Cloud Applications Cutting Costs and Driving International Growth for Midmarket Manufacturers

Posted by Ranga Bodla, Senior Director, Industry Marketing, NetSuite

For most mid-sized manufacturers, doing business internationally has become a fact of life. Manufacturers today sell products to, and buy supplies from, all over the world. That requires navigating diverse markets, currencies, languages and regulations, while managing all of the business processes that cross corporate departments.

Fortunately, the increasingly sophisticated capabilities of cloud-based applications are helping businesses address these challenges.

A recent survey of mid-market manufacturers, by IndustryWeek magazine and NetSuite, revealed many manufacturers are capitalizing on international growth. The survey, conducted earlier this year, found that over 62 percent of the manufacturers expected to increase their revenues “somewhat” and another 11 percent expected to increase revenues “significantly.” More than 60 percent planned to increase their capacity to meet rising customer demand. These findings, along with data from another survey by ERP consulting firm Mint Jutras, were the topic of “The Secret to My Success: How Mid-Market Manufacturing Leaders Are Using the Cloud to Drive Growth.”

Both reports illustrate how cloud computing is helping them achieve this success. Past and current cost reduction strategies have enabled manufacturers to position themselves financially so they can expand in the year ahead. One of these cost reduction strategies is the move from in-house hardware and software to cloud-based software as a service (SaaS). In fact, manufacturers listed cost reduction as their key reason for choosing a SaaS strategy, and three of the top five cost-cutting tactics that respondents cited were directly related to SaaS: improving employee productivity; modernizing, streamlining or automating processes; and reducing overhead.

The Mint Jutras survey reinforces that data. According to that survey, the top five reasons that manufacturers gave for why they found the cloud appealing were directly related to cost reduction. Those five reasons are:

  • lower total cost of ownership
  • reduced cost and effort of upgrades
  • lower startup costs
  • limited IT resources
  • no need to purchase or maintain [hardware or software].

One example of a company that invested in the cloud for cost savings is Shaw Industries, a carpet manufacturer and subsidiary of Berkshire Hathaway. Shaw needed an ERP system that could scale across a complex global environment, and do it with low capital costs on a lean IT footprint and with a quick deployment. NetSuite’s cloud-based OneWorld Manufacturing met Shaw’s requirements. Among other benefits, OneWorld made it possible to cut its delivery time to its Asian markets.

If a little cloud software is good, more would be better. Midmarket manufacturers are adopting SaaS, but often on a piecemeal basis, such as financial software first, then supply chain planning, sales management, etc., instead of a platform-based approach in which all of the important business processes and data types are standardized and centralized in one cloud-based platform.

The Mint Jutras survey showed that more than half, or 55 percent, of the manufacturers polled listed financial software as the SaaS product they used most extensively. Other popular SaaS applications (selected by 33 percent or higher) include order management, lean manufacturing, manufacturing resources planning, quality management, and supply chain management.

Ironically, this phased approach to cloud adoption may be prolonging some of the problems that mid-market manufacturers suffer from in their efforts to expand. Specifically, their ability to grow is restricted by:

  • an incomplete business view
  • overly complex and inefficient business operations
  • an inability to get needed data in a timely manner
  • out-of-control business costs

All four of these inter-related problems limit a business’s ability to expand. Yet all four can be greatly improved by a migration away from siloed applications to an enterprise SaaS platform.

With a cloud-based system, data and business processes are centralized and accessible from any location, meaning executives can get a complete view of the business with real-time reports on operations and performance. It also enables managers to more easily find inefficiencies and reduce operating costs.

Reducing the cost of ongoing operations through outsourcing is a key strategy for expansion. At the same time, more than 60 percent of manufacturers surveyed in the IndustryWeek poll are under pressure to increase capacity to meet demand in the market — and increasing capacity requires money. So the more money a manufacturer can get by cutting costs, the more it has available to invest in expansion when it sees an opportunity available. Cloud computing can’t solve every problem associated with international expansion, but it certainly can help companies streamline their operations and budget their money more effectively, so they can spend it in the areas that are most strategic to their needs — not for shoring up leaks and fixing inefficiencies.

See some of the stories that manufacturers have to tell about their cloud computing experiences at NetSuite’s manufacturing section.

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