Cloud and the SMB manufacturer

InsightaaS: SMB manufacturing is an essential segment in the Canadian economy. In 2014, manufacturing was the largest goods-producing sector in Canada, representing $173 billion in total revenue, and 10.6% of Canada’s GDP. A 2012 research paper from Statistics Canada pegged the SMB share of manufacturing GDP at 43.8% in 2008, up from 38.6% in 2001. This suggests that SMB manufacturing today accounts for roughly 5% of Canada’s GDP – making the health of the industry a critical issue for broader economic success.

One of the important contributors to business viability is automation. This is especially true within manufacturing, where increased use of technology enabled output growth to vastly exceed growth in employment, as this graph (based on US data) demonstrates:

McAfee - technological unemployment
Click to view.

Source: The Myth of the Myth of Technological Unemployment, Andrew McAfee, January 2013 http://andrewmcafee.org/2013/01/mcafee-technological-unemployment-us-manufacturing-econom/

Because it is based on an index rather than actual numbers, the graph is somewhat misleading: employment in manufacturing is actually still increasing, though at a very slow pace. The core message, though, is easy to discern – growth and global competitiveness in the manufacturing sector depends on effective use of technology.

It is often thought (here at InsightaaS and elsewhere) that cloud and hybrid infrastructure will play a dominant role in the future of IT/business systems. How, though, will the adoption of cloud play out in the manufacturing sector? To investigate this question, InsightaaS asked Dave Collings – a charter member of the Toronto Cloud Business Coalition, who boasts more than 25 years’ experience in IT management within an SMB manufacturing environment – to outline the real-world requirements and constraints that SMB manufacturers face in cloud adoption and use.

Dave Collings
Dave Collings, writer and long-term SMB IT manager

Let's start with the premise that the SMB manufacturing business understands that cloud is the way to go – that it should be at the centre of long-term strategy. To determine the direction and pace of cloud adoption, the SMB needs to first identify the key issues associated with its business and its IT environment, and then identify where cloud will fit and where it will not...

Reliability, uptime

I think it is safe to say infrastructure operated by a dedicated cloud supplier is more reliable than an SMB local install and data centre. But that is not the only issue that needs to be considered: the SMB also needs to evaluate the reliability of the Internet connection that delivers the cloud, and the relationship between IT and production.

IT is important in manufacturing, but it is not itself the end output from the manufacturing process, and it is not really the most major factor in the overall operation. The most important outcome is making the widget: producing and delivering on time, within defined quality specifications. IT has a ‘second seat’ in the manufacturing process – it is an essential source of support, and it supplies needed information to the process, but it isn’t the core of the operation.

When the manufacturer starts to look at cloud, it needs to consider location and available resources. Manufacturing companies are not usually located close to the downtown cores of large cities. As a result, high speed, reliable internet connections are generally at a premium. Redundant connections to the internet exist, but are rarely fast.

Although it is certainly not preferred, a manufacturer can generally tolerate some internet outage since manufacturers house critical systems locally to ensure predictable uptime. Inputs that are not under direct local control are considered high risk and avoided. As a result, SMB manufacturers may be reluctant to move critical systems to the cloud.

Performance

For many applications, cloud performance, even with a degree of connectivity-related variability, is fine. However, it will be difficult for a manufacturer to house systems that are subject to constant data push/pull, such as production schedules and ERP systems, in the cloud since they will be constantly accessed with requests for pushing and pulling of data.

Another potential performance bottleneck is engineering data. A single CAD data file can easily be 500 to 800 MBs in size. These files are used extensively, with multiple engineering users reading from and writing to them regularly, and with shop floor machines pulling data from them – and since businesses work on multiple products and designs simultaneously, many different files could be open at any given time.

These factors introduce issues around where and how cloud can be deployed. For example, DaaS (desktop-as-a-service) might be an attractive option for companies that have extensive investments in desktop technology. However, given the issues with reliability and uptime outlined above, manufacturers probably won’t move production data to the cloud; and if the data isn’t in the cloud, DaaS is no longer an option. The quality of the internet connection, and the need for continuous access to production data, limits the cloud options.

Board of directors, cost

The board of directors’ role is to help the SMB manufacturer focus on the ‘big picture’ – and cloud is an issue where the board of directors need to be involved. What is the business model, and where should cloud fit? Does the company have sufficient income from business to invest in sustained, reliable internet connectivity? What systems should exist in the cloud?

It’s important to note that manufacturing has ‘boom or bust’ businesses cycles. There are times when the manufacturer’s OEM customers are pushing new models like crazy, when work is coming in so fast that the plant can't keep up. Then there are times when the industry is stagnant, and downsizing or right sizing occurs. Manufacturing is not alone in experiencing these cycles, but it is especially exposed due to the high cost of acquiring and running production machinery – a single machine can represent a multi-million dollar capital investment, and requires ongoing support and maintenance.

It may be that the boom/bust cycles constrain manufacturing interest in cloud. When tough times hit, IT managers get called into meetings and told, “we can't lay our production people off, we need all the people to respond to demand. But every month this year we need to cut our operating expense – and you need to take the funds out of IT.”

How do you do that? If you rely on local, on-premise equipment, you can cancel hardware upgrades and support contracts. If you’re in the cloud, the cost of IT is ongoing. There are scenarios under which either approach might provide benefits. If you are approaching end-of-life on your backup devices, for example, it might be best to use a cloud service to ensure that critical data is not lost – or if you can avoid purchasing a software package needed only for a specific job and “rent” the software via SaaS instead, you might gain substantial savings in the current period. On the other hand, if you are using older but stable servers, it might be less expensive to rely on them for another 12 months than to move to IaaS with its monthly fees. Cloud expands the options available to IT managers reacting to cost pressures, even if it is not the optimal approach in all cases.

Manufacturers will need to consider how they can adjust their business model to accommodate cloud. Cloud computing will become mandatory at some point – it will eventually be the only way that many services will be delivered. How will manufacturing adjust?

Customer requirements

Cloud storage offers compelling economics, but in many manufacturing contracts, data integrity and security are a concern. Contracts often stipulate that data cannot be exposed outside the walls of the company without consent from the customer. How can manufacturers balance the economics of cloud with these types of contractual demands? Can customer contracts evolve to accommodate cloud, and is this an issue that will be a priority for the entire operation?

Security

As stated above, it can be argued that the cloud is more secure than many SMB manufacturers’ onsite operations. What is required is establishment of security guidelines – potentially, based on ISO standards – to help structure cloud use and govern security. For example, password policies need to be established and enforced, network design and encryption policies defined and enforced, etc. I think this is an area in cloud that is going to grow in importance. Many manufacturing SMBs have experience with ISO requirements so applying them to the cloud won’t represent a new activity, just an extension of IT practices. Some they will have to adopt,

Next steps

A guideline to help manufacturing SMBs navigate their way to the cloud needs to feature a flexible approach that allows the manufacturer to pick and choose the individual services that fit long-term strategic goals and near-term need for reliability, uptime, performance, cost, security and customer contract requirements. Each manufacturer will need to balance risk associated with both onsite and cloud workloads based on its own unique situation and requirements. For example, some manufacturers make a large number of standard widgets, while others specialize in one-off, custom products. The business cycles and requirements for each are different, and may dictate different approaches to cloud.

Data residency

SMB manufacturers who do opt to move workloads to the cloud face another choice – should they use US/global providers or Canadian-based suppliers? This will be a difficult issue for many firms. Some SMB manufacturing business leaders are simply distrustful of locating any Canadian data in the US. Canadian facilities operated by US-based firms are still subject to US laws and regulations, which further complicates this issue.

Data: the Crown Jewels

The bottom line from my perspective is that in manufacturing, engineering data is the key to your business. It is crucial that the data not fall into the wrong hands, and that it can be readily accessed as needed to set up manufacturing processes and machinery. Manufacturers are understandably sensitive about data leaving the company’s premises. However, careful planning and effective governance, risk and compliance (GRC) policies and procedures, supported by audits, should make it possible for Canadian SMB manufacturers to plot long-term paths into the cloud.

 

2 COMMENTS

    • This is a good question and difficult to give a good simple answer for. I will say that each manufacturer has its own unique business process.

      For example, a manufacturer that builds large complex tooling for stamping dies is very different from a manufacturer that just runs the tooling and produces the parts from the tooling.

      The tool builder will have an engineering staff with costly, high-end CAD desktops running expensive software and generating large amounts of data. It could have a proprietary data link or VPN to a customer to access a Product Lifecycle Management (PLM) system to get data or work on customer data remotely. The customer could be very sensitive to where their data is located or who has access to it. This manufacturer my not be as sensitive to Internet outages for short periods of time, may be further away from good fast low cost internet connections. Their priority is to build the tooling.

      A manufacturer that just runs the tooling may be very different. It could be a Just-in-Time supplier with a link to the customer who requests parts to be made and shipped. This manufacturer probably has a better Internet connection and is probably located closer to their customer as they are providing a Just in Time service. This Manufacturer is more suited to using cloud offerings.

      I would start to make a checklist to narrow this down: what type of business are they, and what offerings would suit them?
      Where are they located? Are low cost, redundant Internet connections available?

      Does the business rely on Internet connectivity or can they do without for short periods of time? How important is the Internet connection to the current operation of the business? What is the cost to change that?

      Do they rely heavily on email? Large attachments? Do they use email like an archival tool for historical purposes?
      Do they have large amounts of proprietary design data? It they move to the cloud, what would be their costs associated with moving large amounts of data to and from the cloud?

      What is their business model? Do they like to work on cash flow? or purchase outright?

      Does the manufacturer have an ERP system? is it off the shelf or highly customized? Are they streaming information to and from the shop floor? How much? How old is the machinery they connect to? Is it compatible with newer cloud offerings?

      The tooling manufacturer more than likely has a much more complex process and customizations to their ERP system. This level of customization provides them with a competitive advantage (this is why they do it) – but it makes them a much more difficult fit for the cloud.

      You can build a template of questions to find out what applications will easily fit the Cloud. Start high level and drill down into each area.

      For example, look at ERP system. Can it be hosted? If it tightly connected to the shop floor or heavily customized, it will not be easy to move to a standard cloud offering. This means that cloud may not be a good fit for the tooling manufacturer, but might possibly be a fit for the manufacturer running the parts process.

      However, Accounting, Payroll, HR for ether Manufacturer would probably be a good fit. All of these can survive some level of Internet outage.

      How about email? For the tool manufacturer, email is not likely to migrate to the cloud, but for the company running the tool process, it could work.

      Hopefully this helps to answer your question.

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