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ERP: Why cloud-first doesn’t mean cloud-only

Should software run on in the cloud or on-premise? Consider your organization's application needs before developing a cloud-first strategy


February 28, 2020
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by Syspro

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Photo: © gremlin/Getty ImagesPhoto: © gremlin/Getty Images

Today, manufacturing is being transformed rapidly by changes in Information and Communication Technology (ICT), AI, robotics, cyber-physical systems (CPS), and increasingly powerful IoT devices. The integration of these new technologies has meant that data usage has grown exponentially; however, current legacy systems are often limited in providing agility, flexibility and scalability. As such, a cloud strategy is seen as a logical next step due to its ability to store masses of data, while offering a more flexible solution.

In 2019, the cloud computing providers market grew by over 30 per cent vs. 2018. However, the cloud must be embraced by the organization as a whole to be effective. A cloud strategy should not focus solely on resolving technical issues, but aim to promote, develop, and extract tangible business benefits.

According to a study entitled the “3rd State of Manufacturing Technology,” manufacturers are using cloud:

  • In productivity applications (90 per cent);
  • In new product introductions (45 per cent);
  • To improve communications and connectivity with customers (60 per cent); and
  • To improve supply-chain performance (60 per cent).

The cloud also offers manufacturers scalability, operational efficiency, application and partner integration, data storage, management, analytics, and enhanced security. At the most foundational level, cloud computing influences how manufacturers manage their operations, from ERP and financial management to data analytics and workforce training. In fact, Gartner predicts that, by 2025, over half of ERP spend will be on cloud deployment.

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Despite its various benefits, a “cloud-first” strategy also poses new challenges and requires different decisions. Gartner stresses that these decisions start with “an understanding of the type of application and its technical characteristics, the needs and constraints of the associated data, and the integration of the application and data with other systems.”

When adopting a “cloud-first” approach, what is critical to bear in mind is that “cloud-first” does not necessarily mean “cloud-only.” Whether you are a manufacturer evaluating a new ERP system or considering how to make your existing ERP implementation better, an important issue to consider is where your software should run, namely in the cloud or on-premise.

While some applications can migrate successfully to the cloud, there is a strong justification to keep some applications on-premise in their own infrastructure environments. This is simply because it takes time for an enterprise to develop the skills necessary to run a successful cloud operation. A cloud project is likely to be a multi-year effort, especially as it will take the organization time to leverage all of the benefits associated with cloud applications.

The following options should therefore be considered as part of your cloud-first strategy:

  • Public cloud;
  • On-premise; and
  • Hybrid 

Public cloud

Running your ERP system on a public cloud platform such as Microsoft Azure means you only pay for the resources used. Also, costs rise and fall depending on how the cloud infrastructure is deployed. The initial benefit, of course, is saving on your own investment in infrastructure, which can be a significant sunk cost.

For manufacturers that operate in several locations, or across multiple time zones, a cloud ERP means everyone has access to a single system, rather than running their own local instances. This results in major benefits in terms of centralized reporting, stronger governance and compliance, and improved collaboration across the enterprise. A single system also reduces the need for multiple skillsets to support different locations.

Businesses that opt for the public cloud still need to take responsibility for managing their resources and developing the skills to do it effectively. This requires a level of managed services.

A common model for running ERP in a public cloud is the Infrastructure-as-a-Service model (IaaS). The responsibility for the components of this service is divided between the customer and the cloud provider.

On-premise

Specific machine interfaces may be highly customized and difficult to implement via the cloud in some manufacturing environments. While downtime on a public cloud platform is rare, it is the single largest source of lost production time impacting customer service and business goodwill.

An organization can maintain full control by running its ERP system on-premise. This is critical for highly-regulated industries with privacy and compliance concerns, where a measure of first-line control is essential. Hence companies with regulatory concerns have full accountability in the knowledge that they know exactly where their data is at all times, and how secure it is.

Hybrid

The “best-of-both-worlds” option is to separate your ERP into both on-premise and cloud components. Collaborating with suppliers in terms of quotes and orders is simpler via a cloud portal. Customers and salespeople are assured of up-to-date information on deliveries and pricing via the web or mobile devices if this is cloud-based.

Organizations are turning to cloud-enabled ERP to drive ongoing innovation, increase agility and responsiveness, achieve greater elasticity and scalability, accelerate product development, and reduce costs.

Learn more about SYSPRO Managed Cloud Services.

JP van Loggerenberg is chief technology officer at SYSPRO.