Six questions every supply chain executive should ask about cloud computing

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

along with growing interest. . The technology’s novelty and the hype found in some media stories make it even harder to evaluate its potential. costs. and consumer products are using cloudbased technologies to analyze data. supply chain executives have much to gain.3 However.Supply chain executives should evaluate what cloud computing can mean for their operations. Microsoft. KDDI. Asking the right questions is a good place to start. cloud computing in supply chain also generates difficult questions. after all major businesses across the world are already applying cloud technologies successfully in other business areas. supply chain decision makers can easily succumb to “analysis paralysis” or the temptation to abandon their inquiry to the IT department. Against this background. provide applications to employees and run special projects. companies are striving to operate a more dynamic supply chain to react to ever increasing volatility in customer demands and market conditions. shifting away from traditional.com. as established IT and telecom providers including Accenture. While it promises to enable a wide and powerful range of capabilities. Amazon and Salesforce. But cloud computing is too important. With so many issues to explore.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.2 And more cloud services will soon be available. and should involve themselves in the dialogue. its potential uses are exceptionally broad and difficult to foretell. flexible solutions are an important part of a supply chain design. China Mobile and SingTel join cloud pioneers like Google. and risks. it’s no surprise that the topic of cloud computing is generating intense interest. In today’s world. transaction-based models. banking. contracted outsourcing models to more flexible. and the economics of supply chain information technology. we believe cloud computing will lead to a revolution in the way more supply chain services are provided. how information is controlled. Many global organizations in industries like retail. What is certain is that it will radically affect how computing is done and managed. Some analysts estimate that the market for cloud-based services will reach nearly $150 billion by 2014. But beyond the technology. Fujitsu. And as supply chains are increasingly powered by information technology.

supply chain operations have proven to be adept at adopting and capitalizing on innovative technology solutions. Six key questions So. Cloud computing will speed up that pace even more. 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. Specifically. By focusing on these questions. more scaleable. 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. and we believe cloud will be no exception. advanced analytics and digital receipts. Accenture has identified six key questions that we believe decision makers should ask about this still-new phenomenon. infrastructure-intensive supply chains to re-invent themselves. 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. This could have a remarkably disruptive impact on the competitive landscape of many established market leaders. these innovations have included mobile applications. and more capable of supporting the financial objectives of boards and shareholders. creating complexities and sensitivities between the participating organizations. own or operate their entire supply chain internally from end-to-end. and can start to identify the real opportunities and risks that cloud computing brings for their own organization.When compared with the leaders in other aspects of the business world. So security is a prime concern. companies still have an absolute need to protect their products and customers. But how can supply chain executives keep pace by coming to a timely. With capital already tied up in IT infrastructure. Given these considerations. cloud computing is very much on the supply chain agenda. lost products. Lost data can lead to lost intellectual property (IP). it is not surprising that companies are moving relatively cautiously towards leveraging cloud technologies in their supply chains. 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. 3 . it will not be long before this high level of interest in SaaS in supply chain progresses into rising adoption of cloud. 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. To date. without significant investment in infrastructure. In our view. studies in various sectors show that interest in the potential of cloud in supply chains is already strong. However. focused and productive evaluation of cloud’s potential and pitfalls? To help them do this. Historically. 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. So decisions about using cloud technology may involve multiple partners. Cloud computing likely represents the next step in this progression. 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. supply chain executives can narrow their inquiry without succumbing to superficiality. Supply chains will become more dynamic. and lost business. Competitive essence Companies use sophisticated and effective supply chain management (SCM) to differentiate themselves in the marketplace and gain competitive advantage.

they support device independence and anywhere access. speed to market. have been around for several decades. and hosting. applications. development and delivery of new and innovative product and service offerings for customers. a distinctive group of highly capable business solutions firms have emerged. the process cloud uses a common. electronic commerce. often specific to a particular industry. The escalating hierarchy of cloud opportunities starting with infrastructure. including infrastructure. testing. standardization. and how does it work? Cloud computing allows companies to access IT-based services. At the application level. network bandwidth and storage from the outside on an on-demand basis. including word processing. Already. and open source software. and then into the design. such as contact centers. and the availability of information anywhere and anytime. In seeking to do this. Because these services are available via standard browsers. What is cloud computing. and other online services is an important enabler for cloud computing. many elements of the concept. 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.1. covering not just software but also processes that may be supported by people. cloud-based solutions. Although the term “cloud computing” was coined relatively recently. economies of scale.com and Workday. At the business process/industry level. lower total cost of ownership (TCO). A continuum of cloud options: from infrastructure to business processes As companies map out and plan their cloud strategies. At the infrastructure level. Businesses have already begun to move up this hierarchy in search of the escalating benefits that each level can deliver. externally provisioned service for managing an entire business process. We can also foresee a third wave. e-mail and Web conferencing. runtime libraries. hardware commoditization. What makes cloud computing a growing reality for today’s businesses is the pervasiveness of the Internet and Internet technologies. companies need to align their IT with their specific strategic challenges and aims. which often requires the service provider to take over an existing software installation. At the platform level. A key catalyst is the success of major Internet companies such as Google. it is important that they appreciate the full implications and business potential of cloud. Unlike traditional BPO. combined with advances in virtualization. needs-based utilization. cloud-based environments provide application developers with similar functionalities to those available in traditional desktops including tools for development. oneto-many platform to automate highly standardized processes. and then moving up through platform. Organizations generally subscribe to these services based on the number of users or seats. human capital and financial management. Across all these offerings. via the internet. application. Infrastructure cloud providers draw from a pool of shared resources and dynamically expand and contract to accommodate fluctuating demand from different user organizations. It also brings major opportunities to expand similar benefits up the value continuum to applications and processes. ranging from procurement to enterprise resource planning and content management. the initial focus area for considering cloud has usually been IT infrastructure. As a result. as core business applications become available as cloud solutions. in order to target benefits including financial flexibility. spreadsheets. 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. the first wave of cloud-based services. and business process clouds is summarized in Figure 1. social networks. However. also known as business process utilities or platformbased business process outsourcing (BPO). The highly global and scalable infrastructure these companies use to power Internet search. In general terms. such as timesharing and virtual machines. and cost advantage compared to standalone data centers. application clouds running on third-party infrastructure span all major enterprise solution areas. Cloud technologies allow IT to better respond to the changing needs of the business. deployment. thereby helping companies to achieve high performance. processing power. These processes are typically priced on a per-transaction rather than per-seat basis. falls broadly into the areas of CRM. create new services and open up new markets. Amazon Web Services and Microsoft. platforms and business processes. It differs from application clouds in that it provides end-to-end process support. 4 . they provide far greater elasticity. cloud is about much more than infrastructure. offer an Internet-enabled. including proven providers such as Salesforce. also known as software-as-a-service or SaaS. The second wave focuses on desktop productivity tools. companies have begun to source raw computing resources. In parallel.

scalability. These service components are designed to use the available IT assets in a highly efficient way. Crucially. in that they may need multiple ‘flavors’ for different types of operations and customers . 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 . platformas-a-service (PaaS) and infrastructureas-a-service (IaaS). The large third-party logistics (3PL) companies may adopt a similar approach.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. Different business will choose different routes to cloud With these considerations in mind. all of which offer virtualized solutions based on a variable. memory. effectively becoming private ‘trading exchanges’ for partners in the extended supply chain. simplification of the necessary IT support. since the user’s data is held externally alongside that of other businesses. A company using a private cloud gains the perceived benefits of lower risk and higher data security. again opting for private clouds. an approach that is sometimes required by regulators. public clouds extend the data center’s capabilities by enabling the provision of IT services from third-party providers over a network. while still retaining some degree of customization at the enterprise level. pay-as-you-go pricing model. Two forms of cloud computing The choice between private and public clouds represents a trade-off between security and flexibility. Private clouds may also span multiple Figure 1. different types of business may make different choices between public and private clouds for running their supply chains. Large multinational companies with multiple global supply chains may use private clouds as a way to standardize their IT infrastructure. Private clouds are built within a company’s data center and are designed to provision and distribute virtual application. software-as-a-service (SaaS). For example. small and medium-sized enterprises may find public cloud to be the best solution. storage. since it owns and holds the cloud data and services within its own infrastructure. However the story with 3PLs may differ slightly from multinationals. infrastructure and communications services for internal business users. are emerging as important elements of nextgeneration IT service capabilities. What they will sacrifice in the ability to customize the solution will be more than offset by the benefits in terms of lower cost. and ongoing innovations and upgrades by public cloud suppliers. In contrast. A public cloud is seen as involving higher risk. In contrast. they will not need to run complex implementation projects. as shown in Figure 2. simplify their upgrade paths and standardize their processes. The choice between private and public clouds represents a trade-off between security and flexibility. but only training and change management for the affected users. but it also tends to offer greater flexibility and scalability than a private cloud. 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. companies.

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

These new competitors will combine innovative ideas with readily available. The reality is that Supply Chain in the Cloud is a concept that is in the earliest of stages. 2. That means companies require little or no capital expense outlay to get started in new business segments. This could mean the traditional big-four (or BRIC) developing economies. they will likely start looking for ways to leverage Supply Chains in the Cloud for their non-core processes. markets. 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). but also in places like the Arabian peninsula and parts of Africa. 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. 7 . Little or no CapEx required Providers of cloud-based applications and services will do so on an almost entirely transactional basis. 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. Industry sectors The early adopters will likely be industries both with products that are less complex. and those with the greatest cost and margin pressure. and markets. transportation route planning. Processes like global trade compliance. and they can offer genuine transactionbased pricing. industry sectors. And it’s likely to develop at different paces in different process areas. or geographies. the most likely early services could emerge in countries with less developed infrastructure. That means most likely first consumer goods (particularly those that are commoditized) and parts and supplies in the automotive and industrial equipment sector.contracts to recoup the costs. though as the capabilities emerge in other industries. without the need to build up an entire supply chain infrastructure. Sectors like pharmaceuticals and high-tech will likely be further down the road. new companies will find it easier to establish themselves in the marketplace. Markets Since Supply Chains in the Cloud will be characterized by a more efficient way to use services. One example of these benefits in action is Freight Audit and Payment services. the key attributes are: 1. freight bill audit and payment. where companies look for ways to leapfrog development cycles and have minimal access to capital. cloud-based services to challenge established market leaders. For buyers/consumers of cloud-based services.

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

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

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

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

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

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

short development cycle and quick return on cloud services. service providers and venture capitalists will be drawn to this new market. scalability. speed to new markets. and the cost of writing off current investments in systems and processes. However.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. always with an eye on your roadmap. so don’t assume old models will work. Don’t assume this is a fad that will pass quickly – there are too many examples in other industries that indicate otherwise. Approach cautiously and evaluate frequently Start with the low hanging fruit. industries. we believe it is already clear that the capabilities and potential savings from clouds are too great to ignore. To make sure an organization maximizes benefits and minimizes risks. 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. 14 . and so on. it will not be based solely on costs. Given the low development costs. • Crunch the numbers Once you decide to enter the cloudbased service market. 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. Particularly in the beginning. Clearly. possibilities. a widening array of systems houses. so be sure to define the scale of the benefits that will constitute success for your supply chain: flexibility. So the critical question isn’t whether cloud computing will become a fundamental technology in the next decade. The race to Supply Chains in the Cloud is going to be won by the swift and the strong. by more and more providers. 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. Executives are still grappling with its risks. cloud computing is too important to leave entirely to technologists. Make a concerted effort to stay on top of developments in the market. Survey the market We are very much in the early stages of this new paradigm. Cloud computing may very well deliver the benefits that were initially promised by B2B exchanges in the late 90s. • Evaluate the competition Take a good look around to see if you are being beaten to the punch. Collaborate on decisions with key supply chain partners One of the benefits of cloud-based applications is easier integration. and which are the processes that could be sourced to a cloud-based provider? Call this your ‘process cloud road-map’. 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. If your organization has not yet started the journey to the cloud. While the work of migrating from conventional to cloud computing is likely to fall on the shoulders of the CIO. so you should involve your extended supply chain ecosystem partners in your strategy and choices. now is the time to start drawing up your roadmap. and measure as you go along to check that you are realizing the hoped-for benefits. Define the business case As cloud service providers establish themselves in the market and build up a track record of delivery. Over the next few years. and markets that are going to give you a real chance to take advantage of market demand. this is a new paradigm. 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. and identify the process areas. Supply chain’s migration to cloud: not a question of “if”. For those companies who might be providers of cloud-based supply chain services. Remember. Set the standards for success Defining what success for your cloud strategy will look like. you should evaluate the true cost benefits with a detailed ROI and risk analysis. 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. Look at the value these flexible service delivery models will bring to consumers – and price them accordingly. supply chain senior executives have important roles to play in moving towards Supply Chains in the Cloud. helping to map out cloud’s role in delivering your business strategy for the coming years. It is how successfully companies will profit from the capabilities it offers. In addition. apply the rigor to the business case on both the cost and price side.

2007. October 21.com) special advertising section on Freight Payment — June 21. Strategic acumen We help bridge the gap between technology and business impact by understanding your business realities as well as available cloud capabilities.com press release.” Wall Street Journal. Implementation and management experience We draw on our experience in migrating and managing complex environments. Ethan Smith. 2009. Source: Accenture Analysis 5. “SingTel to Help Establish Singapore as a Regional Cloud Computing Hub. Bernard Golden. 2009. “Salesforce. reliable partner. February 23. we can help you redefine your path to high performance with Supply Chains in the Cloud. December 8.co. November 17.” SearchSecurity. “Salesforce. November 15. to provide services in both traditional and cloud-based business models.” SingTel press release.com/Workingpapers/ joc2010freightpaymentadvert. “China Mobile Enters Sphere of Cloud Computing.com. 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. We’re rapidly changing our business model to help you bring cloud innovations that result in breakthrough business benefits. Proprietary methodologies Proven roadmaps and implementation frameworks help clients minimize risk and optimize costs.2010 6. 2009. January 21. are uniquely positioned to help clients create strategies that are well researched and incremental. understanding your needs. “The State of Cloud Computing in Japan. Through it all.” IDC Technology Assessment. Chris Preimesberger. 2009. as well as our deep knowledge in governance models.com. http://www. Ron Condon.salesforce. 2009. Ben Worthen and Justin Scheck. Eric Auchard. “Disney Touts a Way to Ditch the DVD. Working together.com.” Wall Street Journal. 2.com.pdf — The Journal of Commerce (www. July 14. Industrialized delivery Development of our cloud factories based on decades of delivery experience makes us a low-risk. com Powers Starbucks Campaign to Mobilize Americans in National Service. “Cloud Services/SaaS: What Telcos Are Doing. Whether they are providers or consumers of cloud-based services. 2009. Source: Survey of Retailer Use of Software as a Service – 15 September 2009 15 .com Signs Citigroup Deal.” eWeek. 3.joc. Inc. conconnect. With deep knowledge of cloud technologies and supply chain processes.” Salesforce. October 2009. © Gartner. 2009.” CIO. 2009. Accenture is with you. 4. June 22. Accenture is the right partner. speaking your language. Reference 1. November 5. “The Opportunities and Risks of Cloud Computing Services.uk.Accenture and the Cloud When Supply Chain in the Cloud is the right move. “Tech Giants Ramp Up Their Online Offerings. “Fujitsu Launches Cloud Services in North America. Source of quote: http://www.” Interfax. Skills From strategy through operations we help clients identify the right strategy and design a pragmatic approach for implementation. and reducing your risk of adopting new technologies.” Reuters.

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