Since the dot-com debacle of the last decade, the acronym ASP has become something of a dirty word. Early on, application service providers captured the attention of savvy business managers looking to lighten the heavy technology load weighing down the IT staff. Having a third party manage non-mission-critical applications like payroll, human resources, inventory management, or equipment maintenance could allow manufacturers to put more energy into their core competency of producing and selling products. The concept became less appealing, however, when many ASP business models crashed during the dot-com crisis, taking their clients' data down with them.
That hasn't deterred companies like Smurfit-Stone Container Corp. (Chicago, IL), however, which has recently launched an aggressive ASP-based strategy that focuses on enterprise asset management (EAM). In fact, separate initiatives are underway in its Consumer Packaging division and in its Containerboard Mill division. Smurfit-Stone looks at the hosted-EAM model in a different way than other companies. While some manufacturers quiver at the thought of allowing precious data out of their sight, Smurfit-Stone managers view outsourcing as an important cog in the wheel of success because it will help them save money and be more productive in-house as they work to double the company's $8 billion revenue. "If you want to double the company in five years, and you want to minimize your total cost, you are constantly looking at the cheapest way to do things, and that energizes the vision," says Larry Curtis, manager of IT for Smurfit-Stone's Containerboard Mill and Forest Resources division (Jacksonville, FL, see Business Case Study).
EAM is as good as any place to start when it comes to outsourcing, say industry experts. It's a good candidate because it is an application that crosses the border between plant and enterprise-dividing lines that can cause confusion in the respective technology support groups. Plus, it becomes a practical way to coordinate the management of company assets in computers, controllers, trucks, or off-site oil rigs, all of which are not mission-critical to the business but are necessary to manage nonetheless. That doesn't mean, of course, that companies are willing to risk any downtime or lag time in accessing EAM information.
The inability to get at important data, as well as the fear that sending information off-site could turn into a security problem, have been the primary concerns with the ASP model. But EAM vendors are finding ways to mitigate that worry by delivering products based on Web services technology that provide on-demand access to data, flexible payment models, and application-specific service-level agreements.
The latest data indicates that the growth in the EAM market over the next few years will stem from hosted services. And the latest partnership and product announcements from EAM suppliers support the research. For example, in November, MRO Software Inc. (Bedford, MA) and IBM Corp.'s (Armonk, NY) Global Services division announced a deal that calls for IBM to host and tailor the Maximo 5 strategic asset management application for MRO customers. Around the same time, one of MRO's biggest competitors, Indus International Inc. (Atlanta, GA), which has an existing hosting arrangement with Digex Inc. (Laurel, MD), outlined a new product strategy that would strengthen InSite, its pure Internet-based hosted EAM product, by converging it with its feature-rich EMPAC product.
While MRO has had the ability to host its Maximo product, it has not offered a formal program until this deal with IBM. However, other key players, like Indus, Datastream Systems Inc. (Greenville, SC), Mainsaver (San Diego, CA), and Mincom Ltd. (Englewood, CO), have been touting the benefits of hosted EAM for some time. Even the ERP vendors that offer EAM adjuncts, such as J.D. Edwards & Co. (Denver, CO), are offering the product in a hosted model. That's because there are some real financial and efficiency gains to be had by having the vendor take over the EAM application. But that's not to discount the potential hazards of the model, notably ensuring the data security, figuring out how to seamlessly integrate outsourced EAM with in-house enterprise applications, and dealing with the potential to "forget."
"The biggest advantage is rapid implementation, lower cost of entry, and being able to pay for only the functionality needed and not the entire solution suite," notes Houghton LeRoy, a research director at ARC Advisory Group (Dedham, MA). "But the biggest risk is giving too much responsibility to the supplier or ASP hosting company. It's not so much a security risk, but the risk of losing an understanding of the purpose of the actual system and how to take maximum advantage of it."
LeRoy also says that manufacturers need to understand the two different versions of hosting: the pure hosted model, which turns everything over to the hosting service provider, essentially leasing the software, and the hybrid hosted model, which allows the customer to purchase the software license and maintain ownership of the application database, thereby ensuring up-to-date data is always available. Either model works, he says, so it's a matter of what fits a company's business strategy.
Vendors often offer both models. For instance, Smurfit-Stone's Containerboard Mill division leases the PassPort application and infrastructure from Indus. Another Indus customer, European-based utility company Magnox Electric plc (Gloucestershire, UK), bought the PassPort software license, but has Indus manage the application and Digex host it as part of the IndusASP solution. The service itself is billed monthly on a per-user basis. "We follow the cell phone model," notes Art Beckman, Indus' CTO. "We know every user does not have the same kind of needssome need a bigger plan than others. We have user fees that assume low usage and if they go over the number of transactions, we charge them extra. If someone uses the application more, they take a higher end price per user with unlimited usage." That price can also be scaled to reflect a lower price per seat as more users are added to the plan, says Beckman.
At this point, Indus relies upon Digex as its sole partner, using the worldwide Digex data centers to house the hardware, operating environment, and database. "We chose Digex because they provide defined managed care services," says Beckman. "That's different from [hosting] partners that are pure co-location facilities." Still, while Digex maintains the technology, Indus manages the application for the customer. "To the customer it is Indus that owns the whole relationship," he says, which means the customer does not have to deal with two parties when it comes to service-level agreements.
Service-level agreements, which are put in place to hold the vendor accountable for uptime, response time, and security, are critical to the hosted model. The agreement is basically a contract that protects the customer by not only imposing financial penalties on the vendor if it doesn't meet the standards set-meaning the vendor won't get paid-but by also providing a data escrow account, typically with a third party, that ensures the customer's data is safe, even in the event that the ASP provider goes out of business.
Having a supplier that is in control of important EAM information take a financial tumble is a distinct possibility in today's economy. Even Smurfit-Stone's Curtis said it was something he thought about when the news of WorldCom Inc.'s (Clinton, MS) financial troubles surfaced last year. WorldCom is the majority shareholder in Digex. In November, Digex announced that it had retained an investment bank and formed a committee to "explore strategic alternatives, including a possible sale of the company," according to a company statement. It's that kind of market instability that causes uneasiness about hosted EAM, but the vendors are doing their best to build trust in the model.
"There is a whole cottage industry of computer, data, and software escrow services," says Spencer Cramer, CTO at ei3 Corp. (Montvale, NJ), an ASP targeting the factory floor through a new relationship with Rockwell Automation (Milwaukee, WI, see sidebar, this page). "They hold the data, maintain confidentiality, and relinquish the data to the customer in the event of a financial insolvency."
Customers buying into the MRO and IBM deal will likely not have to worry about the host going bankrupt, which is a relief for the kinds of customers asking for this service.
"We see many of our customers looking for this option. They tend to be customers with complex assets and businesses to manage," says Terry Saunders, MRO's vice president of product and industry marketing.
The decision to partner with IBM was a way for the company to be flexible on the delivery method of its applications and appeal to the cost-consciousness of its users, according to Saunders. IBM runs all the equipment from its site. "While the service running the application would be dedicated to the individual customer, the facilities, the networking, and the load balancing supporting these services are shared across multiple customers," explains Dave Mitchell, IBM's global offering manager with e-business hosting. "So rather than paying for everything they require, they can share across multiple customers and only pay for what they use. We can reduce TCO by up to 30% over a three-year period by using the shared infrastructure as opposed to dedicated hosting."
Datastream offers a similar approach with its hosted service. The company rents space at co-location company UUNET (Fairfax, VA), which is also owned by WorldCom, in order to have the bandwidth, but the entire administration of the application is done from the Datastream operations center. Datastream calls it "Support Plus" rather than an ASP model, which invokes all kinds of negative emotions, notes Marty Osborn, Datastream's vice president of product management. For a starting price of $149 a month per concurrent user, a customer gets full support. Datastream also promotes the idea of buying rather than leasing the software, because the subscription model can cause some budget pain. "It means they have to expense it every month," Osborn says. "But most companies have capital budgets that they can use to buy into itand they like the ownership."
Datastream has fully exploited the "shared platform" idea to push down the cost of the service. "The software has to be multi-company, not multi-site," says Osborn. "The key to the formula is to put multiple companies on a single database and build load balancing to the application server, redundancy, and failovers, and then it becomes a data center with 99.9% uptime at a price that is attractive." It may sound like a potential security problem, but there are more than 80 companies that have signed up for the Datastream shared platform hosted service, says Osborn. Good portions of them are manufacturers. One is Smurfit-Stones' Consumer Packaging division, which operates independently of the Containerboard Mill division that uses Indus' PassPort service.
The Datastream 7i EAM application is built on Web services technologies such as XML, UDDI, and SOAP (see Managing Automation, December 2002), which not only makes it easier for customers to have a window into what their applications are doing, but also enables Datastream to personalize it for them. "We have a program that lets customers write their own business triggers," says Osborn. "It's all stored at the database level so that we can manage it in the hosted environment."
EAM applications built on Web services technology might also help solve the problem of how to integrate them with other applications in the enterprise, such as an ERP application, or, more importantly, with simple reporting tools that can keep plant managers updated on EAM activity. "Key to this model is reporting," says Datastream's Osborn. "You have to be 100% Web-based to set up the reporting and the integration, two of the most important sticking points."
Osborn says the company spends lots of R & D dollars on the Web model to gain the ability to integrate. But other companies say the integration issue is where EAM may fall short. ERP companies that offer EAM as an application within the bigger software suite, like J.D. Edwards, provide customers with hosted EAM options, but not many customers opt for it. "We have a smaller percentage of asset management solutions being hosted just because the overall offering is the entire enterprise structure for IT," notes Jim Upton, J.D. Edwards' EAM product marketing manager. "If a company's core value proposition is strategic asset management across the enterprise, they are likely to take ownership and take direct control of it all."
It's an area that must be well thought out before jumping on board, say industry observers. But the fact of the matter is the technology is sophisticated enough to make the transition seamless, vendors are taking steps to protect customer data, and the savings associated with not having to build out an IT communications and the technical support team are all making outsourced EAM a viable form of service in the future.
The decision of whether or not the hosted EAM model is right for you will come down to personal choice. MA