ERP Goes On-Demand in the Automotive Sector

By Lawrence S. Gould at CRM Buyers

An ASP is a form of outsourcing. What is outsourced -- or hosted -- is compute infrastructure, including computer hardware for data processing and storage, systems software, related hardware and software maintenance, as well as software applications of particular interest. The ASP customizes these applications, whether ERP, enterprise asset management, financial, or whatever, for the user company.

Enterprise resource planning (ERP) vendors are "creating products that are delivered anywhere in the world and that will provide compliance and standardization for the automotive community," according to Charlie Eggerding, vice president, automotive, for QAD. What's now notable is that user companies no longer need an extensive compute infrastructure. All they need are desktop computers that can run a Web browser and that can hop onto the Internet. Sound familiar? Think "application-service-provider-(ASP)-meets-Web-portals." Called "Software as a Service" (SaaS), in this new approach to ERP software is provided as a utility, priced like a utility, and delivered as a subscription service.

ASP versus SaaS

An ASP is a form of outsourcing. What is outsourced -- or hosted -- is computer infrastructure, including computer hardware for data processing and storage, systems software, related hardware and software maintenance, as well as software applications of particular interest. The ASP customizes these applications, whether ERP, enterprise asset management, financial, or whatever, for the user company.

ASPs wind up with multiple instances of an application, generally one for each of their customers, and each of those instances may be customized for each of the different customers and even for multiple sites of the same customer. Maintaining different versions of software (i.e., version control) is typically a very costly internal IT expense. In an ASP arrangement, user companies generally buy and capitalize the software, and then pay for the infrastructure over time.
In SaaS, more commonly known as the "on-demand" model, many different companies run off one copy of a software application. Unlike the ASP arrangement, user companies don't have to buy the software. Instead, they generally pay for the software application based on usage -- just like electric, gas, and water utilities. Usually this "utility" is accessed through a Web browser, though some SaaS providers require client-side software of one form or another.

Subscription pricing is more predictable. Users pay a fee per month or quarter or annually. Plexus Systems, for instance, licenses software groups, for example, ERP and manufacturing execution systems, for an unlimited number of users in X-number of facilities at a fixed monthly price for a period of time, say two or three years, regardless of growth. Then Plexus reviews the customer's head count because "that's the best proxy in an organization," says Mark Symonds, company CEO. "Now, instead of having to make a capital decision, customers are making operating budget decisions." (Implementation services, such as training, consulting, configurations, are extra.)

Version control is easier in a SaaS setup. Plexus, for example, has only one version of its software on a single infrastructure. "We don't have to cast about through a thousand different client-server configurations before shipping a patch with new features. Instead, we roll out new features every day. Our customers are always up-to-date on the latest version of the software," says Patrick Fetterman, Plexus marketing vice president. Yet everybody's software looks very different because of configuration settings (similar to templates).

Allaying Fears

Ironically, notes Jane Barrett, research director in the Value Chain Strategies Team of AMR Research, the flip side to SaaS and customizations is that it "kind of forces companies into using standard ERP software. It stops them from making maverick customizations to their ERP, which is a very expensive option, difficult to upgrade, and not always that robust." Outsourcing software and services is not new in automotive. Look at EDI service providers, suggests Barrett. "Rather than trying to keep up with every change that comes from GM or Ford, use someone's EDI capabilities and let them keep up with all the changes and notify you when changes need to be made. I think there's a huge value in SaaS."

Initially and typically, though, potential customers have some fears about SaaS, admits Symonds. Potential customers will ask, "What do you mean I don't have anything, not even a CD of the software? You mean my data is just out there on the Internet?"

To allay these fears, Symonds has several responses. First, Plexus has a steel-reinforced structure with biometric access around the company's ERP and database servers. These physical and electronic controls security are often far beyond what the customer has or intends to put in place. Second, companies worldwide are already reliant on the Internet every day for customer orders, communications, and so on. Last, Symonds points out that the No. 1 source of security breaches are disgruntled employees or ex-employees."Would you rather have [your company data] with a disinterested third party or have it less secure at your place with people who are very interested in your price lists, your customer relationships, and your profitability?" SaaS's recent popularity goes well beyond the "if you build it, they will come" mentality.

Realigning Priorities

First, SaaS lets users roll out enterprise applications in chunks to selected departments and divisions within the user company. second, user companies can have their ERP system up and running in days. Just enter company-specific data and off the company goes. This is attractive to a number of different companies: new companies, growing companies, divestiture spin-offs needing new or to replace existing IT, companies with old ERP systems, and companies with ERP systems customized beyond the point of being able to be customized anymore without "breaking." Third, SaaS releases "enlightened" IT pros from the drudgery of applying patches, doing backups, and those kinds of things.

"The highest value IT teams have transformed themselves as business process consultants. They focus on translating the business needs to IT," says Fetterman. The less-than-enlightened see their role as babysitting the hardware. "That's not the biggest value-add for manufacturer, especially if they find themselves as programmers for a small to mid-size manufacturer," adds Symonds.

SaaS "keeps your core competency and outsources what's not your core competency," Barrett points out. Namely, IT. (SaaS users still need IT pros to maintain file and print services, Internet connectivity, local networks, and integration to other devices such as programmable logic controllers.)

Many ERP vendors that provided their products the conventional way have rewritten those same products for SaaS. For example, the latest version of QAD's ERP system, now packaged for vertical markets, can be provided on-demand. Specifically, the QAD Enterprise Applications 2007 Automotive Edition consists of QAD's ERP system, Supply Visualization (QAD's portal-based trade exchange and supplier community, now integrated directly with QAD's Transportation Management system), and EDI capabilities-all as SaaS.

Despite its global reach, SaaS use is mostly regional so far, according to Wolfram Schmid, manager of industry and product marketing for automotive for Infor Global Solutions. In North America, France, Germany, and the United Kingdom, SaaS is becoming increasingly popular. Asian automotive suppliers, particularly those in China, are starting to look at SaaS.
Schmid doesn't think SaaS will replace traditional software licensing; it'll just be an "additional opportunity." However, QAD's Eggerding gives the conventional ERP licensing another five years. After that, it'll be SaaS mostly, if not all the way.