ERP systems embrace monthly SaaS pay model

Posted on 19 Aug 2010 by The Manufacturer

UK manufacturers assessing the fallout of the Emergency Budget need to look no further for their IT silver lining, as next generation enterprise resource planning (ERP) systems embrace the pay-monthly SaaS model. This presents new opportunities to get ahead, provided that manufacturers aren’t seduced by fly-by-night ERP pretenders, warns Steven Hargreaves, group product director at Solarsoft.

While manufacturers continue to ponder what the coalition Government’s Emergency Budget means for their industry, preparing for new growth – however precarious – must be at the top of the agenda. Already operating on a very lean basis, the scope for further fat-trimming is limited, so the only way for most manufacturers to strengthen their position is to win new business and drive differentiation through enhanced quality and service.

The manufacturers’ organisation, EEF, has expressed concern that the new business tax predictability promised in the Budget may have been won at the cost of competitiveness. While the decrease in corporation tax by 1% per year for the next four years (from 28% to 24%) is designed to lighten the load and stimulate growth, decreases in capital allowances and a fall in the Annual Investment Allowance of £25,000 a year to April 2012, may stifle progress and investment in the manufacturing sector, according to industry observers.

Meanwhile, the rate of writing-down allowance for main pool plant and machinery expenditure is to decrease from 20% to 18% per annum, while the rate of writing-down allowance for special rate pool plant and machinery expenditure is to decrease from 10% to 8% a year, affecting any business investing in plant and machinery.

The upshot, then, is that while tax rates are down, allowances have been reduced too, so manufacturers can’t rely on Government intervention to stimulate their industry. If they want to emerge from the recession with healthy prospects and able to seize new opportunities ahead of rivals from home and abroad, they must do more to help themselves.

Next-generation ERP systems offer them the advantages they seek – and need – to maintain and sharpen their competitive position. Unlike older, legacy systems, which struggled to share data easily with other systems, the latest offerings are able to integrate seamlessly with other core business systems. This could apply right across manufacturing operations, even the supply chain as a whole – shortening response times and improving service by allowing a fluid exchange of critical operational information.

Beating the budget blues
Getting their hands on the latest ERP functionality hasn’t been easy while budgets have been under pressure during the recession. However, this has led to a growing interest in alternative approaches to software acquisition, including all inclusive, remotely hosted cloud solutions, where software applications and the computer rooms that run them are moved off site.

Such options are attractive for all sorts of reasons, not least that they relieve manufacturers of the burden of owning, updating and maintaining their own systems, with all of the skill, labour and expense involved.

A remotely-hosted software-as-a-service (SaaS) offering, particularly when run as part of a broader cloud solution (where the supporting infrastructure is also offloaded and owned by someone else), means manufacturers can focus on what they’re good at – making things.

It also ensures that sensitive and expensive servers are no longer being housed on dusty shop floors, and that billing is consolidated – into one predictable monthly service charge with a single provider.
Beware ERP pretenders

So appealing is the on-demand, cloud alternative that a range of new software providers have now entered the ERP market, determined to capitalise on the opportunity to repackage these sophisticated and costly applications for a market short on capital but big on need. Coming from a ‘cloud’ background, they believe that once they have the delivery model worked out, they can apply it to any business solution.

But therein lies much danger. ERP is not easily repackaged in bite-sized chunks, like CRM (customer relationship management) applications have been, to fulfil promises of rapid implementation and flexible remote access. Equally, experts in cloud delivery models cannot become overnight experts in ERP.

Serious, heavyweight ERP underpins an entire business, and must be deeply embedded within it to maximise the return on investment. It cannot be set up in 24 hours and casually tested on a suck-it-and-see basis. Any vendor or service provider indicating such a scenario just doesn’t know the field.

However manufacturers seek to secure the functionality and features they need, they must look to the quality of the software and the credentials of the supplier first and foremost. Delivery and payment options are purely a secondary consideration. Ideally, the provider will offer both scenarios, without any compromise to the software however it is parcelled.

In the current climate, one of the clearest advantages of choosing the cloud option will be the advantage of gaining earlier access to new capabilities without having to wait until a new fiscal period to secure the capital budget. Hosted, service-based solutions, whether simply for the software or a fuller cloud proposition including the infrastructure it runs on, are accounted for differently and treated as a monthly operating expense with a predictable charging structure and upgrades and maintenance built into it, so there are no nasty shocks.

Delivered from dust
Certainly, early resistance to hosted, off-site models for core business software has relaxed, as organisations – even the most conservative banks – accept that ‘purchasing something you can’t see’ is common practice for other equally critical utilities.

In many cases, it is infinitely preferable that expensive, sensitive equipment is being housed somewhere clean, dry and at an optimum temperature, where regular backups and disaster recovery considerations are taken care of. Compare this to the typical manufacturing environment and it’s easy to see why dedicated, robust off-site hosting facilities have the edge.

Counted together, the advantages of cloud computing and SaaS add up to a compelling argument in new software purchases. So, while the EEF continues to assess the fallout of the Budget on UK competitiveness, and tries to determine where new investment and growth will come, there is plenty manufacturing firms can do to underpin their competitive position.

And let’s not forget that, while Deloitte recently ranked the UK 17th, competitively, in the global market for manufacturing (on course for a further slide to 20th in the world by 2015, the report claims), the reality is that the domestic industry had been experiencing its strongest surge in sales and orders for over 15 years in the run-up to the Budget – with new recruitment on the cards for the first time since the recession started.

Manufacturers need to hold on to this momentum, believing that they can forge ahead and claw back global market share through superior quality, new innovation and slicker planning and production practices. Easier, more affordable access to the latest ERP systems offers them a massive boost in this direction, and at extremely low risk.

When the economists later look back, it will be the positive, proactive decisions like these that turn out to have stood the test of time. Austerity or not, this is no time to bury heads or lick wounds.