Cloud Integration Costs with SaaS ERP Solutions
Posted by Mike Canniff on September 9, 2011
Over the last few weeks I’ve been discussing cloud-based ERP solutions and how integration plays a role. Here’s a quick recap of what I’ve covered:
- First, I raised the visibility of integration requirements when migrating ERP platforms. There are many reasons that a company switches ERP providers (more functionality, cloud flexibility, better integration capability, etc). Yet integrating to remaining applications or connecting to trading partners sometimes can fall to the bottom of the implementation project plan.
- The second blog post took a deeper dive into some of the technical issues related to “ground to cloud” application integration, master data management, and B2B integration. On the B2B side, complying with new standards may be required.
- In my previous post in this series, I focused on B2B requirements in the areas of direct customer/supplier communication, B2B Marketplaces, and EDI Hubs. As a company moves “upstream” with ERP capability, increasing B2B connectivity becomes more attainable.
To wrap up this series, I wanted to shift and discuss the costs associated with migrating ERP software (and related integrations) to the cloud. There are many benefits in moving to a cloud computing platform. From a financial perspective, IT investment moves from a capital expense (capex) to an operating expense (opex), which can be predicted over time. An ERP cloud solution typically has constant resource demands over time, so one can avoid peaks in performance requests.
But what about cloud-based integration? In this series, I’ve assumed that one is migrating from a desktop or older client/server ERP solution to a cloud based option. So IT has an opportunity to implement or upgrade to a new integration solution as well. When the ERP application resides in the cloud, it makes a lot of sense to use a cloud based integration solution (instead of investing in new on premise hardware and software licenses).
Some cost related benefits of cloud integration include:
- Pay as you go integration – You don’t have to invest in the whole server application at once. Only the applications or marketplaces that you connect to will need to be invested in.
- Scalable performance – If there is a peak in transaction volume with a particular marketplace or trading partner, cloud integration will be able to support the increase without additional hardware expenditures. Performance becomes the responsibility of the cloud integration provider.
- Reduced connectivity costs – During the cloud based integration evaluation, you want to make sure that the provider has pre-built connectors to most of your trading partners. There’s a good chance that they have already built and tested these connections, so that you won’t have to spend IT labor on this effort (which will probably be the case with on premise solutions).
On the other hand, you need to be aware of some “hidden” costs that cloud based integrations may incur. These areas are ones to negotiate during the licensing process.
- Connecter costs – Some vendors will charge for not only for each connector to an application type, but to each specific instance. For example, if you are implementing cloud based ERP for a subsidiary division, but still need to connect to multiple SAP instances at corporate or other divisions, and then each of these connectors may incur a charge.
- Trading partner counts – Another pricing metric becomes the number of trading partners that are connected to in a B2B scenario. The more trading partners, the more expensive ongoing integration becomes. From a business perspective, one needs to “bake in” the incremental cost of supporting a trading partner against potential revenue with that customer.
- Transaction metering – Lastly, some cloud based solutions will meter the number of transactions processed. There is usually a minimum threshold that is included with the monthly service. And most of the time this is fairly high. But just like cell phone minutes, once you go over, there can be a high per transaction charge. Again, this cost must be balanced against revenue with the service.
In summary, B2B and application integration requirements need to be addressed when migrating “upstream” to a more functional cloud ERP solution. Matching a cloud-based integration solution to the ERP platform makes sense both technically and financially. The challenge will be to find the right combination of cloud providers that meet both the ERP and integration requirements – and work well together. One example of this is the work NetSuite is doing with Hubspan.
Hopefully, this blog series has shed some light on key issues to address when performing a cloud based ERP upgrade.
Tags: B2B Integration, Cloud Integration, ERP, Netsuite, SaaS applications
Great article, very accurate.
Comment by Craig Fulerton — September 10, 2011 @ 9:16 pm
Thank you for the insight. I am excited about Cloud ERP, yet I like to take a balanced approach. Just as ERP was deemed the panacea for all business automation pains, Cloud ERP is positioned as a revolutionary approach to deploying an ERP solution. Cloud ERP provides a solution that is flexible, adaptable, scalable, efficient, and affordable. Customers can enjoy painless upgrades, rapid deployment, and easy customization along with availability “anywhere at anytime”! Practically speaking, Cloud ERP is just another deployment option available to customers. The activities required for an “on premise” ERP implementation are also required for Cloud ERP. The scope and responsibility for the implementation activities may be different but most assuredly they are still required. The following article will provide more insight on the impacts that Cloud ERP will have on the entire ERP lifecycle.
http://gbeaubouef.wordpress.com/2011/05/22/cloud-erp/
Comment by Brett Beaubouef — November 24, 2011 @ 10:30 am