Advantages and challenges of implementing ASPs

The advocates of application service providers have been outspoken, while the detractors have remained relatively silent.To provide a balanced approach, PLANT ENGINEERING presents thistwo-part article on the pros and cons. The advantages are presented by James Rogers of Aliso Viejo, CA-based Fluor Corp.

By James Rogers, Fluor Corp, Jack Smith, Senior Editor, Plant Engineering Magazine October 1, 2001
The advantages
The challenges
What to look for in an ASP
Annual per seat cost

The advocates of application service providers have been outspoken, while the detractors have remained relatively silent.To provide a balanced approach, PLANT ENGINEERING presents thistwo-part article on the pros and cons. The advantages are presented by James Rogers of Aliso Viejo, CA-based Fluor Corp., a company that offers enterprise-resident software and software that is based on the ASP delivery model. The challenges have been compiled by Senior Editor Jack Smith from a number of knowledgeable sources

The advantages

The ASP industry has transformed typical 9-to-5 development-oriented software companies into 24/7 service- oriented businesses. ASPs are now positioned to advance the ways companies reduce their technology investment yet still have access to best-of-breed software and IT best practices.

Anyone who remembers the time-sharing option of the mainframe era knows that renting computer access is nothing new. However, the value proposition of ASPs is different, very different.

ASPs provide more than just an economical method of affording computer hardware. Rather, they introduce new services that companies cannot easily duplicate:

  • State-of-the-art data centers with nearly unlimited bandwidth

  • Best-of-breed applications that are available anytime and anywhere

  • 24/7 operational and technical support

  • Service level agreements (SLAs) that guarantee competency and protect from outages and disasters

  • Measurable savings in capital and time, reducing the overall total cost of ownership (TCO)

  • No capital investment

  • Rapid startup

  • Faster return on investment (ROI).

    • By capitalizing on the internet’s popularity and acceptance for its high availability and reliability at relatively low cost, ASPs offer undeniable economic advantages for leasing instead of purchasing software. The ASP’s economies-of-scale allows for a faster ROI surpassing inhouse alternatives.

      Paradigm shift

      The business model of ASPs is simple — you rent access to an internet-based copy of software. Encapsulated into one monthly fee is a suite of complementary services that most companies arguably cannot afford to perform themselves.

      The customer needs only to provide access to the internet through a web browser, and the ASP does the rest. The rest is defined as the software application, computing infrastructure (application, database, security, and web servers), 24/7 support, and disaster prevention and recovery plans — all of which are guaranteed by an SLA.

      With an ASP as their technology partner, plants no longer have to invest in data processing technology, yet they never forfeit the benefits of the latest software. This advantage is the reason for the ASP industry’s anticipated growth. “By 2005, the ASP industry will be valued at $18 billion with an annual growth rate of 54%,” says Rita Terdiman, Vice President and Research Director, Gartner Group.

      Objectives vs. challenges

      Plant managers know there are two ways to make money — reduce cost at current production capacity or increase production capacity at current cost. A corporate strategy to achieve lower cost is the consistent application of best practices for all plant activity. This strategy, however, erroneously assumes that all plants are created equal. They are not.

      In today’s economy, mergers, acquisitions, and joint ventures create considerable challenges when no two plants look alike. The complexity of deploying an enterprise software solution to multiple and dissimilar plant operating environments often leads to time and cost overruns, or even outright project failure.

      Whether the enterprise application manages production, operations, or maintenance functions, the challenges are the same:

    • A plant champion is needed at each plant location

    • Centralize the solution for consistency and ease-of-management

    • Connectivity to the corporate network as well as among plants

    • Recruiting and retaining specialized IT labor

    • Limited budget.

      • ASPs offer solutions for each of these challenges by using the internet as a lower-cost collaboration tool.

        More importantly, the plant manager can focus on the job of plant operations and not software. “Purchasers of ASP services recognize that outsourcing certain applications enables enterprises to focus their resources, capital, IT, and internal staff on managing other applications critical to their core businesses,” says Greg Blatnik, Vice President, Zona Research.

        Do more with less

        Consider the implementation of a computerized maintenance management system (CMMS) across several plants within the enterprise. The system is expected to automate and improve the efficiency of the maintenance functions at each plant because:

      • Up to 40% of manufacturing revenues are devoted to maintenance, and up to one third of the expense is unnecessary

      • 50% of maintenance is corrective, which is 10 times more expensive than predictive maintenance

      • Preventive maintenance is performed 25% of the time and is 5 times more expensive than predictive maintenance

      • 60% of preventive maintenance is unnecessary.

        • (Source: ARC Advisory Group) The CMMS alone is not a “silver bullet.” Without best practice methods as the CMMS underpinnings, software alone will not meet corporate expectations. Adopt an overall equipment effectiveness methodology to ensure equipment availability, capacity and reliability, and the CMMS will be the tool to manage these best practices. Once critical equipment is identified, a CMMS can track all of its maintenance history. Properly managed, the CMMS can assist each plant’s maintenance manager by extending the lifecycle of the asset, as well as predict maintenance activity better.

          However, there are unanticipated complexity factors that rest with some standalone CMMSs.

          The responsibility and cost of owning software is substantial. The procurement and installation of the hardware, configuration of the software, coordination of training, and ongoing support requires a local champion at each plant (Fig. 1).

          ASPs eliminate many of the hassles of owning CMMSs as well as other types of software. There is no hardware or software to buy, the software is centrally configured, training can be performed over the internet, and ongoing support is available 24 hr/day.

          Centralized Solution

          A centralized installation ensures consistency as well as ease of management. Centralization offers the ability to report key performance indicators (KPIs) on maintenance efficiency for multiple plants from one database. CMMS configurations can be very comprehensive. Decisions such as nomenclature and business rules should be made only once. With common nomenclature and business rules, all of the KPI metrics would be accurately reported.

          A centralized installation is inherent with ASPs promising the consolidation of all plant data and the ability to perform real-time KPI reports with a single copy of the software. More importantly, ASPs do not require the capital expenditure for either hardware or software.


          Many companies have a wide area network (WAN) that connects all of the remote plants to the company headquarters. The underlying technology of a WAN may be dedicated T1s, and a surprisingly large number are private 56-Kbs frame relay networks. Both are expensive to install and support and are almost always saturated or incapable by design to support an enterprise application.

          ASPs are not dependent on a company’s saturated WAN. Rather, they only need a less expensive, narrow band internet connection. In addition, the web communication protocols used by ASPs are designed to require substantially less bandwidth than client/server communication protocols with no compromise of security.

          IT Labor

          IT labor has become the most difficult field in which to recruit and retain personnel. Also, internal IT support comes with no service guarantees. Another expense is the considerable cost required to train the IT staff on application and database support for CMMS and other applications.

          At the heart of ASPs are IT best practices, service levels that guarantee competency and protect the customer from outages and disasters and availability around the clock.

          Limited budget

          With enterprise software purchases and implementations averaging $500,000 to $1 million, companies must implement stringent financial policies to ensure the most favorable ROI. Time and cost overruns are generally the fault of intangible costs and project complexities.

          As indicated by the graph in Fig. 2, the total cost of a project can include many intangible expenses. This example compares a capitalized client/server model to a rented ASP model. The models assume a $99,000 client/server license fee, and $300 per concurrent user per month rental fee for 10 users. This graph represents the total cost for a 5-yr period.

          The ASP model enables companies to treat the software purchase as a leased-vs.-capitalized expense. Leasing allows for monthly payments as services are rendered, whereas a capitalized expense requires a substantial up-front capital outlay. Many intangible costs associated with owning software are avoided, such as technical training, upgrades, and on-going support. ASPs promise a faster time to benefit by eliminating the need to specify, procure, and install hardware and software.

          “The economic benefit (of the ASP model) is a no-brainer for most tier 2 and tier 3 companies, considering that the tier 2 average selling price for EAM/CMMS software was $205,000 in 2000 and the associated service has an average selling price of $348,000,” says Steve Couther, Vice President, ARC Advisory Group.

          “Five years from now, if you’re the CIO with a head for business, you won’t be buying computers anymore. You won’t buy software either. You’ll rent all your resources from a service provider,” says Scott McNealy, Chairman and CEO, Sun Microsystems.

          The challenges

          Just as no two plants are created equal, no two ASPs are created equal either. It is the responsibility of the user to be an “informed consumer.” This article was compiled to arm you with the knowledge of what to look for when making your ASP choice. The challenges of implementing an ASP for an EAM/CMMS solution are applicable to ASPs in general. A compilation of challenges and admonitions follows.

        • Understanding the true pricing model. Some ASP vendors include other one-time or ongoing service fees into their pricing. When incorporated, these additional fees can make an ASP solution more expensive than an onsite software package in certain instances. For selected vendors, the ASP pricing model can be difficult to understand.

        • Concurrent users vs. named users. This point is a variation of understanding the true pricing model. Some ASP vendors charge fees based on named users, or in other words, a unique logon ID. A potential customer may have 50 prospective users but only 10 will probably be accessing the system at any given time. A named-user-based solution would require fees based on 50 users in this scenario. However, a concurrent user pricing model would be based on only 10 users.

        • Viability of the ASP solution. Regardless of the timesharing/mainframe model, the ASP is a new concept. Some ASP vendors are jumping on the bandwagon without a viable product or business plan. Their onsite product may be viable, but their ASP product and pricing model may be flawed. Their longevity as an ASP solution provider may be questionable.

        • Accessing the web for production needs. Each user must have access to the web throughout the day. This may put a burden on existing telecommunication services or bandwidth. If dedicated lines aren’t provided, dial-up service may provide users with an unsatisfactory experience. It can also be expensive. The internet is not a congestion-free electronic highway. Access to an ASP solution is out of the hands of the end-user organization. A router problem across the country could deny a user access to an ASP solution. The probability of this happening depends on the architecture of the vendor solution and data center. It is minimal for some, but could definitely be a problem for others.

        • Integrating the ASP solution into the enterprise. The ASP database resides behind the vendor’s firewall. This can create challenges for customers that need to integrate the solution to other enterprise applications. Direct database access and integration services that are typically available for onsite products may not be available for an onsite solution. This is especially true for ASP models that use shared databases (multiple customers on the same database instance). ASP vendors provide integration services. But the ASP customer may be forced to use them instead of more cost-effective internal or third-party resources.

        • Accessing data through a report writer. For the same reasons as integrating the ASP solution into the enterprise, a customer may not be able to use his or her favorite report writer (for example, Crystal Reports or MS-Access) to do ad-hoc reporting. While the vendor may provide a built-in query tool for its ASP product, it may not have the power, or be as familiar as, the report writers currently used by the customer. Also, these built-in query tools won’t be able to access information contained in external customer databases preventing the development of consolidated reports by the customer.

        • Loading legacy data. For the same reasons as integrating the ASP solution into the enterprise, the customer may have to depend on the ASP vendor to do all the importing of legacy data into the solution. For certain data, it may be less costly to use inhouse or other third-party integrators to load legacy information.

        • Test and training systems. The ASP vendor may not provide a mirror copy of the production environment for testing. However, it may provide the ability to validate an initial loading of legacy data in a test environment. This means that they will restore the database after initial acceptance testing. However, this option requires on-going testing. The ASP vendor may also provide access to a separate training system loaded with generic data. But this is not as effective as training with data and a configuration that reflects the customer’s actual operation.

        • It may be difficult to disengage from the ASP vendor. While the customer “owns” the data, it may be difficult to get its hands on the data in order to port it to another system. Depending on the ASP solution, the customer may have to turn to the ASP vendor to provide this service. This represents more expense and less control over your plant’s critical data.

        • What happens after the lease period is up? This point is closely related to some of the others. Unlike buying a perpetual license, ASP agreements run for a fixed time frame. An ASP customer might be in for a heavy “rent” increase down the road.

          • Rent-vs.-buy factors
            The table below presents the most important reasons for choosing an ASP instead of implementing software inhouse.

            Rent vs. buy criteria Rental Purchase
            Commitment Low High
            Total cost of ownership Low High
            IT support None required Medium
            Application server None Premium
            Database server None Premium
            Product upgrades/installation Included Premium
            Capital outlay None High
            Application costs Paid monthly Up front
            Database license None You buy
            Web license None You buy
            Customization Modular Medium
            Annual support fees Included 15% – 20%

            Useful ASPs for plant engineers
            Whether best-of-breed, pure play, or CMMS, ASPs come in many varieties. Choosing among them depends on the specific needs of your plant. The following table is an exploration of the types of ASPs available and what they have to offer. Descriptions are adapted from information supplied by the providers.

            Company URL Description
            Agilera Agilera is a full-service, pure-play application service provider (ASP) that delivers business solutions through application management of IT and e-business operations. Its applications include financial, technological, and human capital risk. It also optimizes client IT operations.
            Aqueduct Aqueduct offers outsourced software and services solutions. Within 60 days and atabout 12% of the cost of building the solution inhouse, manfuacturers can launch an end-to-end platform online.
            Cayenta, Inc. Cayenta offers Mainsaver, an Enterprise Asset Management (EAM) application, as an internet delivery option that can be integrated with a company’s existing software application.
            Corio Corio delivers, hosts, and manages best-of-breed applications and infrastructure services. It features BroadVision, Commerce One, E.piphany, Microsoft, Moai, PeopleSoft, Oracle, Requisite, SAP, and Siebel Systems.
            Creative Marketing Alliance/Hoover Materials Handling iTRAM uses standard barcode technology and radio frequency identification (RFID) systems to track any returnable packaging or product throughout the entire distribution chain. It obtains vital information including the number of trips, ship-to locations, date of receipt, materials handled, and usage rate turnover.
            Datastream Systems Datastream Systems offers a line of asset management solutions and online industrial procurement tools and applications. It provides software, installation, training, and consulting to assist customers at every stage of an asset’s lifecycle, including controlling spare parts inventories, scheduling tasks to reduce equipment downtime, and expediting the purchasing process. It provides systems for virtually any size operation, from the single, small shop with basic requirements to the large, multi-site client needing a full-featured enterprise solution.
            Eagle Technology, Inc. eProTeus offers a complete maintenance management system without requiring a large upfront investment or continuing IT support. Users pay a low monthly fee to access the software through web browsers. Eagle takes care of database maintenance, security, and provides free technical support.
            EMR Innovations EMR’s infrastructure includes several T1 Internet connections, a generator backup system, passcard security, and load balancing redundant servers. The ASP specializes in the implementation of business software solutions for the process/batch manufacturing industry.
            Entivity Entivity offers Automation ProjectNet (APN), which is a set of managed documentation collaboration services. APN for Project Teams, is a service targeted at project managers and their teams who are developing automation systems. It provides a low-cost neutral web site to securely host specifications, drawings, and schedules. It has a rich set of utilities for easy access to electronic documentation. Users can view and mark up CAD drawings, request team member approval, raise issues, route messages, and view the audit trail. All activity is browser-based.
            EPAC Software Technologies, Inc. The ePAC ASP allows cost-effective maintenance tracking without the IT burden associated with a full-blown CMMS implementation. It offers smaller operations, with less infrastructure to manage the data in-house, the benefits of managing maintenance as a business.
            Fluor Corp. Fluor offers enterprise-resident software as well as software that uses an ASP delivery model. TabWare OnLine, which uses an ASP delivery model, is a CMMS/EAM solution for businesses maintaining high-capital assets such as plants, facilities, and production equipment. It simplifies the implementation of enterprise software, while reducing the total cost of ownership (TCO) by dramatically cutting capital investment and support costs.
            Indus International, Inc. IndusASP delivers EAM solutions to asset-intensive organizations in a web hosted environment through the services of an ASP. It combines reduced total cost of ownership, streamlined implementation, and rapid solutions deployment with industry knowledge. It offers the advantages associated with an ASP delivery system, from freeing capital and internal resources, to being able to take advantage of the latest technologies with lower risks and lower total costs that can be leveraged into a competitive advantage.
            IQS, Inc. IQS offers business-to-business (B2B) ISO, and QS-9000 solutions, which allow you to manage your quality management system, including integration with ERP systems. It includes APQP, PPAP, FMEA/control plans, inspection/SPC, gage calibration, R&R studies, preventive maintenance, nonconformance/corrective actions, supplier management/ratings, training/skills/project teams, audits, and quality costs.
            Ivara Corp. Ivara is a software company and ASP that offers a comprehensive suite of maintenance and reliability products and services. It can provide CMMS and integrated products and services as a total solution, or it can work with existing systems enabling creation of a solution specific a business.
            Made2Manage Made2Manage Systems, Inc. provides enterprise resource planning (ERP) software solutions to small and midsize manufacturers. It integrates ERP, CRM, and SCM. Functions include quoting, inventory control, purchasing, scheduling, and shipping/receiving. It offers purchase, rental, and leasing options.
   Mareechi offers a solution for managing a company’s technology. It builds and maintains application software at a much lower cost than if implemented independently, allowing a company to focus on its business, while the ASP administers technological systems.
            MicroMain Corp. MSP2000 provides the tools needed to reduce downtime, increase equipment life, maximize productivity, lower overall costs, and simplify the maintenance process. It eliminates the overhead of maintaining servers and client installations.
            Mincom Mincom provides a full vertical ASP offering of software, hardware, and IT support, to enterprises in the mining, utilities, transportation, and defense industries.
            MRO Software MRO Software, Inc. provides solutions for maintenance optimization, industrial supply chain planning, and supplier enablement. MAXIMO assists companies in managing asset and resource productivity. These capabilities, which include business rules with maintenance best practices, tight integration with various business systems, and the ability to effectively address both low-cost and complex procurement needs, are critical success factors for plants and facilities whose overall competitiveness are tied to efficiencies and productivity that can be realized across the entire industrial supply chain.
            ONDEO Nalco ONDEO Nalco Company’s SensorWatch is a wireless, web-based monitoring and alarming service. It combines the power and efficiency of the internet with wireless communications, providing a secure, around-the-clock “window” into a customer’s facility or process. It delivers real-time data, graphs, trends, alarms, and analysis online for critical systems and processes. It serves industries where water, energy, and efficiency are of primary importance.
            Oracle Oracle is the first software company to develop and deploy 100% internet-enabled enterprise software across its entire product line, which includes database, server, enterprise business applications, and application development and decision support tools.
            Prism eSolutions EquationASP assists small and midsized companies that seek to achieve and maintain ISO 9000 certification or recertification. It offers software and IT support, while empowering companies to continually enhance business processes for ongoing efficiency and profitability.
            Productivity-Quality Systems(PQ Systems) CHARTrunner-e allows global access to SPC data so that employees, management teams, customers, suppliers, and business partners can easily analyze data through aweb browser no matter where they are.
            Proviasoftware Provia Software offers the first fulfillment software product targeted to the logistics industry in ASP format. Clients can outsource service, reduce capital outlays, lower monthly costs, and have greater flexibility.
            QMS Consulting,Inc. QMS Outsource is an internet-based paperless system that eliminates routine maintenance checklists and uses supplied bar code decals and scanners. The ASP accommodates facilities backlog, work orders, bid board for posting spares requirements, e-procurement, fulfillment, history, email trigger for critical parameters, and Pareto root cause analysis for failures.
            Synergen Inc. Synapse is Synergen’s hosted offering of the Synergen Series, a CMMS/EAM software solution. For a monthly fee rather than a capital expenditure, organizations can remain focused on their core competency while using a secure, reliable, and easily upgradeable CMMS without the need for internal IT support.
            Tero Web Work is a 100% CMMS available as an ASP or for purchase. It includes PDA modules, a built-in report writer, and application interfaces.
            The Supply Chain provides internet-based, supply chain management applications for midsize manufacturers, distributors, and retailers. The company’s products provide seamless demand, inventory, and supply chain management from an entirely web-based application. Built on eXtensible Markup Language (XML), each product is designed to integrate with any back-end infrastructure, legacy application, or commerce platform.

            What to look for in an ASP

            The table below represents points to look for in an ASP

            One year commitment or less

            Experience and customer base

            Monthly fee includes all services

            Best IT practices employed

            Strong financials/ balance sheet

            Optimum electronic security

            24/7 support

            Service level agreements

            Annual per seat cost

            ASPs reduce TCO by more than 50%

            $9477 PC-based LAN hosted onsite

            $4500 ASP-hosted application

            (Source: Gartner Group)