Cloud based ERP. Fact or fiction?

“Don’t do what you know. Do what you don’t know about what you know.”

Mile Davis (1926 -1991) American Trumpet Player, Bandleader and Composer

Following my post on 19th May, Cloud based ERP is fast establishing itself as an increasingly dominant force within the ERP arena. Ubiquitous Internet connectivity combined with access to more bandwidth at affordable prices, both by businesses and consumers have propelled cloud based solutions as being commercially viable. Cloud based ERP solutions are also challenging existing licensing models. The larger providers such as SAP and Oracle are struggling to compete with this new model and are looking at ways to combat this new threat to their established revenue stream. Newer established entrants within the mid tier market continue to embrace cloud computing and are increasingly vying for competitive advantage.

In my view, Google Apps will increasingly challenge established players providing enterprise systems, such as Microsoft. The likes of Google Apps will also challenge established ERP players as more offerings become available. For example, Netsuite will soon be available on Google Apps and My ERP seems like a credible solution for smaller businesses and is FREE for the first two users! One of my readers, Houston Neal, recently had a roundtable discussion on the state of the manufacturing ERP software industry, including solutions popular among small and medium enterprises that provides an interesting insight into many facets of ERP software.

Cloud based ERP providers available at the moment are: Acumatica, Agresso, CDC Software, Consona, Compiere, DataXstream and virtualised SAP, DSP managed services – advisors for Cloud based Oracle E -Business suiteDynacom, Epicor, Global Shop Solutions, IFS, Intaact, IQMS, Lawson, Microsoft, MyERP, Netsuite, Oracle Cloud Computing Centre, Openbravo, Plex systems, Sage, SAP Business by Design, Salesforce and Glovia Cloud Solution, Syspro

ComputerWeekly, recently ran an interesting and complete 4 part Buyer’s Guide to ERP software that discussed quite intensely both the traditional and new, cloud based ERP models. Following are excerpts that I have used from part 1, glued together to form the following and then I will list articles that provide further in depth analysis and reading, courtesy of ComputerWeekly and others:

In Part I, Cliff Saran wrote, ‘The idea behind enterprise resource planning (ERP) is to provide the business with a single product that provides software to support the main business functions in a company. The major products such as SAP and Oracle claim to encompass the best ways to run business processes. But since they cater for large complex businesses, such systems are often too sophisticated for smaller organisations that may not have the same requirements in terms of scale and complexity of business operations.

SAP and Oracle may be great for providing enterprises with industry-standard business processes, but standardisation erodes the unique selling point in smaller businesses. George Lawrie, principal analyst at Forrester Research says, “SMEs are worried by the high maintenance fees and complex implementations associated with major ERP software.”This is why a market has grown for ERP aimed at SMEs. “Mid-market ERP tends to offer vertical specialisation,” says Lawrie.

Suppliers such as Salesforce.com have made it possible to put customer relationship management (CRM) systems in the cloud, but core enterprise resource planning (ERP) has so far remained untouched. If IT departments can make considerable savings switching from in-house systems to cloud-based software-as-a-service (SaaS), why stop at CRM? Businesses should consider using the cloud for ERP.

Andrew Vize, who as propositions director runs Computacenter’s CIO panels, says, “The efficiency of services from Google and Amazon is superb. They offer the lowest power costs and are five to 10 times cheaper than traditional small datacentres.”

It makes sense for an IT director, but the major ERP suppliers have been reluctant to move to cloud computing. SAP has been touting its Business ByDesign SaaS suite for smaller companies.

Meanwhile, Oracle offers its middleware and database products on Amazon Elastic Compute Cloud (Amazon EC2), but does not recommend putting E-Business Suite ERP software in the cloud.

Oracle states in a blog post, “Since Amazon EC2 uses a virtualisation engine that is not supported by Oracle and has not been certified with E-Business Suite, this environment is not supported for production usage of E-Business Suite. Using Amazon EC2 for hosting E-Business Suite may be suitable for non-production instances, such as demonstrations, test environments and development environments.”

In fact, it is far from clear how the major ERP suppliers will charge for cloud-based ERP. The significant ongoing revenue they receive from annual software maintenance from on-premise applications makes it harder for established ERP companies to offer considerably cheaper software licensed on a monthly subscription basis.

However, smaller software companies are making cloud ERP float.

Cloud computing company NetSuite has unveiled workflow management software, SuiteFlow, which enables users of cloud computing business suites to automate and streamline complex business processes. NetSuite says SuiteFlow allows businesses to customise workflows to support the way they need to work.

Companies can use SuiteFlow to develop and deploy new business processes. NetSuite says it can be used to support processes such as contract renewal workflows with tasks, reminders and customer notifications, sales processes that include mandatory data entry, follow-up tasks and rep notifications, and customer support processes, including inactivity reminders, escalations and service level agreement (SLA) enforcement.

Lawson Software, which has mainly focused on traditional ERP, has moved into the cloud by offering its core Enterprise Management Systems and Talent Management suite on Amazon EC2 infrastructure. The products will be included in the Lawson External Cloud Services offering, which is part of the company’s Cloud Services portfolio.

Lawson’s cloud ERP service is targeted at mid-sized companies and organisations looking for a more affordable, flexible and agile deployment option for full-function enterprise software.

“We are making it easier for our customers to license, use, keep current and even pay for Lawson full-function enterprise software. This should be great news for CFOs and CIOs who worry about lengthy and complex on-premise installations, the cost and inefficiency of their datacentres, the best way to allocate IT staff, and the complexity and difficulty of maintaining software versions and upgrades,” says Jeff Comport, senior vice-president of product management at Lawson Software.

Similarly, open source ERP provider Compiere, which is used by companies such as Specsavers, has developed a version of its product that works on Amazon Web Services in the cloud.

Some experts believe it is unlikely ERP will move wholesale into the cloud. The major ERP systems tend to be architected as large homogenous IT systems, which may not be such a good fit for delivery via the internet cloud. Licensing major ERP systems to deploy via the cloud is still immature. Instead, niche software companies are likely to build cloud-based services that do many of the functions of ERP.

“We will have much more specialist systems that do a slice of ERP,” predicts David Bradshaw, IDC research manager for software and services in Europe.’

Cloud-based ERP could be the way forward for small- and mid-sized companies. Both Oracle and SAP offer products aimed at smaller businesses such as JD Edwards from Oracle and SAP Business ByDesign. These may have a better fit with certain organisations, But implementing on-premise traditional mid-market ERP systems will be the most likely approach businesses take until cloud computing has matured.

Gartner sees an increasing availability of software-as-a-service (SaaS) ERP systems, and, unlike in large enterprises, where SaaS ERP use is limited, SaaS ERP is playing an increasingly important role in both back- and front-office applications for mid-market companies. Cost reductions in implementation and operation are one of the important drivers for SaaS ERP, and SaaS offerings avoid the need for upfront capital expenditures because they can be funded as an operational expense. However, when analysing the total cost of ownership of SaaS ERP over five years, Gartner finds that SaaS is not necessarily less expensive than on-premises ERP.

NetSuite is the largest example for a SaaS-based ERP suite. It offers a broad range of application modules, including financials and accounting, purchasing, payroll, order management, inventory control, and employee management, as well as built-in integration with its CRM and e-commerce capabilities on the same platform. Gartner has spoken to customers that expressed a high level of satisfaction with NetSuite’s offerings.

Other notable SaaS ERP players are Plex Online (previously Plexus Online) and Glovia. SAP has also announced an on-demand ERP solution called SAP Business ByDesign.

Open source has been used extensively in infrastructure components, but it has a limited impact on ERP at this point. In the past two years, however, some new open-source software ERP suppliers have emerged with a focus on leveraging open source software to reduce the total cost of ownership of business applications, and to enable customisations that would be difficult to achieve without access to source code. Although we have doubts as to whether open source software business models actually confer these advantages on open source software ERP, these early stage offerings are nonetheless promising and should be evaluated. Examples for open source software ERP suites include Compiere and Openbravo.

Although increasing in importance, none of the SaaS or open source ERP solutions met the inclusion criteria for this Magic Quadrant, because of their number of sales or product focus. Gartner’s ERP Magic Quadrant, (2010 Quadrant) criteria do not explicitly exclude SaaS or open source packages. The analyst firm is actively tracking their progress and expects their inclusion in future versions of its Magic Quadrant.’

For more:

Detailed research lists from the largest USA ERP installations

Search Manufacturing ERP

Part I Buyers Guide to ERP: Alternatives to SAP and Oracle ERP suites

Part II – Buyers Guide to ERP: the mid-tier market

Part III – Buyers Guide to ERP: Agile ERP

Part IV – A guide to ERP for small and large businesses

Putting ERP in the Cloud

How to achieve ERP success: part 1 – the A-Team

How to achieve ERP success: part 2 – the software

ERP software suppliers – Essential guide

Buyers Guide to ERP: Midlands Co-op case study

Make your ERP rollout succeed

Lawson’s New Amazon Cloud-Based ERP Supports Customization

Epicor Takes the Wraps off Cloud-based ERP Solution

Amazon.com Offers Compiere Enterprise ERP via the Cloud

ERP and Cloud Computing trends

Lawson Software Introduced Cloud-Based Services

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About mubbisherahmed
I am passionate about IT and its ability to deliver cost effective, value for money solutions that can enhance performance and in many cases provide competitive advantage by using a range of solutions and approaches in innovative ways.

19 Responses to Cloud based ERP. Fact or fiction?

  1. Pingback: Cloud based ERP. Fact or fiction? | DHD digital

  2. Nice post. Does Gartner’s TCO analysis include infrastructure costs?
    Walter @g3m http://xeesm.com/walter

    • mubbisherahmed says:

      Hi Walter,

      I have now linked the post to the Gartner Mid tier magic quadrant in the last paragraph of my article. What Gartner’s article says is (Ambiguous whether it does/doesn’t include TCO for infrastructure – discussed limited IT resource availability though):

      ‘The Magic Quadrant for Midmarket and Tier 2-Oriented ERP for Product-Centric Companies addresses the needs of product-centric companies or divisions of enterprises with between 100 and 999 employees, and with annual revenue between $50 million and $1 billion. These enterprises have limited IT resources and seek ERP systems that support their differentiating business processes well with deep functionality, but do not require significant overhead in the nondifferentiating business areas (meaning the systems must minimize total cost of ownership [TCO] and complexity).’

  3. mubbisherahmed says:

    Dilip Jahagirdar Delivery Head, Projects on a social media site said:

    Concept of cloud ERP may be lucrative. It’s success will definitely be limited due to dependability factor. No one will like that. Cost of operations is another main issue. e.g .for 50 users network, what will be the operating cost for a company? recurring expenses? availability of the system on the network?

    I had seen the companies, working on the ERP application installed years before. After that they are just investing in a DBA come report writer+ network operator and are okay with it and this class is more in percentage. If the concept is for utilisation with BIG companies…the changeover will take it’s own time..

    I replied:

    Hi Dilip,

    I enjoyed reading your feedback, so thanks for posting.

    I agree that the dependability and reliability factor will have to be taken into account. Moving forward, innovative and visionary businesses such as Google are starting to address that very problem. For example, one of the articles that I hyperlinked in this post, is clearly indicative of that and if more businesses start to offer that assurance cloud adoption rates will climb. Please read:

    http://www.computerweekly.com/Articles/2010/05/20/241310/Google-gears-up-for-greater-web-influence.htm

    I will stay with Google’s example to address your concerns regarding on going operating cost, recurring expenses and availability. Google Apps is providing the entire google apps suite for £33 per month per user per year and promises a 99.9 SLA. While the 3 nines may not suit every business its a step towards the fabled 5 nines! Take a look:

    http://www.google.com/apps/intl/en-GB/business/features.html

    ERP has changed a lot since the versions of a few years ago and as you know, it is all about the project research, planning and delivery and managing the needs and expectations of the business. That said, adding a business intelligence (BI) layer can help (you can end up with a scenario of rubbish in, rubbish out, if not planned and managed correctly though).

    Larger businesses, are starting to move over as was the case with the city of Los Angeles, that I mentioned in my 19th May post:

    http://wp.me/pw27T-8O

    http://www.zdnet.com/blog/btl/apps-customers-going-google-was-tough-decision-despite-cost-savings/33020?p=33020&tag=leftCol%3bpost-4095

    Thanks, Dilip.

    Mubbisher Ahmed

  4. mubbisherahmed says:

    Zain Aziz Senior IT Manager – Systems Engineering at Yahoo said the following on a social media site:

    Today, everyone has 1 thing in common – “Cloud Computing, Cloud Computing, Cloud Computing”. What is Cloud Computing? Cloud Computing is nothing new.

    This is the same stuff we’ve been doing for a decade now, all of a sudden a few engineers from Amazon start calling it cloud computing and its a paradigm shift.

    Cloud Computing is basic Internet Based and Grid Architecture, so what is there to dislodge?, this is already being done by most organizations out there, they’ve just given it a new word. Some companies like Amazon & Microsoft are just ahead of the curve.

    What I do believe will happen is this architecture & its benefits will be adapted by more organizations as time passes, allowing us to be platform independent, which will open doors for new technology (SOA) and innovation (Web Services).

    If you’re talking about SAAS than its a different story.

    I replied:

    Zain,

    Thanks for your comments. While Cloud Computing is nothing new, the ability to build a complete IT infrastructure cost effectively so that it is available ubiquitiously certainly is. So, is breaking down the barriers to annual software maintenance licensing that used to cost so much when purchased through the big players.

    Apple had built a computer way before Microsoft’s software made it more popular through better marketing. IBM had built the PC but Compaq and Dell were more successful at selling them, mobile phones were around for years before the Iphone came along, Yahoo was a search engine and directory well before Google!

    The argument is more about a paradigm shift that has been created by allowing businesses to use it more effectively at a price they can afford and that is easy for even smaller companies to setup and use. That is where the paradigm shift is occuring as it is these smaller companies that will be the giants of tomorrow. If they all start to use Cloud Computing and tomorrow the majority of companies are using Cloud Computing, a paradigm shift would have happened.

    As you say, when its architecture & its platform independence benefits are realised through SOA and Web services, it will then still be called Cloud Computing and not as you say, we use an Internet Based and Grid Architecture!

    3/6/10 – Zain replied:

    Your welcome. Cloud Computing is really nothing more than an Internet Based and Grid Architecture.

    While some companies are better than others in utilizing its true potential its still not something which is new, there is nothing to cause a paradigm shift. This is the same stuff companies like Oracle and Salesforce.com have been doing for a decade now.

    However, I do see your point and can relate to it. A perfect example would be Annual Maintenance Costs, the fact is for big ERP Systems like Oracle and SAP the costs will exist but it has nothing to do with so Cloud Computing because cloud computing is only an architecture.

    I do believe that as the industry is becoming more experienced and smarter, more people are interested in how IT works, it will provide a uniform adoption, which will result in development in newer & more efficient technology (i.e. RAC) which will take IT to the next level, resulting in true innovation.

    • mubbisherahmed says:

      9/6/10, Christina Horsoe Uptime. All the Time replied and said:

      Interesting conversation – DSP are having workshops on this subject and we work with two UK leading hosting partners to advice clients putting Oracle E-Business Suite on the cloud… Dates in June are all full – as they were more popular than I first thought… Would be great to stay in contact with you guys in case you’d like to attend these workshops. I am not charging for them – as these are hosted more from a user experience point of view rather than generating new business.

      Christina Horsoe – christina.horsoe@dspmanagedservices.co.uk

      I replied:

      Hi Christina,

      Interesting conversation indeed. Zain’s comments were quite challenging and I had to think long and hard about my response, Cailin enhanced my knowledge through her company’s offering of a Virtualised Cloud based SAP solution and now your company is offering advice on setting up Cloud based Oracle E-Business suite!

      I am definitely interested in attending to improve my knowledge within this sphere. Thanks for making contact and I am now including your link on my post as (all the following are hyperlinked within the post):

      Cloud based ERP providers available at the moment are: Acumatica, Agresso, CDC Software, Consona, Compiere, DataXstream and virtualised SAP, DSP managed services – advisors for Cloud based Oracle E -Business suite, Dynacom, Epicor, Global Shop Solutions, IFS, Intaact, IQMS, Lawson, Microsoft, MyERP, Netsuite, Oracle Cloud Computing Centre, Openbravo, Plex systems, Sage, SAP Business by Design, Salesforce and Glovia Cloud Solution, Syspro

      What are your company’s thoughts on:

      Oracle offers its middleware and database products on Amazon Elastic Compute Cloud (Amazon EC2), but does not recommend putting E-Business Suite ERP software in the cloud.

      Oracle states in a blog post, “Since Amazon EC2 uses a virtualisation engine that is not supported by Oracle and has not been certified with E-Business Suite, this environment is not supported for production usage of E-Business Suite. Using Amazon EC2 for hosting E-Business Suite may be suitable for non-production instances, such as demonstrations, test environments and development environments.”

      Thanks.

      Mubbisher Ahmed

  5. Doug Johnson says:

    You may want to consider adding Acumatica to your list of cloud-ERP solutions. We have been active in the marketplace for a while now.

    • mubbisherahmed says:

      Hi Doug,

      That is no problem. I have taken a look at your site and your cloud based ERP solution should be in this list. Thanks for making contact.

      Mubbisher

  6. mubbisherahmed says:

    Mei-Chen Hsueh Information Technology and Engineering said the following on a social media site:

    Cloud computing although is a new package of exiting technology. It does have its niche, as long as some requirements such as reliability, availability, performance, security and integrity are not the priorities.

    I replied:

    Hi Mei-Chen,

    Thanks for the feedback. Absolutely these have to be addressed. I wrote an article on:

    What is Cloud Computing? Its Pros/Cons and making it work
    http://tiny.cc/mXOJA

    and I drew a similar conclusion. Hope you enjoy the read….

    9/6/10 Mei-Chen added:

    hello, Mubbisher;

    Read the article. Nice. In fact, there are a few large players has entered or positioned to enter this market in the past 18 months. For instance, HP’s recent announcement about its business strategy and positioning. An other big platform player built a large data center in mid-west last year.

    I do have some reservation about your conclusion about scalability that cloud can provide. Without a good understanding of applications, dynamics of workloads, it can be a real issue. On the other hand, it all depends on what in SLA.

    9/6/10 I replied:

    Hi Mei-Chen,

    Yes, it is inevitable that the big players would follow. When I mention scalability, it has, as you quite correctly pointed out, be dependant on considering an organisation’s requirements very carefully. Like any other project, any move to the cloud, has to be managed as a project.

    I mentioned this, in my post, What is Cloud Computing. Its pros and cons and making it work – https://mubbisherahmed.wordpress.com/2009/08/02/what-is-cloud-computing-its-proscons-and-making-it-work/

  7. mubbisherahmed says:

    Cailin Yates Social Media at DataXstream said the following:

    I noted the statement “The larfer providers such as SAP and Oracle are struggling to compete with this new bodel and are looking at ways to combat this new threat…”
    I am a member of the DataXstream LLC (DataXstream provides SAP Technical and Intergration consulting). We’ve been using vmware ourselves for years and have begun implementing vmware solutions for clients using SAP. We’ve found that we can bid at very competitive prices. At the recent SAPPHIRENOW/ASUG conference in Florida there was quite a bit of interest in virtualized landscapes.

    I invite you to read more here: http://www.dataxstream.com/products-services/sap-virtualization-solutions/

    I replied:

    Hi Cailin,

    Interesting…. and thanks for sharing this with me. I will add a link to your site so others are aware and as you took the step to contact me, I hope you get some business or at least more people can get to know about your services.

  8. Mark Canes says:

    It’s interesting to note the conflict between the 2 basic types of “Cloud ERP” vendors – those offering a browser based solution, versus those using a thin client / virtual server approach. Each has all the data to “prove” their approach is superior and the other is flawed. As usual, of course, the truth lies somewhere between those extremes.

    For instance, if you already have internal IT infrastructure managing email, office productvity and file storage, but want to go Cloud for ERP, then perhaps the browser based approach makes more sense, whereas if you’re looking to avoid any kind of server in-house, the virtual server approach seems more appropriate.

    The company I work for offers that latter approach (in addition to traditional on-premise), but I personally see the pros and cons for both.

  9. bridgelogic says:

    Erp is not fail, we are developer of erp and make many success erp, yes the growth rate of erp in india is low, but hope that it rapidly growth.

    Campus ERP Software, ERP Solution In India, Erp Services, Campus Training on http://bridgelogic.wordpress.com/

    Bridge Logic offers Campus Erp Solution, Erp Services, Web Based Erp Software Development, Bulk Email Marketing, CRM Software, CMS Solutions and Application Software, Attendance Management System punch card Finger Touch.

    Thanks and Regard’s
    Michal Bridge
    http://www.bridgelogicsystem.com/
    (An Erp Solution Provider)

  10. Interesting…. and thanks for sharing this with me.

    • mubbisherahmed says:

      Thanks for taking time to read and I am glad that you found the post useful. It’s great to share with others my knowledge, experience and continual learning. The more I share, the more I assist others, the more I add to my knowledgebase!

      Mubbisher Ahmed

  11. edsine says:

    Very useful information …(Info provided by vendor employee, NOT recommended or endorsed by Mubbisher Ahmed)
    http://www.edsine.com. EdsineTM is also Cloud based.

  12. Following information provided by the vendor and as such is NOT recommended or endorsed by Mubbisher Ahmed

    Please consider adding megaventory.com to your post. We’ve been offering a cloud based ERP solution for 2 years now and have achieved a feature-rich SaaS. Features include

    * Inventory, Orders and Report management
    * Multiple locations
    * Sales, Purchase Orders, Sales Quotes
    * Inbound, Outbount movements
    * Manufacturing Module
    * Multiple currencies
    * Contact management

    Thanks for your efforts!

    Dimitris Athanasiadis
    megaventory.com

  13. Doug says:

    Good post, you may want to point out the difference between web-based applications that are written for the cloud and legacy applications that have been moved to the cloud.

    ERP applications built for the cloud (SAP ByDesign, NetSuite, Acumatica) tend to perform better and have lower cost structures (but vendor may not pass cost savings along!) than applications that have been ported to the cloud.

  14. More enterprises are using Software-as-a-Service apps to support their business needs for CRM, collaboration, inventory management, e.commerce, pos operations, project management, billing, ERP, logistics and HRM.

    Saas gives:
    -Simplified deployment
    -Lower IT costs
    -Centralized management and automatic upgrades

    Key risks are:
    -Meeting enterprise reqs for security, control, performance and real integration (EDI!)
    -Scaling operations cost-effectively
    -Service level guarantees! Don’t forget it.
    -Finding real long term partner. Who does not have exit strategy!!

    Best regards,
    Julian Zacara
    http://www.erply.com

  15. vinayak says:

    Hi

    Two questions :

    – Google; Amazon; MSFT are probably three of the larger IT majors who will answer the CIO’s reliability / dependability doubts; But do you see them really moving into enterprise ERP ?

    – IF one wishes to pursue careers in cloud based ERP, which companies should one target ?

    THANKS in advance
    Vinayak

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