High-tech Manufacturing Industries Embrace SaaS Applications

May 15, 2008
SaaS will grow from $3 billion today to $30 billion by 2013, says Deutsch Bank.

The market figures paint a compelling picture. The number of Software as a Service (SaaS) providers, and the capabilities of SaaS applications, continues to grow at an explosive pace. A 2006 Deutsche Bank analyst report states the industry will grow from $3 billion today to $30 billon in annual revenue by the year 2013, representing a ten-fold increase within the next five years. And, while it's true that this is a small portion of the overall software industry, recent trends indicate this number may be conservative.

The SaaS distribution model, in which applications are hosted by a service provider and made available to customers over the Web, offers many benefits: fast deployment, lower infrastructure and installation cost, lower administration costs, automatic updates and global accessibility. And, the high tech manufacturing industry is jumping on board with SaaS, for all the same reasons.

Many discrete applications lend themselves well to this on-demand model. For example, Salesforce.com for sales force automation and SuccessFactors for human resource management are both notable for their fast growth and success. This is due to the ease of use, lower cost, and ability to implement quickly.

Many vendors successfully started with traditional on-premise software, such as Big Machines for product configuration and complex quoting, Steelwedge or Right 90 for product demand forecasting, and Xactly for compensation management. These applications are frequently integrated with material and pricing master data in Enterprise Resource Planning (ERP) systems. Today, these companies have developed on-demand versions of their solutions. And, new on-demand applications are appearing monthly, including offerings in lean manufacturing, marketing and purchasing.

ERP applications, which previously had not been considered for an on-demand model, are now meeting with great success in small to medium businesses. After three years of code development, SAP recently launched "SAP Business by Design," an ERP suite containing many of the modules inherent in the company's traditional on-premise application. A new, rapidly growing ERP offering is Workday, started by the original founders of PeopleSoft.

High-tech manufacturers have embraced the SaaS approach, as application providers have developed offerings specific to their industry. Design-to-Win, which is a crucial part of the sales and marketing development process, is now inherent in Salesforce.com. And with 50 percent or more of revenue coming from partner sales channels in the high-tech arena, the capability now exists to view and monitor partner activity and design-to-win success rates. As high-tech industries have vast quantities of parts (stock-keeping units, or SKUs) with complex pricing, high-tech firms can easily and quickly do complex product configurations and quotes. This process incorporates workflow for approvals, which give further discipline within the pricing process and assures better Sarbanes Oxley (SOX) compliance.

Another example where SaaS applications have aided the high-tech manufacturing industry is the acceptance of demand forecasting tools. These have proven to greatly improve forecast accuracy, down to the SKU level, for complex material inventories. The payback using these applications for inventory reduction is a very fast ROI.

As these applications become more robust and all encompassing, integration and seamless data exchange is crucial. A community of SaaS system implementation companies has grown with the pace in the industry itself. While some only offer configuration of the base application, the more innovative and established companies offer a range of process consulting, program management, configuration, integration training and adoption services. Engaging this level of experience and expertise makes startup fast and inexpensive compared to traditional approaches.

In short, there may be no application today within the high-tech manufacturing industry that cannot be cost-effectively, and quickly, adapted to on-demand solutions. Some of the most recognized companies producing semi-conductors, software, networking devices, hardware and electronic components have seen the obvious benefits of implementing SaaS solutions. These companies, known for leadership in innovation, will continue to lead best practices that offer the best return on investment.

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