How cloud-based software is helping manufacturers drive down costs and ramp up efficiency and profitability.
Developing the most cost-effective, timely and efficient process to manufacture product – without sacrificing quality or margin – is the objective of all successful manufacturing businesses. Edging out the competition by bringing higher quality goods to market faster, cheaper and on trend are the hallmarks of any effective manufacturing enterprise.
Cloud software is allowing manufacturing businesses to transform their operations by streamlining operations, decreasing operating costs, and boosting productivity. Plugging out of labor intensive and costly on premise IT infrastructure and plugging into the cloud is allowing manufacturers to drive down costs as well as align their processes, people and equipment in the most productive and efficient manner.
Driving down costs is the largest motivating factor that is causing manufacturers to switch over to cloud based SaaS (Software-as-a-Service) according to the widely read Mint Jutras study on this issue. In fact, 52% of all companies surveyed indicated the lower total cost of ownership was the biggest determinant in their choice to switch from on-site solutions to SaaS. 46% went on to indicate that the lower start-up costs involved played a determining factor in their choice to switch to cloud software.
Cloud software solutions give manufacturers the advantage of redirecting working capital away from maintaining expensive on-site IT platforms towards other mission critical areas of the business. The main areas where manufacturers immediately notice the difference in cost between on premise as opposed to cloud-based software solutions are as follows:
Licensing: Whilst licensing fees vary from on-site provider to provider, the cost to license these systems is expensive. Cloud-based solutions have the licensing fee already built into the monthly or periodic user fee. This makes it a far more attractive option – particularly for start-up businesses or those looking to grow and scale without having to sink their working capital into high licensing costs.
Maintenance costs: Cloud-based solutions also eliminate the costs to service and maintain an on-site system. Apart from equipment maintenance, businesses that run their software solution in-house can expect to pay around 15%-20% of the overall licensing costs in system maintenance and billable labor hours alone. Cloud-based software solutions incorporate these costs with their once off, monthly or periodic subscription fee. So there are no extra maintenance or servicing costs that can catch an unsuspecting business owner off guard. In this way the manufacturer utilizing cloud-based SaaS is not burdened by the monthly overheads they would have to shell out if they were operating a more traditional on-premises system.
Support costs: Every manufacturer knows that there is no ‘fire and forget’ application to their operational needs. It is essential to stay ahead of the technological curve – particularly in regards to IT management systems – if you are going to remain competitive and effective at bringing goods to market. Typically, a manufacturer can expect to pay around 22% of their software licensing costs toward support to keep their system up to date and collaborating with all other functions and systems in place within the manufacturing plant. With a cloud based SaaS, such as Unleashed, support is included and automatic. An added benefit cloud based SaaS affords is instant, automatic updates and patches. There is no need to call in and pay a support technician to upgrade or repair a technical glitch as it is all done automatically without your team even having to think about it.
Hardware and implementation: On premise hardware is both extensive and expensive and involves a high up-front investment to purchase and install. For a manufacturer looking to hit the ground running and become operational as quickly and cost-effectively as possible, this investment in both time and money can often impede that objective. Both the time, labor cost and capital involved in setting up the hardware to run your manufacturing processes is the biggest reason manufacturers – both large and small – are switching over to cloud based SaaS to handle their operations. Not only does this allow your business to scale unhindered by the necessity of upgrading and adding to your existing I.T. infrastructure as you do so – SaaS automatically scales with your business – but it protects your business from the danger of becoming incompatible with technology and integrated industry systems as they evolve too.
Payment: Where a business directs its cash flow plays a major part in how efficiently and profitably the business operates. This is most acutely felt in the case of new businesses looking to maximize their return on investment. Committing a sizeable portion of working capital to the large up-front payment that on-premise models require is not ideal, or even possible, for many smaller manufacturers. A cloud-based solution allows a business to remove the big up front burden on its cash flow and bottom line by having it commit to a monthly or seasonal rate that best matches its budget and specific requirements.
Apart from the immediate and impactful ways cloud based software solutions act to bring down the operating costs of the business, there are also ways in which a manufacturer gains the operational edge over an on-site reliant competitor. Adopting and aligning with new product development as technology evolves is seamless and fluid.
Cloud-based software solutions are designed to integrate and develop synergistically across platforms, none of which requires a manufacturer to overhaul their operations in order to be applications compliant. This is what positions a manufacturer utilizing cloud based software to faster adopt and implement new products and technologies thereby outpacing their slower, less adaptable on-site counterparts.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. When not writing about inventory management, you can find her eating her way through Auckland.