The impact of cloud computing on the supply chain industry 

In an industry where collaboration and visibility are key requirements, cloud computing is a rather new business model with great potential.

In their IT cloud services forecast 2013-2017, market intelligence provider, IDC, reports that on a global level only 20 percent of manufacturers, process agents and retail businesses currently use cloud computing. The same research stated that 75 percent of the companies surveyed were however looking for cloud solutions as an alternative, while projecting a growth rate of at least 7 percent for 2013. What exactly is it that’s driving supply chain professionals into the cloud?

Cost savings

The most obvious benefit of adopting cloud computing solutions is cost savings from deployment and the short implementation time frames. Unlike legacy systems, either custom–built or packaged software - there is no IT infrastructure to maintain on-site, no upfront licensing fees, and no software programmes to install and maintain.

Businesses save integration costs because internal departments, partners and suppliers can also link up through the cloud, which facilitates a quicker return on investment. Companies are not dependent on limited IT resources and can deploy and implement supply chain solutions in the cloud on-demand, at a much-reduced cost, and can also scale them as required. For example, if a company opens a new warehouse, it can immediately scale the existing solution to incorporate the new warehouse without the need to change IT infrastructure, which frees up IT staff to work on more meaningful projects rather than system maintenance.

Agility

Traditional IT delivery models are unable to match the pace of change in today’s volatile business world; software and hardware become obsolete as business priorities change. Many cloud-based solutions however, are configured in anticipation of business change. Research shows that solutions built with modern Software-as-a-Service (SaaS) technologies can be modified for less than 20 percent of the cost it would take to modify a legacy application, and in a shorter time frame. Cloud models can be deployed or scaled up and down conveniently, offering immediate access to key staff across borders, making the business more responsive and able to react to changes.

Another key benefit of cloud computing is the flexibility it gives companies to experiment with new products and solutions, as the up-front costs are comparably low. Cloud computing will help accelerate the pace at which new revenue-generating products and services are introduced into the market, giving early adopters a competitive advantage. In this way, supply chains will become more dynamic, scalable, and more capable to support business objectives.

Collaboration through shared visibility

Supply chain visibility has been an industry goal for over a decade and, until recently, has been difficult to achieve. Take a shipper who may need to connect to hundreds of trading partners; many of whom may not have the capacity or budget to interface with other companies’ supply chain solutions.

Now however, a cloud computing supply chain solution changes the business model. It amplifies access to systems, people and information, allowing data to flow clearly and quickly within a company and between its supply chain partners. It decentralises supply chain management while at the same time making the supply chain more intelligent. Having information “on the go” and the ability to act on it means cloud computing is a key differentiator, making the supply chain more competitive.

The greatest growth in cloud computing applications for supply chain operations can be found in areas that are critical to competitiveness, but which can be standardised, e.g. carrier selection, including generation of carrier-specific labels and electronic notification messages or electronic customs declarations.

Risk assessment

Recent hacking scandals have shown that the Internet is difficult to control, and so is the cloud, where data and software reside in huge datacentres. What are the risks, perceived or otherwise?

Firstly, IT security. This is an area where SMEs in particular could actually benefit from a move to the cloud. Many SMEs run IT systems and datacentres that have grown organically and often fail to comply with standards, such as the proven ITIL process model or ISO27001 certification.

Reputable cloud providers offer all that, plus a high security standard. As always, it is important to be careful in choosing a cloud solution provider to ensure compliance with existing ERP systems as well as security policies.

Another `risk’ area is the security of sensitive data and its protection against unauthorised access. The disclosure of confidential information is almost never a technical failure, but is mostly due to individuals who `leak’ secrets.

The greatest threat to confidential data remains misuse, which is typically perpetrated by people with legitimate access to the data. Here, too, the cloud doesn’t necessarily pose a greater threat than in-house software. A reputable provider seamlessly documents access of IT administrators to the system and has a method of dual control in place for sensitive data.

Last but not least, availability remains a risk. It is threatened by anything that can cause an outage, be it a fire or a construction worker who cuts through wires – all of which can also happen to a company’s own computer centre.

Reputable cloud providers can take advantage of economies of scale and therefore have much more affordable options for incorporating a multi-layered safety net than in-house IT departments. In addition to unforeseen outages, computer centres also have planned downtimes. Their duration is simply a question of money.

The often promised 99.9 percent availability is twice as expensive as the 99 percent availability which, in most cases, would be perfectly sufficient. In any event, the cloud is generally superior to `private’ datacentres on this front as well, since it is designed for flexibility in acquiring processing capacity and storage space, even during service windows.

So, in a nutshell, the cloud is safe for those who follow some key recommendations from the British Standards Institution (BSI) or the U.S. National Institute of Standards and Technology (NIST); check first with their own IT department and then with the potential cloud solution provider. No provider can offer 100 percent security, but some come very close.

The decision on whether to move critical transactions or process steps into the cloud will always remain a business decision, and for those there are no easy solutions.

Conclusion     

The widespread adoption of cloud computing in global supply chains is a matter of `when’ and not `if’. Increasing volatility and complexity will push businesses to adopt cloud models, with Software-as-a-Service the primary choice. Still, the full potential of cloud computing for the supply chain remains uncertain.

It is clear that it will reshape how information is controlled and how supply chain technology is delivered and built. We can also anticipate elements of the supply chain having intelligence through embedded technology and software, and thus being able to signal demand and supply themselves, enabled by cloud technology.

For companies who haven’t yet started their journey to the cloud, this may be the right time to start drawing up a roadmap.