Why Manufacturers Are Switching To Cloud Computing

Improved Business Performance, Better Security & More. For years now, many manufacturing companies have used Enterprise Resource Planning (ERP) systems to manage their finance and shop floor information.While these systems have been popular, a new ERP system is now entering plants around the nation, and that's cloud ERP systems.These have proven to provide deep functionality and flexibility at a much lower cost than traditional on-premise systems.   Cloud solutions also offer cross-functional visibility and consistent data across functions, faster low- or no-cost upgrades, lower operational costs, and guarantee security of critical customer and internal data.“The majority of our work is now setting up cloud ERP systems for clients, which is really the way to go, and particularly in manufacturing,” said Stuart Nottingham, Director of Technical Services of Management Applications Inc., of Raleigh, N.C., which has been providing businesses in all industries with ERP solutions and other consultative network services for more than 20 years.  “Cloud ERP software such as Acumatica, which provides an ideal SaaS scenario for most, are changing the way manufacturers run their operations.”Why Cloud ERP?As a manufacturer, you likely use an ERP or other software to manage the customer, production, and financial information to run your business.  Unfortunately, you may lack insights and miss efficiencies due to the limitations of your existing software system.These software systems are intended to improve the efficiency and sustainability of the business process.  Regrettably, what often occurs is the software and supporting technology infrastructure itself becomes the focus, rather than a tool to enhance business processes and customer experience.  In other words, your employees work for the system, instead of the system working for your employees and your company.Rather than providing information to help identify ways to cut costs and become more agile, running and maintaining your ERP software can add costs and impede the business.And costs can keep coming.  Speaking ballpark, add another 15 to 22 percent on top of the purchase price for annual maintenance paid to software and hardware vendors – and this for a system that combined with the historical statistics of traditional on-premise software system implementations – deliver value to the business only 25 percent of the time!Advantages Of Cloud/SaaS Solutions Cloud-based or SaaS solutions are delivered by the provider via the Internet and counter many of these issues.  Cloud solutions leverage technology to bring agility and speed to the business, rather than maintaining the technology.  Significantly lower costs are an additional benefit.Top prospects to consider then examining your needs, according to Nottingham:1 – Functionality and flexibility that meet the needs of your businessn  For most manufacturers, the last major ERP upgrade occurred years ago.  Many use manual work-arounds to help retrieve needed information when the insights are not provided by their existing software systems.  Cloud solutions, due to their flexible platforms and customer-focused product development approach, offer robust functionality out of the box, often eliminating side spreadsheets which are found in nearly all organizations today.  In addition, Cloud architecture enables rapid development.n  Some vendors have made their development tools available through Platform as a Service (PaaS), creating partner ecosystems of add-on applications.  These development partners create industry or functional extensions of the software in the native development technology to meet needs not delivered out of the box.2 – Cross-functional visibility and consistent data across functionsn  Cloud solutions provide integrated data across all functions of an organization, which is a top concern of executives when asked about their company’s use of internal information.  As a result, this reduces the instances when an order date is changed by the sales team but not communicated to production.  Likewise, no longer will two team members attend a meeting with two versions of the same report because they were using different data.3 – Faster and nearly no-cost upgrades to new functionalityn  System upgrades with an on-premise system often take several months to complete due to the testing and re-building required for customizations made in the initial implementation.  This type of upgrade timeline and effort is not required when using Cloud solutions.  Due to multi-tenant architecture, upgrades happen seamlessly behind the scenes and customizations are carried through in the new release.4 – Lower software purchase and operational costsn  Traditional on-premise systems charge an up-front license cost plus on-going maintenance fees between 15 and 22 percent of the license cost.  They also require highly-paid specialized IT resources and expensive upgrades.  Cloud vendors charge a monthly, all-inclusive subscription fee.  The result?  Over 5-7 years, we often see organizations save 25 to 50 percent compared to on-premise solutions.  Hidden costs and opportunity costs are also eliminated.5 – Improved ease of use and higher user adoptionn  Cloud software screens are typically intuitive, based on consumer-based web browser experiences.  This means the system is naturally familiar and easy for users to navigate.  Increased usability and user adoption translates into accurate and complete information efficiently being entered into the system, resulting in improved decision-making.6 – Critical customer and internal data is securen  Cloud vendors take the burden of data security and backup off of your company and let you focus on your core competency.  Using advanced server authentication and data encryption technology, users access Cloud solutions with more security and safety than most manufacturers can provide themselves.  The vendor runs the software on their servers, in their data centers, with their disaster recovery procedures.  Backups and the necessary data center infrastructure are no longer necessary for your company to build and manage.According to Nottingham, perform a diligent analysis of your current system, considering all direct and indirect costs associated as it compares to productivity and efficiency.  Analyze the direct and indirect costs of your existing systems.  Identify the existing maintenance costs for your software licenses as well as the cost for the staff to support your existing systems.  Consider the cost associated with manual processes and workarounds.  Indirect costs include lower customer satisfaction due to delays in timely responses to customer requests, lost production time due to a lack of integrated data across functions, and lack of insights into efficiencies or opportunities to grow with existing customers.Then speak with a specialist that knows Cloud technology.  These external organizations can help review your initial assessment and identify the potential opportunities.  “But make sure you're working with an outside source that knows not just Cloud solutions, but the potential process improvement opportunities when implementing the new solution,” stressed Nottingham.  “The two go hand in hand.”

How Much Longer Will Low-Price Contracting Be In Vogue?

This Type Of Procurement Strategy Presents Long-Term Challenges

Utter the phrase “low-price contracting” these days to any government contractor, and you're bound to get a painful response.

Yes, the economy needs to improve – while budgets and tax revenues also need to stabilize – in order for this to become less of a liability in the bidding marketplace.  But the fact of the matter is that low-price contracting is going to be around “for at least another 2-3 years,” predicted Stuart Nottingham, Director of Technical Services of Management Applications Inc., of Raleigh, N.C., which has been providing government agencies and companies in all industries with accounting software, ERP solutions and other consultative network and business services for more than 20 years.

Why?

“It's the nature of the beast, but low-price contracting can potentially lead to failed projects, which heightens the awareness of the pricing, even if read between the lines,” added Nottingham.  “It's no secret that as price is pushed downward, performance risk goes up.  Eventually this is going to come full circle and likely be viewed as a detriment.”

Yes, many government executives are embracing low-price contracting, and in fact view it as an opportunity to bring low-cost, innovative solutions to the government.  This procurement strategy shift for technical and professional services bids is using lowest price, technically acceptable (LPTA) evaluation criteria rather than the more traditional best-value tradeoff criteria.

Now while there is always rooms for low-price strategy in federal procurements, it 's really not suitable for procurements with complex services or uncertain performance risk.   When a government agency applies such a strategy to unsuitable procurements, both the government and the bidders lose.

Here's some actions to keep in mind when presenting with this:

The LPTA Evaluation Criteria – When Is It Best To Use?

This is really a best value.  In traditional best value procurements, the government allows tradeoffs among non-cost factors such as technical approach, management plan, past performance, etc. and cost when determining best value to the government.  These tradeoffs give the government the latitude to award a contract to other than the lowest priced offeror when the tradeoffs show there is additional value to the government in these factors.

When selecting the LPTA criteria for procurements, the government determines before the release of the request for proposals (RFP) that there is no additional value in trading off the non-cost factors versus cost.  Also, LPTA evaluations specifically prohibit evaluators from making these tradeoffs and restrict evaluators to only scoring proposal factors and subfactors as either acceptable or unacceptable.

The end result?  There's simply no value in the bidder exceeding any requirement in the RFP.

Establishing Minimum Technical & Performance Requirements

Procurements run into trouble when LPTA criteria is applied to technical and professional services bids because the work is complex, minimum acceptable technical and performance requirements are difficult to describe, and the consequences from failure can be considerable.

In LPTA procurements, setting higher standards for acceptability becomes important because each bidder who meets the minimum acceptable standards has an equal opportunity to be selected for contract award.  If standards are too low, every bidder will get through the acceptable hurdle, leaving only cost as the evaluation factor.

A Higher Standard Of Acceptability

To raise standards of acceptability, for example, an RFP might prescribe that the bidder have CMMI or ISO certifications or require proposed key or technical staff to have specific undergraduate degrees, advanced degrees, and/or professional certifications.  Past performance might require evidence of several completed contracts of a minimum size or completed within the past 12 months.  If the bidder doesn’t meet these requirements, they must be evaluated as unacceptable.

As a result, each higher requirement raises the bar of acceptability, but because the evaluation is LPTA, the government can't give additional consideration to companies exceeding a requirement by considerable margin over those who barely meet the requirements

The Win Goes To The Lowest Price

When an offeror’s proposal has been found acceptable, all that stands between the offeror and victory is having the lowest evaluated price.

Bidders use many tactics to lower their evaluated price. With the application of these tactics, each bidder takes on more risk in contract performance. Generally, as price is pushed downward, performance risk goes up, and the satisfaction of having awarded to the lowest price offeror can soon be overshadowed by the burden of poor contractor performance. 

“All parties lose when all is said and done,” noted Nottingham.  “The best approach is to educate procurement officials, and particularly about using LPTA as a strategy.”