Six questions every supply chain executive should ask about cloud computing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Disney Touts a Way to Ditch the DVD. Working together. Skills From strategy through operations we help clients identify the right strategy and design a pragmatic approach for Signs Citigroup Deal. February 23. “Fujitsu Launches Cloud Services in North America.” SingTel press release. Implementation and management experience We draw on our experience in migrating and managing complex environments. 3.salesforce. Whether they are providers or consumers of cloud-based services. 2009. “China Mobile Enters Sphere of Cloud Computing. “The State of Cloud Computing in Japan. Ron Condon. Inc. “Salesforce.” eWeek.” CIO. June 22. Strategic acumen We help bridge the gap between technology and business impact by understanding your business realities as well as available cloud capabilities. Source: Survey of Retailer Use of Software as a Service – 15 September 2009 15 .pdf — The Journal of Commerce (www.” Wall Street Journal. Accenture is with you.” Salesforce. November 2009. Ben Worthen and Justin reliable partner. Source of quote: http://www.Accenture and the Cloud When Supply Chain in the Cloud is the right move.” Wall Street joc2010freightpaymentadvert. October 2009. 2009.” Interfax. conconnect. understanding your needs. to provide services in both traditional and cloud-based business models. “Cloud Services/SaaS: What Telcos Are Doing. Chris Preimesberger. With deep knowledge of cloud technologies and supply chain processes. November press release. Proprietary methodologies Proven roadmaps and implementation frameworks help clients minimize risk and optimize costs. we can help you redefine your path to high performance with Supply Chains in the Cloud. “SingTel to Help Establish Singapore as a Regional Cloud Computing Hub. Eric Auchard. Accenture is the right partner. “Salesforce. com Powers Starbucks Campaign to Mobilize Americans in National Service. 2009. 2.2010 6. July 14. “The Opportunities and Risks of Cloud Computing Services. November 17. October as well as our deep knowledge in governance models. 2009. January 21. Industrialized delivery Development of our cloud factories based on decades of delivery experience makes us a special advertising section on Freight Payment — June 21. “Tech Giants Ramp Up Their Online Offerings. 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. speaking your language.” SearchSecurity. Ethan Smith. Reference 1.” Reuters. Source: Accenture Analysis 5. 2007. 2009. are uniquely positioned to help clients create strategies that are well researched and Through it all. 2009. Bernard Golden. 4. http://www. 2009. © Gartner. We’re rapidly changing our business model to help you bring cloud innovations that result in breakthrough business benefits.” IDC Technology Assessment. and reducing your risk of adopting new technologies. December

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