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Six questions every supply chain

executive should ask about cloud


computing
By Thomas Schramm, Jonathan Wright, Dirk Seng and Derek Jones
Supply chain executives should
evaluate what cloud computing
can mean for their operations.
Asking the right questions is a
good place to start.
In today’s world, companies dynamically in multiple more supply chain services
are striving to operate a more formats and on a variety of are provided, shifting away
dynamic supply chain to react devices.2 And more cloud from traditional, contracted
to ever increasing volatility services will soon be available, outsourcing models to more
in customer demands and as established IT and telecom flexible, transaction-based
market conditions. And as providers including Accenture, models.
supply chains are increasingly Microsoft, Fujitsu, KDDI, China
With so many issues to
powered by information Mobile and SingTel join cloud
explore, supply chain decision
technology, flexible solutions pioneers like Google, Amazon
makers can easily succumb
are an important part of a and Salesforce.com.3
to “analysis paralysis” or the
supply chain design.
However, along with growing temptation to abandon their
Against this background, it’s interest, cloud computing in inquiry to the IT department.
no surprise that the topic of supply chain also generates But cloud computing is too
cloud computing is generating difficult questions. While important; supply chain
intense interest, after all major it promises to enable a executives have much to gain,
businesses across the world wide and powerful range of and should involve themselves
are already applying cloud capabilities, its potential uses in the dialogue.
technologies successfully in are exceptionally broad and
other business areas. Some difficult to foretell. What is
analysts estimate that the certain is that it will radically
market for cloud-based affect how computing is
services will reach nearly $150 done and managed, how
billion by 2014. Many global information is controlled, and
organizations in industries like the economics of supply chain
retail, banking, and consumer information technology. The
products are using cloud- technology’s novelty and the
based technologies to analyze hype found in some media
data, provide applications to stories make it even harder
employees and run special to evaluate its potential,
projects.1 Media giants are costs, and risks. But beyond
reported to be working on a the technology, we believe
cloud-like service that will cloud computing will lead
enable content to be delivered to a revolution in the way

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

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

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

Figure 1. A continuum of four cloud Figure 2. Two forms of cloud computing


computing opportunities4 The choice between private and public clouds represents a trade-off between security
and flexibility.
Process/Industry clouds
Standardized horizontal or vertical business Private cloud
processes provided on a subscription basis
to individual clients or industries: Business
Process Utility
Perceived security

Data security & • Full data protection only possible in private cloud
business continuity • Service level agreements expectations might only be
Application clouds fulfilled in private cloud
Business application provided on a
subscription basis Process & competitive • Unique & leading processes only in private cloud
advantage • Internal process detailed know-how & skills
Platform clouds • High customization abilities

Virtualized development and run time Infrastructure • Resources


platform flexibility & scalability • Network
• Processing
Infrastructure clouds
“Raw” infrastructure (CPU, memory, Availability of new • Fast & relatively cheap access to new capabilities
storage, network) available on an business capabilities
Flexibility & cost

as-needed basis in public or private


clouds
Build & maintenance • Relatively low costs per user
costs • Pay per use instead of fixed costs

Public cloud

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2. Is cloud more than just a technology or
applications play?
Certainly, technology is the basis for The emergence of Supply Chains in needed to size and provision computing
cloud computing. However, cloud the Cloud will have a transformational hardware each time they added
represents anything but ‘just’ another impact on how supply chains are created, customers, cloud computing utilizes
technology platform. In fact, it promises managed and optimized. For this reason, server ‘farms’ consisting of hundreds, or
to transform the very nature of the way the remainder of this paper will focus even thousands, of servers. Applications
companies buy and use IT services, both on what we believe to be the long-term run on any server with available
within the supply chain arena and also future of Supply Chains in the Cloud. capacity, and capacity is added by simply
across the broader enterprise. adding more servers to the cloud.
Key enablers
However, moving further up the cloud 2. Multi-tenant (one:many) capabilities
computing continuum, we believe What is it about cloud technology that Cloud computing applications are
that cloud technology will also be the will enable it to transform supply chains designed to house multiple tenants
enabler for an entirely new paradigm: in this way? This essentially comes down (users, instances, or customers). They
cloud-based supply chain processes, to a few key attributes for providers and leverage common software code, and
or ‘Supply Chains in the Cloud’. Put buyers of cloud-based services. new ‘tenants’ can be added quickly.
simply, in the not-too-distant future we
expect to see providers of supply chain For providers of cloud-based services, In combination, these attributes mean
services leverage the technology of the attributes are: cloud service providers can on-board
cloud computing to provide services on a new customers quickly and flexibly,
transactional ‘pay-per-use’ basis to any 1. Massive scalability without the traditional ramp-up efforts
customer, anywhere, anytime. Cloud computing has effectively solved and costs. Because they do not need to
the problem of scalability of IT systems. bear these overheads, providers do not
Whereas traditional service providers have to lock customers in to lengthy

Freight Audit and Payment


services
Many companies recognize freight as a Allan Miner, president of CT Logistics,
necessary—but not necessarily core— described his company’s take on cloud
part of their business. Outsourcing computing: “It’s possible for us to offer
the function of auditing, approving, CT’s FreitRater system as Software-as-
and paying freight bills can provide a-Service (SaaS), rather than purchasing
significant cost benefits, since service it under a license. The clients get a
providers can leverage economies monthly variable fixed fee, thus better
of scale, and because their focus on pricing, because we are using less
technology and process improves servers than before, when we had to add
accuracy, preventing duplicate charges a new server every time we added a new
and overcharges. While these services client to the SaaS model.”5
have been around for some time, cloud
computing is beginning to change the
way they are delivered. For example,
provider CT Logistics has started to offer
its service in the cloud.

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contracts to recoup the costs, and sector. Sectors like pharmaceuticals and
they can offer genuine transaction- high-tech will likely be further down the
based pricing. One example of these road, though as the capabilities emerge
benefits in action is Freight Audit and in other industries, they will likely start
Payment services, as described in the looking for ways to leverage Supply
accompanying information panel. Chains in the Cloud for their non-core
processes.
For buyers/consumers of cloud-based
services, the key attributes are: Markets
Since Supply Chains in the Cloud will be
1. Little or no CapEx required characterized by a more efficient way
Providers of cloud-based applications to use services, the most likely early
and services will do so on an almost services could emerge in countries with
entirely transactional basis. That less developed infrastructure. This could
means companies require little or no mean the traditional big-four (or BRIC)
capital expense outlay to get started developing economies, but also in places
in new business segments, markets, or like the Arabian peninsula and parts of
geographies. Africa, where companies look for ways
to leapfrog development cycles and have
2. Low barrier to entry will create new minimal access to capital.
market entrants
Because major capital investments and
staff ramp-ups are not required, new
companies will find it easier to establish
themselves in the marketplace. These
new competitors will combine innovative
ideas with readily available, cloud-based
services to challenge established market
leaders, without the need to build up an
entire supply chain infrastructure.

The reality is that Supply Chain in the


Cloud is a concept that is in the earliest
of stages. And it’s likely to develop at
different paces in different process areas,
industry sectors, and markets.

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. Processes like
global trade compliance, transportation
route planning, freight bill audit and
payment, 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, and those with the
greatest cost and margin pressure.
That means most likely first consumer
goods (particularly those that are
commoditized) and parts and supplies in
the automotive and industrial equipment

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

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3. Is cloud a reality for all supply chain
processes?
While supply chain process clouds will based. These include some that are candidates for cloud. At the same time,
have a transformational impact, it is already available today, if not in a fully the market for cloud-based solutions
unlikely that every process will be a cloud-based model, then somewhere will become more mature, standards will
candidate for cloud. Two categories of on the spectrum towards cloud-based be defined, and leading players will be
process in particular may prove unsuited processes. Current examples include established (see also question 5 of this
to cloud computing: Freight Bill Audit and Payment, as document).
highlighted earlier in the information
• Complex and/or unique processes that panel on CT Logistics; spare parts Taking all this into account, we
require a heavy degree of customized locating, such as www.sparesfinder. expect cloud-based processes will be
processing are less likely to be net; and transportation sourcing/bid established in three major waves of
delivered as cloud-based services, at management, such as ConfirmIT. cloud-based processes by 2015, as
least in the near future. shown in Figure 4.

• Processes that require heavy Future migration of SCM Of course, these are simply suggestions
integration with either a physical flow processes to the cloud of areas that might evolve. Over time,
or with other information systems innovate ideas from providers and
particularly those requiring ultra-fast Going forward, those supply chain demand for services from consumers will
response times are also not well- processes that lend themselves to being ultimately determine which processes
suited to cloud. cloud-based can be divided between move to the cloud. In all process areas,
the ‘lower-hanging fruit’ that is likely to the basis for successfully providing
However, these exceptions aside, there move to cloud in the short-to-medium supply chain processes in a cloud is a
are many supply chain processes that term, and the more challenging and strong combination of IT infrastructure
do lend themselves to being cloud complex processes that are longer-term and process excellence and expertise.

Figure 4. Implementation waves for SCM processes on cloud-based platforms

Wave 1 Wave 2 Wave 3


2010-2011 2011-2013 2013-2015
Processes & providers characteristics & Processes & providers characteristics & Processes & providers characteristics &
examples examples examples
Early pilots. Driven by innovation and Maturing phase, first providers disappear Consolidation phase, major players in each
continuous improvement needs, testing from the market, others invest to grow and category defined. Well established models
attitude. improve service offering. for usage and payment of cloud based
services.
Support & administrative processes. These Higher focus on core and rather complex
can easily be abstracted and isolated, processes. Examples: Also complex processes covered in cloud,
and do not require complex integration. e.g. requiring collaboration between many
• Pricing optimization
Examples: entities and tighter integration with other
• Replenishment planning processes, and perhaps involving physical
• Capability development/training
• Order processing capacity constraints. Examples:
delivery
• Transportation load building • Collaborative engineering
• Simple analytics
• Warehousing and distribution of
physical product
• Reverse logistics/returns processing
• Fleet management

User group interests User group interests User group interests


Companies with highest pressure for Broader industry scope, companies with All industries applied cloud based
operational excellence and through higher integration needs will start using processes
competition, e.g. Products / Consumer cloud based services as part of their
Goods, High-Tech operating model

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

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

11
6. What are the challenges — and how can
they be managed?
The journey towards Supply Chains in the • In the case of PPE, those cloud- utilize a standard, published rate card
Cloud will face a number of challenges, based services which require handling for services. And while standardization
both for service providers and service of physical products (manufacturing of the services will help them estimate
consumers. and warehousing) will be among costs, there will likely be a period of
the most difficult to provide. Unlike evolution as providers experiment with
Service providers technology, where servers can be elements of the pricing model. Some of
easily added, adding new physical these elements might be:
Providers of supply chain services who space and equipment takes time and
move to providing cloud-based services investment. Providers who do enter • Pay for speed
will stand to reap big rewards in terms this space will look to build the most While processes will be standard, the
of market share. But they will also face a flexible infrastructures possible to speed with which they are delivered
number of challenges. enable flexible provision of services. might not necessarily be. Providers may
Warehouses will need to be easily elect to use price as a way to ‘smooth’
Ability to scale reconfigurable, and able to be moved demand, charging a premium for fast
The technology behind Supply Chains in quickly to new, leased building space. turnaround, and offering discounts for
the Cloud is well-established, and will Manufacturing processes will need cycle time flexibility.
enable companies to quickly scale IT to be geared for short runs and fast
capabilities to meet growing demand. changeovers. And most importantly, • Peak pricing
But offering a cloud-based service will these service providers will need to be Another tool providers may use to
often require additional resources that much more focused on the definitions of ‘smooth’ demand might be peak pricing.
are more challenging to scale – human the services which they provide. Consumers might choose to request
resources and in some cases plant, services during periods of relatively
property, and equipment (PPE). Fierce competition low demand – which may be certain
The provision of cloud-based services months, weeks, days, or times of day
• Traditional outsourcing of supply will likely create an initial rush of new – in exchange for lower pricing. Other
chain processes and business operations entrants into markets. This will have consumers who need time-specific
typically involves long ramp-up times, parallels with the dot-com boom of processing may pay a premium for
and often includes transferring staff the late 90s, when hundreds of startup high-demand times (such as month-end
to the service provider. Cloud-based companies were formed to capitalize on auditing of freight invoices).
service providers will need advanced the new online marketplace. That boom
capabilities to forecast demand for their was triggered by technology (i.e. the • Discounts for volume
services in order to create appropriate establishment of the world wide web) Cloud-based services will be
plans. With very little history to go on, and changed the way the world looked transactional in nature, but providers
these forecasts will need to look to new at shopping and order fulfillment. After a can benefit from volume commitments
ways to predict the future – market period of exuberance and hypergrowth, (in improved demand forecasting)
surveys, trends in other cloud-based the market ultimately underwent a and will likely reward them with price
service verticals, even tools like ‘Google painful round of high profile failures and discounts. Because of the transactional
Trends’ to indicate how many people are consolidations, leading to fewer, more nature of the services, these pricing
searching for these types of services. mature providers. The Supply Chains elements may be implemented in the
Since the very essence of offering in the Cloud boom will likely follow a form of pricing based on assumed tiers
cloud-based services will be the ability similar cycle. The challenge for service of volume, with periodic ‘true-ups’ in the
to scale, forecasting demand will need to providers will be to balance the drive form of rebates or surcharges.
be a core competency. for market share with the development
of sustainable business practices to • Service and pricing configurability
• In the case of human resources, position themselves to be standing when Even standardized processes will
cloud-based service providers will the dust clears. likely be offered with a degree of
need to master the arts of recruiting, configurability, with consumers choosing
on-boarding, and managing new talent. Pricing from a standard ‘menu’ of components.
They will need to define standardized Providers of cloud-based services Pricing will need to reflect that, and
processes and develop and utilize will also face significant challenges may not be as simple as the sum of
tools to help new staff execute those around pricing. Compared to traditional components. Providers may use more
processes. Training will need to be outsourcing, which typically involved advanced, combinatorial methods to
delivered quickly, efficiently, and to an lengthy due diligence processes to price service configurations.
audience which may not have any pre- establish long-term contract prices,
existing knowledge. cloud-based service providers will

12
Service consumers Similarly, since competitors may be using
the same or similar service offering the
Surveys about cloud computing same supply chain capabilities, some
consistently show that data security companies perceive a risk that using
is companies’ number one concern a public cloud may result in a loss
about joining a cloud-based service of competitive advantages in their
environment. However, these worries have marketplace. However, if a process gives
now been largely overcome and addressed a company a significant competitive
by cloud providers. Companies using advantage, it most likely isn’t a candidate
cloud-based services should perform data for a public cloud process anyway. Also,
security audits together with the cloud companies can still take advantage of the
provider, to ensure that their customer technology benefits with internal/private
data is properly protected. clouds, and create competitive edge
through differentiated capabilities.
A further risk is a loss of skills and
knowledge from the organization. And while these are all important
Since cloud-based process solutions concerns for companies considering a
will facilitate the externalization of move to Supply Chains in the Cloud,
processes beyond the borders of the in many cases the most significant
organization, companies need to have challenge will be to the changes
a very clear and deliberate strategy required to the overall business model,
covering which processes are to be as outlined in the previous section. Quite
owned and operated internally (mainly simply stated, most companies today are
core processes), and which other, less not governed in a way that will allow
critical and less strategic processes them to take advantage of new cloud-
could be operated by a service based services.
provider. Once detailed knowledge of
these non-core processes is lost, it
could be very difficult to re-establish
them in-house. So companies should
proceed in a considered and cautious
way when selecting processes to
entrust to the cloud.

Compounding this risk of losing valuable


skills, particularly in the early stages,
will be the danger of service provider(s)
going out of business. As with any
supply chain partnership, companies need
to mitigate this risk by evaluating the
strength of the overall market and the
specific strength of their chosen provider
within it. This should involve using
traditional risk-management and due
diligence techniques to determine the risk
of failure and identify viable alternatives.

Given the one-to-many nature of many


cloud services, 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.
This risk can be offset by increases
in configurability. Software vendors
and service providers are going to
increasingly offer the ability to configure
within a standard code base. As we
noted earlier, companies like Predictix
are doing this already.

13
Taking the first steps
As we highlighted at the start of this Develop your strategy Supply chain’s migration to
paper, cloud computing is too important Which are the processes that you want
to leave entirely to technologists. While to retain internally, and which are the cloud: not a question of “if”,
the work of migrating from conventional processes that could be sourced to a but “when”
to cloud computing is likely to fall on the cloud-based provider? Call this your
shoulders of the CIO, supply chain senior ‘process cloud road-map’. While it may take time for supply chains
executives have important roles to play to transition to cloud computing, we
in moving towards Supply Chains in the Define the business case believe it is already clear that the
Cloud. As cloud service providers establish capabilities and potential savings
themselves in the market and build up from clouds are too great to ignore.
For those companies who might be a track record of delivery, you should Executives are still grappling with
providers of cloud-based supply chain evaluate the true cost benefits with a its risks, possibilities, and the cost
services, executives should take the detailed ROI and risk analysis. Start by of writing off current investments
first steps: clearly identifying and describing the in systems and processes. However,
issues and potential pain points in your beginning the journey early can deliver
• Evaluate the market need processes and systems that you want to some substantial financial benefits—and
Are there service you provide today address with a cloud solution. Demand for several companies the transition to a
that could easily be provided in a that prospective suppliers provide data- cloud environment is already under way.
cloud-based model? How feasible will driven analyses to quantify the expected
it be to move to transactional-based benefits of change, helping to map out In addition, a widening array of systems
provision of services? Evaluate your cloud’s role in delivering your business houses, service providers and venture
assets and infrastructure to identify strategy for the coming years. capitalists will be drawn to this new
your ability to scale, and identify the market. Given the low development
process areas, industries, and markets Set the standards for success costs, short development cycle and quick
that are going to give you a real Defining what success for your cloud return on cloud services, the fact is
chance to take advantage of market strategy will look like. Clearly, it will not that future advances and innovations in
demand. be based solely on costs, so be sure to supply chain IT and processes are much
define the scale of the benefits that will more likely to be based on clouds than
• Evaluate the competition constitute success for your supply chain: conventional computing.
Take a good look around to see if you flexibility, scalability, speed to new
are being beaten to the punch. The markets, and so on. So the critical question isn’t whether
race to Supply Chains in the Cloud is cloud computing will become a
going to be won by the swift and the Survey the market fundamental technology in the next
strong. Don’t assume this is a fad that We are very much in the early stages decade. It is how successfully companies
will pass quickly – there are too many of this new paradigm. Over the next will profit from the capabilities it offers.
examples in other industries that few years, more and more supply chain If your organization has not yet started
indicate otherwise. processes will be offered in the cloud, the journey to the cloud, now is the time
by more and more providers. Make to start drawing up your roadmap.
• Crunch the numbers a concerted effort to stay on top of
Once you decide to enter the cloud- developments in the market, always with
based service market, apply the rigor an eye on your roadmap.
to the business case on both the cost
and price side. Remember, this is a Collaborate on decisions with key
new paradigm, so don’t assume old supply chain partners
models will work. Particularly in the One of the benefits of cloud-based
beginning, this will not be a ‘cost- applications is easier integration, so
plus’ world. Look at the value these you should involve your extended
flexible service delivery models will supply chain ecosystem partners in your
bring to consumers – and price them strategy and choices. Cloud computing
accordingly. may very well deliver the benefits that
were initially promised by B2B exchanges
To make sure an organization maximizes in the late 90s.
benefits and minimizes risks, executives
who might be consumers of cloud-based Approach cautiously and evaluate
supply chain services should take a frequently
number of proactive steps: Start with the low hanging fruit, and
measure as you go along to check that
you are realizing the hoped-for benefits.

14
Accenture and the Cloud
When Supply Chain in the Cloud is Strategic acumen Industrialized delivery
the right move, Accenture is the right We help bridge the gap between Development of our cloud factories
partner. With deep knowledge of technology and business impact by based on decades of delivery experience
cloud technologies and supply chain understanding your business realities as makes us a low-risk, reliable partner.
processes, are uniquely positioned well as available cloud capabilities.
to help clients create strategies that Through it all, Accenture is with you,
are well researched and incremental. Proprietary methodologies speaking your language, understanding
Whether they are providers or consumers Proven roadmaps and implementation your needs, and reducing your risk of
of cloud-based services, clients rely on frameworks help clients minimize risk adopting new technologies. We’re rapidly
us for: and optimize costs. changing our business model to help you
bring cloud innovations that result in
Industry knowledge Implementation and management breakthrough business benefits. Working
Insight into industry and supply chain experience together, we can help you redefine your
drivers help clients identify cloud We draw on our experience in migrating path to high performance with Supply
services for competitive advantage in and managing complex environments, Chains in the Cloud.
their markets. as well as our deep knowledge in
governance models, to provide services
Skills in both traditional and cloud-based
From strategy through operations we business models.
help clients identify the right strategy
and design a pragmatic approach for
implementation.

Reference
1. Eric Auchard, “Salesforce.com Regional Cloud Computing Hub,” SingTel
Signs Citigroup Deal,” Reuters.com, press release, July 14, 2009; Chris
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com Powers Starbucks Campaign to Services in North America,” eWeek.com,
Mobilize Americans in National Service,” December 8, 2009.
Salesforce.com press release, January
21, 2009, http://www.salesforce.com; 4. Source: Accenture Analysis
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Risks of Cloud Computing Services,” 5. Source of quote: http://www.
SearchSecurity.co.uk, February 23, 2009. conconnect.com/Workingpapers/
joc2010freightpaymentadvert.pdf —
2. Ethan Smith, “Disney Touts a Way The Journal of Commerce (www.joc.com)
to Ditch the DVD,” Wall Street Journal, special advertising section on Freight
October 21, 2009. Payment — June 21.2010

3. Ben Worthen and Justin Scheck, “Tech 6. © Gartner, Inc. Source: Survey of
Giants Ramp Up Their Online Offerings,” Retailer Use of Software as a Service –
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15
About the authors Dirk Seng
is an executive in the Accenture
Thomas Schramm Management Consultant SCM service
is an executive in the Accenture line. He is focusing on transportation
Management Consulting practice. management and order management
Mr. Schramm leads the Supply Chain and is leading the Accenture order
Management Service Line within Austria, management offering in Austria,
Switzerland, and Germany, and was Germany and Switzerland.
formerly the Global Lead for the Service dirk.seng@accenture.com
Management practice.
thomas.a.schramm@accenture.com Derek Jones
leads the Research and Development
Jonathan Wright department for the Supply Chain
is an executive in the Accenture Management Service Line.
Management Consulting practice. He derek.m.jones@accenture.com
leads the Supply Chain Management
Service Line within Southeast Asia,
Australia, and Korea, and was formerly
the Global Lead for the Fulfillment
practice.
jonathan.j.wright@accenture.com

Copyright © 2010 Accenture About the Accenture Institute About Accenture


All rights reserved.
for High Performance Accenture is a global management
Accenture, its logo, and consulting, technology services and
The Accenture Institute for High
High Performance Delivered outsourcing company, with approximately
Performance creates strategic insights
are trademarks of Accenture. 204,000 people serving clients in
into key management issues and
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through original research and analysis. unparalleled experience, comprehensive
Its management researchers combine capabilities across all industries and
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extensive consulting, technology and research on the world’s most successful
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innovative research and analysis into with clients to help them become
how organizations become and remain high-performance businesses and
high-performance businesses. Both governments. The company generated net
research fellows at the Accenture revenues of US$21.6 billion for the fiscal
Institute for High Performance, Jeanne year ended Aug. 31, 2010.Its home page is
G. Harris (jeanne.g.harris@accenture. www.accenture.com.
com) and Allan E. Alter (allan.e.alter@
accenture.com) led the Cloud Computing
research that is referenced in this paper.

ACC10-2460/11-2410