Channel outlook: American manufacturers want cloud, basic ERP

Despite a mixed economic picture, channel executives are cautiously optimistic about business with American manufacturers.

Reading the market for channel partners in the manufacturing sector has become a murky undertaking.

On the one hand, increasing labor costs abroad have prompted some companies to bring overseas manufacturing operations back to the U.S. The Boston Consulting Group reported in April 2012 that more than a third of the U.S.-based manufacturing executives it surveyed said they plan to bring back, or are considering bringing back, production to the U.S. from China. The companies polled were all in the $1 billion-plus sales range. Apple, meanwhile, has kept that trend rolling, disclosing plans to shift some Mac production to the U.S. in 2013.

But, on the other hand, some signs point to a decline in manufacturing. The Federal Reserve Bank of New York in December reported a slump in manufacturing activity. The bank's Empire State Manufacturing Survey reported that conditions for New York manufacturers "continued to decline at a modest pace." The survey's new orders and shipments indices both dropped. The survey's gauge of general manufacturing conditions has been in the negative range for five straight months.

Channel executives, however, expressed guarded optimism for manufacturing. They said products that help companies trim costs, speed order fulfillment and stay out of regulatory trouble will continue to attract buyers despite the unsettled economy.

SaaS action

SaaS offerings, which promise to reduce infrastructure expenses, continue to do well in some manufacturing segments.

"We have a solid client base in a variety of high-tech manufacturing areas that are quite interested in the cloud apps," said David Northington, chief executive officer at Cloud Sherpas, an Atlanta-based cloud services broker that provides Google and Salesforce.com SaaS offerings.

Cloud Sherpas, founded in 2008 amid the global recession, made inroads with manufacturers from the very beginning, noted Michael Cohn, senior vice president of Cloud Sherpas.

"When we started the business four years ago, manufacturing was one of the very first industries that was quick to adopt the cloud," Cohn explained. "In the downturn, every manufacturer was feeling pressure, with revenue down and margins compressed."

Cohn said a manufacturing slow down, as suggested by the New York manufacturing index, may not hinder cloud adoption.

"If we are seeing manufacturing slowing down, it might actually increase the industry's appetite for cloud in general," he noted.

The Cloud Sherpas executives said cloud's cost-cutting potential, and the ability to boost collaboration and improve communication with clients, draw manufacturers to SaaS solutions such as Google and Salesforce.

In addition to high-tech manufacturers, pharmaceutical companies in the process manufacturing space also snap up cloud solutions. Northington said life sciences firms are showing solid interest in Cloud Sherpa's cloud offerings.

Return engagements

As an economic counterweight, companies shifting production back to the U.S. could potentially spark sales for channel partners. Si Chen, founder of Los Angeles-based Open Source StrategiesInc., said he thinks a re-shoring scenario would create opportunities for his open source enterprise resource planning (ERP) and e-commerce solutions company.

He said that customers that have offshore manufacturing processes have used his company's Web-based software -- opentaps open source ERP and CRM -- to work remotely with their production personnel. Those companies may need to revisit their systems once production relocates stateside.

"As manufacturers move back to the U.S., many of them need to fulfill their orders faster and provide greater supply chain visibility to their customers to offset the cost differences," Chen said. "This will often require that they upgrade their technology to provide better management and tracking."

Chen said he believes manufacturers will make basic ERP their top priority. He said many U.S. manufacturers lack an ERP system, and without that software they cannot embark on any other enterprise technology initiative. ERP adoption can also help a manufacturer work efficiently to manage its production and order fulfillment processes, he added.

Manufacturers using ERP software also may be ripe for an upgrade.

Chen said many of the systems that manufacturers currently use are 1990s client/server-era products that predate the Internet.

"While they can be adequate for accounting, production and inventory management, they have a very difficult time of adapting to the Web and providing the manufacturers' customers with supply-chain visibility and shortening the inventory cycle," Chen said. "I've seen that as we emerge from the recession, most retailers are running with lower inventory levels than before the recession, and keeping inventory down is a high priority for them."

Dealing with regs

Manufacturers grapple with regulations in any economic climate. In one such example, companies need to keep adequate records of employee time to meet labor law requirements.

A recently formed channel alliance targets this aspect of labor management. In December, ERPVAR.com, a national VAR network, and Sierra Workforce Solutions announced a partnership in which resellers will promote Sierra's time and attendance software and other products to customers in manufacturing and other industries.

Mike Christiansen, president of Sierra Workforce, said manufacturing companies employ a lot of hourly employees and need systems that help them comply with laws covering overtime and other labor issues. He said the Department of Labor has been relatively strict with employers that fail to keep adequate records.

Companies face state labor statutes as well. Christiansen pointed to California's lunch labor law as one instance. That law requires employers to provide a meal break of at least 30 minutes for employees working five hours and pay them for their time if they end up working through the break. One notable lunch break lawsuit in California resulted in a $10 million settlement.

Christiansen suggested that manufacturers have an additional motivation to pursue time and attendance and data collection systems: inefficient manual processes. Companies may use paper time sheets that are typed into a spreadsheet and eventually entered into an ERP system.

"It's not very streamlined," he said.

Sierra Workforce's software products integrate with ERP systems from vendors such as Microsoft and Sage.

Kathy Graham, vice president at ERPVAR, said the company plans to cohost webinars to introduce Sierra Workforce's products to its channel members and their clients. The first of those events is scheduled for January.

The economic outlook for 2013 is far from crystal clear. Channel partners that carefully select their manufacturing niches may secure business despite the uncertain economic climate.

John Moore has written on business and technology topics for more than 25 years.

This was first published in December 2012

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