Plex Online: Will the Canadian sun shine on ERP in the cloud?

Plex Online – an ERP system designed exclusively for manufacturing companies – is fundamentally different from most other ERP systems. The difference is that the software is only available in the cloud, as Software-as-a-Service (SaaS). Companies don’t have the option to license the software and install it on their own servers. They can only subscribe to it and access it via the Internet.  

As part of my research on Plex Systems, I recently interviewed its CEO, Mark Symonds, and conducted a reference check with one of its customers – Marwood Metal Fabrication Ltd., a Canadian automotive supplier. Here’s the skinny on Plex.

Plex Systems Inc. – Corporate backgrounder
Plex Systems was incorporated in 1995 as Plexus Systems Inc. It is a Michigan-based company headquartered in Auburn Hills, just outside of Detroit. Plex has approximately 500 customers and 170 employees. The company has two shareholders: Plexus Holdings LLC and Apax Partners, the latter being a private equity firm with about $40 billion US under management.

Plex’s shareholders are actively pursuing an IPO, with target dates ranging from the end of 2011 to 2013. During our interview, Symonds told me that the company would use the capital raised in an IPO to bolster its international sales force, including the addition of a dedicated account representative in Canada. Currently, Plex neither has a Canadian office nor any dedicated Canadian resources. It serves Canadian customers and prospects through a representative based in Detroit.

If Plex doesn’t publicly float shares, it has no intention of pursuing alternative capital raising activities. Under a non-capital-raise scenario, it remains unclear how Plex intends to serve the Canadian market.

Competitive positioning
Plex Online is highly targeted ERP software aimed exclusively at the following manufacturing segments:
• Automotive parts suppliers and OEMs;
• Food and beverage processors and packagers;
• Aerospace and defence;
• Industrial machinery and components; and
• Precision metalformers.

Plex Systems’ client base is largely made up of small and mid-sized U.S. companies. Lately, it has scored some notable wins with large companies (more than $1 billion US in annual sales). Canadian representation in the Plex community is relatively modest. Notable Canadian customers include Magna Powertrain, Marwood, Wescast Industries, Warren Industries and Kumi Canada.

SaaS and security – It’s on everybody’s mind
Plex is only offered in the cloud, as SaaS. Consequently, its life-source depends on its ability to safely store and deliver its software and customer data.

Plex knows this and has made security, availability and reliability a cornerstone of its strategy. According to Symonds, “[Plex] is in the business, day-in and day-out, of securing customer data.”

Unlike many other SaaS vendors, Plex doesn’t outsource its primary data warehousing responsibilities. It has built and operates its own data centre.

The Plex Online Data Vault is based on a bank vault-type construction that can withstand physical attacks. Its walls are ironclad, with steel and concrete reinforcement. The facility is monitored by security cameras and a full-time staff. There is only one door, with biometric-controlled access. The data centre is also well-protected against virtual attacks. Access can only be achieved using a web browser. Command-line access is blocked (which minimizes exposure to cyber attacks). A full-time staff monitors virtual access and applies daily security patches.

Plex also takes important measures to ensure system availability and reliability. Systems – including computers, disks, power and air conditioning – are all redundant. The company also backs everything up at a remote data centre located in Asheville, N.C. (owned by Netriplex, a third party). According to Symonds, “All of the data is backed up there very rapidly. If our data centre blew up in Michigan, in less than two hours, our Canadian manufacturing customers would be up-and-running off the new data centre.”

Plex Online – Software backgrounder
Let’s take a closer look at the software itself. Plex draws its roots from the manufacturing shop floor. In 1989, the first system was custom developed for an automotive supplier. Today’s version represents the evolution of that system.

Plex is architected on Microsoft’s .NET platform. It is a complete ERP suite that offers more than 400 functional modules with particular strength in shop floor functionality, including quality, compliance and traceability. In addition to covering the entire supply chain, Plex functionality covers finance, HR and customer relationship management.

I spoke to Steve Spanjers, director of engineering at Marwood. Spanjers gave Plex a mostly positive review. In his view, Plex Online offered better end-to-end functional coverage than the other ERP alternatives he considered. However, Spanjers did note certain functional gaps in the software. He said that he’d like to see deeper costing functionality. He also said that although the software wasn’t initially fully equipped to deal with uniquely Canadian issues – such as the Canadian currency and Canadian regulatory requirements – Plex Systems worked with Marwood and other Canadian customers to address these issues.

Software updates, upgrades and development
To fill its functional-need gaps, Marwood has had to requisition custom software developments; however, the company isn’t alone when it comes to driving software development. According to Symonds, “If [our customers] come up with ideas, those ideas get built into the core product and are available as opt-in enhancements to everyone else.”

It is worth noting that users have to pay for any developments they specifically commission. Meanwhile, for all other customers, custom developments are made available free of charge, provided that the customers subscribe to the modules that are subject to the enhancements.

Because Plex deploys its SaaS in a multi-tenant environment (where multiple customers share a single instance of the software), it can roll out product updates to every customer at the same time. Once released, each Plex customer has the unique ability to decide whether to enable that new functionality. So, when Plex releases Marwood’s enhancements, every other customer will have the option of using those functions. In the same vein, Marwood benefits from enhancements commissioned by other Plex Systems customers.

The Plex community – Driving innovation
Spanjers told me that the Plex community has proven to be a significant value-add. For one, Marwood and another Canadian customer have decided to share the development costs associated with a custom software enhancement. Further, Marwood leverages the community to drive meaningful business improvements through the sharing of best practices.

Spanjers laments that the Canadian Plex community isn’t bigger. The small number of participating companies limits Marwood’s ability to cost-share custom software developments. It also limits the benefits of crowd-sourcing on uniquely Canadian issues.

Breaking down Plex’s pricing model
Plex prices its software on a per-site, subscription basis. All employees who operate out of a licensed site are eligible to use the software. The company sets the price according to company size, using proxies such as revenues and employee head count.

Plex charges its customers an all-in monthly subscription fee for its software. In contrast, vendors of on-premise ERP systems typically charge a one-time acquisition cost and recurring annual maintenance fees (for support, bug fixes, updates and upgrades).

Prospective ERP buyers would be well-advised to analyse all of the financial costs associated with an ERP system, including the indirect costs. For example, with an on-premise system, indirect costs might include incremental hardware, network and support staff needed to run the system. Meanwhile, with Plex’s SaaS system, indirect costs might include expenses associated with ensuring that Internet connections are secure, reliable and redundant.

Prospective buyers should also consider the tax implications. Under Canadian tax law, Plex’s subscription fees would be treated differently from on-premise licence fees. For example, the latter is a capital expense and would be depreciable under the Capital Cost Allowance scheme. This type of beneficial tax treatment would reduce a company’s total cost of ERP ownership. Meanwhile, Plex subscription fees would be treated as operating expenses. Though ineligible for CCA tax benefits, operating expenses reduce total income and, consequently, can reduce the amount of income taxes that would be payable.   

In summary, Plex Online offers deep manufacturing ERP functionality. Its community gives customers the ability to drive innovation in both the software and their businesses. I would, however, like to see Plex make a stronger commitment to the Canadian manufacturing industry, both in terms of localization-related functionality and customer base. A first step in that direction could be the establishment of a formal and permanent Canadian presence.

As a final note to any company considering ERP software: Do your due diligence before making an investment decision.  

Jonathan Gross is vice-president of Pemeco, Inc., a consulting firm specializing in ERP selection and implementation. He can be reached at jonathang@pemeco.com.