Cloud ERP and Digital Transformation
For a number of years now, you’ve been listening to a constant drumbeat of news and opinions about Industry 4.0, digital transformation, artificial intelligence, machine learning, data analytics and other emerging technologies, and how they were going to impact manufacturers. Now, we’ve reached a point where all that talk is being turned into action at an increasingly rapid pace.
Today, manufacturers of all sizes, and across all verticals, are reimagining and restructuring their businesses in an effort to respond to – and profit from – the irreversible trend toward personalized manufacturing. IDC predicted in 2017 that by this year, 50% of manufacturers would be crowdsourcing product ideas and improvements directly from customers, improving product success rates by as much as 25%.
And cloud-based ERP is one of the key technologies enabling much of this revolution. Let’s take a look at the relationship between cloud ERP and digital transformation, and why cloud ERP is able to deliver so many important benefits to modern manufacturers.
Digital Transformation is Becoming a Competitive Necessity
Digital transformation in the manufacturing setting is being driven by a variety of factors. Chief among them is the market-driven need to provide mass customization, or personalized manufacturing. Because operational speed and flexibility are a core requirement, the removal of friction from business processes is essential. That’s how you create a seamless, consumer-like experience for customers, from first contact to final delivery and beyond It’s also how you can enable every part of your organization – from finance to operations, from sales to customer service – to work with the speed and agility manufacturing customers expect today.
But legacy ERP systems – actually, even more modern on-premises ERP solutions – are built for a non-digital environment that is rapidly disappearing. If you’ve tried to evolve your production environment to accommodate the demands of modern manufacturing customers, you’re familiar with the mismatch between what you need and what your old ERP can deliver.
But these shortcomings are a lot more than an inconvenience. While cloud ERP can help you accelerate your digital transformation, legacy ERP creates bottlenecks that work against your efforts to bring your manufacturing environment into the 21st century.
There are several trends making digital transformation increasingly urgent. Three of them are…
- The quickly maturing capabilities of data analytics and machine learning. With more robust analytics, and new ways to apply artificial intelligence and machine learning, manufacturers can readily amass and act on vast amounts of information. In turn, this boosts the desire for connected sensors and other IoT devices. The feedback loop is getting faster and more useful.
- Cloud platforms bring capabilities that traditional client/server platforms can’t replicate or even approximate. A true cloud solution and platform – one built for the cloud rather than an on-premises solution that has been “migrated” to the cloud – is inherently more flexible and scalable. It offers cost efficiencies, such as lower IT staffing, less hardware, and the cost-sharing of multi-tenant cloud, that are unavailable from an on-premises ERP solution.
- 3D printing has become more affordable, and more stable. We have passed the buzzword stage of 3D printing. Companies like Stryker, Boeing, Caterpillar, and General Electric have all made investments in additive manufacturing, which has become synonymous with 3D printing. One research and consulting firm, Smithers Pira, has projected that the additive manufacturing market will grow to almost $56 billion by 2027. No wonder; the opportunity to create custom or specialized products is a capability that customers are excited to explore.
And even though these technologies – and others – are being adopted more frequently, embracing them now will still place you among the early adopters. You can still gain a competitive advantage.
Cloud ERP Drives Manufacturing Speed and Flexibility
In June of 2017, “MIT Sloan Management Review” looked at what was happening to the traditional manufacturing supply chain model – how rapidly emerging technologies were creating incredible changes – and coined a new phrase to describe what they saw: high-speed bespoke supply chains. It’s a vivid way to describe the environment that is enabling mass customization and, as a result, requiring speed and flexibility in every aspect of your business.
But the limitations of legacy ERP systems make them a poor fit for what you have to deliver today. They simply aren’t meant for an environment that generates previously inconceivable amounts of data, requires a nearly real-time response to increasingly personalized customer requests, and puts high value on the ability to easily scale and customize the system as demand increases or new requirements arise.
A comprehensive cloud platform, on the other hand, aligns closely with the “must haves” for a modern ERP solution. For example, because Rootstock is available through Salesforce.com, it can be readily customized with other applications offered via that platform. You can scale it with minimal disruption or expense. It’s built, from the ground up, to support fast decision-making and flexible modes of production. In short, cloud ERP is made for today’s manufacturing marketplace.
Quantitative and Qualitative Benefits of Cloud ERP
As we’ve discussed previously, there is a broad array of benefits that comes from using cloud ERP on the right platform. Some, like inventory reductions, lower labor costs, and more efficient forecasts and scheduling, are quantitative and fairly similar across organizations. Others, like a unified view of the customer, and access to ongoing updates and customizations, are qualitative. How you experience them will depend, to a great degree, on your organization’s unique circumstances and culture.
Here, in no particular order, is a summary of some of the more common and meaningful benefits that manufacturers experience with cloud ERP.
- Unified data creates one source of the customer profile, and better decisions. By replacing disparate solutions with one cloud ERP system, and going through the process of bringing data together, you get a single view of the entire customer relationship. Or, at the very least, something much closer to that than you can ever achieve trying to reconcile a bunch of Excel spreadsheets. Decisions can be made with more speed and confidence.
- Cost savings. This benefit arises in a number of areas. At the outset, you’ll spend less to implement a cloud solution than an on-premises one; less on hardware, less on IT staff, less on training. Once implemented, most industry analysts agree you can expect a 10 percent reduction in labor costs associated with production. Even your choice of cloud provider can save you money. A platform like Salesforce.com, with a myriad of applications that integrate seamlessly, offers less expensive expansion and customization options. And if your provider uses a multi-tenant model, your costs are shared by others, reducing your operating expenses even further.
- Inventory reductions. This is often such a significant cost savings, it deserves separate mention. Industry analysts generally agree you can achieve a 20 to 30 percent reduction with improved management of raw material, parts, WIP and finished goods. You can imagine the dollar savings that translates to.
- A UI that modern workers expect and need. There’s a new generation of workers that reflexively use apps on their smartphones. Cloud ERP, built for mobile use, brings that interface to your people. That doesn’t mean you can skip training altogether, but it does mean better adoption and more productivity, as users can focus on what they have to do, instead of how to do it.
- Data visibility can change the way you operate and compete. When you’re up and running with cloud ERP, you’ll have real-time visibility into what’s taking place on your manufacturing floor. When you have that knowledge, and the ability to act on it, you can transform inventory management, production efficiency, product development, customer service, and your ability to compete.
- Simpler tools improve adoption. Cloud ERP almost always replaces a patchwork of poorly integrated tools with a single, user-friendly interface. Adoption and engagement inevitably rise, streamlining processes and enhancing ROI.
- Improved billing and cash flow. A modern, cloud-based ERP system lets you produce error-free invoices in a timelier fashion. The resulting improvement in receivable turns – usually around five percent – translate to better cash flow.
- More efficient scheduling and forecasting. With better visibility and reporting comes better forecasts and better scheduling. As a result, purchasing can act more confidently with your organization’s suppliers, offering firmer commitments and lead times. Typically, manufacturers using cloud ERP end up spending about five percent less on purchased materials and components.
Right now, manufacturing is undergoing the most significant change it has experienced in decades. And it’s happening quickly. A modern cloud ERP solution is the key to navigating this transformation, and turning it to your advantage. But the clock is ticking, and the time to get started is now.
If you want a great primer on understanding cloud ERP, click here to download “Cloud ERP for Dummies.”