How the cloud and globalization are shaping ERP functionality in electronics manufacturing

As electronics manufacturers look to expand globally, they are also looking at the cloud, security, two-tier strategies, and customization. Software providers like Plex Systems, SAP, Microsoft, Sage, NetSuite and others ERP platform vendors are taking their interests and concerns to heart.

The landscape for electronics manufacturing is changing rapidly — and it is increasingly shaped by globalization. Globalization presents both opportunities, and challenges, particularly in the supply chain spanning the enterprise.

Within this discussion, the most prominent topic in corporate boardrooms these days is the cloud.

“Market acceptance of cloud applications, otherwise known as software-as-a-service (SaaS), is growing, and it is now storming the last fortress of on-premises applications – ERP,” says Frank Scavo, president of IT research firm Computer Economics and he is also co-founder of Strativa, a California-based management consulting firm

Dovetailing with this growing issue are related concerns, including security, two-tier strategies, and customization. These issues are among the many forces shaping the way enterprise resource planning (ERP) providers are designing and delivering their products, according to companies and experts in the ERP sector like Scavo.

Opportunity in the cloud

Today the cloud is a key force shaping the development of the ERP functionality companies need to run their global enterprise. The cloud delivers value on several fronts including scalability, reduced hardware costs, rapid deployment, standardized functionality, and the ability to easily cross geographic borders.

Many companies and industry experts believe there is a long-term value creation opportunity in cloud-based ERP, and expect a greater percentage of the ERP marketplace to move into these offerings.

According to Nick Castellina, senior research analyst for the business planning and execution practice at the Aberdeen Group, “Aberdeen’s research indicates growing acceptance of cloud ERP in manufacturing.”

Further reports state that by 2014 over 40% of cloud applications will be tapped by businesses with more than 1,000 employees — a trend led by NetSuite, which has been the fastest-growing cloud ERP vendor for the last three years.

The latest release of NetSuite’s OneWorld ERP suite is designed specifically for global adoption, including functionality that manages multiple locations and subsidiaries, business units and legal entities all from a single cloud-based ERP system to accelerate financial consolidation and visibility, while seamlessly handling different currencies, taxation rules, and reporting requirements, according to the company.

Each of these are equally important for technology OEM companies as well as contract electronics manufacturing services (EMS) providers, often spread out with locations across the globe, designing and building electronics products for their OEM customer programs.


Ways globalization is shaping ERP functionality in electronics manufacturing


Regarding a survey study conducted by the Manufacturing Performance Institute on behalf of Plex Systems, which included electronic manufacturing respondents, Plex Systems CEO Jason Blessing says, “2012 saw the widespread acceptance of cloud computing, including the validation of the model by some of the largest software companies in the world. The survey takes a deeper look into the manufacturing sector’s acceptance of, and perspective on, the use of cloud ERP. It is clear that cloud ERP is the number one choice for manufacturers to maximize efficiencies with minimum upfront costs and increased return on investment.”

According to Scavo, “manufacturers are the largest market for ERP systems.” He goes on to say that although manufacturers have been slower to embrace cloud computing than many other sectors have, the situation is rapidly changing.

Securing the cloud

To combat one of the persistent fears of the cloud platform, enterprise software providers are focusing on ratcheting up the security of their ERP solutions.

Companies like Plex stress this point, stating: For any mission-critical service, a company needs to choose a well-qualified provider with impeccable industry certifications. When a company chooses an appropriate vendor to house its data ‘in the cloud,’ it is enlisting a firm that has dedicated security protocols and processes. In addition to the physical security implemented at modern data centers, compliance with gR-3160 NEBS (Network Equipment Building System) requirements and the Telecommunications Industry Association’s TIA-942 Telecommunications Infrastructure Standard for Data Centers, the IT infrastructure at a private data center providing cloud services likely exceeds whatever the company has on-premise.

Barney Beal, content development writer / editor at NetSuite, advises manufacturing companies seeking cloud-based ERP solutions to ask the following questions of ERP providers: “What audits have they passed? Do they own the data center or outsource? What about application level security? PCI compliance?”

Tapping two-tier ERP strategies

Another force at work in globalization is that electronics manufacturers are increasingly relying on two-tier ERP strategies to gain greater efficiencies in material planning and supplier management, reduced logistics costs, and gain greater independence from a single ERP vendor dominating their entire operation.

According to reports, cloud-based ERP systems are getting the attention of these electronics and other manufacturers pursuing two-tier ERP strategies to provide them flexibility to scale down to smaller operational needs in distributed geographic regions. Leaders in this area are Microsoft, Plex Systems, NetSuite, Cincom Systems, and Acumatica.

Peter Loop, senior principle business architect at Microsoft IT, in speaking to the Company’s two-tier ERP strategy, says, “I’m a big believer in this [two-tier] strategy because I have seen the benefits to our business, and have spoken with hundreds of professionals at other organizations who have benefited.”

These benefits include delivering economies of scale, supporting global standards of business processes, and responding quickly to changing business needs. Loop adds, “I’ll let you in on something most Microsoft employees don’t know. Microsoft’s business is run on ERP, and that environment is SAP at the core and Microsoft Dynamics AX and CRM integrated to the core. They’re both important parts of our two-tier ERP strategy, and allow us to balance efficiency and stability in the core with usability and agility in specific business operations.”

Unleashing customization

Despite ERP provider efforts over the years to steer manufacturing toward less customization, many electronics manufacturers have specific needs that no vendor is going to satisfy with their off-the-shelf software.

In fact, today only eleven percent of organizations implement ERP systems without customization, according to Aberdeen.

As a result, leading ERP suppliers are designing their systems to make customization a less painful process.

For example, ERP provider Sage touts customization as one the leading benefits of its ERP solution, claiming its built-in customization capabilities provide unparalleled flexibility in taking the system to handle the unique business requirements of small to medium-sized companies and manufacturers.

Clearly, thanks to the cloud and other flexibility-enhancing features, the forecast for ERP providers serving manufacturers and global markets is poised to take off — and grow far beyond its current burgeoning position in the ERP landscape.

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