Trend

ERP-as-a-service

It is low cost, scalable and accessible from anywhere—ERP delivered through the SaaS model is projected to grow rapidly in India, particularly in the SMB sector. By Vinita Gupta

Gartner predicts that at least one-third of business application software spending will be on service subscriptions rather than on product licenses by 2012. The analyst firm also predicts that by 2010, 30% of new software purchases in the Asia-Pacific will be delivered via an application utility or Software as a Service (SaaS) model.

The basic advantage of the SaaS model for Enterprise Resource Planning (ERP) would be the minimization of hardware and other infrastructural investments as well as management of the system. However, organizations are unwilling to let their data reside outside their own premises given the fact that this is confidential and their processes are mission critical.

Growth prospects

According to Springboard Research, the total market of ERP and Supply Chain Management (SCM) applications is projected to grow and reach $70 million in 2010 from $14 million in 2006.

ERP-as-a-service (ERP delivered through a SaaS model) is relatively new in India and has not really taken off. Customers still buy the licenses for ERP and implement it on their own infrastructure.

Thomas Abraham, Managing Director, Sage Software India concedes that globally the SaaS model for ERP has not taken off. He asserted it is still early days in the Indian market given the fact that ERP is mission critical and organizations would rather have this in-house. “This is quite different from Customer Relationship Management (CRM), which organizations may consider hosted, given the ‘quick start’ that it facilitates,” added Abraham.

“A lot has been written about the SaaS model, but the acceptability for large applications is limited. However, for small applications SaaS may have its advantages. In the future, for smaller applications SaaS may become the mainstream model of delivery,” said Anil Bakht, CMD, Eastern Software Systems (ESS).

According to Sushant Dwivedy, Lead, Microsoft Business Solutions, Microsoft India, ERP as a SaaS model will increase the affordability of ERP solutions by eliminating upfront capital expenditure and eliminating the need for in-house IT resources and additional infrastructure. Customers will have to pay on a per-user, per month basis. Microsoft believes that this new offering will allow a much larger set of SMBs in India to adopt and benefit from ERP services. Dwivedy said, “In India, the change will happen in multiple areas. The change in the SMB segment will be led by ERP deployments, which is often the first step to a broader IT deployment.”

The on-demand model is primarily being adopted by the mid-sized business segment. Samik Roy, Regional Director-CRM, Oracle South Asia, explained, “This model offers companies an opportunity to use a complete, virtualized, pre- packaged and affordable applications at a predictable monthly cost and with an overall lower total cost of ownership without having to put in extensive IT infrastructure.”

How it works

In a SaaS model, the ERP application is hosted on a robust server and the same is co-located in a secure data center that has the required infrastructure namely server racks, data backup devices, anti-virus and firewalls (with constant upgrades), adequate Internet bandwidth. This data center will be manned by well-trained IT professionals who are charged with maintaining it 24x7.

Even though the application will be accessed by several organizations and multiple users, it will be designed in such a manner that one company’s data cannot be accessed by unauthorized persons. Within a company, each user will have access only to the specific data as per his job role and business function. For example, a sales person will be in a position to see sales data but he cannot access the general ledger, P& L or balance sheet.

According to Roy, SaaS is a software application delivery model where applications are developed to run over the Internet and are hosted and operated, either by the company that develops the application or through a third party, for use by its customers, thereby meeting their specific requirements from an IT framework. He added, “An on-demand model allows organizations to collaborate, innovate, lead, and get results. Here the customers have the power of choice to help accelerate business results, reduce risk, and lower costs by adopting just the solutions that they want.”

Can it be customized?

Can ERP on a SaaS model be customized? For example, will all its functionalities, except CRM, procurement or HCM work in a SaaS model? If the answer to these questions is ‘yes’, then how does one go about it?

The main advantage that SaaS confers is that it enables customers to use various applications without making large investments in software licenses. “For all mission-critical, large applications, customization is an essential requirement,” said Bakht. If multiple customers use the same copy, then customization is impacted. No large corporation wants to wait for these customizations to be delivered as these are considered essential on a day-to-day basis. “In theory it can be customizable, but in practice it cannot be done in a timely manner leading to dissatisfaction of customers. SaaS can really work for software which does not require frequent customization,” added Bakht.

“There are challenges when you start customizing a hosted model. It works best in scenarios wherein only configuration is required. ERP customers would expect a fair amount of customization given the complexity of processes and variance in them—between industries and amongst organizations in the same industry. The cost advantages of being hosted start reducing when the services cost kicks in,” revealed Abraham.

Chandra Prabhakar, VP-OnDemand ERP, Ramco Systems mentioned that Ramco’s hosted ERP can be customized. She added, “Ramco OnDemand ERP has all the features required to run an organization; if customization is required, it is feasible as the requisite tools are available for customization.”

Securing an application

Security is critical for any organization—failures can have devastating consequences for a company and its customers. Vendors offering this model, Ramco being one, provide three levels of protection.

Bakht believes that data can be made safe in the ERP-as-a-service model. He argues that data security is not an issue with this anymore than it is in the case of banks offering online services.

Cost factor

Under the SaaS model, with marginal initial setup and training costs, the application usage payment can be made on a monthly basis. Unlike the ownership model, the vendor relationship is on an ongoing basis—they are bound to provide service levels as agreed.

It is even convenient for the ERP vendor to provide the patches and upgrades on a regular basis.

Dwivedy mentioned that in India, the Microsoft Dynamics suite of ERP applications is available as a subscription service, allowing businesses to use these solutions without the need to install the same within the company’s own premises. The ERP application will be hosted by a Microsoft Channel Partner and can be accessed by companies through multiple access modes such as VPN and the Internet. The partner will also provide turnkey solutions, right from initial setup and staff training, to application management for the company and complaint resolution.

“Currently, Ramco charges Rs 20,000 for three users, and this can be scaled up depending upon the number of users per month,” stated Prabhakar.

Ramco OnDemand ERP has close to 1,000 users across verticals, including auto components, discrete manufacturing, trading, distilleries, electronics, textiles, chemicals, services and more.

Sage at present does not offer an ERP-hosted model to customers in India. Abraham said, “We at Sage are evaluating the potential presently and there could be an offering in the future, based on how we see the market maturing on this front.”

Enterprises are focusing on automating their supply chain. This helps them increase productivity by connecting to their supply base on a real-time basis. Deploying infrastructure at their end can prove expensive. Having the ERP system available in a hosted model can enable a cost-effective approach, which is why ERP-as-a-service is expected to take off.

vinita.gupta@expressindia.com