Why SaaS Makes Sense for Manufacturers

By David Sims
07/26/2013
Credit: twobee via Freestockimages.net

A recent survey by MintJutras found that software as a service (SaaS) systems will comprise 45 percent of all software used at manufacturing companies by 2023.

SaaS is a system where the infrastructure and platform to run your software apps is handled by a cloud hosting provider. Like Google Docs, an SaaS application is simply accessible through a conventional web browser while somebody else takes care of all the hardware and updates. SaaS users pay for their software on a subscription basis.

SaaS comes in single- and multi-tenant architectures, which simply means that sometimes multiple companies use the same software application, operating system, hardware, and data storage but obviously each company’s data is kept separate and confidential -- like how you can’t read anybody else’s mail on Gmail. Single-tenant SaaS is where you have your own instance of the software application, “although common surfaces, such as the integration platform and security, may be shared,” according to RJ Burgess of Business 2 Community, a critically acclaimed business blog. Burgess adds that single-tenant configuration is a far more customizable SaaS setup.

SaaS is growing in popularity across the board. As Burgess notes, more than one-fifth (22 percent) of all manufacturing and distribution software today is SaaS-based.

The main reason, of course, is economics. SaaS Markets noted that 52 percent of respondents to the MintJutras survey cited “overall lower costs” of cloud-based systems, 46 percent cited “lower startup costs,” and 42 percent said “lower IT costs” as the reasons why they switched to SaaS. Such an approach also frees an organization up from having a large IT staff and from updates and general maintenance worries – properly run SaaS will also feature the latest app versions.

Dick Lee, founder and principal of Minneapolis-based consultancy High-Yield Methods, sees the SaaS push on vendors as well. Why? “Because software makers fare better financially on the web as opposed to client-server environments. Their development costs are lower, their post-sale service costs are lower, and quality ‘thickware’ developers are getting rare, hence expensive,” Lee told Tech Trends Journal. “The vast majority of business software will move to the cloud -- and faster than most outside technology.”

For users, other advantages are that staff in various locations can all access the same version of the application all the time. Collaboration in real time becomes much more practical, and it becomes far easier to integrate supply chain partners.

Louis Columbus, a cloud computing, customer relationship management, and enterprise software writer for Forbes, recently penned, “Cloud-based strategies give companies the chance to bring their own innate intelligence and knowledge into every sales situation. While on-premise systems could also do this, cloud-based systems were quicker to roll out, easier to customize, and showed potential to increase adoption rates across resellers.”

With all that said, security and keeping their data in-house are easily the most common arguments that companies make for sticking to traditional software and infrastructure. This is assuming, of course, that their security on in-house servers is better than that at cloud hosting providers, whose entire business stands and falls on data security.

Lee actually sees moving to the cloud as a security upgrade. He noted, “Even the CIA just signed a data management contract with Amazon.com.”

Calling SaaS skeptics’ security concerns mostly “psychological,” Lee acknowledges that there are two big problems with SaaS. They are reduced adaptability and configuration potential: “You’re unlikely to replicate on the web the specificity of your current client-server manufacturing system,” he said, adding that there could be difficulty integrating third-party software applications. He says integration program like Scribe help, “but fall well short of a magic wand.”

Jim Dickie, managing partner of research firm CSO Insights, told Tech Trends Journal that those considering SaaS have to factor in transferability, or “moving your data from one SaaS vendor to another if you want to switch platforms,” as well as the total cost of solutions over time. “The subscription cost never stops,” he said, unlike with traditional software, where one purchase price generally takes care of the budget hit.

LNS Research mentions “reliance on network availability” as an important consideration when looking at a particular SaaS product, “depending on the location of your manufacturing site and the surrounding network infrastructure.”

For manufacturing organizations that have decided on SaaS, there are some best practices that underscore the advantages of SaaS to manufacturing:

Raise mobility. When properly done, SaaS will integrate with your remote mobile users. A cloud-based platform can be instantly updated from the field, and updated information can be quickly pushed to remote personnel. Make sure the SaaS system provides the most mobile access possible.

Supplement, not replace, systems. There might be cases where you’ll want to rip out what you have installed and replace it with SaaS. But Chad Eschinger, a Gartner analyst, said recently that while with SaaS “there is some cannibalization of on-premise deployments... it's also used to provide functionality where there was none before.” Ask lots of questions about compatibility and integration with your current systems and don’t accept vague answers.

Integrate an EDI. An electronic data interface (EDI) is “a feature customers are increasingly demanding for record notification,” wrote SaaS In The Enterprise. “EDI automates shipping notices and customer releases (shipping schedules), which used to be filled out by hand. This is an added advantage… because many competitors lack this capability.”

Ensure scalability. One of the most notable advantages of SaaS, Dickie says, is how rapidly it can ramp up or down according to how many licenses or seats you need -- manufacturers whose work is seasonal are particularly attracted to this feature. Make sure that your SaaS provider offers flexible terms, without locking you into long-term agreements on user numbers.

Enjoy recoverability. Both Dickie and Lee identify recoverability of data as another advantage of SaaS -- if you lose your data due to a disaster, you’re much more likely to have state-of-the-art recoverability on SaaS servers. Get potential vendors to spell out what they offer; it’s a major comparison point.

Organizations that are resisting the move to SaaS soon might not have a choice. “The bottom line is that manufacturing software is headed for the web, whether you like it or not,” Lee said. 

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