Supply Chain Technology: Cloud computing breakthrough

Ever since the term “on-demand” was used in conjunction with the supply chain software sector, an increasing number of logistics professionals have wanted to get their hands on solutions that are served up via the web on a subscription basis.

Now referred to as “cloud computing”—which is defined as the shared software and information that users access via the web—the trend permeated most software sectors as users demand faster implementation times, lower upfront investments, and less resource-intensive ways to get the programs that they need to run their businesses.

On a global scale, the worldwide public cloud services market—where services are provided “as a service” via the web with users having little or no control over the technology infrastructure—is on track to grow by 19.6 percent in 2012 to $109 billion, up from $91.4 billion in 2011, according to recent Gartner research.

And that growth spurt won’t wane anytime soon. In fact, Gartner predicts that the total public cloud services market size will expand to $206.6 billion by 2016.
According to Dwight Klappich, research vice president for Gartner, supply chain management (SCM) applications have played a sizable role in the overall growth of cloud computing. Having recently wrapped up the firm’s 6th Annual Supply Chain Management User Survey, Klappich says interest in cloud-based supply chain solutions is actually growing dramatically.

Within the supply chain management sector Klappich estimates that cloud-based adoption increased 40 percent this year, compared to 2011. “And of those respondents that we label as ‘aggressive innovators,’ about 30 percent say that the cloud will be their primary way of sourcing applications,” says Klappich.

Breaking the growth down among the various supply chain software offerings, Klappich says that the adoption rates are highest in the areas of collaborative sourcing and procurement, demand planning, global trade management (GTM), and transportation management systems (TMS). “Two to three years ago when we talked to shippers about software, the cloud was just one option,” says Klappich, who estimates that 50 percent of new implementations in the transportation space alone are now cloud-based. “In many cases, cloud has now become a preference for companies.”

Steve Banker, director of supply chain solutions for ARC Advisory Group, says a recent ARC study found that just under 25 percent of TMS vendor revenues came from either public or private cloud offerings in 2011, while just over 3 percent of WMS revenues came from the cloud during the same period.

“I don’t see any reason why WMS, which includes yard management services, can’t be hosted by a supplier,” says Banker, who adds that the presence of several niche solutions—all designed as single-instance, multi-user applications—is likely holding that part of the SCM market back from moving into the cloud at a more rapid pace.

Over the next few pages we’ll examine cloud’s penetration of the supply chain management space, show what vendors are doing to meet demand in this area, and discuss the advantages and disadvantages of this software deployment model.

Basics of the “cloud”
The term “cloud computing” refers to the shared software and information that users access via the web. Rather than storing information on their own physical servers or computer hard drives, users rely on servers that are maintained by the cloud computing software provider (like Apple’s iCloud offering). From the user perspective, all information is stored and readily accessible online in a 24/7 format, and from various types of devices—desktop, laptop, tablet, and smartphone.

Cloud computing is an umbrella that covers both the applications that are delivered as services in a “Software as a Service” (SaaS) model via the web and the hardware and systems software (together known as the actual “cloud”) used to run those applications that companies access and use online. Sometimes used interchangeably with the term “cloud,” SaaS is actually the engine that provides users with remote access to web-based solutions.

There’s little question that companies like the idea of having their software served up via the web. There are no servers to maintain, no IT infrastructures to set up, no upfront licensing fees, and no software programs to install and maintain on premise. And while you’ll read about the cloud’s drawbacks later in this article, for the most part this deployment method has garnered positive reviews among companies looking for alternatives to on-premise software models.

In fact, according to a recent CDW Cloud Computing Tracking poll, 84 percent of organizations are currently using at least one cloud application during the course of the business day. Many of those applications are accessed via the “public cloud,” where the software is offered up on a subscription basis to a wide swath of users. Private clouds, on the other hand, comprise internal datacenters for specific organizations and are not available to the general public.

Making cloud computing especially attractive is the fact that the applications are sold on a “pay as you go” model, with shippers paying only for the services that they use instead of investing in a fixed-capacity IT infrastructure that can either fall short or exceed actual needs. And because they are paid for on an ongoing basis, over time, the cloud-based solutions can be budgeted as operating expenditures rather than capital investments. 

Pay-as-you-go supply chain
Some supply chain applications lend themselves to the cloud while others don’t—or, at least not yet. At the highest level of the food chain, Klappich says that vendors like Oracle and SAP offer web-based ERP solutions, albeit most of those offerings are housed in the private cloud and are “typically still sold as on-premise
software.”

Vendors like IBM, MercuryGate, LeanLogistics, JDA, Amber Road, Logfire, Deposco, eBIZnet, Questia Web, Integration Point, and Ariba, among others, all offer some level of public cloud deployment models within their respective supply chain software sectors.

Klappich says that such offerings are particularly appealing to mid-market companies that don’t necessarily want to invest in a full-blown, on-premise software installation. “The economics of paying on a subscription basis just makes it easier for these shippers to acquire software,” says Klappich. Other key benefits include faster implementation times, offsite software maintenance and updates, fewer internal IT resources, and 24/7 web access from anywhere using myriad device types.

Banker adds that in most cases, shippers are drawn to lower initial investments—and the fact that they don’t have to request budget or capital expenditures to make the investment. Also drawing shippers in, at least in terms of TMS, are the architectural advantages and visibility provided through the public cloud.

“We’re seeing shippers with single-instance, multi-tenant solutions gain understanding of what they’re paying for a particular freight lane,” explains Banker, “and then using the network data—such as the fact that they’re paying 20 percent more than other firms to ship freight from Chicago to New York—to establish benchmarks and make better decisions.”

Not without challenges
Cloud computing also comes with its own set of challenges. Three of the most pressing questions that come up when a shipper is assessing the cloud are: Will I lose control over the data that was previously housed on my internal servers and/or computer hard drives? Will my data be safe on the web? And, what happens if there are service outages?

For shippers accustomed to being able to answer all three questions internally, the move to the cloud can be downright daunting.

“Putting information out into the nebulous world where everyone can get a hold of it is a common concern for those firms moving into the cloud for the first time,” says William Kammerer, a partner with the consulting firm Accenture. In many cases, such fears are unwarranted. “A lot of companies that are running data centers are working on the same concept as the cloud, but it just so happens that they have control over the security of their data,” says Kammerer, who advises logistics professionals to determine what type of access they need to their data, how they will gain that access, who else will have access to the data (business and trading partners), and what those partners can and can’t do with the data before jumping into the cloud.

In some cases, the cloud itself is the answer to shippers’ online data concerns. For example, the shipper looking to have its TMS datacenter online and available 24/7 must have a number of redundant systems in place. “You can either pay for and maintain that redundancy yourself, or you can take advantage of the cloud-based environment where the host will provide the redundancy and spread the cost of it across various users,” adds Accenture partner Brooks Bentz.

When assessing cloud-based versus on-premise solutions, the sheer size and scope of the application itself is another issue to consider. “If you’re running enterprise systems, it’s difficult to envision how you would take an Oracle or SAP solution and turn it into a cloud-based offering,” says Bentz. “Those are big, complex, customized systems that just don’t lend themselves to the cloud—at least not at the present time.”

Leading the charge
Despite the unanswered questions surrounding cloud-based supply chain software offerings, adoption rates for this web-based, vendor-hosted deployment model are clearly on the upswing. “As more vendors are pressured to move into the cloud,” says Klappich, “it will become the underlying operating environment for applications.”

Banker says that ARC is also forecasting more growth in cloud-based supply chain solutions, particularly in the TMS sector, where online collaboration is allowing shippers to make more educated, efficient decisions. “Once you have a network in place online, in the cloud,” says Banker, “you can tap into new forms of collaboration that you just couldn’t access with a traditional solution based on
traditional architecture.”

With TMS, GTM, WMS, and demand planning currently leading the cloud-based software charge in the supply chain software space, Klappich says other applications that lend themselves to the deployment model could enter the market in the future. Still, he adds, “applications that help shippers plan, source, make, and deliver their goods, are leading the pack right now in the cloud.”