Cloud Living up to the Hype

Cloud Living up to the Hype

Factors contributing to the growing popularity of cloud-based computing, including the speed at which it can be deployed, its flexibility and the burden it takes off the shoulders of the IT department.

Until two years ago, Schaeffer Manufacturing Co., a St. Louis-based manufacturer of synthetic motor oils and other lubricants, had been processing orders and managing other aspects of its business on an AS/400-based software system that the company built in 1982. With the company growing by leaps and bounds -- it has achieved an annual growth rate of 12% over the past three years -- Schaeffer realized that the capabilities of the "homegrown" software could not support the company's business objectives anymore, says CFO Will Gregerson.

Schaeffer aimed to integrate its fragmented software programs into one ERP system, while taking advantage of some of the "bells and whistles" offered by the latest ERP technology, Gregerson recalls. However, "we didn't think we could afford a software system that would be robust enough to do everything we wanted and customizable enough to make it the way we wanted."

The company turned to the cloud, choosing NetSuite's Web-based ERP system over traditional on-premise ERP offerings. Because the NetSuite ERP system is delivered on a pay-as-you-go basis -- known as software-as-a-service (SaaS) -- Schaeffer was able to tap into the same functionality provided by on-premise software without having to make an upfront six-figure investment, Gregerson says.

Will Gregerson:
By choosing a cloud-based ERP product, Schaeffer Manufacturing was able to upgrade its software without making a "huge outlay of cash."
"Although we had some implementation fees, [NetSuite] amortized those fees over 12 months so we didn't have any huge outlay of cash," Gregerson says.

The NetSuite ERP system has helped Schaeffer cut costs and improve customer fulfillment in short order, Gregerson says. By automating the entire order-to-shipment process, which previously contained several manual steps, Schaeffer has reduced its order-to-shipment time from about two and a half days to one day -- without adding staff. "And because we're not re-keying data and doing manual approvals, our order accuracy has improved," he adds.

One benefit unique to the cloud-delivery model: Because NetSuite now manages the programming and maintenance of Schaeffer's ERP system, Schaeffer was able to trim its IT staff by two employees, saving the company approximately $100,000 a year.

Gartner analyst John Lovelock sees the use of SaaS applications "growing very quickly" in the manufacturing world. In a recent survey of manufacturers conducted by Gartner, nearly one-fourth of the respondents said they were extremely likely to contract with an external service provider for SaaS during the next two years, according to Lovelock. That kind of response shows "this market is motivated," Lovelock says.

Lovelock believes a "multiplicity" of factors are contributing to the growing popularity of cloud-based computing, including the speed at which it can be deployed, its flexibility and the burden it takes off the shoulders of the IT department. At the heart of the growing interest in the cloud, however, is the SaaS payment model.

"Instead of it being a capital expenditure, it becomes more of a monthly expenditure," says Andrew Kinder, Infor's director of solution marketing. "It's kind of the difference between buying and renting."

The pay-as-you-go model became particularly compelling during the recession.

"Cloud probably would've been facing a much more slow and steady adoption rate were it not for the economic situation," Lovelock says. "But the economy shrinking put a focus on cash flow. It gave cloud its biggest impetus, which is it's cheaper."

See Also:
• Hard Choices for Software Spending

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