the functionality and flexibility of a cloud-based enterprise resource planning (ERP) package made it vastly superior to IPICO’s previous on-premises solution.
“We first selected NetSuite in 2008 with the notion that the company would grow substantially,” says Gordon Westwater, IPICO president and CEO. “That didn’t happen. For years, it only supported our consolidation efforts. But now, it is supporting our plans for growth.”
IPICO began as a global startup in 2003 with a bundle of patents and a complex, global business model: Corporate and financial headquarters in Etobicoke (Toronto), Ontario; R&D in Pretoria, South Africa; regional job-shop operations (contract manufacturers) in Australia, China and Europe; and final assembly in Toronto, and Peoria, Ill.
“We control our whole supply chain, and because of the way we were geographically spread—60 people in five different offices—initially, there was no other way to do it than to use cloud computing,” Westwater says. “If you’ve got employees with a laptop, they can access the work from anywhere.”
While the dual-frequency (UHF and DF) RFID technology IPICO offered was sound, the market wasn’t ready for it, Westwater says. “RFID was booming in concept but not in actuality.” Therefore, the company was forced to consolidate to one-third its size.
“When we scaled back, we were lucky. We had such a solid and stable core that we were able to do some serious consolidation,” Westwater says. “And now that we’ve got a more disciplined process, we can grow with considerable leverage.”
The company’s newly disciplined processes are an indirect benefit of cloud computing. Because cloud computing lowers both the upfront cost and total cost of ownership of highly specialized and expensive software, IPICO could afford to switch from
QuickBooks to NetSuite One World and its add-on module for light manufacturing. By doing so, IPICO gained access to all the best practices and experiences of NetSuite’s 15 years of delivering ERP, accounting, order management, inventory, customer resource management (CRM) and other applications.
Getting bills of materials (BOMs) that were easily transferable to their contract manufacturers was a huge boon, says Westwater. “So was the discipline of the approval system: Approving POs from a central location. Making sure there’s not a rogue PO.
We’ve given more authority to people who didn’t have it before and have seen better results.”
From ERP to mobility
While there aren’t enough cloud-based plant applications on the market today to drive on-premise solutions into extinction any time soon, options for manufacturers are certainly growing, and users are considering them.
Cloud-based versions of manufacturing-related software fall into three broad, sometimes overlapping, categories:
• ERP and other enterprise applications like those from NetSuite, Infor, Epicor, Plex and others;
• Targeted mobile-interface applications, which involve the monitoring of and interaction with machines and processes via smartphones, tablets and other portable devices; and
• Collaborative design and engineering software applications such as product lifecycle management (PLM).
Mobility applications are showing substantial growth because of a type of SaaS known as PaaS, or platform as a service. Users of SaaS have full use of software applications via a network, but have no responsibility for hardware maintenance or software application development. PaaS is a boon for OEM software developers because it serves up a computing platform and development environment for Internet-based or mobile apps that machine makers, HMI/SCADA designers or systems integrators can use and resell.
As Forbes contributor Reuven Cohen has said, “Like it or not, the Internet has become the operating system of choice for software developers. And software is increasingly becoming less important than the data that drives it. What we’re witnessing is a rapid decoupling of traditional software to a data-driven, web-services world managed by an ever-increasing cloud of connected devices. The new breed of PaaS environments…frees developers from the limitation of configuring hardware and empowers them to focus on solving the real problems.”
Before joining Saint-Gobain as a senior automation engineer this year, Kailash “Kai” Mariappan worked as plant controls specialist and senior controls engineer at Coca-Cola’s plant in Egan, Minn. At this plant, Mariappan focused on solving specific production problems and he became convinced that cloud computing could be one of the best technology tools for manufacturers. At Automation World’s The Automation Conference 2013, he said that the automation space is ripe for the kinds of services from the cloud that can make operations run more smoothly and efficiently.
In his presentation at the conference, Mariappan pointed to Windows Azure, Microsoft’s cloud platform, and the range of automation maintenance tasks and operations that could be handled by a software service from the platform: virtual machines, backup and recovery services, data management, business analytics, mobile services, networking, identity and messaging.
Cost savings drives interest
Cindy Jutras, an independent analyst and founder of research and advisory firm Mint Jutras (www.mintjutras.com), specializes in the business impact of enterprise applications and studies ERP software deployments. She says that not only are manufacturers considering SaaS ERP today, many are not willing to consider anything else.
“A few years back, 90 percent of users would have been willing to consider traditional on-premises ERP deployments. Just 56 percent of users in my 2011 ERP Solution Study were,” Jutras says. She adds that newer data indicates that the percentage has “dropped dramatically further.”
Jutras says that the biggest drivers of interest in SaaS deployments are cost savings. “More than half (52 percent) cited lower total cost of ownership (TCO); 46 percent also noted lower startup costs,” she says.
For example, the chief financial officer of one small company noted the estimated upfront investment in an on-premise solution for eight users was $150,000, Jutras says. This cost was primarily for implementation services, but also included hardware and software. The actual upfront cost for the SaaS solution chosen was less than $100,000 and allowed up to 25 users, she says.
“While software and service costs, and even pricing models, will vary from one solution to the next, this differential between on-premise systems and SaaS is not atypical,” Jutras says.
Beyond the upfront cost differential, that same CFO noted that, with the on-premise system, the company would also have to invest in a database administrator/programmer. “We conservatively projected that cost to be $75,000 per year,” said the CFO.
“We compared that to the $45,000 per year subscription cost for the SaaS solution, with no IT staff required. So, on an ongoing basis we would save on the order of $35,000 to $45,000 a year. But the advantage of not having consultants living in our offices or an IT department is… priceless.”
Some think they need a dedicated IT department to get the exact software solution they need. The desire to customize software—an option preferred by many manufacturers—may deter some from the SaaS route, but “don’t assume you can’t customize a SaaS ERP solution,” says Jutras. Many packages are highly sophisticated and highly configurable, meaning code modification may not be required.
The software upgrade cycle for applications is another significant aspect of any manufacturing technology TCO calculation. Jutras says 48 percent of respondents consider the reduced cost and effort of upgrades as a particular advantage to SaaS. The ability to get leading-edge technology more easily also was considered an advantage for 39 percent of respondents. However, a not insignificant proportion of users, 26 percent, still fear the loss of control associated with others managing their software upgrades.
Says Jutras, “Even though upgrades at first might feel like a forced march, that forced march is actually good for you. All bug fixes and regulatory requirements are in place. When you are ready to turn on the new functionality, it will be there. So the combination of frequent updates and an ‘opt in’ capability [where customers can choose to implement an enhancement] is an important characteristic by which you should evaluate potential solutions."