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Posts tagged ‘Cloud ERP’

10 Ways To Improve Cloud ERP With AI And Machine Learning

Capitalizing on new digital business models and the growth opportunities they provide are forcing companies to re-evaluate ERP’s role. Made inflexible by years of customization, legacy ERP systems aren’t delivering what digital business models need today to scale and grow.

Legacy ERP systems were purpose-built to excel at production consistency first at the expense of flexibility and responsiveness to customers’ changing requirements. By taking a business case-based approach to integrating Artificial Intelligence (AI) and machine learning into their platforms, Cloud ERP providers can fill the gap legacy ERP systems can’t.

Closing Legacy ERP Gaps With Greater Intelligence And Insight

Companies need to be able to respond quickly to unexpected, unfamiliar and unforeseen dilemmas with smart decisions fast for new digital business models to succeed. That’s not possible today with legacy ERP systems. Legacy IT technology stacks and the ERP systems they are built on aren’t designed to deliver the data needed most.

That’s all changing fast. A clear, compelling business model and successful execution of its related strategies are what all successful Cloud ERP implementations share. Cloud ERP platforms and apps provide organizations the flexibility they need to prioritize growth plans over IT constraints. And many have taken an Application Programming Interface (API) approach to integrate with legacy ERP systems to gain the incremental data these systems provide. In today’s era of Cloud ERP, rip-and-replace isn’t as commonplace as reorganizing entire IT architectures for greater speed, scale, and customer transparency using cloud-first platforms.

New business models thrive when an ERP system is constantly learning. That’s one of the greatest gaps between what Cloud ERP platforms’ potential and where their legacy counterparts are today. Cloud platforms provide greater integration options and more flexibility to customize applications and improve usability which is one of the biggest drawbacks of legacy ERP systems. Designed to deliver results by providing AI- and machine learning insights, Cloud ERP platforms, and apps can rejuvenate ERP systems and their contributions to business growth.

The following are the 10 ways to improve Cloud ERP with AI and machine learning, bridging the information gap with legacy ERP systems:

  1. Cloud ERP platforms need to create and strengthen a self-learning knowledge system that orchestrates AI and machine learning from the shop floor to the top floor and across supplier networks. Having a cloud-based infrastructure that integrates core ERP Web Services, apps, and real-time monitoring to deliver a steady stream of data to AI and machine learning algorithms accelerates how quickly the entire system learns. The Cloud ERP platform integration roadmap needs to include APIs and Web Services to connect with the many suppliers and buyer systems outside the walls of a manufacturer while integrating with legacy ERP systems to aggregate and analyze the decades of data they have generated.

  1. Virtual agents have the potential to redefine many areas of manufacturing operations, from pick-by-voice systems to advanced diagnostics. Apple’s Siri, Amazon’s Alexa, Google Voice, and Microsoft Cortana have the potential to be modified to streamline operations tasks and processes, bringing contextual guidance and direction to complex tasks. An example of one task virtual agents are being used for today is guiding production workers to select from the correct product bin as required by the Bill of Materials. Machinery manufacturers are piloting voice agents that can provide detailed work instructions that streamline configure-to-order and engineer-to-order production. Amazon has successfully partnered with automotive manufacturers and has the most design wins as of today. They could easily replicate this success with machinery manufacturers.

  1. Design in the Internet of Things (IoT) support at the data structure level to realize quick wins as data collection pilots go live and scale. Cloud ERP platforms have the potential to capitalize on the massive data stream IoT devices are generating today by designing in support at the data structure level first. Providing IoT-based data to AI and machine learning apps continually will bridge the intelligence gap many companies face today as they pursue new business models. Capgemini has provided an analysis of IoT use cases shown below, highlighting how production asset maintenance and asset tracking are quick wins waiting to happen. Cloud ERP platforms can accelerate them by designing in IoT support.

  1. AI and machine learning can provide insights into how Overall Equipment Effectiveness (OEE) can be improved that aren’t apparent today. Manufacturers will welcome the opportunity to have greater insights into how they can stabilize then normalize OEE performance across their shop floors. When a Cloud ERP platform serves as an always-learning knowledge system, real-time monitoring data from machinery and production assets provide much-needed insights into areas for improvement and what’s going well on the shop floor.

  1. Designing machine learning algorithms into track-and-traceability to predict which lots from which suppliers are most likely to be of the highest or lowest quality. Machine learning algorithms excel at finding patterns in diverse data sets by continually applying constraint-based algorithms. Suppliers vary widely in their quality and delivery schedule performance levels. Using machine learning, it’s possible to create a track-and-trace application that could indicate which lot from which supplier is the riskiest and those that are of exceptional quality as well.
  2. Cloud ERP providers need to pay attention to how they can help close the configuration gap that exists between PLM, CAD, ERP and CRM systems by using AI and machine learning. The most successful product configuration strategies rely on a single, lifecycle-based view of product configurations. They’re able to alleviate the conflicts between how engineering designs a product with CAD and PLM, how sales & marketing sell it with CRM, and how manufacturing builds it with an ERP system. AI and machine learning can enable configuration lifecycle management and avert lost time and sales, streamlining CPQ and product configuration strategies in the process.
  3. Improving demand forecasting accuracy and enabling better collaboration with suppliers based on insights from machine learning-based predictive models is attainable with higher quality data. By creating a self-learning knowledge system, Cloud ERP providers can vastly improve data latency rates that lead to higher forecast accuracy. Factoring in sales, marketing, and promotional programs further fine-tunes forecast accuracy.
  4. Reducing equipment breakdowns and increasing asset utilization by analyzing machine-level data to determine when a given part needs to be replaced. It’s possible to capture a steady stream of data on each machine’s health level using sensors equipped with an IP address. Cloud ERP providers have a great opportunity to capture machine-level data and use machine learning techniques to find patterns in production performance by using a production floor’s entire data set. This is especially important in process industries where machinery breakdowns lead to lost sales. Oil refineries are using machine learning models comprise more than 1,000 variables related to material input, output and process perimeters including weather conditions to estimate equipment failures.
  5. Implementing self-learning algorithms that use production incident reports to predict production problems on assembly lines needs to happen in Cloud ERP platforms. A local aircraft manufacturer is doing this today by using predictive modeling and machine learning to compare past incident reports. With legacy ERP systems these problems would have gone undetected and turned into production slowdowns or worse, the line having to stop.
  6. Improving product quality by having machine learning algorithms aggregate, analyze and continually learn from supplier inspection, quality control, Return Material Authorization (RMA) and product failure data. Cloud ERP platforms are in a unique position of being able to scale across the entire lifecycle of a product and capture quality data from the supplier to the customer. With legacy ERP systems manufacturers most often rely on an analysis of scrap materials by type or caused followed by RMAs. It’s time to get to the truth about why products fail, and machine learning can deliver the insights to get there.
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10 Ways Machine Learning Is Revolutionizing Manufacturing In 2018

  • Improving semiconductor manufacturing yields up to 30%, reducing scrap rates, and optimizing fab operations is achievable with machine learning.
  • Reducing supply chain forecasting errors by 50% and lost sales by 65% with better product availability is achievable with machine learning.
  • Automating quality testing using machine learning is increasing defect detection rates up to 90%.

Bottom line: Machine learning algorithms, applications, and platforms are helping manufacturers find new business models, fine-tune product quality, and optimize manufacturing operations to the shop floor level.

Manufacturers care most about finding new ways to grow, excel at product quality while still being able to take on short lead-time production runs from customers. New business models often bring the paradox of new product lines that strain existing ERP, CRM and PLM systems by the need always to improve time-to-customer performance. New products are proliferating in manufacturing today, and delivery windows are tightening. Manufacturers are turning to machine learning to improve the end-to-end performance of their operations and find a performance-based solution to this paradox.

The ten ways machine learning is revolutionizing manufacturing in 2018 include the following:

  • Improving semiconductor manufacturing yields up to 30%, reducing scrap rates, and optimizing fab operations are is achievable with machine learning. Attaining up to a 30% reduction in yield detraction in semiconductor manufacturing, reducing scrap rates based on machine learning-based root-cause analysis and reducing testing costs using AI optimization are the top three areas where machine learning will improve semiconductor manufacturing. McKinsey also found that AI-enhanced predictive maintenance of industrial equipment will generate a 10% reduction in annual maintenance costs, up to a 20% downtime reduction and 25% reduction in inspection costs. Source: Smartening up with Artificial Intelligence (AI) – What’s in it for Germany and its Industrial Sector? (52 pp., PDF, no opt-in) McKinsey & Company.

  • Asset Management, Supply Chain Management, and Inventory Management are the hottest areas of artificial intelligence, machine learning and IoT adoption in manufacturing today. The World Economic Forum (WEF) and A.T. Kearney’s recent study of the future of production find that manufacturers are evaluating how combining emerging technologies including IoT, AI, and machine learning can improve asset tracking accuracy, supply chain visibility, and inventory optimization. Source: Technology and Innovation for the Future of Production: Accelerating Value Creation (38 pp., PDF, no opt-in) World Economic Forum with A.T. Kearney.

  • Manufacturer’s adoption of machine learning and analytics to improve predictive maintenance is predicted to increase 38% in the next five years according to PwC. Analytics and MI-driven process and quality optimization are predicted to grow 35% and process visualization and automation, 34%. PwC sees the integration of analytics, APIs and big data contributing to a 31% growth rate for connected factories in the next five years. Source: Digital Factories 2020: Shaping the future of manufacturing (48 pp., PDF, no opt-in) PriceWaterhouseCoopers

  • McKinsey predicts machine learning will reduce supply chain forecasting errors by 50% and reduce lost sales by 65% with better product availability. Supply chains are the lifeblood of any manufacturing business. Machine learning is predicted to reduce costs related to transport and warehousing and supply chain administration by 5 to 10% and 25 to 40%, respectively. Due to machine learning, overall inventory reductions of 20 to 50% are possible. Source: Smartening up with Artificial Intelligence (AI) – What’s in it for Germany and its Industrial Sector? (52 pp., PDF, no opt-in) McKinsey & Company.

  • Improving demand forecast accuracy to reduce energy costs and negative price variances using machine learning uncovers price elasticity and price sensitivity as well. Honeywell is integrating AI and machine-learning algorithms into procurement, strategic sourcing and cost management. Source: Honeywell Connected Plant: Analytics and Beyond. (23 pp., PDF, no opt-in) 2017 Honeywell User’s Group.

  • Automating inventory optimization using machine learning has improved service levels by 16% while simultaneously increasing inventory turns by 25%. AI and machine learning constraint-based algorithms and modeling are making it possible scale inventory optimization across all distribution locations, taking into account external, independent variables that affect demand and time-to-customer delivery performance. Source: Transform the manufacturing supply chain with Multi-Echelon inventory optimization, Microsoft, March 1, 2018.

  • Combining real-time monitoring and machine learning is optimizing shop floor operations, providing insights into machine-level loads and production schedule performance. Knowing in real-time how each machine’s load level impacts overall production schedule performance leads to better decisions managing each production run. Optimizing the best possible set of machines for a given production run is now possible using machine learning algorithms. Source: Factories of the Future: How Symbiotic Production Systems, Real-Time Production Monitoring, Edge Analytics and AI Are Making Factories Intelligent and Agile, (43 pp., PDF, no opt-in) Youichi Nonaka, Senior Chief Researcher, Hitachi R&D Group and Sudhanshu Gaur Director, Global Center for Social Innovation Hitachi America R&D

  • Improving the accuracy of detecting costs of performance degradation across multiple manufacturing scenarios reduces costs by 50% or more. Using real-time monitoring technologies to create accurate data sets that capture pricing, inventory velocity, and related variables gives machine learning apps what they need to determine cost behaviors across multiple manufacturing scenarios. Source: Leveraging AI for Industrial IoT (27 pp., PDF, no opt-in) Chetan Gupta, Ph.D. Chief Data Scientist, Big Data Lab, Hitachi America Ltd. Date: Sept. 19th, 2017

  • A manufacturer was able to achieve a 35% reduction in test and calibration time via accurate prediction of calibration and test results using machine learning. The project’s goal was to reduce test and calibration time in the production of mobile hydraulic pumps. The methodology focused on using a series of machine learning models that would predict test outcomes and learn over time. The process workflow below was able to isolate the bottlenecks, streamlining test and calibration time in the process. Source: The Value Of Data Science Standards In Manufacturing Analytics (13 pp., PDF, no opt-in) Soundar Srinivasan, Bosch Data Mining Solutions And Services

  • Improving yield rates, preventative maintenance accuracy and workloads by the asset is now possible by combining machine learning and Overall Equipment Effectiveness (OEE). OEE is a pervasively used metric in manufacturing as it combines availability, performance, and quality, defining production effectiveness. Combined with other metrics, it’s possible to find the factors that impact manufacturing performance the most and least. Integrating OEE and other datasets in machine learning models that learn quickly through iteration are one of the fastest growing areas of manufacturing intelligence and analytics today. Source: TIBCO Manufacturing Solutions, TIBCO Community, January 30, 2018

Additional reading:

Artificial Intelligence (AI) Delivering Breakthroughs in Industrial IoT (26 pp., PDF, no opt-in) Hitachi

Artificial Intelligence and Robotics and Their Impact on the Workplace (120 pp., PDF, no opt-in) IBA Global Employment Institute

Artificial Intelligence: The Next Digital Frontier? (80 pp., PDF, no opt-in) McKinsey and Company

Big Data Analytics for Smart Manufacturing: Case Studies in Semiconductor Manufacturing (20 pp., PDF, no opt-in), Applied Materials, Applied Global Services

Connected Factory and Digital Manufacturing: A Competitive Advantage, Shantanu Rai, HCL Technologies (36 pp., PDF, no opt-in)

Demystifying AI, Machine Learning, and Deep Learning, DZone, AI Zone

Digital Factories 2020: Shaping the future of manufacturing (48 pp., PDF, no opt-in) PriceWaterhouseCoopers

Emerging trends in global advanced manufacturing: Challenges, Opportunities, And Policy Responses (76 pp., PDF, no opt-in) University of Cambridge

Factories of the Future: How Symbiotic Production Systems, Real-Time Production Monitoring, Edge Analytics and AI Are Making Factories Intelligent and Agile, (43 pp., PDF, no opt-in) Youichi Nonaka, Senior Chief Researcher, Hitachi R&D Group and Sudhanshu Gaur Director, Global Center for Social Innovation Hitachi America R&D

Get started with the Connected factory preconfigured solution, Microsoft Azure

Honeywell Connected Plant: Analytics and Beyond. (23 pp., PDF, no opt-in) 2017 Honeywell User’s Group.

Impact of the Fourth Industrial Revolution on Supply Chains (22 pp., PDF, no opt-in) World Economic Forum

Leveraging AI for Industrial IoT (27 pp., PDF, no opt-in) Chetan Gupta, Ph.D. Chief Data Scientist, Big Data Lab, Hitachi America Ltd. Date: Sept. 19th, 2017

Machine Learning & Artificial Intelligence Presentation (14 pp., PDF, no opt-in) Erik Hjerpe Volvo Car Group

Machine Learning Techniques in Manufacturing Applications & Caveats, (44 pp., PDF, no opt-in), Thomas Hill, Ph.D. | Exec. Director Analytics, Dell

Machine learning: the power and promise of computers that learn by example (128 pp., PDF, no opt-in) Royal Society UK

Predictive maintenance and the smart factory (8 pp., PDF, no opt-in) Deloitte

Priore, P., Gómez, A., Pino, R., & Rosillo, R. (2014). Dynamic scheduling of manufacturing systems using machine learning: An updated reviewAi Edam28(1), 83-97.

Smartening up with Artificial Intelligence (AI) – What’s in it for Germany and its Industrial Sector? (52 pp., PDF, no opt-in) McKinsey & Company

Technology and Innovation for the Future of Production: Accelerating Value Creation (38 pp., PDF, no opt-in) World Economic Forum with A.T. Kearney

The Future of Manufacturing; Making things in a changing world (52 pp., PDF, no opt-in) Deloitte University Press

The transformative potential of AI in the manufacturing industry, Microsoft, by Sanjay Ravi, Managing Director, Worldwide Discrete Manufacturing, Microsoft, September 25, 2017

The Value Of Data Science Standards In Manufacturing Analytics (13 pp., PDF, no opt-in) Soundar Srinivasan, Bosch Data Mining Solutions And Services

TIBCO Manufacturing Solutions, TIBCO Community, January 30, 2018

Transform the manufacturing supply chain with Multi-Echelon inventory optimization, Microsoft, March 1, 2018.

Turning AI into concrete value: the successful implementers’ toolkit (28 pp., PDF, no opt-in) Capgemini Consulting

Wuest, T., Weimer, D., Irgens, C., & Thoben, K. D. (2016). Machine learning in manufacturing: advantages, challenges, and applicationsProduction & Manufacturing Research4(1), 23-45.

6 Ways Cloud ERP Is Revolutionizing How Services Deliver Results

  • Cloud ERP is the fastest growing sector of the global ERP market with services-based businesses driving the majority of new revenue growth.
  • Legacy Services ERP providers excel at meeting professional & consulting services information needs yet often lack the flexibility and speed to support entirely new services business models.
  • Configure-Price-Quote (CPQ) is quickly emerging as a must-have feature in Services-based Cloud ERP suites.

From globally-based telecommunications providers to small & medium businesses (SMBs) launching new subscription-based services, the intensity to innovate has never been stronger. Legacy Services ERP and Cloud ERP vendors are responding differently to the urgent needs their prospects and customers have with new apps and suites that can help launch new business models and ventures.

Services-based Cloud ERP providers are reacting by accelerating improvements to Professional Services Automation (PSA), Financials, and questioning if their existing Human Capital Management (HCM) suite can scale now and in the future. Vertical industry specialization is a must-have in many services businesses as well.  Factoring all these customer expectations and requirements along with real-time responsiveness into a roadmap deliverable in 12 months or less is daunting.  Making good on the promises of ambitious roadmaps that includes biannual release cycles is how born-in-the-Cloud ERP providers will gain new customers including winning many away from legacy ERP providers who can’t react as fast.

The following key takeaways are based on ongoing discussions with global telecommunications providers, hosters and business & professional services providers actively evaluating Cloud ERP suites:

  • Roadmaps that reflect a biyearly release cadence complete with user experience upgrades are the new normal for Cloud ERP providers. Capitalizing on the strengths of the Salesforce platform makes this much easier to accomplish than attempting to create entirely new releases every six months based on unique code lines. FinancialForceKenandy and Sage have built their Cloud ERP suites on the Salesforce platform specifically for this reason. Of the three, only FinancialForce has provided detailed product roadmaps that specifically call out support for evolving services business models, multiple user interface (UI) refreshes and new features based on customer needs. FinancialForce is also one of the only Cloud ERP providers to publish their Application Programming Interfaces (APIs) already to support their current and next generation user interfaces.
  • Cloud ERP leaders are collaborators in the creation of new APIs with their cloud platform provider with a focus on analytics, integration and real-time application response. Overcoming the challenges of continually improving platform-based applications and suites need to start with strong collaboration around API development. FinancialForce’s decision to hire Tod Nielsen, former Executive Vice President, Platform at Salesforce as their CEO in January of this year reflects how important platform integration and an API-first integration strategy is to compete in the Cloud ERP marketplace today. Look for FinancialForce to have a break-out year in the areas of platform and partner integration.
  • Analytics designed into the platform so customers can create real-time dashboards and support the services opportunity-to-revenue lifecycle. Real-time data is the fuel that gets new service business models off the ground. When a new release of a Cloud ERP app is designed, it has to include real-time Application Programming Interface (API) links to its cloud platform so customers can scale their analytics and reporting to succeed. What’s most important about this from a product standpoint is designing in the scale to flex and support an entire opportunity-to-revenue lifecycle.
  • Having customer & partner councils involved in key phases of development including roadmap reviews, User Acceptance Testing (UAT) and API beta testing are becoming common.  There’s a noticeable difference in Cloud ERP apps and suites that have gone through UAT and API beta testing outside of engineering.  Customers find areas where speed and responsiveness can be improved and steps saved in getting workflows done. Beta testing APIs with partners and customers forces them to mature faster and scale further than if they had been tested in isolation, away from the market. FinancialForce in services and IQMS in manufacturing are two ERP providers who are excelling in this area today and their apps and suites show it.
  • New features added to the roadmap are prioritized by revenue potential for customers first with billing, subscriptions, and pricing being the most urgent. Building Cloud ERP apps and suites on a platform free up development time to solve challenging, complex customer problems. Billing, subscriptions, and pricing are the frameworks many services businesses are relying on to start new business models and fine-tune existing ones. Cloud ERP vendors who prioritize these have a clear view of what matters most to prospects and customers.
  • Live and build apps by the mantra “own the process, own the market”. Configure-Price-Quote (CPQ) and Quote-to-Cash (QTC) are two selling processes services and manufacturing companies rely on for revenue daily and struggle with. Born-in-the-cloud CPQ and QTC competitors on the Salesforce platform have the fastest moving roadmaps and release cadences of any across the platform’s broad ecosystem. The most innovative Services-focused Cloud ERP providers look to own opportunity-to-revenue with the same depth and expertise as the CPQ and QTC competitors do.

Five Ways Cloud Service Providers Are Making Manufacturers More Competitive

  • manufacturing-execution-systemsEnterprises are only realizing 35% of the total potential value of their cloud deployments according to a recent Bain & Company study.
  • Companies that moved development to IaaS and PaaS clouds from Amazon Web Services (AWS) reduced downtime by 72% and improved application availability by 3.9 hours per user per year.

These and other key take-aways are from the recent Bain & Company study, Tapping Cloud’s Full Potential. The full report PDF is available for download here (free, no opt-in). The following graphic from the report illustrates the currently realized value of cloud deployments in enterprises today according to Bain & Company.

Capturing only one-third of the value of their workloads

The researchers found several critical drivers of cloud value with one of the most important being the strengthening and clarifying of a product and service focus. The following graphic illustrates the critical drivers of cloud value.

getting the most value

Cloud Service Providers Give Manufacturers The Ability To Stay Competitive

Cloud-first strategies designed to accelerate and strengthen shifts in emerging business models is paying off according to Bain’s research results.

Manufacturers choosing to pursue a cloud-first strategy are focusing on evolving their business models, processes, systems and performance quickly to stay in step with customers’ needs. For many manufacturers, their customers’ pace is faster than internal IT organizations can anticipate and react to.  CSPs are helping to close that gap.

Here are five ways CSPs are making manufacturers more competitive:

  • Bringing industry expertise to the shop floor level. The best CSPs serving manufacturers today have management teams that have decades of combined manufacturing experience in specific industries. The CEO of a specialty tools manufacturer remarked that his company’s cloud strategy was more focused on accelerating plant floor performance first.  Working with a CSP that had expertise in their industry, this manufacturer was able to gain greater supply chain visibility and improve forecast accuracy, all with cloud-based apps.
  • Solving legacy and 3rd party system integration problems so that cloud-based ERP, CRM, supply chain management (SCM) systems can scale quickly. When a rust-belt based manufacturer of heating, ventilation and air conditioning (HVAC) systems had the opportunity to grow their business by expanding into build-to-order customized products, their CSP partner made it possible to integrate an entirely new product configurator and cloud-based ERP system module to manage quote-to-cash. Today, 30% of corporate-wide profits are from build-to-order selling strategies.
  • Knowledge-sharing supplier networks are becoming more attainable for manufacturers thanks to cloud technologies and CSPs. All manufacturers have strategic plans that include greater integration of their supplier networks, with many seeking to create knowledge-sharing networks. One of the best studies of how to create a knowledge-sharing network is from Dr. Jeffrey Dyer and Dr. Kentaro Nobeoka based on their intensive work with Toyota. Their study, Creating And Managing A High Performance Knowledge-Sharing Network: The Toyota Case is a great read. The following graphic from the study illustrates the evolution of a knowledge-sharing network. Manufacturers are relying on cloud platforms and CSPs to enable shifts in network structures and nurture change management to create self-sustaining systems.

Evolution of network

  • Two-tier ERP adoption in manufacturing is growing as CSPs master cloud ERP systems. CSPs are moving beyond providing basic services, specializing in cloud ERP, CRM, SCM, pricing, services and legacy system integration to keep pace with manufacturers’ demands. In one high tech manufacturer, their CSP partner orchestrated the procuring and launch of their cloud-based two-tier ERP system integrated to an SAP instance in their headquarters. Today they operate production centers in Asia, North America and Australia, all coordinated through the main SAP instance in the U.S. headquarters.
  • Making Service Level Agreements (SLAs) more relevant to manufacturing business models. Instead of just getting SLAs for uptime, security and system stability, manufacturers are getting advanced manufacturing intelligence dashboards that provide visibility to the plant or production center level.

Bottom Line:  Manufacturers are increasingly relying on CSPs’ cloud, industry and integration expertise to support the transition many are making to new business models and get greater than 35% of the value from their cloud investments.

Additional resources on Cloud ERP systems:

Why Cloud ERP Adoption Is Faster Than Gartner Predicts

200393880-001A recent study completed by Gartner titled Survey Analysis: Adoption of Cloud ERP, 2013 Through 2023 published on January 24, 2014, written by Nigel Rayner advises CIOs and application leaders of financial services institutions to “consider cloud ERP as a potential replacement for aging core ERP systems that are out of support or running on an old technology platforms (such as mainframes).“

The methodology is based on a survey of Gartner Research Circle members from North America, EMEA, APAC and Latin America from companies that range in size from $10M to $10B.

Key take-aways of the study including the following:

  • Including the 2% that already have core ERP in the cloud, a total of 47% of organizations surveyed plan to move their core ERP systems to the cloud within five years. This is because their ERP requirements tend to be focused around administrative ERP (financials, human capital management and procure-to-pay) where there is a wider range of cloud options (compared with manufacturing).
  • In aggregate, 30% of respondents say that the majority of their ERP systems will be on-premises for the foreseeable future as can be seen from the following graphic.

cloud adoption pie chart

  • 30% of organizations surveyed said they planned to keep the majority of their ERP systems on-premise for the foreseeable future.  Manufacturing organizations dominated this survey segment.

Why Cloud ERP Is Accelerating Faster Than Gartner Predicts

Two-tier ERP is the Trojan Horse of cloud ERP.  If Gartner had asked their respondents about if and how cloud-based ERP systems are being considered and used in two-tier ERP strategies globally, their survey and previous forecasts would have been significantly different.

From researching and working with manufacturers where two-tier ERP strategies make perfect sense for extending their legacy ERP systems to move into new markets, the following key take-aways emerge:

  • Achieving faster time-to-market while reducing cost of quality.  This is quickly turning into a year of transition for many supply chains, with the shift most noticeable in aerospace and defense.  Tighter project schedules driven by reduced budgets, coupled with more aggressive launch schedules is making this the year of the agile supplier.  Cloud-based ERP systems are essential to suppliers in this industry especially.
  • Legacy ERP systems lack scalability to support 21rst century compliance. One CIO who is a good friend jokingly refers to the legacy ERP systems populating each division of the manufacturing company he works for as fuel for his silos of excellence.  His point is that legacy ERP systems don’t have the data models to support the current quality management and compliance requirements corporate-wide and are relegated to siloed roles in his organization.  Cloud-based applications, specifically designed for ISO 9100, AS9100 Rev. C can do what legacy systems can’t, which is span across the aerospace manufacturer’s entire operations.
  • SaaS-based manufacturing and distribution software will increase from 22% in 2013 to 45% by 2023.  According to MintJutras, a leading research and advisory firm tracking ERP trends, a survey completed in 2013 shows SaaS-based applications will steadily grow from 22% of all manufacturing and distribution software installed to 45% within ten years.  The catalyst for much fo this growth will be two-tier ERP system adoption.
  • Microsoft’s New CEO knows the enterprise and cloud’s role in it. Satya Nadella has the daunting task of bringing innovation back into Microsoft.  As Anshu Sharma writes in his blog post today Satya Nadella: Microsoft, Coffee and the Relevance Question provides an excellent analysis of the challenges and paradoxes faced by the new Microsoft CEO.  It’s common knowledge in the Microsoft Partner community that the company runs one of the largest two-tier ERP system architectures in IT today, with an SAP R/3 instance in headquarters and Microsoft Dynamics AX running in each subsidiary.
  • All cloud ERP providers including Microsoft intend to monetize two-tier as much as they possibly can, architecting their respective Cloud OS strategies and enterprise suites to capitalize on it. Microsoft released an overview of their Cloud OS strategies in the following presentation, which provides a thorough overview of their perspective of the hosting market and how it relates to their apps business. Also included is the following graphic, Cloud OS: Innovation at Scale.  All of the factors taken together will drive up adoption of Microsoft Dynamics AX 2012 and streamline two-tier enterprise sales across all cloud ERP providers.  Last year at Microsoft Worldwide Partner Conference the announcement was made that Microsoft Dynamics AX 2012 would be available on Windows Azure in July, 2014.

cloud scale

  • Mobility is unifying the manufacturing shop floor to the top floor faster than anyone thinks.  In traditional ERP systems mobile platforms are most often used for material handling, warehouse management, traceability, quality management, logistics and service tracking. From the discussions I’ve had with CIOs and a few CEOs of manufacturing companies, there’s a high level of interest in analytics, alerts and approvals on Android and Apple tablets.  These apps and the speed of results they deliver are the new corporate bling. Intuitive, integrated and fast, these mobile apps make it possible for senior managers to check up on operations for wherever they are globally, in addition to approving contracts and being notified of events via alerts.  For Gartner’s assessment of cloud ERP to have been complete in this survey, mobility also needed to be covered
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