Logistics technology: IDC report takes a look at cloud computing’s role in manufacturing

The emergence of cloud computing is having a direct and positive impact on manufacturers’ IT performance and subsequently supply chain operations, according to a report from IDC Manufacturing Insights.

In its report, entitled “Business Strategy: Cloud Computing in Manufacturing,” IDC stresses how “cloud computing will have a very positive impact on IT performance for those firms that take a well considered approach to investment.”

By definition cloud computing is the delivery of computing as a service rather than a product, whereby shared resources, software and information are provided to computers and other devices as a utility over a network such as the Internet.

Some of the notable findings of the report included:
-44.3 percent (of the nearly 100 manufacturers surveyed in this report) are either implementing or currently evaluating cloud deployments;
-more than 22 percent have already implemented cloud computing systems; and
-manufacturing IT budgets will shift away from internal management of infrastructure over the next 24 months, with some of that shift going to traditional outsourcing, coupled with a healthy mix of public and private cloud spending.

“It is exciting to see that so many manufacturers are already deploying cloud systems,” said Kimberly Knickle, IDC Manufacturing Insights practice director. “There are companies delivering the [cloud] infrastructure, as well as provide the security and the application. In the manufacturing world—from a supply chain and procurement, unit manufacturing or PLM perspective—many are using systems like SalesForce or Amazon that act like a cloud system. And in the supply chain world there are companies like Conexus, GT Nexus, RedPrairie and E2open that all have supply chain applications in the cloud. We have an increasing willingness to use the cloud to offload IT maintenance and hardware costs.”

And cloud systems also provide manufacturers with an application they want to use that gives employees the functionality they need, added Knickle.

Looking ahead, the IDC report points out that manufacturing IT organizations have “established an excellent track record of improving IT productivity in the decade from 2000 to 2009,” when IT spending as a percentage of revenue improved by about 25 percent.

What’s more, the firm said that the need for new IT capabilities in the complex context is couched in an expectation that productivity improvements will continue, with cloud computing being the most important productivity platform in the next decade.

One of the top benefits of investing in cloud systems as identified by the surveyed manufacturers was that cloud systems can be used to establish “standard services” within an organization.

“Cloud can help a facet of manufacturers’ operations such as sales up and running, and the idea is that IT can help make that happen very quickly,” said Knickle. “It does not mean they have to go out and buy a new supply chain application or collaboration program.”

And the top three business benefits of cloud systems as identified by manufacturers in the report were: reducing total hardware spend; improving IT staff productivity and service levels provided to end users; and reducing total spend on software licensing and maintenance.

“I was a little surprised that IT hardware spend was so high up on this list,” said Knickle. “This follows a logical path, though, which says ‘if I use cloud, I don’t have to buy the latest server or rack, and there is some storage I can let someone else buy and manage the actual physical hardware requirements.’ But they still want to people connection such as business analysts or a different mix in IT employee skills. But I want those people to be the enabling function for the manufacturer.”

In terms of the role cloud computing can play in the future when it comes to logistics and supply chain technology, Knickle said one of the biggest benefits of the cloud is to get employees in different locations on the same page quickly.

One of the big things IDC is currently reviewing, she said, is whether or not supply chain segmentation—for a specific product line or customer—is going to be increasingly adopted.

“So instead of aggregating all of their suppliers or warehouses, or even the actual logistics or transportation piece, they may decide based on the service levels they have for a specific customer may be different than the rest of their business,” said Knickle. “Some of this supply chain segmentation is going to be difficult for companies, and I think cloud systems will be one of the ways companies will address that.”