Cloud computing: The answer to supply chain woes

The adoption of cloud computing services in a supply chain context will mirror the former uptake patterns of on-premise enterprise resource planning (ERP) software. This means that such offerings are unlikely to be used to support non-commodity, core business processes for at least another three years.

The adoption of cloud computing services in a supply chain context will mirror the former uptake patterns of on-premise enterprise resource planning (ERP) software. This means that such offerings are unlikely to be used to support non-commodity, core business processes for at least another three years.

Initially, lower-level cloud-based services such as accessing raw compute power or storage capacity over the internet (infrastructure-as-a-service) and exploiting web-based development environments (platform-as-a-service) will be of most appeal for use in tactical situations. Employment of the cloud delivery model will also be more readily embraced for standardised application areas such as finance and human resources (software-as-a-service) that do not provide organisations with competitive advantage.

But says Sergio Nogueira, senior executive of Accenture's supply chain systems integration and technology practice, "It has taken the best part of 10 years for companies to embrace enterprise resource planning (ERP) and become confident enough to use it in their core processes and, while it will not take that long for cloud computing because timescales are being compressed, it will be at least two or three years."

Patchwork approach

In the same way that ERP applications have not been employed to automate 100% of enterprises' business processes, it is unlikely cloud computing will be adopted as a wholesale replacement for on-premise systems. Instead organisations are likely to use a more hybrid patchwork of on-premise, "public" cloud and "private" cloud services where appropriate.

The concept of "private" cloud computing involves companies deploying key enabling technologies such as virtualisation and multi-tenant applications to create their own "private cloud" datacentres. Individual business units (or partners) then pay the IT department for using industrialised or standardised services in line with agreed charge-back mechanisms. For many enterprises this approach is less threatening than a wholesale move to the public cloud, but should make it easier to hand individual services over to a third-party provider in future.

But a particular area of the supply chain in which the public cloud is believed to have much potential, particularly in a globalised world, is that of boosting visibility in those processes where collaboration with and between third-parties such as suppliers and partners is key.

For example, in the case of inventory, it can be difficult for manufacturers to ascertain what is happening with various stock items at any given moment in order to take action should it become necessary. This is because partners across the supply chain often do not provide each other with timely enough information, and process steps tend not to be joined up as seamlessly as they might be.

Russ Daniels, Hewlett-Packard's vice-president of cloud strategy, however, has cited a potential scenario where businesses could ask each of its suppliers to file reports into the cloud about the components that they ship, including their current status. The company would then analyse the aggregated data and tackle any specific issues or problems that were unearthed.

But although Nogueira believes that such a view of the future is "feasible and an objective that many organisations have around cloud", he also says that "it will take some time before enterprises are willing to embrace that vision in the supply chain context".

Tim Payne, research director of supply chain management at Gartner, says such a scenario is unlikely to become a reality for "five-years-plus". Sectors such as a high tech and electronics, which use high levels of contract manufacturing, or retail segments using many offshore providers, are likely to move first as the business case will be stronger, but "you need quite visionary actors in the supply chain to really make it happen", Payne says.

Cultural change

And such vision is necessary because the key reservations about using cloud computing for collaborative processes tend to be mainly cultural rather than technological.

Ian Finley, vice-president of research at AMR Research, says, "It revolves around political issues that require a change of mindset. People have to think of themselves as part of a supply network rather than as individuals, and it is a difficult shift."

Although such a shift is similar in nature to that required when moving to ERP systems in the past, it is actually a bigger one. The former scenario had, for the first time, required business unit managers to think of the greater good of the whole organisation rather than simply of the benefits to their own power base.

But says Finley, "To move to common processes across the supply chain is going to require a similar transfer of power - only this time, there is not a CEO to say 'do it this way or you will not have a job'. So it will require members of the supply chain getting together and deciding the best thing for the community."

One of the challenges, however, relates to trust - trust around how much information is shared and how early; trust that such information will not be passed on to rivals and trust on the part of community members that it will not be used against them. This means that, at the very least, agreements need to be set up to ensure organisations are encouraged to work together fully with others.

Because of this all-important trust issue, it seems likely that despite the probable emergence of new players, business-to-business trading hubs such as e2Open and GXS - which provide a basic form of cloud service already - will have a strong part to play in the future should they decide to either build out their own cloud service offerings further or partner with third-parties.

As Finley concludes, "If you are a company the size of Wal-Mart, you can say that 'if you want to deal with us, you have to do it our way'. But if there is a trusted third-party that you can hand things off to in the cloud, I think it is the route most organisations will prefer."

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