By Dick Friedman
More and more electrical distributors are considering using cloud-based ERP and/or e-commerce systems in place of traditional systems—and while there are some advantages to such an arrangement, there are also some negatives.
Cloud computing, SaaS, and hosting
Cloud computing and SaaS (Software as a Service) refer to the same arrangement: The company does not own a server and does not posses nor own the software that personnel use. Instead the server and software are owned by a company that allows several companies to simultaneously use the server and the software. Employees access the server and software via PCs that are connected full time via the Internet or a dedicated leased transmission circuit. Hosting refers to an arrangement where the software is located on a server not owned or possessed by the company, but the license for the software is owned by it. (Hosting is not addressed here, because it is very similar to an on-site arrangement.)
Cost is the main reason a company would opt for a cloud ERP arrangement instead of an on-site arrangement. Cost is also the reason that a company would opt for a cloud e-commerce arrangement; this software is very expensive. With an on-site system, a company must pay a substantial initial license fee and buy a server, neither of which are involved in a cloud setup. (The costs of data conversion, training, printers, and PCs used as terminals are about the same with either arrangement.) A cloud arrangement involves a multi-year contract, and payment of some combination of monthly fixed fee, per user fee, and/or usage charges (e.g., number of invoices processed); along with a monthly cost for a data communications arrangement. These monthly fees are larger than the monthly support/license fees of an on-site arrangement, but there is relatively little up-front cost.
Because the vendor of a cloud service provides any needed hardware and software trouble-shooting, a subscribing company does not need to employ IT experts or worry when there is a problem with the system—issues that are part of an on-site arrangement. Nor does a subscriber worry if an upgrade does not work properly; the vendor fixes it. Support on system-use questions is the same regardless of arrangement.
Most of the companies that do not want to sign up for cloud services are concerned that their data could be viewed by others that subscribe to that specific service, including competitors. Where access is via the Internet, there is a concern about the security of data transmissions. And some don’t sign up because they are uncomfortable that with a cloud service wherein the subscriber has no control; the vendor is in total control.
System vulnerability means that all data processing in a cloud setup depends on a communication circuit, and a break in that circuit means no processing at all unless there is a redundant circuit. System sharing, a related concern, is that the vendor may not have enough interconnected servers to handle peak demands from all subscribers (e.g., late afternoon picking in the warehouse) or to take over processing when a server fails. In the former situation, response time could be very slow, as could be the case if the software was not created to handle multiple subscribers simultaneously using the same function (e.g. order entry).
Most on-site systems used by electrical distributors support the downloading of IDEA’s IDW data, and some cloud arrangements allow for using IDW data. For either arrangement its important to determine if the software supports/uses IDW data, and how long it has been doing so. Another data-related questions is whether it would be easy to set up and maintain proprietary product data (e.g., specs and photos of house-brand or private label motor controls). And those that operate lighting showrooms or sell a lot of commercial lighting should also determine if either arrangement contains features for lighting (e.g., an e-catalog of decorative product data and photos).
Personalization and accessibility
Vendors of cloud services rarely modify the software to incorporate the desires of specific subscribers, unless a cloud-users group demands enhancements. But some vendors of on-site systems do not make modifications, or price them very high to discourage modifications. A related concern is whether several other competing companies are already subscribing to the service, or whether a company would be a pioneer and impacted as the vendor learns about its specific industry. Another concern is that the vendor might discontinue the cloud service if not enough companies subscribe; if that vendor does not also offer an on-site arrangement, discontinuance would be a major crisis for subscribers.
Mobile accessibility refers to the ability of system users, and customers, to access the system (via passwords and other security). Cloud services by definition provide this access, but on-site systems might require add-on software and hardware. On the flip side, response times for mobile users could become lengthy if the circuits or servers become overloaded.
Electrical distributors have some system requirements (e.g., SPA and wire and cable management) that are different from those of other kinds of distributors, so it is very important to determine if the software used in a cloud arrangement contains those needed feature/functions. Those considering imminent use of a cloud service—but who might want in the future to add functions such as construction project management and warehouse management—should verify that the functions of interest are available and have been integrated into the cloud ERP software.
The biggest concern here is whether cloud e-commerce can integrate with an existing on-site ERP system—whether transactions (e.g. sales orders) placed via e-commerce flow into the ERP system, and vice versa. A similar concern exists if a distributor would subscribe to cloud ERP now, and add cloud e-commerce later (all from the same vendor).
Compared to traditional on-site systems, cloud arrangements offer some distinct advantages, especially for smaller companies, but also involve some risks that on-site systems don’t.
Dick Friedman is a recognized expert on selecting the most cost-effective ERP and e-commerce systems/services, while avoiding the problems and pitfalls. He is a Certified Management Consultant and does not sell software, systems or data processing services. Based on more than 40 years of helping electrical distributors select systems/services, he has developed forms and checklists that enable distributors to define long term needs and compare different systems/services. He can be reached at 847 256-1410 for via www.GenBusCon.com.
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