Six questions every supply chain executive should ask about cloud computing

By Thomas Schramm, Jonathan Wright, Dirk Seng and Derek Jones

transaction-based models. Microsoft. contracted outsourcing models to more flexible. But cloud computing is too important. flexible solutions are an important part of a supply chain design. along with growing interest. how information is controlled. companies are striving to operate a more dynamic supply chain to react to ever increasing volatility in customer demands and market conditions. after all major businesses across the world are already applying cloud technologies successfully in other business areas. KDDI. supply chain executives have much to gain. And as supply chains are increasingly powered by information technology. and the economics of supply chain information technology. it’s no surprise that the topic of cloud computing is generating intense shifting away from traditional. costs. Many global organizations in industries like retail. But beyond the technology. supply chain decision makers can easily succumb to “analysis paralysis” or the temptation to abandon their inquiry to the IT department.Supply chain executives should evaluate what cloud computing can mean for their operations. With so many issues to explore.3 However. and should involve themselves in the dialogue. provide applications to employees and run special projects. and risks. Amazon and Salesforce. its potential uses are exceptionally broad and difficult to foretell. cloud computing in supply chain also generates difficult questions. we believe cloud computing will lead to a revolution in the way more supply chain services are provided. and consumer products are using cloudbased technologies to analyze data. Some analysts estimate that the market for cloud-based services will reach nearly $150 billion by 2014.1 Media giants are reported to be working on a cloud-like service that will enable content to be delivered 2 dynamically in multiple formats and on a variety of devices. . While it promises to enable a wide and powerful range of capabilities. Against this background. What is certain is that it will radically affect how computing is done and managed. In today’s world.2 And more cloud services will soon be available. The technology’s novelty and the hype found in some media stories make it even harder to evaluate its potential. Asking the right questions is a good place to start. as established IT and telecom providers including Accenture. banking. China Mobile and SingTel join cloud pioneers like Google. Fujitsu.

lost products. supply chain executives face a different set of challenges in their choices around cloud computing and will need to scrutinize their decisions by looking through a unique lens. studies in various sectors show that interest in the potential of cloud in supply chains is already strong. So how can reusable applications and processes that are not specifically customized for them deliver what they need? Security Whether they are operating on traditional or cloud infrastructures. and more capable of supporting the financial objectives of boards and shareholders. and lost business. more scaleable. Historically. This could have a remarkably disruptive impact on the competitive landscape of many established market leaders. By focusing on these questions. supply chain operations have proven to be adept at adopting and capitalizing on innovative technology solutions. supply chain executives can narrow their inquiry without succumbing to superficiality. the next decade will see supply chains augment existing solutions with evolving albeit proven technology that will keep them flexible and successful going forward. Cloud-based supply chain solutions will enhance competitiveness. In our view. Supply chains will become more dynamic. own or operate their entire supply chain internally from end-to-end. So security is a prime concern. Yet the promise of cloud computing also raises concerns that executives must take into account when formulating their strategies: Collaboration and the partner eco-system Very few companies control. Six key questions So. Large-scale transformation The threat from new competition and the increased pace at which new products and services are being introduced will drive companies with traditional. Cloud computing likely represents the next step in this progression. infrastructure-intensive supply chains to re-invent themselves. without significant investment in infrastructure. Speed to market for new products and Services The pace at which new revenuegenerating products and services are introduced has put constant pressure on supply chains in recent years. So decisions about using cloud technology may involve multiple partners. and can start to identify the real opportunities and risks that cloud computing brings for their own organization. they need to pay close consideration to the following trends that cloud computing will drive in supply chain: New competitors Cloud computing has the potential to enable start-up companies to establish themselves in a short period of time. it will not be long before this high level of interest in SaaS in supply chain progresses into rising adoption of cloud. creating complexities and sensitivities between the participating organizations. these innovations have included mobile applications. Accenture has identified six key questions that we believe decision makers should ask about this still-new phenomenon. Given these considerations. With capital already tied up in IT infrastructure. cloud computing is very much on the supply chain agenda. focused and productive evaluation of cloud’s potential and pitfalls? To help them do this. advanced analytics and digital receipts. 3 . However. Cloud computing will speed up that pace even more. it is not surprising that companies are moving relatively cautiously towards leveraging cloud technologies in their supply chains. To date. companies still have an absolute need to protect their products and customers. Lost data can lead to lost intellectual property (IP). Competitive essence Companies use sophisticated and effective supply chain management (SCM) to differentiate themselves in the marketplace and gain competitive advantage.When compared with the leaders in other aspects of the business world. But how can supply chain executives keep pace by coming to a timely. Specifically. and we believe cloud will be no exception.

Organizations generally subscribe to these services based on the number of users or seats. human capital and financial management. cloud-based solutions. economies of scale. hardware commoditization. lower total cost of ownership (TCO). Already. These processes are typically priced on a per-transaction rather than per-seat basis. the initial focus area for considering cloud has usually been IT infrastructure. the process cloud uses a common. Although the term “cloud computing” was coined relatively recently. application clouds running on third-party infrastructure span all major enterprise solution areas. ranging from procurement to enterprise resource planning and content management. platforms and business processes. such as contact centers. many elements of the concept. A continuum of cloud options: from infrastructure to business processes As companies map out and plan their cloud strategies. applications. and cost advantage compared to standalone data centers. deployment. e-mail and Web conferencing. and then into the design. Unlike traditional BPO. electronic commerce. covering not just software but also processes that may be supported by people. The highly global and scalable infrastructure these companies use to power Internet search. Infrastructure cloud providers draw from a pool of shared resources and dynamically expand and contract to accommodate fluctuating demand from different user organizations. often specific to a particular industry. In general terms. create new services and open up new markets. What is cloud computing. combined with advances in virtualization. In and Workday. and other online services is an important enabler for cloud computing. The emergence of cloud-based platforms enables independent software vendors (ISVs) and IT staff to develop and deploy online applications quickly using the third-party infrastructure. and how does it work? Cloud computing allows companies to access IT-based services. in order to target benefits including financial flexibility. have been around for several decades. network bandwidth and storage from the outside on an on-demand basis. However. speed to market. needs-based utilization.1. as core business applications become available as cloud solutions. It differs from application clouds in that it provides end-to-end process support. The escalating hierarchy of cloud opportunities starting with infrastructure. runtime libraries. including infrastructure. companies have begun to source raw computing resources. development and delivery of new and innovative product and service offerings for customers. Amazon Web Services and Microsoft. and hosting. and business process clouds is summarized in Figure 1. What makes cloud computing a growing reality for today’s businesses is the pervasiveness of the Internet and Internet technologies. standardization. such as timesharing and virtual machines. At the infrastructure level. offer an Internet-enabled. they provide far greater elasticity. social networks. including word processing. At the application level. A key catalyst is the success of major Internet companies such as Google. the first wave of cloud-based services. and open source software. including proven providers such as Salesforce. it is important that they appreciate the full implications and business potential of cloud. Across all these offerings. Because these services are available via standard browsers. testing. they support device independence and anywhere access. a distinctive group of highly capable business solutions firms have emerged. 4 . oneto-many platform to automate highly standardized processes. The second wave focuses on desktop productivity tools. We can also foresee a third wave. also known as business process utilities or platformbased business process outsourcing (BPO). externally provisioned service for managing an entire business process. At the business process/industry level. In seeking to do this. falls broadly into the areas of CRM. companies need to align their IT with their specific strategic challenges and aims. processing power. It also brings major opportunities to expand similar benefits up the value continuum to applications and processes. thereby helping companies to achieve high performance. also known as software-as-a-service or SaaS. cloud services tend to share several characteristics: • Little or no requirement for capital investment to enable usage • Variable pricing based on consumption — buyers “pay-per-use” • Rapid acquisition and deployment • Lower ongoing operating costs than IT owned and managed in-house • Programmable and adaptable in use. and the availability of information anywhere and anytime. application. via the internet. Businesses have already begun to move up this hierarchy in search of the escalating benefits that each level can deliver. cloud-based environments provide application developers with similar functionalities to those available in traditional desktops including tools for development. As a result. At the platform level. which often requires the service provider to take over an existing software installation. spreadsheets. cloud is about much more than infrastructure. and then moving up through platform. Cloud technologies allow IT to better respond to the changing needs of the business.

Two forms of cloud computing The choice between private and public clouds represents a trade-off between security and flexibility. Crucially. memory. as shown in Figure 2. infrastructure and communications services for internal business users. public clouds extend the data center’s capabilities by enabling the provision of IT services from third-party providers over a network. small and medium-sized enterprises may find public cloud to be the best solution. In contrast. scalability. A continuum of four cloud computing opportunities4 Process/Industry clouds Standardized horizontal or vertical business processes provided on a subscription basis to individual clients or industries: Business Process Utility Application clouds Business application provided on a subscription basis Platform clouds Virtualized development and run time platform Infrastructure clouds “Raw” infrastructure (CPU. A public cloud is seen as involving higher risk. since the user’s data is held externally alongside that of other businesses. storage. Private clouds are built within a company’s data center and are designed to provision and distribute virtual application. an approach that is sometimes required by regulators. Different business will choose different routes to cloud With these considerations in mind. simplification of the necessary IT support. pay-as-you-go pricing model. In contrast. different types of business may make different choices between public and private clouds for running their supply chains. software-as-a-service (SaaS). For example. and ongoing innovations and upgrades by public cloud suppliers. since it owns and holds the cloud data and services within its own infrastructure. Large multinational companies with multiple global supply chains may use private clouds as a way to standardize their IT infrastructure. all of which offer virtualized solutions based on a variable. while still retaining some degree of customization at the enterprise level. The large third-party logistics (3PL) companies may adopt a similar approach. companies. simplify their upgrade paths and standardize their processes. again opting for private clouds.Going “private” or “public” Clouds at each and every level of the hierarchy can take two forms: private and public. network) available on an as-needed basis in public or private clouds Figure 2. are emerging as important elements of nextgeneration IT service capabilities. in that they may need multiple ‘flavors’ for different types of operations and customers . but only training and change management for the affected users. they will not need to run complex implementation projects. Private clouds may also span multiple Figure 1. platformas-a-service (PaaS) and infrastructureas-a-service (IaaS). but it also tends to offer greater flexibility and scalability than a private cloud. effectively becoming private ‘trading exchanges’ for partners in the extended supply chain. Private cloud Perceived security Flexibility & cost Data security & business continuity Process & competitive advantage • Full data protection only possible in private cloud • Service level agreements expectations might only be fulfilled in private cloud • Unique & leading processes only in private cloud • Internal process detailed know-how & skills • High customization abilities • Resources Infrastructure flexibility & scalability • Network • Processing • Fast & relatively cheap access to new capabilities Availability of new business capabilities Build & maintenance costs • Relatively low costs per user • Pay per use instead of fixed costs Public cloud 5 . A company using a private cloud gains the perceived benefits of lower risk and higher data security. The choice between private and public clouds represents a trade-off between security and flexibility. These service components are designed to use the available IT assets in a highly efficient way. What they will sacrifice in the ability to customize the solution will be more than offset by the benefits in terms of lower cost. However the story with 3PLs may differ slightly from multinationals.

needed to size and provision computing hardware each time they added customers. preventing duplicate charges and overcharges. and new ‘tenants’ can be added quickly. Whereas traditional service providers Freight Audit and Payment services Many companies recognize freight as a necessary—but not necessarily core— part of their business. However. However. or even thousands. In combination. Put simply. 2. For providers of cloud-based services. Is cloud more than just a technology or applications play? Certainly. rather than purchasing it under a license. The clients get a monthly variable fixed fee. For this reason. we believe that cloud technology will also be the enabler for an entirely new paradigm: cloud-based supply chain processes. or ‘Supply Chains in the Cloud’.”5 6 . technology is the basis for cloud computing. cloud represents anything but ‘just’ another technology platform. Applications run on any server with available capacity. anywhere.2. In fact. and capacity is added by simply adding more servers to the cloud. the remainder of this paper will focus on what we believe to be the long-term future of Supply Chains in the Cloud. managed and optimized. moving further up the cloud computing continuum. Outsourcing the function of auditing. approving. thus better pricing. Allan Miner. provider CT Logistics has started to offer its service in the cloud. cloud computing utilizes server ‘farms’ consisting of hundreds. the attributes are: 1. or customers). instances. Massive scalability Cloud computing has effectively solved the problem of scalability of IT systems. when we had to add a new server every time we added a new client to the SaaS model. and paying freight bills can provide significant cost benefits. described his company’s take on cloud computing: “It’s possible for us to offer CT’s FreitRater system as Software-asa-Service (SaaS). providers do not have to lock customers in to lengthy Key enablers What is it about cloud technology that will enable it to transform supply chains in this way? This essentially comes down to a few key attributes for providers and buyers of cloud-based services. The emergence of Supply Chains in the Cloud will have a transformational impact on how supply chains are created. They leverage common software code. president of CT Logistics. it promises to transform the very nature of the way companies buy and use IT services. Because they do not need to bear these overheads. anytime. both within the supply chain arena and also across the broader enterprise. While these services have been around for some time. because we are using less servers than before. Multi-tenant (one:many) capabilities Cloud computing applications are designed to house multiple tenants (users. in the not-too-distant future we expect to see providers of supply chain services leverage the technology of cloud computing to provide services on a transactional ‘pay-per-use’ basis to any customer. cloud computing is beginning to change the way they are delivered. For example. since service providers can leverage economies of scale. of servers. and because their focus on technology and process improves accuracy. these attributes mean cloud service providers can on-board new customers quickly and flexibly. without the traditional ramp-up efforts and costs.

Low barrier to entry will create new market entrants Because major capital investments and staff ramp-ups are not required. as described in the accompanying information panel. This could mean the traditional big-four (or BRIC) developing economies. industry sectors. Processes like global trade compliance. That means most likely first consumer goods (particularly those that are commoditized) and parts and supplies in the automotive and industrial equipment sector. though as the capabilities emerge in other industries. Little or no CapEx required Providers of cloud-based applications and services will do so on an almost entirely transactional basis. without the need to build up an entire supply chain infrastructure. and those with the greatest cost and margin pressure. and markets. These new competitors will combine innovative ideas with readily available. markets. freight bill audit and payment. For buyers/consumers of cloud-based services. Process areas Supply Chains in the Cloud are likely to initially take hold in those areas that are on the fringe of what many people consider core capabilities. and they can offer genuine transactionbased pricing. cloud-based services to challenge established market leaders. and even basic product design engineering are all likely candidates (refer to next section for more on which supply chain processes are headed for the cloud). new companies will find it easier to establish themselves in the marketplace. 2.contracts to recoup the costs. One example of these benefits in action is Freight Audit and Payment services. where companies look for ways to leapfrog development cycles and have minimal access to capital. The reality is that Supply Chain in the Cloud is a concept that is in the earliest of stages. the key attributes are: 1. the most likely early services could emerge in countries with less developed infrastructure. Industry sectors The early adopters will likely be industries both with products that are less complex. or geographies. Markets Since Supply Chains in the Cloud will be characterized by a more efficient way to use services. transportation route planning. but also in places like the Arabian peninsula and parts of Africa. they will likely start looking for ways to leverage Supply Chains in the Cloud for their non-core processes. Sectors like pharmaceuticals and high-tech will likely be further down the road. And it’s likely to develop at different paces in different process areas. That means companies require little or no capital expense outlay to get started in new business segments. 7 .

they require minimal capital investment. and new ones are entering every year. Tim Payne Percentage of respondents 80 70 60 50 40 30 20 10 0 BPO/Managed service Hosted by third party On-premises (Traditional licensed applications) Open source SaaS/Cloud (Subscription) Historically Future 8 . OCO A SaaS Business Intelligence provider. Transportation Management Systems (TMS). As the SCM application market expands. are completed quickly. Assortment and Space. North America. While customers use a common code base. or a private cloud (i. the applications can be configured in real-time by functional domain experts (not software developers). Figure 3. Surveys were completed online by subscribers to Supply Chain Digest. and Business Intelligence/Analytics — are either already offering SaaS solutions. As with any application selection. Warehouse Management Systems (WMS). C. Predictix has a particular focus on technology that enables a revolution in configurability. is effectively a new company with new management.S.e. offers global retailers and brands on-demand software for Planning and Allocation. IT services providers and consultancies were excluded from the sample. where clients buy a license and host the software on their own infrastructure. Pricing and Promotion. © Gartner— User Survey Analysis: Understanding Supply Chain Management Software Buyers. or community supply chain management. To do this. Several companies already fall into this category. The cloud computing wave is bringing a new set of entrants into the SCM software market. companies such as Ariba and Manhattan Associates are taking their existing application suites and turning them into SaaS applications. Of course. Dwight Klappich. It offers software for the full end-to-end supply chain. integrated solution that scales to meet the needs of large and medium sized organizations. funding. it is evolving into two camps: 1) Incumbent leaders in the SCM application software markets are making the move into cloud computing. and data warehousing as a comprehensive. More than 30 percent said they plan to in the next 3 years (see Figure 3). Supply Chain Planning.-based senior supply chain executives across all company sizes and supply chain subindustries were interviewed about their organizations' supply chain strategies and tactics. mature business financials. delivers business intelligence. Because Oco’s solutions are delivered as SaaS. multiplesource data integration. or are springing from the complete overhaul and relaunch of existing software vendors who have become early adopters of the new trend towards cloud technology. In a December 2009 Gartner survey6. Approximately 20 percent of respondents indicated they had sourced SCM applications using a SaaS/hosted model in the past 3 years.Supply chain applications in the cloud Cloud computing is already making a significant impact on the supply chain management (SCM) application market. these vendors are also still maintaining their traditional delivery models. These companies are building their applications for SaaS delivery from the ground up. 2) New entrants. Predictix Founded in 2005. Many of them are new startups. and adoption is expected to continue to grow. Here are three that are going aggressively to market: Amitive A relaunch of Mitrix. Companies that provide SCM software applications — including eProcurement. and cause less IT distraction than traditional business intelligence. companies evaluating SCM SaaS applications must weigh up the pros and cons of the incumbent providers (with their established track record. or are articulating a clear strategy to move to SaaS solutions as increasing numbers of customers demand it. This is targeted at a broad array of brand owners who have outsourced manufacturing and need technology solutions to help them manage across their extended enterprise. 2010 Chad Eschinger. and is striving to create a new category C-SCM. a multi-tenant) environment. and positioning. single-tenant) environment. and security) against the new entrants (with their innovative technologies and ‘out-of-the-box’ thinking). typically offering the options of using a public cloud (i. 340 U. and Forecasting and Replenishment.e.

major players in each category defined. such as ConfirmIT. we expect cloud-based processes will be established in three major waves of cloud-based processes by 2015. Two categories of process in particular may prove unsuited to cloud computing: • Complex and/or unique processes that require a heavy degree of customized processing are less likely to be delivered as cloud-based services. • Processes that require heavy integration with either a physical flow or with other information systems particularly those requiring ultra-fast response times are also not wellsuited to cloud. first providers disappear from the market. such as www. Is cloud a reality for all supply chain processes? While supply chain process clouds will have a transformational impact. At the same time. these exceptions aside. net. as shown in Figure 4. High-Tech User group interests Broader industry scope. Also complex processes covered in cloud. the market for cloud-based solutions will become more mature. Products / Consumer Goods. companies with higher integration needs will start using cloud based services as part of their operating model User group interests All industries applied cloud based processes 9 . Support & administrative processes. Future migration of SCM processes to the cloud Going forward. and leading players will be established (see also question 5 of this document). Current examples include Freight Bill Audit and Payment. These can easily be abstracted and isolated.3. e. the basis for successfully providing supply chain processes in a cloud is a strong combination of IT infrastructure and process excellence and expertise. Higher focus on core and rather complex processes. standards will be defined. Examples: • Pricing optimization • Replenishment planning • Order processing • Transportation load building Wave 3 2013-2015 Processes & providers characteristics & examples Consolidation phase. at least in the near future. these are simply suggestions of areas that might evolve. Over time. testing attitude. if not in a fully cloud-based model. Taking all this into account. as highlighted earlier in the information panel on CT Logistics. it is unlikely that every process will be a candidate for cloud. and the more challenging and complex processes that are longer-term Figure 4. Examples: • Collaborative engineering • Warehousing and distribution of physical product • Reverse logistics/returns processing • Fleet management User group interests Companies with highest pressure for operational excellence and through competition. Of course. In all process areas. innovate ideas from providers and demand for services from consumers will ultimately determine which processes move to the cloud.g. Implementation waves for SCM processes on cloud-based platforms Wave 1 2010-2011 Processes & providers characteristics & examples Early pilots. e. requiring collaboration between many entities and tighter integration with other processes. those supply chain processes that lend themselves to being cloud-based can be divided between the ‘lower-hanging fruit’ that is likely to move to cloud in the short-to-medium term. others invest to grow and improve service offering. candidates for cloud. and do not require complex integration. spare parts locating. Well established models for usage and payment of cloud based services. However. Examples: • Capability development/training delivery • Simple analytics Wave 2 2011-2013 Processes & providers characteristics & examples Maturing phase. then somewhere on the spectrum towards cloud-based processes.sparesfinder. and perhaps involving physical capacity constraints. there are many supply chain processes that do lend themselves to being cloud based. and transportation sourcing/bid management. These include some that are already available today. Driven by innovation and continuous improvement needs.g.

This is the same reason many companies lease real estate rather than own it. leveraging the pure technology and software-asa-service provider landscape to reduce their IT and application management costs. This enhanced flexibility also allows faster entry into new markets and geographies. Traditionally. one of the most powerful benefits of supply chain in the cloud will be the ability to switch capital expenditure into operational expenditure. Companies should also benefit from improved uptime in their supply chain applications. 10 . where companies are limited by the capital markets in terms of the amount of capital expenditure they can make. assuming availability of viable cloud-based capabilities. cloud-based multi-tenant environments. For consumers of cloud-based services. companies will be able to ‘variablize’ their cost structures. without finding themselves stuck with excess capacity and cost. the barrier to outsourcing non-core functions should shrink significantly. companies will reduce the amount of capital investment they require to operate and to grow. For example. Financial benefits For companies that provide supply chain services today. With cloud-based processes. On top of that. A further operational benefit of cloud is process excellence. taking advantage of ‘best of breed’ processes and services in a lower-cost and more flexible cloud environment. as having fewer instances of software simplifies the support and maintenance. Companies that currently support multiple distributed instances of software will see great benefit in migrating to common. so that costs move more in line with revenue. once an asset has been purchased. Those providers who act quickly and decisively stand to re-draw the graph of supply chain services market share. By utilizing cloud-based supply chain services. Cloud will also enable companies to focus more effectively on running their most important and differentiated core processes in the most efficient manner. with transaction-based services enabling quick ramp-up and ramp-down of process volumes. and ramp down in times of lower demand. Operational benefits Cloud’s advantages in terms of variable costs are also reflected on the operational side. and even of new processes and services. companies may decide in times of unusually high demand to use a demand & supply planning solution for a limited period of time. A related advantage is the opportunity to move to a more variable cost structure. outsourcing has involved leveraging external providers for non-core functions. By taking advantage of transactional commercial terms. enabling a sharper focus on the truly core processes. cloud-based processes represents a unique opportunity to drive revenue growth: an entirely new way to provide services to a new potential market of customers. Compared with traditional outsourcing models— which typically had fixed prices and long-term contracts—cloud-based services will enable companies to ramp up in times of growth. We can group these benefits broadly into two categories: financial and operational. it is on the books whether it is fully utilized or not.4. Providers also stand to benefit from cost savings on service delivery. capital expenditures are typically not variable. What benefits can cloud bring to my supply chain? Supply Chains in the Cloud will bring an array of benefits both for providers of services and the companies that buy these services. This is especially attractive in the current environment.

it needs to enable local deviations in the process in case of legal. Having such capabilities in place. Financial governance Companies who opt for Supply Chains in the Cloud will come to look at all the aspects of contracting for services in a different way from how they do it today. For this reason. Providers of supply chain services will also experience major changes to their operating model. some of these new players might actually emerge from global industry companies who see cloud-based processes as more than just an opportunity to restructure their own operational processes to be more efficient. how often. and met any contingent criteria (i. on the other hand. Better and broader decision-making The integration enabled by cloudbased applications and processes will enable faster and more effective cross-enterprise and extended supply chain analysis and reporting. It will need to define factors such as interaction models. so long as they have the right detailed process skills. and potential downtimes. These may be pure providers of cloud infrastructures and applications that will also begin to provide cloud-based processes. Existing outsourcing service providers will undergo a significant shift in the way they operate: IT Many supply chain service providers today operate legacy systems that they take over from clients. Cloud SLAs may be based on response time. Companies will need accounting systems and processes that allow them to accurately pay for services that were requested. though. typically with fixed pricing. How will cloud computing change business models in supply chain? Cloud computing will have a major impact on supply chain business models. On the one hand. provided. This approach does not lend itself to Supply Chains in the Cloud. cloudbased applications and infrastructures in order to deliver services. Standardization of services Cloud-based services will need to be standardized as much as possible in order to implement multi-tenant environments and achieve economies of scale. Globalization of control The flexibility required to provide cloudbased services will require demand that companies pool available resources and manage them centrally. While these types of arrangements will not necessarily go away. Perhaps the most significant change. operating supply chain processes in the cloud will require detailed industry and functional knowledge. without the barrier of organizational inertia that faces the traditional service providers with whom they hope to compete. and account for the costs accordingly. Further complicating the governance. The transactional nature of cloud-based services will require a new model. Companies who take their supply chains into the cloud will need to govern who is using services. these companies will also be in a position to define the necessary operating models. but will also increase the complexity of billing and payment over traditional outsourcing. or other constraints which might also require configurability in the cloudbased solutions. some corporations may venture to externalize these operations to a company-owned subsidiary. New players will surely want to participate in the market. Finance Shift from long-term contracts to transaction-based fees will represent a major change for these providers and will impact many aspects of financial planning and reporting. it will also require companies to re-think the way they budget and control use of these services. and companies will need to implement controls to ensure their providers are meeting their targets. timely and comprehensive management information. again affecting both providers of cloudbased services and buyers/consumers of those services. in that it will need to consider standards and expectations towards providers of cloud-based services. This will require process governance that can plan and manage all continuous process improvements across the enterprise. • Administration and budgeting While cloud-based services will enable ultimate flexibility. IT governance IT governance will undergo a significant change. satisfied SLAs). SLAs are often based on averages or totals over periods of time. However. supporting better decisions. • Billing and payment The transactional nature of cloudbased services will help companies scale up and down to match their overall business. which could present a high threshold for successful market entry. Traditional outsourcing works on long-term contracts. This will result in more accurate. • Measuring and monitoring Because cloud-based service may be provided by multiple providers. For buyers/consumers of cloud-based supply chain services. Business process governance Companies will need to ensure that cloud-based processes are used across all regions and legal entities in order to standardize the global operations and take full advantage of the financial and operational benefits. service levels for availability. 11 . regulatory.e. not just infrastructure and applications. and assume the role of a specialized service provider to the industry. or some other measure of effectiveness. With traditional outsourcing. will be to architect the application integration with cloud-based services in a way that will enable changing a service provider on a rather short-term basis (assuming that other providers are in the market with comparable services). we anticipate this impact will make itself felt in several ways. providers who want to enter the cloud-based service markets will need to operate using truly multi-tenant. companies will need new ways to ensure service levels are met. These shifts will impact two classes of potential providers.5. accuracy.

the market ultimately underwent a painful round of high profile failures and consolidations. This will have parallels with the dot-com boom of the late 90s. Cloud-based service providers will need advanced capabilities to forecast demand for their services in order to create appropriate plans. But offering a cloud-based service will often require additional resources that are more challenging to scale – human resources and in some cases plant. The challenge for service providers will be to balance the drive for market share with the development of sustainable business practices to position themselves to be standing when the dust clears. Pricing Providers of cloud-based services will also face significant challenges around pricing. • In the case of PPE. That boom was triggered by technology (i. • Traditional outsourcing of supply chain processes and business operations typically involves long ramp-up times. cloud-based service providers will utilize a standard. forecasting demand will need to be a core competency. and able to be moved quickly to new. with consumers choosing from a standard ‘menu’ of components. Warehouses will need to be easily reconfigurable. more mature providers. cloud-based service providers will need to master the arts of recruiting. combinatorial methods to price service configurations. adding new physical space and equipment takes time and investment. Training will need to be delivered quickly. Providers who do enter this space will look to build the most flexible infrastructures possible to enable flexible provision of services. and managing new talent. What are the challenges — and how can they be managed? The journey towards Supply Chains in the Cloud will face a number of challenges. where servers can be easily added. Since the very essence of offering cloud-based services will be the ability to scale. With very little history to go on. Ability to scale The technology behind Supply Chains in the Cloud is well-established. those cloudbased services which require handling of physical products (manufacturing and warehousing) will be among the most difficult to provide. Fierce competition The provision of cloud-based services will likely create an initial rush of new entrants into markets. even tools like ‘Google Trends’ to indicate how many people are searching for these types of services. charging a premium for fast turnaround. the speed with which they are delivered might not necessarily be. They will need to define standardized processes and develop and utilize tools to help new staff execute those processes. both for service providers and service consumers. and offering discounts for cycle time flexibility. and may not be as simple as the sum of components. leased building space. and will enable companies to quickly scale IT capabilities to meet growing demand. there will likely be a period of evolution as providers experiment with elements of the pricing model. The Supply Chains in the Cloud boom will likely follow a similar cycle. and often includes transferring staff to the service provider. Manufacturing processes will need to be geared for short runs and fast changeovers. And while standardization of the services will help them estimate costs. on-boarding. Service providers Providers of supply chain services who move to providing cloud-based services will stand to reap big rewards in terms of market share. Other consumers who need time-specific processing may pay a premium for high-demand times (such as month-end auditing of freight invoices). but providers can benefit from volume commitments (in improved demand forecasting) and will likely reward them with price discounts. Consumers might choose to request services during periods of relatively low demand – which may be certain months. and to an audience which may not have any preexisting knowledge. Providers may elect to use price as a way to ‘smooth’ demand. these pricing elements may be implemented in the form of pricing based on assumed tiers of volume. • Discounts for volume Cloud-based services will be transactional in nature. • Peak pricing Another tool providers may use to ‘smooth’ demand might be peak pricing. leading to fewer. Compared to traditional outsourcing. property. • In the case of human resources. Unlike technology. and equipment (PPE). when hundreds of startup companies were formed to capitalize on the new online marketplace. the establishment of the world wide web) and changed the way the world looked at shopping and order fulfillment. 12 . • Service and pricing configurability Even standardized processes will likely be offered with a degree of configurability. these forecasts will need to look to new ways to predict the future – market surveys. Some of these elements might be: • Pay for speed While processes will be standard. efficiently. weeks. And most importantly.6. which typically involved lengthy due diligence processes to establish long-term contract prices. trends in other cloud-based service verticals. with periodic ‘true-ups’ in the form of rebates or surcharges. Because of the transactional nature of the services. But they will also face a number of challenges. these service providers will need to be much more focused on the definitions of the services which they provide. published rate card for services. After a period of exuberance and hypergrowth. or times of day – in exchange for lower pricing. Pricing will need to reflect that.e. Providers may use more advanced. days.

Software vendors and service providers are going to increasingly offer the ability to configure within a standard code base. companies like Predictix are doing this already. as outlined in the previous section. in many cases the most significant challenge will be to the changes required to the overall business model. companies also worry about a loss of customization fearing they will have to use a standardized process that does not fit their specific business needs and operating model. Once detailed knowledge of these non-core processes is lost. Since cloud-based process solutions will facilitate the externalization of processes beyond the borders of the organization. companies can still take advantage of the technology benefits with internal/private clouds. to ensure that their customer data is properly protected. And while these are all important concerns for companies considering a move to Supply Chains in the Cloud. As with any supply chain partnership. companies need to mitigate this risk by evaluating the strength of the overall market and the specific strength of their chosen provider within it. Also. Similarly. if a process gives a company a significant competitive advantage. some companies perceive a risk that using a public cloud may result in a loss of competitive advantages in their marketplace. However. However. Quite simply stated. less critical and less strategic processes could be operated by a service provider. and create competitive edge through differentiated capabilities. will be the danger of service provider(s) going out of business. This should involve using traditional risk-management and due diligence techniques to determine the risk of failure and identify viable alternatives. particularly in the early stages. Compounding this risk of losing valuable skills. it most likely isn’t a candidate for a public cloud process anyway.Service consumers Surveys about cloud computing consistently show that data security is companies’ number one concern about joining a cloud-based service environment. This risk can be offset by increases in configurability. Companies using cloud-based services should perform data security audits together with the cloud provider. companies need to have a very clear and deliberate strategy covering which processes are to be owned and operated internally (mainly core processes). these worries have now been largely overcome and addressed by cloud providers. it could be very difficult to re-establish them in-house. since competitors may be using the same or similar service offering the same supply chain capabilities. Given the one-to-many nature of many cloud services. most companies today are not governed in a way that will allow them to take advantage of new cloudbased services. and which other. A further risk is a loss of skills and knowledge from the organization. 13 . As we noted earlier. So companies should proceed in a considered and cautious way when selecting processes to entrust to the cloud.

Supply chain’s migration to cloud: not a question of “if”. Survey the market We are very much in the early stages of this new paradigm. possibilities. Over the next few years. 14 . In addition. Clearly. it will not be based solely on costs. industries. and measure as you go along to check that you are realizing the hoped-for benefits. If your organization has not yet started the journey to the cloud. Define the business case As cloud service providers establish themselves in the market and build up a track record of delivery. • Crunch the numbers Once you decide to enter the cloudbased service market. Look at the value these flexible service delivery models will bring to consumers – and price them accordingly.Taking the first steps As we highlighted at the start of this paper. but “when” While it may take time for supply chains to transition to cloud computing. Make a concerted effort to stay on top of developments in the market. Don’t assume this is a fad that will pass quickly – there are too many examples in other industries that indicate otherwise. now is the time to start drawing up your roadmap. so you should involve your extended supply chain ecosystem partners in your strategy and choices. Executives are still grappling with its risks. However. and which are the processes that could be sourced to a cloud-based provider? Call this your ‘process cloud road-map’. Given the low development costs. beginning the journey early can deliver some substantial financial benefits—and for several companies the transition to a cloud environment is already under way. this will not be a ‘costplus’ world. by more and more providers. more and more supply chain processes will be offered in the cloud. Demand that prospective suppliers provide datadriven analyses to quantify the expected benefits of change. you should evaluate the true cost benefits with a detailed ROI and risk analysis. Approach cautiously and evaluate frequently Start with the low hanging fruit. and so on. Cloud computing may very well deliver the benefits that were initially promised by B2B exchanges in the late 90s. helping to map out cloud’s role in delivering your business strategy for the coming years. we believe it is already clear that the capabilities and potential savings from clouds are too great to ignore. this is a new paradigm. Set the standards for success Defining what success for your cloud strategy will look like. and the cost of writing off current investments in systems and processes. Start by clearly identifying and describing the issues and potential pain points in your processes and systems that you want to address with a cloud solution. executives who might be consumers of cloud-based supply chain services should take a number of proactive steps: Develop your strategy Which are the processes that you want to retain internally. supply chain senior executives have important roles to play in moving towards Supply Chains in the Cloud. So the critical question isn’t whether cloud computing will become a fundamental technology in the next decade. apply the rigor to the business case on both the cost and price side. so don’t assume old models will work. executives should take the first steps: • Evaluate the market need Are there service you provide today that could easily be provided in a cloud-based model? How feasible will it be to move to transactional-based provision of services? Evaluate your assets and infrastructure to identify your ability to scale. and identify the process areas. The race to Supply Chains in the Cloud is going to be won by the swift and the strong. Remember. always with an eye on your roadmap. a widening array of systems houses. Collaborate on decisions with key supply chain partners One of the benefits of cloud-based applications is easier integration. the fact is that future advances and innovations in supply chain IT and processes are much more likely to be based on clouds than conventional computing. speed to new markets. scalability. service providers and venture capitalists will be drawn to this new market. so be sure to define the scale of the benefits that will constitute success for your supply chain: flexibility. and markets that are going to give you a real chance to take advantage of market demand. cloud computing is too important to leave entirely to technologists. To make sure an organization maximizes benefits and minimizes risks. It is how successfully companies will profit from the capabilities it offers. Particularly in the beginning. For those companies who might be providers of cloud-based supply chain services. While the work of migrating from conventional to cloud computing is likely to fall on the shoulders of the CIO. short development cycle and quick return on cloud services. • Evaluate the competition Take a good look around to see if you are being beaten to the punch.” “China Mobile Enters Sphere of Cloud special advertising section on Freight Payment — June 21.” Interfax. Accenture is with you. “Fujitsu Launches Cloud Services in North America. October 21. “ © Gartner.” Wall Street Journal.” SingTel press release. Accenture is the right partner. November 5. 4. Whether they are providers or consumers of cloud-based services. Bernard Golden. “Salesforce.Accenture and the Cloud When Supply Chain in the Cloud is the right move. “SingTel to Help Establish Singapore as a Regional Cloud Computing Hub. November 17. conconnect. as well as our deep knowledge in governance models. we can help you redefine your path to high performance with Supply Chains in the Cloud. 2009. 3. Source: Accenture Analysis 5. reliable partner. With deep knowledge of cloud technologies and supply chain processes. 2009. 2009.2010 6. 2009. Reference 1. speaking your language. Ben Worthen and Justin Scheck.” eWeek. Source: Survey of Retailer Use of Software as a Service – 15 September 2009 15 .com. “The Opportunities and Risks of Cloud Computing Services. February Signs Citigroup Deal. Skills From strategy through operations we help clients identify the right strategy and design a pragmatic approach for implementation. Ron Eric Auchard. December joc2010freightpaymentadvert. Inc. 2009. 2009. Working together. “Cloud Services/SaaS: What Telcos Are Doing.pdf — The Journal of Commerce (www. We’re rapidly changing our business model to help you bring cloud innovations that result in breakthrough business benefits. Industrialized delivery Development of our cloud factories based on decades of delivery experience makes us a low-risk. January 21.” Salesforce. “Tech Giants Ramp Up Their Online Offerings. and reducing your risk of adopting new technologies. November 15.” press release.salesforce. Proprietary methodologies Proven roadmaps and implementation frameworks help clients minimize risk and optimize costs. Through it all. July 14. Ethan Smith. 2009. to provide services in both traditional and cloud-based business models. 2009. June 22. “Disney Touts a Way to Ditch the DVD. com Powers Starbucks Campaign to Mobilize Americans in National Service. Source of quote: http://www. 2. are uniquely positioned to help clients create strategies that are well researched and incremental.joc.” Wall Street Journal. Chris Preimesberger. October 2009.” IDC Technology Assessment. Implementation and management experience We draw on our experience in migrating and managing complex environments. clients rely on us for: Industry knowledge Insight into industry and supply chain drivers help clients identify cloud services for competitive advantage in their markets. http://www. “The State of Cloud Computing in Japan.” Reuters. understanding your needs. Strategic acumen We help bridge the gap between technology and business impact by understanding your business realities as well as available cloud capabilities.

Jeanne G. and Accenture collaborates with clients to help them become high-performance businesses and governments.schramm@accenture.harris@accenture. led the Cloud Computing research that is referenced in this paper.6 billion for the fiscal year ended Aug. comprehensive capabilities across all industries and business functions. 2010. The company generated net revenues of US$21. He leads the Supply Chain Management Service Line within Southeast Asia.About the authors Thomas Schramm is an executive in the Accenture Management Consulting practice. with approximately 204. jonathan. com) and Allan Jonathan Wright is an executive in the Accenture Management Consulting practice.alter@ accenture. and Germany.j. its logo. and was formerly the Global Lead for the Fulfillment practice. Switzerland.e.g. and extensive research on the world’s most successful companies.a. About the Accenture Institute for High Performance The Accenture Institute for High Performance creates strategic insights into key management issues and macroeconomic and political trends through original research and analysis. He is focusing on transportation management and order management and is leading the Accenture order management offering in Austria. technology and outsourcing experience to conduct innovative research and analysis into how organizations become and remain high-performance businesses. Australia. Schramm leads the Supply Chain Management Service Line within Austria. About Accenture Accenture is a global management consulting. Germany and Switzerland. technology services and outsourcing company. Harris ( Derek Jones leads the Research and Development department for the Supply Chain Management Service Line. Its management researchers combine world-class reputations with Accenture’s extensive consulting. and High Performance Delivered are trademarks of Accenture.seng@accenture. 31. Alter (allan. Copyright © 2010 Accenture All rights reserved. and was formerly the Global Lead for the Service Management practice.000 people serving clients in more than 120 countries. derek.jones@accenture. Combining unparalleled experience. Both research fellows at the Accenture Institute for High Performance.Its home page is www.wright@accenture. ACC10-2460/11-2410 .com Dirk Seng is an executive in the Accenture Management Consultant SCM service line.m. Mr.