The next generation of cloud technology for the supply chain will enable easier supply chain management and raise the consciousness within organizations about what can be possible with these new approaches and how to capitalize on them. The interesting thing about any “next-generation” technology is that there are always organizations in the present that are already in the next generation—while most companies are still getting their feet wet with new technology concepts. This article takes a look at what the next-generation cloud is likely to deliver—and also at the thinking behind corporate supply chains that must emerge to keep pace in global markets.

The cloud’s present state

First, let’s take a look at where cloud technology is in businesses today. Overall, whether the application is supply chain or something else, IBM’s recent survey results indicate that 55 percent of CIOs interviewed were implementing or planning to implement cloud technology. That left 45 percent who had no specific cloud plans. The 45 percent who were on the fence cited security worries about their information and the loss of control over their own applications as primary concerns.

Those forging ahead with cloud initiatives, especially if they were large enterprises, were looking at developing their own internal private clouds so they could apply cloud concepts such as on-demand provisioning of resources to end users. They planned to accomplish this by using internal IT staff, since internal IT skill pools were known quantities, and they could rest assured that the security and governance standards that they and their auditors demanded were going to be there.

At the same time, this group was beginning to see the value of subscribing to commercial cloud solutions that addressed business issues that internal systems were ill-positioned to solve. Because of this, nearly everyone envisioned a hybrid cloud scenario in the future where they both maintain internal private clouds and subscribe to and integrate with commercial cloud offerings.

Beyond the CIO’s office, however, the value of cloud to other business executives was primarily couched in cost savings and capital investment and risk reductions. “The market in general still doesn’t fully understand cloud, and specifically, cloud and the supply chain,” says Greg Kefer, marketing director at GT Nexus, which provides a cloud-based automation platform for the supply chain. “If you’re not a CIO, you may not understand the nuances of what cloud means. Instead, you look at it as an application you don’t have to maintain yourself, which reduces your potential costs and risks. You see the cloud as a pay-as-you-go technology service, instead of as an owned asset that the organization sustains over many years.”

Kefer says that this current thinking about cloud is “only the tip of the iceberg” when it comes to cloud’s potential for the supply chain—and that one of the battles for company executives is “getting through all of the hype” from technology vendors and the press so they can define just exactly how cloud should fit into their corporate operations and what it can deliver to the supply chain that present solutions can’t.

Cloud’s next generation

Because companies are growing in their understanding of the cloud and what it can do, next-generation cloud technology is likely to be a combination of many solutions that are already available and an expansion in corporate know-how as to how to best take advantage of these.

Just where are businesses today in their thinking about cloud—and what transformations will next-generation thinking and cloud technologies bring to the supply chain?

“The evolution of the cloud will be to a network model where you have multiple companies collaborating with each of their vendors, customers, and partners,” says Vincent Biddlecombe, CTO at Transplace, a 3PL and technology provider. “Each of these organizations in turn will have its own network of collaborators. This implies interoperable, open systems in the cloud that are capable of moving large amounts of data quickly.”

This is how it works: A company and its suppliers, logistics providers, trading partners, etc., all participate in an external cloud-based supply chain network that consists of a single database which is accessed by everyone. This database contains data that has been normalized, or cleaned, so that it is the same for everyone using it, which eliminates data quality problems that can arise when each company uses its own data. Each organization applies its own business, governance, and security rules to its data in the cloud.

In other words, if a company wants to grant supplier A unlimited access to certain information but not supplier B, it can set those security permissions. The database, which is maintained by the supply chain cloud provider, has standardized access, which virtually allows any company to access the data through any means—whether by a highly sophisticated system-to-system integration or a fax machine. Because suppliers can join this cloud-based network at minimal charge, a manufacturer often finds that 80 percent of its supplier base is already on the cloud. This eliminates the painstaking process of one-by-one onboarding of new suppliers through lengthy EDI (electronic data interchange) certification processes. Since the one-to-one, serial approach of traditional EDI is no longer needed in a cloud environment that offers one-to-many communications, everyone can collaborate on issue resolution at the same time. This speeds the supply chain’s time to market.

How important is this? “Companies have been working with traditional supply chain solutions that feature serial style communications between supply chain parties over EDI or VANs (value added networks) for over thirty years, and it’s still not working for them,” says Kefer. “When you get to newer cloud services built around multi-tenant networks that use a single source of data in the form of a common data repository of supply chain information with business rules, the communications can be many-to-many. While companies are still struggling with this concept of a single network that allows many-to-many communications, some 3PLs and carriers are beginning to understand the value of a multi-tenant communications network, and transportation carriers are fairly mature in how they interact with cloud logistics platforms to service hundreds of their top customers through a single e-commerce hub.”

Next-generation cloud computing is built around data quality and social networking models that emphasize collaboration and one-to-many communications—and the velocity that this combination of high quality, single source data and multi-party collaboration can bring to the supply chain. The reason that this is not a slam dunk in understanding for many businesses with supply chains is that by custom, they have looked in other directions to solve their supply chain problems.

“Cloud computing solutions for the supply chain differ significantly from what companies are used to obtaining from their internal ERP systems,” says Biddlecombe. “With classic ERP, you run your entire business with the software, and you customize the system to fit the specific needs of your business. Cloud comes in from the opposite direction with its focus on standardization and collaboration between trading partners.”

Biddlecombe says that many organizations continue to focus on more traditional areas for supply chain improvement such as the transportation management system (TMS) or integration with the warehouse management system (WMS). In the future, he sees increased activity in the projections of inventory levels, the managing of orders, and the development of reports and analytics for forecasting. All of this will require much greater levels of integration with both TMS and WMS.

Does this eventually eliminate ERP? “Pragmatically, what we might be looking at is discrete pieces of cloud-based functionality that interoperate with internal corporate ERP systems,” says Biddlecombe.

Where companies are

Companies, meanwhile, are struggling to grasp the implications of these new cloud networks that can potentially revolutionize the supply chain. “The concept of cloud for most companies is still whatever they want it to be,” says Biddlecombe. “Cloud has evolved from software as a service (SaaS) to almost anything you want to define it as. It can mean a remote hosting solution, or a specific application, or a complete IT infrastructure ecosystem. Over the next few years, there will be further definition of what cloud means to the supply chain, because more supply chain functions will be available to companies throughout the cloud that are not yet here today.”

These capabilities will include mobile applications and the evolution of rigorous sets of SLAs (service level agreements) for commercial vendors that will begin to sound very much like the SLAs that companies impose on themselves. “Regardless of the evolutionary path that cloud takes, companies have to approach cloud supply chain solutions like any other technology,” cautions Biddlecombe. “You begin by understanding your business strategy before you even consider the IT. Next, you come up with a supply chain information strategy that can support the business strategy. You phase in the solution and you adjust for strategic changes that occur along the way, understanding that you must always support the end business goals and that you must also find ways to remain synchronized with corporate financial objectives.”

Biddlecombe should know. Over the past three to four years, Transplace has embraced cloud concepts in its own IT strategy. It has virtualized almost its entire infrastructure into a private cloud, and it now has only eight of 600-plus servers as physical platforms. “We base our technology on standard technologies like VMware, Windows, and Linux,” says Biddlecombe. “A next logical step might be to consider a commodity cloud solution like an Amazon or a Google for applications development, but I’m nowhere ready to do that at this time. We have a high quality staff, and we like the idea of managing our servers ourselves. We know that no one is going to care about what we do more than we do.”

Biddlecombe also worries about vendor lock-in. “When you talk to about common cloud solutions that everyone is familiar with, like Amazon E2 or Google Whole Applications, they initially sound very attractive because these vendors are presenting end-to-end solutions that do away with many of the internal IT costs, with the caveat that you use their technologies,” says Biddlecombe. “The catch for companies is how much they want to tie themselves to a specific solutions provider….Historically, we used to talk about this as vendor lock-in and proprietary solutions. There are still problems with cloud providers delivering total reliability, even if the costs seem less. Recent episodes of outages at both Microsoft and Google appear to substantiate this. If I were a company with a supply chain to manage, I wouldn’t be comfortable locking into anyone’s solution.”

Many CIOs agree with Biddlecombe. They are likewise adopting cautious but forward-moving strategies for cloud in their supply chains. “There will always be a debate in the supply chain as to whether you want to insource or outsource your technologies and operations,” says Biddlecombe. “This is why it’s important for solutions provider like us to tailor our solution sets to the needs that our customers have. We work hard at this by keeping the dialogue going with our customers. We dedicate account teams to our larger customers, and have a customer advisory board as well as an annual symposium where we can get together with customers to talk about transportation and the supply chain.”

How a cloud supply chain makes a difference

Next-generation cloud for the supply chain isn’t necessarily a technology burst that everyone is waiting for. There is reason to argue that these advanced capabilities are already available—but that many companies have not yet reached a point where they understand how the cloud is going to make a difference beyond cost savings and not having to invest in “hard” computing assets.

One example is a large manufacturer of heavy equipment that must assemble the equipment at the factory and then break it down so it can be placed in large containers for shipping. Once the equipment arrives at its destination, field crews are then employed to reassemble the equipment. To facilitate the entire business, the manufacturer actually has to utilize three different supply chains—one for parts used in manufacturing; one for finished goods that must go out in parts; and one to support the flow of spares to construction sites, mines, etc. The manufacturer has struggled with supply chain software and has now gone to the cloud for communications with its suppliers, customers, and logistics partners. The move to a supply chain cloud solution now allows the manufacturer to see its entire chain of custody for goods in the field as the parts and finished goods are moving. The cloud gives the manufacturer the ability to share a single version of supply chain truth with its suppliers and business partners, because all parties work off the same, unified database of information that is resident in the cloud. The manufacturer now has control over its external supply chain. This gives it the agility to make and act on timely decisions.

“If you contrast a network of suppliers working off a single database with traditional EDI, you have people opening files, repackaging them, and then resending the files to each individual partner in the supply chain,” says Kefer. “It is difficult to compress this serial exchange of data into information within even a twelve-hour window.” This complicates decision making. For a large equipment manufacturer that has order delivery commitments and is trying to determine whether a ship will show up in time to transport an order or whether it will have to incur greater expense by having to ship the equipment instead by jumbo jet, having a single version of data on a shared network that every authorized stakeholder can see is critical. It cannot be matched by the serial, one-to-one communications that characterize traditional EDI. By going to a networked, cloud-based supply chain solution with its supply chain partners, the large equipment manufacturer was able to take three days of inventory out of its supply chain because it no longer had to buffer its inventory to minimize risk. The manufacturer was also able to increase the velocity of its supply chain by a factor of five.

Next steps

Even with an economic recovery, the demands of a global marketplace and the downward pressures on prices and costs are going to continue. With this, the margin for error in the supply chain will also constrict. “As a 3PL, we focus on technology and operations as they impact transportation,” says Biddlecombe. “Our customers are asking us to help them reduce their transportation spend, and we can do this by delivering greater efficiencies in on-time deliveries and lowest cost transport. We provide not only operational solutions, but also business engineering and thought leadership to help them meet these goals. Cloud-based SaaS is a key ingredient in our strategy.”

Biddlecombe expects that the availability of mobile applications in the cloud will foster more supply chain cloud adoption because businesses are looking for agility and flexibility. “The correct IT infrastructure, the functionality of applications, and the delivery of information will form the pillars of this,” says Biddlecombe. “Because we are a SaaS provider, our infrastructure will benefit from being virtual. Our emphasis will be on applications that work in the mobile environment, and our focus will be on data warehousing and reporting.”

GT Nexus’ Kefer says that the ability of companies to implement effective change management for rollouts of cloud applications will also be critical. “This begins with education that has to happen at the top of the company,” says Kefer. “Today, the average worker is coming from Facebook or Google exposure at home, and he’s going into companies with infrastructures that seem old and clunky. One key to getting employees onboard with new technology is to find ways to utilize what they already have familiarity with in their personal lives. There is likely to be an acceleration of cloud solution adoption in the supply chain as older workers retire and are replaced with younger decision makers who grew up with the Internet and are Twitter and Facebook power users.”

For companies managing supply chains, next-generation cloud technology is going to mean transformation in supply chain thinking as well as the adoption of new supply chain technology that is available in the cloud. This realization begins with the fact that internal systems that have been used for many years to manage supply chains in their entirety were never designed for the world of business that occurs outside of corporate walls. Because of this, organizations have continued to function with problems that raise costs and cost them market opportunities.

Conversely, cloud is not necessarily a total answer, either. Most likely, next-generation social-network-based cloud offerings will run alongside corporate ERP systems, with each set of systems performing what it was intended and designed to do in a best-of-class way.

For companies, the key now is to evaluate both sets of technologies and to place these capabilities alongside what they expect to accomplish as businesses with their supply chains, their costs, and their revenue streams. wt