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The next-generation ERP is Cloud ERP

Tae Ho Shin
March 18, 2020

In most companies, many business processes still run on outdated legacy ERP systems. These have proven themselves and have been providing stable and reliable services for years. Since the legacy ERP systems do not support all the required functionality, additional applications are used in the companies, which then, together with the ERP systems, form an ERP landscape. Such an ERP landscape has usually grown historically (e.g. through company acquisitions), is architecturally divided into silos (e.g. by country), strongly adapted to customer needs, and not standardized. Business processes and data are also not harmonized and do not allow comprehensive analysis and control. Operation of these ERP landscapes increases costs while further development is complex and expensive. Also, the introduction of completely new features or the support of new business models is not possible with reasonable effort. Therefore, many companies avoid upgrading their running systems.

In my previous projects with globally operating companies from the discrete manufacturing industry, these five reasons were most frequently cited for the introduction of a new cloud ERP solution:

  1. Enabling comprehensive system-supported planning and control processes (e.g., introduction of integrated business planning and comprehensive data analysis)
  2. Optimization/standardization/automation of business processes (e.g., reduction of manual activities for order-to-cash and purchase-to-pay)
  3. Reduction of the high costs for operation and further development (e.g., for operation of the infrastructure and maintenance of the ERP applications)
  4. Mitigation of risks of legacy systems and implementation of future-proof technology (e.g., replacement of old SAP ERP or R/3 landscapes and other ERP applications)
  5. Enabling business and IT innovation (e.g., digitization of products and use of IoT).

Companies want to use ERP technology to stay competitive and need to transform themselves to do so (see the blog post Cloud technology revolutionizes the possibilities for ERP systems and transforms business and IT).

A change to a cloud ERP SaaS model also requires adapting the existing operating model. Roles and responsibilities and collaboration between business, IT, and cloud ERP SaaS providers must be redefined. The SaaS aspect is not the only change. The simultaneous introduction of development platforms (PaaS) and integration in the cloud requires a complete reconsideration of the general IT operating model.

Cloud ERP SaaS is the future

Leading ERP providers also see their future in the cloud and have already developed new innovative cloud products, such as SAP S/4HANA Cloud, Microsoft Dynamics 365 or Infor Cloudsuite, and want to replace outdated legacy ERP systems. The major providers are focusing their capacities on the cloud. The development of innovative new functions always takes place in the cloud first or is only developed for the cloud. With cloud ERP SaaS solutions, companies benefit not only from the SaaS advantages but also from the immediate provision of new innovative technologies for automation, IoT, analytics, and artificial intelligence. The cloud ERP SaaS solution offers the functionality and an additional development platform as Platform-as-a-Service (PaaS). New functionality can be developed by the customer as an extension of the cloud ERP SaaS solution.

Traditional ERP systems are available as an on-premises solution that can be hosted internally or externally and on cloud infrastructure. Modern cloud ERP SaaS solutions are always externally hosted (see Figure: ERP operating models).

Figure 1: ERP Operating Models

Cloud ERP SaaS solutions are available as single-tenant and multi-tenant solutions. Single-tenant refers to SaaS on a private cloud (solution is provided dedicated to the customer) and can already have advantages over on premises. However, a cloud ERP multi-tenant SaaS solution offers much greater benefits and is the technology for next-generation ERP. With a multi-tenant solution, customers share the cloud resources and can therefore enjoy the full benefits of a “real” cloud application (SaaS on public cloud). On-premises systems are hosted in the company’s own data center or with an external provider. The hosting can then also be on a private or public cloud infrastructure, but it will not be the same as cloud ERP SaaS.

The large ERP providers are focusing their capacities on the further development of their multi-tenant solutions. Compared to on-premises systems, a cloud ERP multi-tenant SaaS solution has enormous advantages (see Figure: Comparison of ERP on premises and ERP SaaS).

Figure 2: Comparison of ERP on-premises and ERP SaaS

Innovations: A cloud ERP multi-tenant SaaS solution from renowned providers provides users with new functions at least quarterly and is the basis for technical and business innovations with cloud, IoT, machine learning, and analytics.

Implementation: Due to the limited adaptability of the core functions of a multi-tenant SaaS solution, the implementation is significantly faster and the degree of standardization is much higher.

Operations: The public cloud infrastructure is highly automated, efficient, and operated with high availability. The cloud-native development concept of the cloud ERP SaaS solutions also enables highly efficient operation from an application perspective.

Updates, patches, upgrades: Maintenance and upgrades are carried out by the cloud ERP SaaS provider and do not require any release management efforts on the customer’s side in case of a multi-tenant SaaS solution.

Development effort: For the development of missing essential functionality, the cloud ERP SaaS providers provide their own development platforms, which enable a fast and agile development of extensions through the platform-as-a-service concept.

System risks: Risk aspects such as system stability, availability of know-how and ensuring maintenance are significantly reduced and partly shifted to the cloud ERP SaaS provider.

Scaling: A cloud ERP multi-tenant SaaS solution is flexibly scalable and can therefore immediately handle more users (e.g., during expansion), more storage requirements (e.g., during backup) and more compute power (e.g., during data analysis).

Connectivity: The connection is made via standardized APIs, which are managed on a cloud platform (integration platform-as-a-service); if required, a fast and agile development of interfaces is possible.

Security: Cloud ERP providers invest heavily in security and guarantee the highest standards of their security infrastructure, which typical manufacturing companies or other IT providers cannot achieve.

Costs: High one-time license costs and high ongoing costs for operation, maintenance, and upgrades of an on-premises solution are eliminated. Instead, an annual subscription fee for cloud ERP is paid.

Capgemini Invent is a pioneer in cloud ERP

There are very few global companies with more than 1,000 ERP users and more than EUR 500 million turnover in the discrete manufacturing industry in Germany that have already started cloud ERP multi-tenant SaaS projects. We, at Future of Technology at Capgemini Invent, have been involved in all of them and are therefore a pioneer. Capgemini Invent is the only consultancy with practical cloud ERP experience in the discrete manufacturing industry (including automotive). Our innovative approach to strategy, selection, initialization and implementation is a tremendous accelerator and can significantly reduce project times. Read more in one of the next blog articles.

Feel free to contact me at any time with your questions about ERP, cloud, DevOps, and AI. I look forward to the discussion.