SaaS for small manufacturers

For SMB manufacturing units, Software-as-a-Service can be a convenient and inexpensive way to get hold of tools that are comparable to what their larger counterparts use. By KTP Radhika

Delhi-based Rohit Industries is a small-scale (70 employees) cutting tool manufacturing firm. Established in 1963, it has been using Tally for all of its business needs. There were over 5,000 item codes in use and manual entering each of these was permitting data entry errors to creep in. Importing data and sending it across locations was another problem. It was at this stage that the management started looking for an ERP solution. However, they found that the cost of almost all on premise ERP solutions was too high for the company to bear. Things were to change soon for the better. In 2011, Rohit Industries came to know about Software-as-a-Service (SaaS)-based ERP solutions where it could use all of the benefits of an ERP solution and get experts to manage its IT needs. The pay-per-use model has paid rich dividends for the firm. “It has enabled us to manage our items in a much better way and it has also helped us increase our sales,” said Aditya Duggal, Director of the company.

Like Rohit Industries, several other small-scale players, especially in the manufacturing sector, have benefited from deploying SaaS. The growing adoption of Cloud computing has put a lot of focus on the SaaS delivery model. According to Gartner, the global SaaS market is set to increase by about 18% this year to reach $14.5 billion and it is expected to grow to hit $22 billion by 2015. In 2010, IDC predicted that SaaS revenues were set to grow six times faster than the overall software market showing a CAGR of 26% up to 2014. In India, where the Cloud market has become almost a $1 billion industry today, SaaS adoption is growing because it offers quicker time-to-value with none of the management or cost overheads that are typically associated with IT. According to Zinnov Management Consulting, India’s SaaS market stood at $123-143 million in 2011. The market has grown at a CAGR of 46% from $56-67 million in 2009 to 2011.

There is significant traction for SaaS in the small manufacturing segment. “The reasons are multi-fold. The small manufacturing segment in India is growing and there is a high requirement for IT. SaaS acts like the perfect partner in growth for these manufacturing companies,” explained Neeraj Athalye, Head, Cloud Business, SAP India. “It seems that the business cycle is contributing to the SaaS market’s momentum. With the extreme market volatility that we are seeing, companies want the ability to scale their systems and costs on-demand.”

SaaS gives small manufacturers opportunities scale up or down, both in terms of capacity and cost, than is possible with on-premise software. Moreover, smaller companies want to avoid heavy, upfront capital investments. Many companies appreciate the lower initial investment requirement. Of course, the key attraction for small manufacturers is the low TCO of SaaS vis-à-vis on-premise installations. Costing is also a vital factor. Duggal of Rohit Industries commented, “It is the most important aspect for a company like ours. We don’t have deep pockets. The cost of licensing an on-premise solution is extremely high. It eats up a big slice of an entire year’s budget.” Apart from the software cost, the user also doesn’t have to buy server hardware.

Beyond Cost Savings
SaaS offers more than just cost savings. Commented Bhaskar Raman, ET- IDM, Dell India, “Apart from affordability, SaaS based-solutions are open, capable and flexible. Many manufacturers have already implemented cost-savings measures, but they still need to improve performance and efficiency.” Over 90% of small manufacturers do not have a separate IT department. SaaS-based solutions will provide expert hands for solving and fixing issues, if any.

R Balaji, VP – Manufacturing, Ramco Systems, said, “SaaS solutions have virtually eliminated maintenance fees and implementation timelines as compared to the on-premise delivery model.”

Another benefit of adopting SaaS for small players is the technical support that they get from the providers. Companies don’t want to buy the product and have the seller forget about them. They want IT vendor companies to partner with them in their growth by providing them with both a product and a service. Online customer support, routine updates, quick fixes of issues etc. can help keep the system running smoothly. “SaaS solutions extend SLA-based services with low overheads on IT as compared to on-premise solutions, where the need for in-house technical expertise is required. “With SaaS, even a small manufacturer can avail of the same standard of services as any large organization,” commented Jyoti Prakash, Country Sales Manager, India & SAARC Region, Symantec.cloud. SaaS also eliminates the headache of spam and virus attacks as the provider will apply all the necessary filters and processes that the IT system requires. SaaS comes with the option for flexible payment. “The flexible payment option provides a small manufacturer with a way of managing cash outflow, which is crucial for them to survive,” affirmed Prakash.

As the business grows, small players need scalable solutions. Also, if a business has periodical variations in business volume and its IT needs also expand in that particular period, then subscription-based SaaS applications can be the key. These are scalable and can easily be ramped up to serve expanding business requirements and scaled down once the burst is over. Ease of deployment and usage isparticularly important for a small player because there will be minimal or no training budget and employees deal with multiple roles.

“SaaS has state-of-the-art functionality based on the requirements of business users today. The user interface, the look-and-feel and ease-of-use are high in SaaS solutions as it is a critical aspect of software adoption,” stressed Athalye of SAP.

CRM, ERP and more…
In the manufacturing sector, SaaS is widely used in areas such as CRM, security software, hosted email, and, of late, in an array of new generation ERP systems.

“We are seeing greater acceptability for ERP, CRM and payroll solutions. E-commerce is another trend,” said Rushabh Mehta, Founder, Web Notes Technologies.

Raghu Kumar, CEO, Global Outlook, concurred, “ERP applications, which previously had not been considered for an on-demand model, now meet with great success in the SMB sector.”

The untapped potential in this area is attracting vendors to this segment. Athayale of SAP commented, “Continuous innovation is occurring in this sector. SAP has a new range of SaaS solutions catering to the needs of the small scale segment. We have a sizable market for Business ByDesign. SaaS is here to stay for the small manufacturing segment in India. We also have powerful solutions such as CRM OnDemand, Sourcing OnDemand, SuccessFactors (for HR) and Information Interchange (for EDI Exchange)”

Companies such as Microsoft and Salesforce.com have a wide range of SaaS solutions for SMBs.

Sanjay Manchanda, Director – Microsoft Business Division, Microsoft India, said, “Office 365, a SaaS version of Microsoft Office, Exchange Online, SharePoint Online and Lync provides enterprise class technologies and other benefits for smaller companies at an affordable price.” Microsoft also provides Dynamics CRM Online, Dynamics ERP, etc. through the SaaS model.

Startups are another category of companies that prefer such solutions.

“We have simple, standardized automated solutions. We are delivering SaaS solutions for the public as well as the private Cloud,” commented Raman of Dell India. Another area of SaaS usage is security. For small manufacturers, there are a lot of Security-as-a-Service solutions. Symantec’s Prakash said, “Apart from email security solutions such as anti-spam and anti-virus, there’s end-point protection on the SaaS platform, which extends protection to small manufacturers by reducing the dependencies on their in-house technical system,” he said.

Business Intelligence (BI) solutions also come cheaper in SaaS. On-premise BI applications can be expensive for SMBs. SaaS-based BIis cost-effective. Often large enterprises use most of the heavyweight traditional, BI analytical tools. These generally require a significant investment in software, hardware and consulting. Many companies embarking on manufacturing BI and analytics for the first time must spend a lot of money for building a data warehouse. Training also costs a lot.

Another example where SaaS applications have helped the manufacturing industry is in the acceptance of demand-forecasting tools. “These have proven to greatly improve forecast accuracy, down to the stock keeping unit level for complex material inventories,” said Kumar of GlobalOutlook. “The payback of using these applications for inventory reduction is a rapid ROI.”

Hurdles to adoption
The growth of SaaS in India has met with several challenges. For instance, many small manufacturers are located in remote areas where reliable Internet and broadband connectivity is a problem. Another issue is that of change management. “It happens with any new service. On-premise solutions have been around for over 20 years, while SaaS is just five years old. So companies are going through the process of change management and adopting a very different way of software purchase and consumption.” said SAP’s Athyale.

Awareness is also an issue. “Low penetration of software applications among small manufacturing companies, along with inadequate basic Internet infrastructure, unique business model innovations and pricing can create challenges” opined Raju Vegesna, Chief Evangelist, Zoho.

According to Mehta of Webnotes, another challenge was that of vendor control. “If the vendor suddenly decides to change pricing or degrades support, then the customer is stuck. Here, the solution is to use Open Source SaaS solutions. With these solutions, the company is secure and it can move the solution to another service provider or host it in house if any issue arises,” he noted.

Vendors were optimistic about the future of SaaS. “We are excited to enter the burgeoning Indian market and play a proactive role in helping companies work Online. We hope to provide effective solutions across segments so that companies can concentrate on their core competence and leave their IT needs to us,” said Vegesna of Zoho.

An increasing numbers of SMBs in the manufacturing sector are looking to SaaS and adopting it in their business prospectus. Along with big players such as SAP, IBM, Microsoft, Oracle etc, local vendors are also eying this space. This is expanding the choice portfolio for potential customers. With broadband access spreading and penetrating deeper through cable networks or even wireless, India’s small businesses will soon have dedicated and easily-accessible SaaS solutions and that is going to change the game.