Cloudy skies ahead?
Written by Hannah Prevett
ERP is old news. Since analyst firm Gartner coined the acronym (shorthand for enterprise resource planning) two decades again, it has become a staple part of many retailers’ IT infrastructures. Not to say that ERP implementations are always successful: one estimate puts the success rate at just one third. But the dicey economic climate of the last few years has meant that many retailers have put strategic IT projects on the backburner, to enable them to focus on their core business - and keep the wolves from the door. Indeed, it’s thought that IT budgets were slashed by around 20 per cent.
Various studies have shown that they are now beginning to return to these projects abandoned during the downturn. And ERP is pretty high up on the list of priorities – not least of all because its implementation will often lead to increases in efficiency. Saving a few pennies is never a bad thing, least of all at a time like this.
But in the interim, the ERP landscape has changed dramatically: cloud technologies that were nascent a couple of years ago have really come to the fore. With trusted, popular brands like Apple and Amazon entering the cloud technology space, what does this mean for the ERP market in general?
Predictably, mainstays of the traditional ERP market such as SAP and Oracle may struggle to compete with this new model which poses a threat to their traditional licensing model – and their revenue stream. They are naturally ambivalent about the benefits of the cloud. However, Alan Bowling, chairman of the UK & Ireland SAP user group, does recognise that cloud-based ERP solutions can have their benefits.
“The first, and often most immediately attractive, benefit is cost; especially for those with no deployment in place, or that want to deliver it to branches.’ He points out that it can remove many of the ‘up-front’ costs involved in ERP. What’s more, it can also make it easier to access ERP as and when needed: “It can be used more easily to mobilise business processes by allowing users to access ERP systems on the move.”
But, as with any cloud-based solution, ERP in the cloud also has its drawbacks, explains Bowling. “The central one is loss of control: if all business processes are supported by an ERP application
in the cloud, what happens if there is an outage? Of course,
outages happen in-house, but then you remain in control.”
For Bowling, and many others involved in ERP deployments, relying on a cloud-based solution to deliver all of that capability is just too risky. Once in place, an ERP application can be the single solution that provides the array of functionality needed to underpin retailers’ core business processes.
What’s more, once in place, ERP is most likely used to provide reliable information for the company and ensure quicker
processing of information – enabling crucial business decisions to be made more quickly and with the accurate information at their fingertips. So, bearing all of this in mind, is deploying a cloud-based ERP solution a bit too much like putting all one’s eggs in one basket?
When it comes to the cloud, there are also the inevitable questions about security. Richard Pasco, ERP solutions director at Zetes, says that concerns about security are the principal
reason for the relatively slow take-up of cloud-based ERP solutions – regardless of the buzz around brands like Amazon getting in on the act. “Although Amazon, Apple etc are offering cloud services, in the case of Apple, they are not using it themselves internally, which doesn’t bode well for improving consumer confidence in such systems,” he points out. “The big vendors need to start practicing what they are preaching to accelerate uptake levels among retailers.”
But that’s not to say that cloud isn’t making waves – especially among entrepreneurial, fast-growing businesses that need
technology that will scale with the business. When Ocado began shopping around for a more sophisticated way of managing its supply chain, it put a strong emphasis on reliability; after all, its business is based on making consumers’ lives easier, so accurate data, and easy access to that data, is mission critical. One of consumers’ biggest bugbears is product substitution – where the product they requested isn’t available and is substituted by the next best thing. It’s estimated that substitutions regularly run at around 15 per cent, but Ocado was aiming for just five per cent.
“We’re solely dedicated to home delivery and have built our entire operation around what potential customers have said they wanted from an online grocery service. Since we do not
operate supermarkets, our entire cost structure and supply chain processes differ from traditional solutions,” explains Tim Horne, head of IT retail at Ocado. A tall order indeed. Ocado plumped to outsource all of its e-commerce needs to GXS, which encompasses its Trading Grid technology – the world’s largest B2B cloud integration platform. Horne says the grocer looked at managing its own e-commerce infrastructure but soon concluded that it was going to be a big task, and crucially, needed to work with someone who could ‘provide the scalability we required with the potential to go nationwide.’
The results speak for themselves: the solution was implemented in less than three months, allowing Ocado to get a grip on its rapidly expanding supply chain. Whereas previously it was working with around 25 direct suppliers, with the majority of its products being supplied by Waitrose, it can now extend its reach to new suppliers and offer a broader product range to customers.
Claims that nimble, entrepreneurial businesses are taking the plunge with cloud-based ERP seem to be borne out by anecdotal evidence – but it’s not just small firms getting in on the act. Groupon, the world’s largest group buying site which recently filed for an initial public offering of a staggering $750 million, uses Netsuite, generally acknowledged to be the market leading ERP cloud solutions provider. Groupon, which has 83 million subscribers, has already rolled out Netsuite’s OneWorld product in five countries, with the deployment to the remaining 41 markets expected by the end of the year. You don’t get much more
scalable than that.