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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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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