By 2012, research firm IDC estimates that $7.7 billion will be spent worldwide on cloud services, but the lion’s share of it will go to ERP (enterprise resource planning) and CRM (customer relationship management) cloud services providers, not to supply chain management. Supply chain cloud solutions lag the marketplace, but there are signs now that initial enterprise trepidation about outsourcing supply chains is starting to fade.

“There are two aspects to the benefits of cloud computing models for manufacturing and logistics organizations,” says John Brand, Research Director at Hydrasight, an IT research and analysis firm. “One is to remove the internal costs associated with running your own IT infrastructure. The second is the benefit of increased visibility across organizational boundaries, particularly if a third party is involved. A decade ago, we were talking about electronic marketplaces as the future of supply chain systems (e.g., for catalogues, ordering and trading). Now, the reality is that organizations are often better served by data intermediaries who aggregate and value-add to the data that passes through the supply chain. Most often this data is anonymized or heavily obscured to ensure privacy and integrity, while giving organizations greater insight and intelligence into data, which can be reasonably shared between parties, with the right security policies and protocols in place. These ‘data hubs’ can provide very rich services beyond simple data aggregation, reporting, and analytics. In fact, when you consider what cloud-based email services can do for the control and removal of spam and viruses, cloud-based supply systems can similarly reduce the ‘noise’ within the supply chain to simplify and speed up data exchange.”

The follow-up question is, can these cloud-based supply chain management solutions address the most pressing issues that manufacturing and logistics companies are facing today?

Strategies for managing the supply chain

The recent recession saw many companies outsourcing manufacturing. This resulted in supply chains that became complexes of thousands of different suppliers around the world. With manufacturing taking place in China, Korea, and other overseas locales, supply chains began to flow not only through manufacturers and suppliers, but through customs brokers and freight forwarders as well. Simply put, more could now go wrong-given the systems and processes that track manufacturing and delivery to ensure that orders are filled “just in time” with quality goods in a period when you don’t want to overstock.

“Traditionally, there have been three paths to supply chain management and inspection,” explains Josh Green, CEO of Panjiva. “The first was not to worry about it, and to simply judge the suppliers by the results. This resulted in occasional high risks, but also in lowest prices, and was a bit of an ‘ostrich’ approach. The second approach was to have an army of people at the facilities checking every move, which is what many of the larger companies chose to do. This was a good way to keep tabs on processes and quality, but was very expensive. The third method was to outsource the process by working with a local inspection firm, which essentially was an ‘army for hire.’ The middlemen would assure that the necessary steps and procedures for manufacturing were being followed.”

Green says that if you step back and look at all three approaches, the underlying issue is really an information collaboration process. Like Hydrasight’s John Brand, Green believes that critical information can be analyzed by using cloud-based supply chains to see if cost efficiencies are being realized-instead of having to deploy local inspectors for suppliers. “Let’s take the example of shipping data,” says Green. “If you look at each of your suppliers and see what is going on with their customer relations, or if there have been sudden drops in shipments, it might be that something is going on. While this kind of data is never really a substitute for actually visiting a supplier, it can be a useful indicator.”

Cloud-based supply chain management is not going to sweep everyone in overnight, but there are some fast-moving industries moving toward adoption, like high-tech manufacturing, which operates in an extremely competitive and volatile market. In these cases, managers want as much supply chain visibility as they can get for purposes of risk management, especially after the recent economic downturn, which created more outsourcing to where fewer companies are doing their own manufacturing anymore. Cloud-based supply chain solutions give these organizations the ability to quickly scale and compete as the global economy bounces back-as well as a means to automate many standard processes while managing the exceptions more effectively.

Here are some of the current supply chain “brush fires” that companies are fighting:

Support of community collaboration. With the growth of manufacturing outsourcing, companies now have thousands of suppliers that are difficult to qualify and onboard to their internal management systems for purposes of supply chain communications and collaboration. Sometimes, Excel spreadsheets are the only immediate collaboration tools available, which leaves much of the day-to-day collaboration story untold.

Re-projecting forecast. Changes to production forecasts practically occur overnight now-especially as we are emerging from a recession where nobody knew for sure what consumers would continue to buy as they tightened their belts. Managing these fluctuating forecasts impacts everyone, because no one wants to be caught short of goods or long on inventory. This means that forecast revisions have to be shared in real-time or in near real-time with stakeholders throughout the supply chain. This is impossible to do unless you have tightly integrated systems, beginning with CRM and Demand Management and extending to ERP and supply chain management.

Workflow visibility without boundaries. Somehow, companies and their suppliers need real-time visibility and workflow automation for purchasing and inventory management, as well as for automation of order fulfillment and logistics execution. They can no longer wait for computer “batch processes” to run overnight and generate reports that they read in the morning. 

What the cloud provides

There is widespread agreement that the single, most pressing issue for companies today with supply chain responsibilities is to get their arms around their burgeoning supplier networks. This is an area particularly well matched to current cloud provider strengths.

“A typical cloud supply chain solution already has all of the infrastructure in place,” says Mark Woodward, CEO of supply chain solutions provider E2open. “In our case, we have 50,000 suppliers and trading partners already in our network, so when a client comes to us, we are able to connect them to a rich community of partners almost instantaneously. This not only means that our customers are up and running more quickly, it also means they are significantly cutting down on onboarding and associated costs for both themselves and their partners.” Other supply chain cloud solution providers have similar supplier repositories, which means that company processes for supplier qualification and setup for supply chain communications and collaboration are dramatically reduced in both time and expense.

Perhaps the most pivotal question for companies seeking the cloud, however, is the degree of integration they and their systems require with their supplier bases. There are two fundamental cloud computing approaches to be considered: either a Web portal that provides real-time communications and collaboration capability between companies and their suppliers, or a fully integrated business-to-business (B2B) solution that not only provides real-time communications and collaborations between all parties, but that also performs transaction processing and data base updates in real-time.

For example, if you use a cloud-based supply chain solution as a kind of Web portal that allows you to readily exchange information and to collaborate with your supplier bases on day-to-day issues, all you might need is deployment (which the vendor provides, coordinating with your IT department), training and optimization-again provided by the vendor, who presents best usage practices. “Our goal is to build tools so simple that training isn’t really required,” says Panjiva’s Green. “For example, you don’t talk about needing to get trained in order to use Google. The key is building tools that are flexible enough to bend to how people are doing the business, and not the other way around. Complication has been a major reason why technologies have failed in the past.”

On the other hand, there are also organizations with heavy B2B integration needs for their supply chains. Building integration on this level takes time, whether you are approaching the project internally or with a cloud-based supply chain provider.

“Enterprises with large supplier communities require a robust B2B integration platform that accounts for the wide variety of operating environments and technical sophistication of their suppliers,” says Peter Scott, Vice President of Supply Chain Solutions for Exostar, which provides cloud-based supply chain services. “Implementing and maintaining such a platform, however, can be a cost and resource challenge….Over time, this is why we are seeing more companies opt for this integrated, business-to-business cloud-based framework.”

John Brand of Hydrasight says he has witnessed a range of supply chain deployment styles and timeframes, depending on the solution deployed, the expectations from business users, and the depth of integration required by clients. Brand’s research shows that for discrete applications like portalized supply chain management, organizations can be up and running in weeks, if not days. But for more complex, large scale and highly integrated projects, this timeline can grow from several months to years.

“The biggest obstacles are usually inflated expectations for business users, obstructionary IT departments, and poor alignment in IT infrastructure,” said Brand. “Getting the balance right between the level of investment required to onboard into cloud-based services and the execution of a migration and management plan is still a significant challenge.”

Cloud-based supply chains and enterprise IT

How equipped are enterprise IT departments to work with cloud-based supply chain management?

There are industry experts who view IT as a “sticking point” for cloud services in general, and for cloud-based supply chain management in particular-but there are reasons.

First, nearly all cloud-based services are introduced into companies by end business groups, but it is ultimately IT that is charged with the risk management for the business relationships; the setup, monitoring and execution of SLAs (service level agreements) with the cloud services providers to ensure that corporate business interests are met; and the responsibility of meeting security and compliance standards that are demanded by outside auditors and regulatory agencies. It is understandable that IT becomes naturally nervous when faced with the prospect of outsourcing operations, and losing control for what it remains responsible for. “There is always an impact when you bring in a new system,” says e2open’s Mark Woodward. “People have processes that they want to keep. The challenge is to be flexible enough to support those processes, while providing them with the ability to scale effectively.”  

In some cases, enterprises opt to keep those processes. They do this by running their supply chain management systems internally, and by chartering IT with the task of testing new suppliers and maintaining both the supplier data base and the system. “These companies put up their own supply chain portals for vendors and business partners and use their IT departments to implement the portals and support them,” explains Exostar’s Scott.

Scott says that there are advantages in skills and expertise that cloud-based providers can offer IT. “Let’s say IT can create a portal,” says Scott. “Now, how do you get 500 to 5,000 business partners to connect? A cloud-based supply chain solution brings instant connectivity to a common body of suppliers and partners, which is why you find many cloud-based providers coalescing around certain industry groups like aerospace, finance, or retail. When we talk to a new customer that wants supply chain collaboration, we’ll already have 50 to 75 percent of the suppliers the customer uses enabled on our network. This takes the risks, costs, and time to implement way down so that it’s not just adding technology anymore.”

A second aspect to any portal is support-an area for which supply chain cloud providers have professionally trained call centers and subject matter experts on staff. With a supply chain cloud services partner, IT can leverage this knowledge when suppliers come calling with questions, since the customer service demands of outside customers are considerably greater than the demands IT technicians typically experience while dealing with business users within the enterprise.

“Overall, we see the market starting to change,” notes Woodward. “More and more, CIOs and their teams are beginning to think about cloud-based supply chain management as a competitive requirement. It’s simply no longer possible to run a globally integrated supply chain with traditional ERP and internal systems alone, and leading companies are starting to realize that.”

The next steps

Although companies have not moved as aggressively into cloud-based supply chain management as they have into other cloud solutions, they are nonetheless moving forward because cloud-based supply chain solutions can improve their competitive advantage. In particular, supply chain in the cloud is being adopted in industries like financial services, retail, high technology, groceries, and pharmaceuticals-with enterprises in North America and Europe making aggressive entries into cloud and spreading adoption into Asia as a result, since 75 percent of the supplier connections are there.

As this shift occurs, emphasis is turning to SLAs for cloud-based vendors that address enterprise concerns, like 99.5 percent minimum uptime, pre-scheduled times for system maintenance and installations of new software releases, warranties on data protection and security, and in some cases, caged servers in data centers that are only used for a specific enterprise client, with admission to those cages granted only to cloud provider technicians who have been authorized to work on those servers by the enterprise client.  

Understanding that the key to the cloud is a large base of qualified suppliers, cloud supply chain management providers have also made it easy for suppliers to join their networks. It doesn’t cost 70 to 80 percent of suppliers anything to be implemented today on a cloud-based supply system. Those who actively engage in collaboration might see a fee of $2,000 per year, and those who are active B2B partners might see a $10,000 annual cost, but relatively speaking, it is inexpensive for suppliers to take part in cloud-based supply chains. wt



Mary Shacklett is founder and president of Transworld Data based in Olympia, Washington.