Fast Track To Success

Small and midsize businesses find that using hosted apps gives them flexibility and frees them to focus on business optimization
Align Technology Inc. forged a new industry in April 1997, when it figured out how to manufacture and customize clear plastic removable dental appliances used as braces to straighten teeth without metal or wire. On the fast track to success, Align's revenue grew at an annual rate of approximately 75% to $122.7 million in the past year. But it lacked the financial wherewithal to shell out thousands of dollars on product-life-cycle-management software and the IT support it would need, says Meredith Yost, Align's document-services manager.

In January 2003, Align signed on with Arena Solutions Inc., tapping into the vendor's hosted software model for product-life-cycle management to fuel expansion. The software, which is accessible through any computer with a Web browser, helps Align monitor product-record data and documents for the hundreds of custom orders received from orthodontists each week.

The hosted PLM application reduced downtime and assisted in cutting 17 days from Align's design-to-delivery process, which once took 22 days. The previously manual process required Align to print orthodontists' electronically submitted orders and hand-carry them for approval and final sign-off before faxing them to Align's third-party design and manufacturing facilities around the world.

Two key production steps are performed using the PLM software at Align's facilities outside the United States. At the Costa Rica facility, technicians receive orders electronically and use an internally developed computer-modeling program to design the appliances. The files used to manufacture the molds are electronically transmitted from Costa Rica back to Align's U.S. facilities, which then electronically send the files to a third-party outsourcing partner in Mexico that fabricates the dental devices and ships the finished products to customers. All parties must sign off on the design and manufacturing process. Hosting has created a paperless workflow that lets users make design-change requests and tie them with specific customer documents.

The Arena-hosted application fits Align's budget, saving the company thousands in server expenses and IT support. The app also lets Align save more than $50,000 annually in wages for someone to document orders, make changes to a database, run paperwork between buildings, and fax to those seeking approval on each project. "I once worked for a company where we used an in-house server-based system, and it was down an average of once a week for up to three hours at a time," Yost says. "We've been unable to access the hosted system for a total of 15 to 20 minutes since implementing it in January 2003."

Still, the hosted model isn't without challenges. Align leases the PLM application from a hosted site that many other companies also access. This means Align must know when Arena will make upgrades to the platform--roughly every three months--and prepare.

Many of the enhancements are requested by Align, but not all. "We have to prepare in advance by knowing the changes being made to make certain they comply with regulatory agencies because we manufacture medical devices," Yost says. "When the software runs in-house, upgrades are made at our discretion. Using a hosted model, we don't have a choice."

Outsourcing became a viable option for John I. Haas Inc. when it was faced with upgrading its enterprise-resource-planning platform to Oracle E-Business Suite version 11 from Oracle Smart Client version 10.7 in June 2001. Technical support, up-to-date software upgrades, and E-consulting services were compelling enough to take the 90-year-old grower of hops for the beer industry away from a self-managed platform to one hosted by Oracle.

"Oracle allows us to run our applications on their hardware for a fixed cost," says Kyle Lambert, VP of information solutions at privately held John I. Haas. Lambert chose an approach in which he could buy the ERP package and customize it if needed. "We put pencil to paper and realized Oracle could run the operations for 20% less than what it would cost us to run it internally," he says.

In addition to cost savings and increased efficiency, the hosted ERP application also brought John I. Haas staff-productivity gains. The company's internal system developers were twice as productive as before because they weren't trying to patch together the infrastructure behind the Oracle application. Instead, they were able to focus on functionality and the business problems at hand. Managing the upgrade in-house also would have required Lambert to hire computer consultants and buy two Hewlett-Packard servers and 60 Gbytes of disk space for file data transfers.

The hosted package comes complete with 200 Gbytes of storage space, with the option to upgrade in similar blocks. Lambert has no worries about purchasing memory, CPUs, servers, or other hardware associated with upgrades required to run the latest application version. It's all included. Support is available as needed. "There's a cost savings from ongoing maintenance," he says. "Technical support is built into the license agreement, and I no longer have to separately pay a database administrator somewhere between $50,000 and $120,000 annually."

There's more good news: The hosted-app project came in under budget, and was completed in six months instead of the scheduled nine, helping to reduce costs by 31%, Lambert says. He projects an 82% return on investment over five years, roughly $425,000 annually, from the hosted application. So far, the company is on track to meet its goal. Thanks to hosted apps, many small and midsize businesses are reaching their goals as well.

Continue to the sidebar: "History 101: Hosted Apps, From Time-Sharing To On-Demand"

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