Business justifications for migrating on premise SCM ERP to the cloud

As of now 98 percent of the Supply Chain ERP systems run on-premise i.e. stand alone. Over the last 2-3 years there has been a buzz around to migrate on-premise applications to the cloud. ERP has been the key IT investments for organizations over the last decade and continuing effort to promote this technology is in progress. With the invent of cloud computing large varieties of softwares are being implemented on the cloud. In the past many researches were going on separately in both these fields but over the last few years ERP on cloud computing environment has become the buzz word and the key field of research. This topic is really close to my heart as I was a traditional ERP consultant for 6 years and have been a part of 18 ERP implementations across the globe. During my professional experience I encountered the need to use cloud based ERP several times in my career and after graduating from CMU I would like to become build my career in cloud based ERP technologies.

Based on my research and professional experience cloud based SCM ERP has a serious business justification due to the reasons mentioned below:

Impact on the TCO (Total cost of ownership) by cloud based SCM ERP over traditional SCM ERP system

The chart below compares the TCO of cloud based SaaS ERP over Traditional On-Premise ERP. As an amateur people might think that Application Software cost is the key deciding factor when a decision regarding an ERP implementation is made, but that’s is not the case. Other key factors that should be taken into account while calculating Net Present Value (NPV) of the project are IT Resources, Consulting, Training, Hardware and Infrastructure Software. Cloud based SaaS ERP is cost effective in all the areas except for the cost of Application Software and in that also differential amount is not that much. We can see that over a period of 5 years cloud based ERP can provide an additional savings of almost 50% and if we look beyond a 5 year plan we can say that this additional savings can be invested in process improvement and can result in longer-term benefits.

Muti-tenancy, Sharing and community effect

The world (especially the corporate world) is very mean, everything boils down to money. Cloud computing has made multi-tenancy (or sharing) possible and it brings tremendous cost savings to software vendors through this migration. Besides this in this competitive world if majority of the people start implementing something and even if an organization is doing fine and doesn’t really need an upgrade they still go for up gradation so that they don’t lag behind in anything and I agree with this point that they should do the same. Besides that a lot of startup companies are providing module wise cloud based solutions which are really being liked by the companies and they have really given run for money to traditional mega SCM ERP companies.

Speed, functional coverage and ease

Speed to deliver, ease of use and access via any device, anywhere is one of the business justifications as work is getting more and more distributed and people are working together on the same application from around the globe. Besides that cloud based SCM ERP uses same code and credentials as on premise SCM ERP and offer faster implementation and it is easy to use.

There are some points which pull back cloud based SCM ERP as well: traditional SCM ERP offers a deeper functional coverage because of its legacy and it also has the ability to easily find end users who are comfortable with its architecture and framework. Its pricing is pretty flexible and companies have already invested a lot on traditional SCM ERP and it’s not easy to pull back.

In order sum all of this i can say that the capabilities and potential savings from migrating to cloud-based SCM ERP are too great to ignore and the first movers/adopters of cloud based SCM ERP will definitively see substantial benefits over a period of time and, for significant number of companies, the migration to a cloud-based SCM ERP environment is in progress. We can conclude that the benefits offered by cloud computing will ultimately result in widespread adoption. The question is not “if” it will adopted or not but it is question about “when”, “by how much” and “how fast” this transition will take place and according to my analysis “when” exactly on premise SCM ERP will be obsolete is still a mystery because cloud based SCM ERP still is not having support from large organizations who drive the technology advancements but one thing I am sure is that cloud computing will become a fundamental deployment model for SCM ERP systems by the next decade; If you are reading this blog and your organization’s SCM ERP has not yet begun the journey to the cloud, now is the time to start drawing up your roadmap.

Some other figures that might interest you

References

http://csrc.nist.gov/publications/nistpubs/800-144/SP800-144.pdf

http://ec.europa.eu/information_society/activities/cloudcomputing/docs/quantitative_estimates.pdf

http://www.cs.columbia.edu/~roxana/teaching/COMS-E6998-7-Fall-2011/papers/armbrust-tr09.pdf

http://www3.weforum.org/docs/WEF_IT_AdvancedCloudComputing_Report_2011.pdf

http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Key-Questions-Executive-Ask-About-Cloud-Computing-ERP.pdf

http://www.academia.edu/2777755/Benefits_and_Drawbacks_of_Cloud-Based_versus_Traditional_ERP_Systems

http://www.textroad.com/pdf/JBASR/J.%20Basic.%20Appl.%20Sci.%20Res.,%202(11)11422-11427,%202012.pdf

http://www.academia.edu/1886654/Cloud_Computing_and_the_Business_Consequences_of_ERP_Use

http://www.booz.com/global/home/what-we-think/reports-white-papers/article-display/cloud-ready#prettyPhoto[iframes]/0/

http://lumeniaconsulting.com/blog/john-donagher/two-tier-erp-strategies

http://www.crmswitch.com/crm-industry/usa-crm-market-share-2013/

http://www.zdnet.com/next-generation-networks-an-overview-7000015543/