Manufacturing & The Cloud: Leading Media Outlet Shares Research Study
Cloud computing is one of those terms we hear a lot about these days, and whether you understand it or not, it’s transforming manufacturing even as you read this. Simply put, cloud computing is accessing software as a service over the Internet. Those apps on your phone or in your Web browser — that’s cloud computing. You no longer need to download programs and software, just an Internet connection and a login.
With the current trajectory of technology, it appears that tomorrow’s successful manufacturing business will be utilizing cloud computing to manage at least some aspects of their business. Not only that, but cloud computing in manufacturing allows for increased company efficiency through greater workplace collaboration, seamless automatic updates of the software across an organization, lower capital expenses (since many cloud computing services are pay-as-you-go) and even disaster recovery.
“If you go back five years ago, we were talking about cloud computing as though it was an economic decision,” explains Craig Downing, senior director of cloud at Epicor. “Today, when we talk to customers about why the Cloud is important, we start seeing themes that really have nothing to do with economic needs or cost of ownership. We’re seeing customers talk about how it allows them to regain their IT department.”
Recently, Manufacturing Business Technology (MBT) surveyed its readers to understand how many of them are using cloud computing in their business operations, why they are using it and the push behind adopting the technology. Approximately 41 percent of the respondents came from companies with more than 500 employees; 34 percent came from small companies with less than 50 employees; and the remaining 25 percent were mid-sized companies with between 50 to 500 employees.
According to respondents of the survey, 40 percent are currently utilizing the Cloud or are in the process of implementing it. Out of those who are not using the Cloud, approximately 27 percent of those companies are planning to move at least some services to the Cloud in the next one to three years.
This report looks at those results and includes industry insights and trends relating to cloud computing in manufacturing including: where cloud computing is today; how companies are utilizing cloud capabilities; the biggest challenges concerning cloud computing; and where the industry is headed.
SECTION 1: WHERE WE ARE
In today’s world, cloud computing is becoming more and more important for manufacturing companies. They’re looking at cloud computing as a way of being able to adopt newer technologies at a quicker pace. The technology allows them a lot more flexibility and agility when it comes to building out their solution footprint and being able to adopt some of those newer technologies, versus being on-premise — where they’ve historically done lots of customizations, but don’t necessarily upgrade as often as they’d like to.
Oftentimes, the biggest benefit to Cloud use is driven by the company’s ability to cut IT infrastructure costs out of their organization.
“Finances continue to be a very compelling argument for the Cloud,” says Downing of Epicor. “There’s no question that companies get to the Cloud and recognize they are saving more than they thought. When manufacturers start going through the real cost of ownership, they realize that without those on-premise big powerful servers, they’re saving $1,000 a year of electricity. They’re also not bringing in consultants every six months to install updates, because they get installed automatically by Cloud vendors.”
There are also the collaborative benefits of cloud computing in an organization as well. One of the common things that happens when companies standardize cloud computing across the enterprise, is it allows them to leverage experience elsewhere in the organization. By using social enterprise modules, it allows employees to ask questions, start conversations or form working groups around customers, products or processes that are important. A team that services a customer might include the account executive, the designer and the engineers, but also the shop floor people who are responsible for manufacturing those products, creating an environment where they can collaborate and talk to one another, breaking down what — up until that point — had probably been email threads back and forth.
Along with the Cloud, Big Data and the Internet of Things (IoT) are really driving innovation in the manufacturing industry. For instance, IoT exponentially increases the amount of data that’s available for manufacturing companies as they start connecting devices and machines to their systems. This allows them to do additional measurements not only on the shop floor operations, but also be able to gather information on a product out in the field.
SECTION 2: CLOUD UTILIZATION
According to MBT’s survey, within organizations, business IT decision makers are the No. 1 driver of cloud computing adoption (51 percent), followed by C-level management (34 percent) and IT staff (29 percent). The primary reasons for this drive is economic factors, agility and working in a global marketplace (see chart on page 8). But what is motivating those individuals to look at cloud computing as a solution?
“We’re just now at the point where manufacturers are comfortable with moving their manufacturing systems into the Cloud,” explains Downing. “It seems to depend on the success they’ve had with less sophisticated or less mission-critical systems already moved to the Cloud.”
Let’s go back and look at what business processes companies have moved to the Cloud in the last five years. They’ve stopped running their own mail server and payroll systems, and that’s worked out well for them. They’ve also stopped running their own customer relationship management (CRM) system and moved to platforms such as Salesforce. com, for example. Companies stopped running their own Web servers, and they’ve moved to web hosting companies. Downing says that all of these things have happened before manufacturing companies have looked at moving their production systems to the Cloud — and probably for good reason.
If a company’s mail server goes down for an hour, that’s OK because emails aren’t lost forever. Once the server comes back online, the flow of mail resumes and business continues. If your CRM system goes down for an hour, the sales team just has to revert back to pen and paper until the systems are back up. But if a manufacturer’s shop floor control, scheduling system, costing systems or machine management systems go down for an hour, that’s a big problem.
“I think manufacturers have moved to the Cloud in a thoughtful way,” adds Humphlett. “They’ve looked at all the workloads that have been a little bit less mission critical and where an outage won’t stop their primary operating model and started there. They’ve gotten comfortable with that first before moving their ERP systems to the Cloud.”
There are three types of Cloud solutions available. The first one is a “private cloud” that can be on- or off-site and is operated solely for a single company, whether it’s managed internally or by a vendor. The second type is a “public cloud,” where the services are carried out over a network opened for public use. Lastly, there is the “hybrid cloud” in which a company manages some resources on-premise and has other applications hosted in the Cloud. Survey respondents indicated that approximately 47 percent are using a private cloud, while 22 percent are using a public cloud and 22 percent are using a hybrid system (see chart below).
According to MBT’s survey, the top motivating factors behind the type of Cloud a manufacturer invests in are: Ease of Use (48.5 percent); Application Hosting (41 percent); Support (37 percent); and Cost (32 percent). While security concerns are typically considered a major hindrance to adopting cloud computing technology, this actually came in fifth place, at 28 percent.
As manufacturers begin their research into cloud computing solutions, they initially look at hybrid clouds as an option since they’re typically coming from a background of an on-premise kind of IT shop. A hybrid cloud gives them the option to pick and choose which applications they’ll begin utilizing the Cloud for and which they’ll leave on-premise. This can give the company time to see the benefits of cloud computing without greatly disrupting their operations before moving to a fully public or private cloud solution.
So just what are manufacturers using the Cloud for? The three classic applications in the Cloud for the last 10 or so years have been CRM, expense management and enterprise asset management solutions. And as cloud computing gains traction in the industry, more companies are looking at those more business critical applications, such as financials and shop floor applications, in order to move them to the Cloud as well.
According to Epicor’s Downing, the best returns come from the processes that cross across multiple departments or groups of people. Certainly moving a maintenance management system to the Cloud might be nice, because it means an IT department doesn’t have to run it anymore. But if only a couple of people are accessing the maintenance management system, the company isn’t solving a huge problem. On the other hand, if a manufacturer moves workloads that are across multiple people and departments, or even across multiple companies, countries and time zones to the Cloud, there’s potential for enormous return there.
“Think about new product design,” says Downing. “You’ve got contract designers and manufacturers, supply chain people and maybe even engineering collaboration with the customer. When you move that workload to the Cloud, everyone can now access the system in real-time, while the transportation company knows when it’ll be rolling off the assembly line in China and ready to be trucked to your Los Angeles port location where it’s going to have final assembly.”
When companies cross departments and large number of participants in those workloads, use of the Cloud provides greater value. Manufacturers can extract a lot of the inefficiencies and delays, while creating a more collaborative process.
Disaster recovery is another one of the leading advantages to cloud computing that manufacturers are utilizing. That way, if there’s an environmental, natural or man-made disaster, all is not lost.
“When asking potential customers about their disaster recovery strategy, some of them just shake their heads, while other indicate a server in a separate closet around the corner doing data backups every night,” explains Humphlett. “That’s not really a disaster recovery plan.”
SECTION 3: BIGGEST CHALLENGES
Some manufacturers aren’t utilizing the Cloud, simply because they don’t really know what benefits are available. It becomes a case of companies stopping themselves from taking advantage of the platform, many times due to customizations that they typically won’t have without that multitenant world.
“I think there are awareness issues, and I think there are historical investments in decisions that sometimes we’re loath to reconsider,” explains Downing. “For example, a typical $70 million fabrication company may have built their proxy, bought systems and made investments in those systems. The thought of walking away from them isn’t terribly compelling. A lot of people are looking to get more out of their investments before they run around and buy more technology or replace a system that they think might still be working.”
The problem with that thought process is that most manufacturing and ERP systems as a whole have a life of about seven years. If a company just bought a system two or three years ago, maybe it’s got a lot of capabilities that modern manufacturing and modern ERP systems have, but if they’re using a 10 or 15 year old system, they’re at least a couple of generations behind. Nevermind not supporting new technology like an iPad, it probably doesn’t support remote access, have a web interface and doesn’t talk in an automated way to manufacturing systems. Companies need to become a little more courageous and look at what modern systems are doing in order to have a benchmark. That way they can be better informed as to the tradeoffs they’re making.
“Money is a big concern with the smaller manufacturers, because they have to make sure they keep the doors open,” says Susan Irby, senior product manager at Exact. “One of the things I would say to the smaller manufacturers is that the Cloud allows them to scale up and down as their businesses change. It is an opportunity for them to start small and work up without the initial investment they would have if they were using an on-premise solution.”
MBT’s survey respondents indicated that Economic Factors (46 percent); Agility (44 percent); Working in a Global Marketplace (29 percent); and Better Supply Chain Collaboration (24 percent) were the major motivating factors to investing in cloud computing (see chart below).
One of the bigger things that Cloud vendors hear from manufacturers are their concerns about the levels of security available in the Cloud. Manufacturers may be surprised to learn that most Cloud providers offer a higher level of security than they probably have internally within their on-premise environment.
“In our data center we’ve got armed guards, locked cages, video cameras and biometric sensors,” explains Downing. “I’ve got far more invested in securing my customers’ data than my customers probably have in their own data center. Most companies we look at have a good lock on the closet door to their server room, but that doesn’t stop someone from within the network from accessing that data.”
As people start taking a look at application, network and physical security — or even start to take a look at the operations security such as data transmission, encryption and privacy — companies want to know just how strong the levels of security are within the Cloud environment. When manufacturing companies move toward monitoring, industry compliance, passwords, digital certificates and all the different types of ISO compliance that they have to go through, how strong the security is within the cloud computing environment is of much concern.
“What it all comes down to is, you need to work with the software vendor to really understand how their security is structured and how it is put together,” says Irby. “The security concerns from the software vendor perspective are very important, so they attempt in every way possible to address them.”
SECTION 4: MOVING FORWARD
The odds are that most business application providers today offer some kind of cloud option. It could be a single tenant, private cloud; a managed services offering; or it could be a multitenant type solution. One of the best things to do is to just start trying to get that initial education to understand the differences between the on-premise world and the Cloud world, because there are some pretty significant differences between the benefits and what you’re going to see.
Companies should also look at how this might move them from a capital expense to an operating expense by determining how often they currently have to upgrade their hardware, their database, and the actual business applications they’re looking at. Manufacturers should understand the disaster recovery policy and plan of a Cloud vendor, what kind of service levels that are available, and the kind of security programs that are offered.
It’s really an education process that an organization needs to go through, because it’s fundamentally different than working through an on-premise world. Initially just getting that level of education, and talking to a business application provider, will allow an organization to do that comparison and decide if this is the right direction.
As indicated in the chart below, none of the responding companies utilizing cloud computing so far are dissatisfied with their decision. An overwhelming 83 percent indicated they were either satisfied or very satisfied with their cloud solutions.
Investing in technology is not just about knowing where it is today, but knowing where it’s headed tomorrow. Moving forward, Irby at Exact sees cloud computing software becoming more robust to address more of the manufacturers’ concerns in their day-to-day operations and business.
“While there are some pretty powerful platforms available, they aren’t necessarily as robust as the on-premise products companies have been using,” says Irby. “We see that changing by leaps and bounds, and software companies are really working hard to get the technology and the functionality up to the point where it can replace the on-premise products very easily and without question. It is just an evolution of moving these robust, complex ERP systems for manufacturing towards the cloud — systems that will allow anybody in the organization to be able to access software at anytime, anywhere, and at any location.”
Right now, vendors are trying to help manufacturers understand the benefit of the Cloud and how to leverage it inside their organizations, such as where it makes sense first and where the greatest value is.
“Our job is to help manufacturers understand that not every workload needs to be moved to the Cloud with the same level of urgency,” indicates Downing. “I think one of the things that we can do as vendors is help manufacturers understand where those processes are on that spectrum, and help them understand the ones that they really need to be focusing on.”
Downing suggests that manufacturers build an 18 to 36 month plan that diagrams out what processes are critical and what processes could be moved to the Cloud sooner rather than later. Manufacturers should explore some early, easy wins to get their feet wet around the Cloud so that when they get to some of the more sophisticated systems, such as material requirements planning (MRP) systems, they already have some experience in asking the difficult questions and determining the ROI.
“I see more and more manufacturing companies adopting the Cloud, and I think a lot of it has to do with getting employees to be more engaged, more empowered and hopefully more satisfied with using the business applications that an organization is working with,” says Humphlett.
One of the key pieces to manufacturing success is figuring out how to grow the business. By utilizing cloud computing, companies can drive faster change and adoption of innovations quickly in order to deliver new products to market and grow the business.
“There are a lot of laggards out there when it comes to technology adoption,” concludes Irby. “But as they see success by others, I think they begin to see the real opportunity and the advantage of moving to the Cloud.”
Market Monitor Research Series:
Advantage Business Media’s Market Monitor Research Series presents fresh research and analysis on compelling and timely industry topics. “The Cloud: Taking Manufacturing to the Next Level” was prepared by Manufacturing Business Technology Associate Editor Jon Minnick. The data presented in this report is based on the results of a survey of Manufacturing Business Technology subscribers, comprising of CEOs, presidents, owners, engineers, managers, and directors across the manufacturing industries.
About Manufacturing Business Technology:
Manufacturing Business Technology has served as a leading resource for manufacturers for the past 30 years, and its longstanding readership in the manufacturing marketplace makes it a respected source on the latest technologies. Manufacturing Business Technology is a prime information source for decision-makers in operations, information technology, automation, and the supply chain.
About Advantage Business Media:
Advantage Business Media (www.advantagemedia.com) is a data-driven marketing solutions company leveraging content, technology, and business intelligence to match its audience’s job performance needs with its clients’ solutions. With a diversified portfolio of highly focused websites, e-newsletters, print publications, specialized directories, vertical search databases, conferences, ancillary media vehicles, and associated web-based services, Advantage serves more than one million industry professionals in the manufacturing, science, and design engineering markets. For more information visit www.advantagemedia.com.
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