ERP Software Gets a Second Life in the Cloud

Enterprise Resource Planning (ERP) systems don’t have the most glorious history. In the 1990s, ERP providers claimed the technology would herald the end of time-consuming steps in manufacturing companies. ERP promised to automate and integrate it all, from order tracking to product distribution and production scheduling. But the technology often failed to deliver. Some angry customers even sued their ERP providers.

Now, however, innovations are making the technology more useful and cost-effective. The software can be hosted remotely (“in the cloud”) and used on mobile phones. It can help manufacturers cut costs and streamline their operations for much less than what ERP systems used to cost.

Oklahoma-based DDB Unlimited, for example, invested $235,000 in a traditional ERP system in April 2010. A manufacturer of rugged enclosures for electrical and communications equipment, DDB Unlimited hoped to gather information from its disparate accounting, inventory, and manufacturing departments into a central database for a real-time view of its manufacturing processes. But the system proved slow and difficult to navigate, causing employees to take “three times longer to do their job,” recalls founder and president Dusty Mahorney.

So this past January, DDB Unlimited switched to a remotely hosted ERP system from another provider, Acumatica. DDB Unlimited essentially rents an Internet-based ERP system without having to purchase costly, high-maintenance servers. Acumatica handles software upgrades, patches, and backup, freeing DDB Unlimited’s IT department to focus on its production facilities. Employees can use the system to track manufacturing costs, view accounts receivables, enter purchase orders, review inventory, and clear checks. The system has helped DDB Unlimited whittle its order-processing cycle from two hours down to 45 minutes. Employees can access the system from a remote computer for real-time information such as a customer’s purchasing history.  

It cost DDB Unlimited about $100,000 to transfer data and take the other steps necessary to implement the cloud ERP system, which costs $35,000 a year. But Mahorney says the move will cut $80,000 in annual expenses from its pre-ERP days. 

Even some high-profile companies have had big problems with earlier versions of ERP systems. Consider Hewlett-Packard’s botched ERP implementation in 2004. It contributed to $160 million in order backlogs, and resulted in canceled shipments and lost sales. In 1999, Hershey blamed ERP and other software for a failure to deliver $100 million in Halloween candy.

“There are all these great stories of these disastrous implementations that cost hundreds of millions of dollars and sometimes even bankrupted companies who had no idea what it would actually cost to implement an ERP system,” says Seth Ravin, CEO of Rimini Street, an ERP software support and maintenance provider.

Some companies still fail to anticipate the inherent complexity of ERP technology. A cloud-based ERP solution, however, lets manufacturers take the step without having to spend a lot of money up front. “Manufacturers don’t necessarily have to go out and spend millions and millions of dollars to buy software,” says Eric Kimberling, president of Colorado-based ERP consulting firm Panorama Consulting Solutions. “It’s like leasing a car.”

Mobile devices are also making ERP more appealing to manufacturers. Now workers can use the systems to approve purchase orders, track shipments, and flag production bottlenecks even when they’re outside the plant.

Another improvement that manufacturers can take advantage of is open-source ERP, which, unlike proprietary systems, typically feature a public code base that lets users customize the product in accordance with their needs. Open-source solutions also generally include access to an ad hoc community of developers for support and collaboration.

But while mobile and open-source ERP systems are flexible, they’re not for everybody. Equipping field workers with ERP data on their smart phones gives rise to enormous security concerns. And it can be hard for some companies to take full advantage of open-source software “unless you’re an organization that has a very sophisticated IT shop,” Kimberling says.