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By Michael Stranz
Partner, Special advisory services, BDO

In CME’s 2012 Management Issues Survey, businesses were feeling very optimistic and anticipating growth in most aspects of their operations, from production volumes and sales to exports and overall profitability. These expectations are directly tied to their confidence to increase investment in a number of areas in new processes, including IT investments. These investments are centered on two priorities: satisfying existing customers and developing new clients at home and abroad

In my experience, most manufacturers in Canada are trying to more easily manage the complicated supply chain and manufacturing environment today. This is where an investment in IT can help. One of the fastest-growing areas of IT investment to streamline supply chain and manufacturing operations is the use of cloud computing for small- and medium-sized enterprises (SMEs).

What is cloud computing?

In recent history, business applications were generally very complicated, expensive and hosted on-site. They required hardware and software purchases, updates and experienced staff to install, configure, test, run, secure, and update them.

Considering the number of applications across an entire organization, it’s easy to see why only the largest manufacturers can afford to effectively utilize IT. Small- and mid-sized businesses are at a disadvantage, yet this is an area that can really propel them.

With cloud computing, all applications are hosted externally on someone else’s infrastructure, thereby eliminating the headaches of managing hardware and software — that task is offloaded to a professional IT hosting company. In this business model, users only pay for what is needed — upgrades are automatic, scaling up or down is easy, and there is no need for a large upfront investment in hardware and software. In effect, it means renting the applications and servers.

Why is it suitable for manufacturers?

  • Upfront costs: First and foremost, it allows SMEs to use very sophisticated ERP, business intelligence and CRM systems without the traditionally large upfront investment, giving them the same technology efficiency as larger manufacturers. Manufacturers are under constant pressure to increase accuracy, make process speed a competitive force, and capitalize on their internal intelligence and knowledge — new IT systems can help immensely. 

  • Security: This was always a concern with cloud-based computing. Look at people who used online banking in the early 2000’s versus today. Very few don’t do online banking today because the security at hosting providers is generally much greater than any small- and mid-sized manufacturer would have in-house. These providers have trained security personnel to ensure security, making it more difficult to have breaches.

  • Quicker rollouts: Many Canadian manufacturers are currently acquiring other manufacturers to create larger organizations to compete effectively. Cloud‑based systems are quicker to rollout for these acquisitions. Also, new applications are also quicker to rollout since the infrastructure at the hosting provider is already in place.

  • Always on: Most IT hosting companies provide a guarantee exceeding 99 per cent uptime availability, which is higher than most on-premises solutions. Also, these hosting providers have alternative hardware and backup facilities in the event of a server failure. Providing this type of failover facility for an SME would be prohibitive in terms of cost without cloud computing.

  • Collaboration: Because the system is always available, collaboration between departments, vendors, and customers is much easier to create and maintain. As an example, Vendor Managed Inventory and demand management applications that deliver real-time order status and forecasts are easier to collaborate within a cloud-based environment. Also, greater collaboration earlier in the design cycles assists in reducing time-to-market.

  • Business intelligence: For manufacturers that rely on build-to-order, configure-to-order and engineer-to-order strategies as a core part of their business models, using cloud-based platforms to capture knowledge and manage rules is accelerating. Also, consolidated dashboards, efficient production planning, and KPI’s across all companies in the cloud are easier as all companies are in the same environment rather than in multiple servers spread across an organization.

  • Marketing campaigns: Marketing costs are constantly under pressure as new, less expensive forms of marketing (like social media) take hold. A consolidated campaign across all associated companies in the cloud provides a better chance to deliver results, align internal content, strategies and ability to execute.

  • CRM: Manufacturing industries are at varying levels of adoption when it comes to CRM. However, CRM applications were one of the first technologies to embrace the cloud. With customers around the cloud, sales personnel managing more customers and sales managers managing budgets and salespeople, cloud-based CRM is ideal. A customer that is shared amongst companies in a group can be better managed as all information about them is available in a single source.

  • HR: One of the issues noted in the survey was the lack of labour talent, especially certain skilled labour and senior management positions. A cloud-based HR system can manage all employees across the entire organization to identify, manage and re-purpose talent pools within a large organization.

Bottom line

Currently, less than 20 per cent of business applications are available on a cloud basis, and specific manufacturing software has even less availability. However, cloud computing has huge benefits for SMEs, especially in terms of initial outlays and the management of IT infrastructure. 

In five years, cloud will be the way businesses run their infrastructure because of the obvious benefits. It allows companies to take IT spending and direct it towards product or service innovation and meet the needs of the business in a timely manner, rather than depleting resources on support and maintenance.