Get on the CLOUD
Cloud computing is no longer pie in the sky, with a growing number of applications grounded in the latest software-as-a-service technology.
Web-based applications hosted by third-party IT providers have come into their own as bandwidth has increased and storage costs have come down. And the food industry is increasingly embracing the virtual IT platform for a variety of applications handling complex business reporting and often integrating several programs into one system. By accessing software in the cloud, food companies can avoid all the costs associated with maintaining their own data centers, servers and IT staffs. The result has been a paradigm shift in the way corporations are thinking about IT, experts say. Instead of owning, they're essentially leasing software and bandwidth by the month.
In fact, some say cloud-based tools have now become a necessity. "It's not that having them is a huge competitive advantage anymore," says Joel Feldman, senior director of financial planning and analysis at San Leandro, Calif.-based Otis Spunkmeyer. "If you're not using them, you're falling behind."
Show me the money
Cloud computing has cut application costs to a fraction of what custom IT software and server companies generally command. Cloud applications typically are priced using a pay-as-you-go model, often with a monthly subscription fee.
More complex cloud-based applications can cost $30,000 a month for a large corporation. But even that price represents a substantial savings over the million-dollar-plus price of procuring custom solutions, experts say.
At Alexandria, Va.-based Cuisine Solutions, chief financial officer Ron Zilkowski figures he saved hundreds of thousands of dollars by going with a cloud application instead of a custom solution. The maker of sous-vide prepared foods sells to Costco Wholesale Corp., Kroger, Safeway and Wegmans Food Markets, as well as to foodservice.
When Zilkowski arrived at the company in 2007, he confronted a 10-year-old system that needed upgrades and new equipment likely to cost several hundred thousand dollars. "With all of these old systems, there's a constant need to upgrade them," he says. What's more, the company didn't have an adequate backup plan in place.
Instead of investing in an antiquated system, Zilkowski made the leap to a cloud-based enterprise resource planning software application offered by Auburn Hills, Mich.-based Plex Systems. Rather than cobbling together several different applications, the integrated system handles multiple functions, including accounts receivable, shipping, purchasing, finance, human resources and production scheduling. By introducing barcoding into the system, Cuisine Solutions has improved recipe accuracy and can monitor quality throughout its line of 400 products.
An added benefit is the ability to trace a product's activity throughout production and accurately identify allergens such as peanut oil throughout the process. "If you get a call from a customer about a product, you can type in the serial number, scan it and see the backward tracking," says Mark Symonds, president and chief executive of Plex Systems.
The Plex ERP application has also boosted Cuisine Solutions' productivity, Zilkowski says. The company is targeting 2011 revenue of about $70 million, up 30 percent from about $50 million in 2010.
While cost is often a driving force, the switch to cloud-based computing brings with it communication enhancements as well as more efficient processes. At Mauldin, S.C.-based Bi-Lo, moving to cloud-based Google Apps from an outdated version of Lotus Notes has allowed the company to access its enterprise and productivity applications from mobile devices, while also saving money. The company has more than 200 stores and uses smartphones, iPads and tablets in the field, says Carol DeWitt, Bi-Lo's chief information officer.
Before settling on Google Apps, Bi-Lo evaluated cloud-based offerings from Microsoft, IBM, Lotus Live and WebEx Mail. The Google Enterprise Apps suite won out partly because it was user-friendly, and more than 35 percent of Bi-Lo's users were already working with Gmail, DeWitt says. Google Apps are designed for collaboration, providing access to spreadsheets from multiple users.
The price is right
Pricing models for cloud-based applications vary, with some IT providers charging by the user and others by revenue-size of the business and number of applications and bandwidth used.
Plex Systems determines pricing based on the size of the company and the software modules used, but subscription fees generally start at $5,000 per month for a food company with about $10 million in annual revenue, says senior account executive Jonathan Cowan. The monthly fees rise to $15,000 to $30,000 for processors with about $100 million in revenue because they are storing more data and using more computing power, he adds.
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Pearl River, N.Y.-based Superior Technology Solutions, which also offers a cloud-based enterprise resource planning module for food and beverage companies, generally charges from $5,000 to $30,000 a month, depending on the number of users. The company developed its own ERP system after looking for a solution for Cintron Beverage, which makes energy drinks, says president John Luludis.
"When we put a new function in, it's available to anyone with any device anywhere," says Luludis. And when comparing costs, keep in mind that ongoing maintenance is included in many cloud-based applications, which may mean fewer in-house IT professionals are needed. "What you need to look at is not just the solution but the final configuration," Luludis says.
More specific cloud-based applications can cost less. Cybera Inc. specializes in cloud-based network security and communication services for chain retailers, including firewall, wireless IDs, virtual private network and secure transfer of credit card data. The company's standard package is priced at $595 a year, compared with a cost of $4,000 to $8,000 if a retailer were to use three or four different security appliances from different vendors, as many do, says Cliff Duffey, chief executive at Cybera, based in Franklin, Tenn. The application follows the path of a credit card swipe, encrypting data before handing it off to the credit card processor.
Adding transparency
Cloud-based applications can also make it more cost-effective to add transparency to the supply chain, a growing concern in the food industry. Plex Systems, which offers more than 350 functional modules, recently added an application to track country of origin for products brought together with ingredients from multiple locations, and regularly updates the modules with new add-ons.
Increased transparency is also at the core of scan-avoidance technology now in use at Russell's Supermarkets, which serve the metro Birmingham, Ala., market. The cloud-based application from Cambridge, Mass.-based StopLift Checkout Vision Systems is designed to reduce shrinkage through video recognition technology that captures incidents at checkout, such as cashiers pretending to scan merchandise but bypassing the scanner. Since implementing the system a year ago, the three-store grocery chain that operates under the Piggly Wiggly name reports a 70 percent drop in scan avoidance, says Jason Russell, vice president at Russell's. The application also includes a synchronized transaction log and yearlong incident reporting as well as an easy method for sending video to law enforcement, the company says.
New solutions to old problems
Some applications provide solutions that never existed before. Scottsdale, Ariz.-based Appointment-Plus offers a cloud-based application for scheduling loading dock arrivals at distribution centers, reducing backups and idling trucks. The virtual system allows truckers to make their own dockside appointments using a PC or smartphone, so they don't have to wait in line when delivering product to a retailer.
"Now you have no wait time, and no loss of fuel as you're running your engine," says Ryan Kelly, chief operating officer of Appointment-Plus. The fee for the cloud-based application is $49 to $79 a month per location—and it can easily save $2,000 in administrative costs, he says.
In addition, Appointment-Plus' application helps companies consider what the true cost of dock scheduling is. "Imagine if you can eliminate it by putting it in the hands of your customers," he says. Demand for the system is taking off, with 2.3 million appointments booked into the system in May, up from 1.4 million a year earlier.
Managing multiple sites
The virtual nature of cloud applications makes them ideal for companies with multiple sites because they provide easy access to information. At Otis Spunkmeyer in California, the company uses Host Analytics' software-as-a-service for sales planning and budgeting. The fact-based software guides the cookie-dough maker's decision-making and planning, says Joel Feldman.
Most important, it helps connect about 120 sales personnel who work at 50 sales centers throughout the United States as well as in their home offices. Prior to adopting the sales planning software, the sales team e-mailed Excel spreadsheets to one another, but participation was lower, Feldman says.
"Before, everyone was working off their own plan," Feldman says. Now everyone is on the same page, and the company has a cohesive, coherent plan that users can access remotely. With better data to work from, Otis Spunkmeyer has made improvements such as eliminating obsolete products.
"The earlier we look into the planning by SKU, the less of that obsolete product we're producing and throwing away," says Feldman.
Since Otis Spunkmeyer began working with Host Analytics, the IT provider has enhanced the software to better meet the $1 billion company's needs. But unlike with a custom application, Otis Spunkmeyer didn't have to shell out payment beyond its annual subscription fee, which the company wouldn't disclose. Instead, Host Analytics offered the enhancements to other customers using its network, Feldman says.
While early cloud computing carried with it concerns about security or system crashes, those worries have largely been erased as IT firms have invested in secure architecture and redundancies, experts say. "Companies like us can invest way more in electronic or physical security than (customers) would ever choose to invest," says Symonds of Plex Systems.
Still, cloud computing doesn't eliminate all challenges. Some workers are still reluctant to learn new methods: "The challenge is getting folks used to a new way of doing things. That doesn't go away with a cloud application," Symonds says.