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Faced with the choice of on-premise or cloud-based enterprise resource planning (ERP) systems, more and more organisations in the Asean region are heading for the cloud.
Online supermarket RedMart, bike retailer Treknology Bikes and e-commerce fashion retailer Zalora are among the small and medium-sized businesses (SMBs) that have opted for ERP or software-as-a-service (SaaS) in the cloud, driven by lower costs, greater flexibility and easier maintenance.
In Asean and the Asia-Pacific region, the high demand for cloud ERP is being driven by these SMBs, said Sreenath Kandarpah, research manager, IT services group at IDC Asia-Pacific.
“The demand for cloud-based enterprise resource management (ERM) applications, notably in human capital management (HCM) and procurement applications, is driving this growth,” said Kandarpah.
IDC expects cloud ERP adoption to outstrip that of on-premise software, with 18.6% annual growth reported from 2015 to 2020. Within Asean, adoption rates in Singapore, Thailand, the Philippines and Vietnam are expected to grow most quickly, while Malaysia and Indonesia are expected to see slower adoption.
The promise of streamlined business processes, reduced IT costs and greater agility persuaded RedMart to seek a cloud ERP set-up to replace its legacy ERP system, which struggled to keep pace with the company’s growth.
Not only was the old system unable to produce reports to provide insights for decision-making, it also lacked the flexibility required by the company’s rapidly changing business priorities.
Shifting to the Oracle ERP cloud financial, supplier management and procurement systems has enabled RedMart to glean business insights from its transaction data, enabling management to make timely business decisions and collaborate with suppliers better.
Singapore-based Treknology Bikes 3 has also opted for a cloud ERP system. The supplier of road, mountain and race bikes, accessories and clothing, has replaced MYOB Retail Manager and other basic accounting packages with NetSuite OneWorld.
The cloud system now manages its key business processes, including financials, accounting, order management, inventory management, customer relationship management, shipping, real-time reporting, and point-of-sale and multi-country tax compliance for two warehouses and six showrooms across four subsidiaries in Singapore and Malaysia.
This has improved the retailer’s operational efficiency, giving it a better view of its customers and an improved ability to respond to customer demands.
“We are now able to view supplies across all our warehouses anywhere, any time, allowing us to be much more customer-savvy, which ultimately helps drive brand loyalty,” said Mohan Mirwani, chief operations officer at Treknology Bikes 3. “We can now respond almost instantaneously to requests from our customers.”
Read more about SaaS in the Asean region
- Oracle is investing in its resources in the Apac region, with a focus on driving cloud software sales.
- Online retailer RedMart turned to cloud-based enterprise resource planning (ERP) when its existing system struggled to keep up with business growth.
- Insurer Ageas adopted an end-to-end insurance business suite in the cloud when it wanted to expand into the Philippines.
Another key attraction of the cloud is the speed at which organisations can get access to new functionality.
“Cloud ERP has accelerated the buying experience,” said Jasbir Singh, vice-president of cloud ERP/SCM applications at Oracle. “Now, the minute you sign up, within as little as 48 hours, the instance can be provisioned, configured and used.
“We have seen large customers with on-premise applications who purchase the cloud service for a specific business process, such as innovation management or strategic outsourcing. There are others who have been using on-premise ERP for over 10 years, and get a refresh by either purchasing new hardware or going straight to the cloud.”
Zalora, the biggest e-commerce fashion company in Southeast Asia, was attracted to use software in the cloud to complement its on-premise ERP. Its partnership with Oracle Marketing Cloud has given it a new tool to reach out digitally to provide its customers with individualised experiences.
Today, Zalora communicates with more than 10 million app users, 7 million Facebook fans, 500,000 Instagram followers, 120,000 Twitter followers, and more than 2.2 million email, call and online chat requests. With 10 automated programs in place, it plans to expand the number of triggered touchpoints with customers to further enhance cross-channel marketing.
“Our earlier marketing efforts were batch and blast, but as the business evolved, we saw the need to respond to increased expectations from our customers for a personalised dialogue,” said Joshua Tan, regional head, CRM at Zalora. “Being able to orchestrate individualised communications and make informed, data-driven decisions is key.”
Large enterprises included
While cloud-based ERP has been a runaway hit with SMBs, there has also been a lot of interest in cloud ERP from large enterprises in the past 12-18 months, according to Sherrel Roche, senior market analyst, services research at IDC Asia-Pacific.
This is largely because cloud ERP services can be integrated with legacy systems. This deployment trend is being seen particularly in enterprises that have many customers in verticals such as telecom, banking, financial services and insurance, and the oil and gas industry.
“Financial, HCM and procurement are some of the applications moving to the cloud with large-scale adoptions,” said Roche. “However, applications such as operations and manufacturing and supply chain management, which are part of the core business, are not seeing high cloud adoption because of concerns around latency and business downtime.”
When choosing between ERP point systems and suites, organisations tend to base their decision on the depth of functionality in a particular module, said Roche. Suites tend to pivot around financial applications, with other modules available with basic functionalities. Point systems focus on a particular area with niche functionalities, and cater to different verticals and company segments.
For new implementations, some organisations prefer cloud services that offer rapid implementation without major capital expenditure.
This is the case for Ageas, an international insurance group dating back more than 190 years. When it wanted to expand into the Philippines – a new market – Ageas partnered EastWest Bank to build a bancassurance business. It set up shop by purchasing SAP’s insurance software in the cloud, which supports the full insurance lifecycle, including back- and front-end processes.
Private, public or hybrid?
Asean organisations are entering the cloud through private, public and hybrid clouds.
Most SAP customers in Southeast Asia have already started adopting cloud, said Scott Russell, president and managing director at SAP Southeast Asia. “Most are beginning with a hybrid approach, adding cloud deployment on top of existing on-premise systems,” he said. “Others started with cloud applications, as required by their business needs.
“A key driver for private cloud environments is control – the need to tailor a solution exactly to how a business process is run – because you differentiate with this process. You may also have specific enterprise or industry needs that need to be accommodated.
“A public cloud service, on the other hand, makes the most sense when customers want to adapt or change quickly.”
IDC’s Kandarpah said that although cloud ERP has its advantages, organisations are still mindful of the challenges, with data privacy and security being the top concern.
Complexity of integration
Another worry is the complexity of integrating cloud applications with legacy systems. IT managers still doubt the speed of integration and face challenges with the total cost of ownership because of complex integrations with their legacy systems.
Other challenges include bandwidth costs, performance, latency and downtime issues, which can hinder enterprises’ efforts to deliver highly data-intensive applications, said Kandarpah.
Ultimately, cloud ERP is highly relevant for the Asean market due to the high level of SMB activity and the lack of penetration by packaged applications in most of the region’s countries, said IDC’s Roche.
“With countries such as Malaysia, Indonesia and Thailand being the breeding ground for global firms moving into the region, there is very high scope for SaaS ERP adoption,” he added.
“This is due to the need for packaged software to capture business activities that have to be relayed back to headquarters to gain an integrated view of business performance, the incentive of no capital expenditure, and the ability to integrate with existing systems in offices in other parts of the world.”