Is Cloud a Viable ERP Deployment Option for Medtech Companies?

Medical device makers should take these factors into consideration when evaluating the best enterprise resource planning (ERP) deployment for their needs.  

Ed Potoczak

Cloud-based enterprise resource planning (ERP), with its promise of greater agility and the ability to reduce infrastructure costs, is becoming a viable choice in the manufacturing sector. In fact, research firm Gartner has observed that manufacturers turning to cloud ERP systems range from large corporations aiming to get divisions up and running quickly to small to mid-size enterprises seeking to increase value and improve the flexibility of their ERP deployments.

However, no one ERP deployment scenario fits all. This is particularly true for medical and diagnostic device developers and manufacturers who need to maintain robust quality control while complying with regulatory requirements.

As a result, it is important to consider not only the advantages of a cloud ERP system, but also the technical and financial tradeoffs among different cloud approaches. Additionally, many manufacturers may find they are best served by a hybrid deployment, combining cloud and on-premises components. Finally, some companies may require an ERP system that runs entirely on premises. The following are some of factors that medical device makers should take into consideration when evaluating the best ERP deployment for their needs.  

Cloud ERP Advantages

Cloud ERP systems enable manufacturers to capitalize on three universal benefits of cloud computing. First is the ability to get up and running quickly. This is due to front-end time savings achieved by outsourcing the implementation, maintenance, and upgrades of IT hardware, system software, and daily support services.

Second is the ability to move from capital expenditures to operational expenditures where manufacturers are billed on a recurring monthly, quarterly, or annual basis for the cloud ERP system. This is particularly attractive for companies in startup mode, since they can avoid the large upfront investments required to equip and staff a large internal data center.

Third are the technical advantages provided by cloud ERP systems. These solutions can dynamically scale to meet changing needs, enabling manufacturers to use only the resources they need. Additionally, cloud ERP solutions ensure a very high level of data security, integrity, and uptime since reputable cloud platform providers are staffed by experts dedicated to managing cybersecurity, as well as providing redundant servers and robust data backup processes. These IT resources are typically deeper and more skilled than those that can be established at all but the largest manufacturers.

Multitenant Versus Single Tenant . . . and Why It Matters

Cloud ERP deployments take one of two forms: multitenant or single tenant. Although the functionality is basically the same, the different approaches to maintenance and updates can significantly impact a medical device manufacturer's business.

Multitenant describes a scenario in which a cloud ERP provider maintains one version of the software code base that is accessed by different tenant companies, each having multiple users. These tenants might be different companies or different groups within a company. Although tenants share the same software, the cloud ERP solutions have strong virtual walls between the tenants and robust security. This prevents manufacturers from accidentally accessing another company's information.

Because the multitenant cloud ERP solution is based on one set of software, when the vendor makes updates to the system, they are applied automatically for all the tenants. The advantage is that the features are added frequently, anywhere from monthly to daily, and they are immediately available to all users.

The challenge with automatic updates is that new feature changes, both large and small, are often not announced in advance and can impact several layers of business logic in one or several modules in the multitenant cloud ERP solution. If a feature that a given manufacturer has come to rely on to satisfy a special business need is changed, it may unintentionally break the preferred logic for that company. This can be an issue for medical and diagnostic device manufacturers who need to comply with FDA requirements to validate their processes and many of the tools, software, and other resources used to support them.

Single tenant cloud ERP solutions offer the same native financial and resource benefits as their multitenant counterparts. The difference is that each individual manufacturer has a dedicated version of the software and database hosted in the cloud. Since companies "own" their "instance" (copy of software in the cloud), they can schedule when it is updated or upgraded. This model makes it easier for medical device and diagnostic builders to validate the application software for FDA compliance, since they can plan for validation of the latest software version in advance.

Hybrid Cloud and On-Premises Alternatives

There are situations where some or all of a company's ERP-driven processes need to run on premises. Most notable among these is FDA's "Case for Quality" Initiative, which promotes the use of real-time quality systems that include product traceability. Aligning with this initiative requires tremendous amounts of data, since manufacturers need to capture important information from incoming inspections to final product labeling and shipment. These businesses then analyze the data to identify negative trends in quality, providing actionable insights prior to shipment.

For companies with substantial production volumes, the speed and amount of data collected from plant floor equipment can be so large that it may be difficult to assure uninterrupted data flow into databases over the internet for real-time analysis. Therefore, manufacturers will need to deploy key quality and manufacturing monitoring functionality and analytics tools on servers in their production plants to assure the efficient flow of critical information. At the same time, they often see value in moving office functions, such as sales, purchasing, planning, and accounting to the cloud. This hybrid structure, with a blend of integrated on-premises and cloud-based capabilities, can be the best way to minimize risk and optimize the enterprise's use of information.

Another factor is internet access. While the availability of reliable internet service has improved significantly over the last decade, there are rural locations where consistent availability is not assured. In those instances, manufacturers in the medical and diagnostic device industry may choose to base some or all of their ERP functionality on premises in an internal data center. However, even if the entire ERP system runs in an internal data center, companies should consider backing up their data to the cloud. This will ensure the protection of data and facilitate a faster system recovery in the event of a natural disaster, power outage, internet attack, or other disruptions to the ERP system's operation. A number of cloud infrastructure and ERP companies offer this service. 

Rent Versus Own: Understanding the Trade-Offs

When evaluating the viability of implementing a cloud ERP solution, it is also important for manufacturers to weigh the benefits and costs of choosing to rent versus buy. The rental model, known as software as a service (SaaS), makes the cloud ERP solution available for a monthly, quarterly, or annual subscription fee. The alternative model is to buy a license of the ERP software, which is then hosted in the cloud by the vendor; it is most commonly known as a hosted or managed cloud ERP solution. With the latter approach, the manufacturer owns the ERP license but still pays a subscription fee for the software hosting, maintenance, and support.

Notably, all multitenant cloud ERP offerings use the SaaS subscription model. Meanwhile, single tenant solutions typically give manufacturers the choice between either purchasing a license with a hosted/managed cloud solution or going with a subscription-based SaaS approach. With either financial model, manufacturers can reduce their costs by outsourcing the management of servers, communications hardware, software, and other information technology resources instead of running their own data centers--saving costs on both equipment and skilled IT staff.

The benefit of a SaaS subscription model is that there are no large upfront costs. However, after three to five years, the total cost of a cloud ERP SaaS subscription begins to exceed the expenses associated with purchasing an ERP software license and hosting it in the cloud. As a result, this model is most appealing to manufacturers who want to conserve cash in the short to mid-term.

By contrast, a hosted or managed cloud ERP model requires the initial purchase of a perpetual software license. As such, there is a larger upfront cost to the initial deployment, but this is coupled with lower cloud hosting and software maintenance fees, making this option a lower cost one in the long run. Because a perpetual ERP license has a typical useful life of 10 to 15 years, this is an attractive option for manufacturers that have the resources to make the upfront investment.

In choosing either a SaaS subscription or the purchase of a software license, manufacturers will want to consider the lifetime cost calculations plus other business factors, such as the maturity of the company, its financial position and projected revenue streams, and the level of market volatility faced by the business.

By carefully evaluating not just the technical capabilities of ERP offerings but also the financial options and deployment models, medical device and diagnostic equipment builders will be well positioned to select a solution optimized to address their business needs.

Ed Potoczak, director of industry relations at IQMS, is certified in Design for Manufacture and Assembly and Value Analysis/Value Engineering and is a MESA Americas board member.

[Image courtesy of STUART MILES/FREEDIGITALPHOTOS.NET]