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Supply Chain Technology: There’s power in the cloud

Our contributing technology editor documents how far SaaS has infiltrated the SCM software space and then introduces us to a shipper that’s partnered with its 3PL to leverage a hosted solution that’s managing its domestic and international moves.
By Bridget McCrea, Contributing Editor
March 01, 2011

Software-as-a-Service (SaaS), now more commonly referred to as “cloud computing,” has a lot going for it. The need for less capital expenditure out of the gate, minimal implementation time, and the fact that such systems don’t require robust IT infrastructures (human, equipment, or otherwise) to run, are the top selling points for these hosted solutions.

There are also challenges to contend with, as we’ll touch on a little later; but it’s safe to say that, at this point in the evolution of supply chain management (SCM) software, SaaS has already made a significant imprint.

Shippers have taken to the SaaS delivery method, which finds software being deployed over the Internet instead of being installed from a box and onto the user’s servers or computers. Using a subscription model, SaaS providers “license” the use of their software to customers who pay low or no upfront implementation costs. That’s because all of the technology resides in the “cloud,” and is accessed via the Internet as a service.

SaaS is being used across many business applications including accounting, customer relationship management (CRM), enterprise resource planning (ERP), content management, and human resource management (HRM). It’s also taken hold in the supply chain space, where transportation management systems (TMS) and global trade management (GTM) systems—both of which rely heavily on collaboration to run smoothly—claim the highest use of on-demand systems.

Over the next few pages we’ll explore just how far SaaS has come in the supply chain software space during the last few years, and then introduce you to a shipper that’s partnered with its thirdparty logistics provider (3PL) to successfully manage its internal and external logistics operations.

Jumping into the cloud
Greg Aimi, director of supply chain research at Gartner, estimates that 25 percent of TMSs will be delivered on demand by 2013, and that the penetration of both the TMS and GTM markets currently stands at about 20 percent. Some of those on-demand solutions are standalone, while others are served up as part of larger solutions developed by companies like Oracle, Manhattan Associates, and Red Prairie, says Aimi.

Aimi says that TMS and GTM work particularly well in the cloud environment because each revolves around “multi-party management” programs that can be fragmented and difficult to manage without a centralized system that all entities can access.

“Transportation involves a lot of working parts, and when you get into the international scene you also have to factor in freight forwarders, consolidators, and multi-modal carriers,” says Aimi.

image“SaaS’ single repository system is valuable, and different than traditional software systems that require software installation, servers, hardware, data centers, and the development of [individual] connections with all of the parties who are acting on your behalf.”

Ben Pivar, vice president and North American supply chain lead for consulting firm Capgemini, says that much of the business case for SaaS can be traced back to the packaged software revolution, when shippers realized that software development wasn’t their core competency.

“A similar movement is happening with SaaS, with shippers looking hard at whether they really want to set up and manage hardware and software in-house,” Pivar says. “Through the on-demand model, companies can work with vendors that leverage their expertise across multiple clients, and for a better price.”

SaaS systems also require less upfront investment, says Aimi, although some shippers do question the value of paying subscription fees over the long term, versus writing one check for a professional license. “The initial cost of SaaS is definitely attractive,” says Aimi, “because anytime you have lower capital expenditure upfront, the investment tends to be less risky.”

That selling point has attracted companies of all sizes to SCM SaaS options, which are no longer relegated to budget-conscious shippers who lacked robust IT infrastructures and support systems. Even large corporations like Proctor and Gamble (P&G) are tapping the option, says Aimi, who points out that the consumer packaged goods firm is using a SaaS-based program for its global transportation rollout. “That’s a really big deal,” says Aimi. “You don’t get any bigger than P&G.”

Key processes best suited to cloud computing

Cloud computing is particularly applicable to supply chain activities where extensive customization is not required, or when the activity is performed sporadically (such as a sourcing “event”), or is not a “core” part of what makes the company unique. These activities are likely to be the first to make the transition to the cloud. We will now examine four of them in detail.

1.  Planning and Forecasting: Cloud-based tools are now available for capturing itemized spend data, performing basic analytics, planning manufacturing runs and executing statistical demand forecasts. Applications focused solely on retail supply chains are also prevalent, with capabilities that include planning and allocation, assortment and space, pricing and promotion, and forecasting and replenishment.

In the near future, many more cloud service providers will add planning and forecasting applications to their offering. A primary reason is that planning and forecasting are rarely core components of companies’ ERP systems. This means companies can run one manufacturer’s ERP application internally, while simultaneously leveraging another’s best-of-breed planning/forecasting application via the Internet.

2.  Logistics: Some core warehouse and transportation management applications already are available online from cloud providers. Over the coming years, more and more cloud computing applications for functions such as network strategy, inventory management, warehousing, and transportation will become available. Processes such as global trade compliance, replenishment planning, order processing, transportation load building, fleet management and transportation route planning are likely candidates.

3.  Sourcing & Procurement: Cloud computing represents a great opportunity to reduce total cost of ownership—the most commonly cited success metric in sourcing and procurement. A key reason is that cloud-based tools are inherently collaborative and accessible, creating major benefits for companies that deal routinely with thousands of suppliers. For example, cloud-based collaboration allows multiple parties to jointly develop supplier contracts, dramatically enhancing contract management.

Myriad sourcing and procurement capabilities are rapidly coming online, including procurement report generation, database centralisation and supply chain visibility. Retail potential is particularly strong.

4.  Service and Spare Parts Management: Many companies underperform in service and spare parts management, despite the fact that this area often generates a high proportion of an organization’s profits. Companies can gain significant advantages by using cloud computing to upgrade their capabilities and implement new processes rapidly without extensive capital expenditure costs.

Tools such as warranty validation are already available to service operations, and cloud applications for reverse logistics/returns processing, technician dispatch & tracking, and spare parts inventory pooling & distribution are expected soon.

About the Author

Bridget McCrea
Contributing Editor

Bridget McCrea is a Contributing Editor for Logistics Management based in Clearwater, Fla. She has covered the transportation and supply chain space since 1996, and has covered all aspects of the industry for Logistics Management and Supply Chain Management Review. She can be reached at .(JavaScript must be enabled to view this email address).

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