Cloud brings supply chain apps to SMBs

But while cloud promises lower cost and quicker adoption of applications, Asia's manufacturers and logistics companies still have their concerns.
Written by Sol E. Solomon, Contributor

The "supply chain in the cloud" concept, which grew out of previous initiatives such as value-added networks, electronic marketplaces and application service providers, continues to evolve as vendors make a beeline for small and midsize businesses (SMBs).

Christopher Holmes, Asia-Pacific vice president for IDC's Manufacturing Insights, said vendors are targeting cloud-based services at SMBs specializing in manufacturing and logistics, with the promise of helping them significantly lower the cost of ownership.

"The SaaS (software-as-a-service) application vendors have realized that in this economic climate, the SMB segment is most affected in terms of cash flow. Hence, it is the right time to increase their customer base through a cloud-based offering," Holmes said in an e-mail interview.

Examples of supply chain applications available in the cloud are enterprise resource planning (ERP) and business systems, business intelligence (BI), Web analytics, customer relationship management (CRM) and salesforce automation (SFA).

SaaS in the supply chain

Dan Miklovic, vice president in Gartner's Industry Advisory Services highlighted some software as a service (SaaS) trends in the supply chain management (SCM) market:
  • Supply chain planning (SCP): The level of complexity integrating this process with other important business processes has slowed the adoption of SCP as a service.
  • Supply chain execution (SCE): Most of the segment's traction is driven by transportation management systems (TMS), which are beneficial to customers without significant or complex planning requirements. Value is gained from digital connectivity with carriers, which is a primary reason for the adoption of TMS SaaS. SaaS has the potential to open the TMS market to smaller, less-complex shippers with less than US$25 million in annual freight, which will fuel growth in this segment.
  • Sourcing and e-procurement: E-sourcing emerged during the late 1990s. Its survival results from the value that e-sourcing delivers to enterprises and because many vendors have worked to offer products through the SaaS model.
  • Service parts planning (SPP): Specialized versions of SCP applications focus on the unique characteristics of service parts management. It's a newer and smaller market within SCM, with several specialized providers often partnering with larger enterprise resource planning suite providers.

Peter Coffee, director of platform research at Salesforce.com, said cloud computing makes it easier for SMB manufacturers to immediately adopt supply chain applications. A company can gain from economies and accelerate deployment by using cloud-based resources, he added.

Coffee said in a phone interview: "This is possible even in the earliest days of the formation of the business because there is no requirement to allocate capital funds to the acquisition and deployment of infrastructure, and there is no requirement for dedicated IT staff to assemble, configure and manage that infrastructure."

Concerns clouding offerings
Despite the strong value proposition provided by cloud-based offerings, manufacturers and logistics organizations in Asia still have their concerns.

Michael Warrilow, managing director of research firm Hydrasight, attributed this to two key reasons--a distrust of cloud services, and the immaturity of the user company's internal IT capability.

"Ironically, recognizing the latter will help organizations to develop and become more comfortable with the cloud. We believe that judicious adoption of the cloud can be no more risky than internally-supplied IT services," said Warrilow in an e-mail.

"Moreover, a well thought-out and architected cloud strategy has the potential to be less risky than internal delivery due to the increasing complexity and ever-broadening business requirements," he noted.

Holmes added that companies are also concerned about confidentiality of corporate information, the difficulty in integrating with other internal and SaaS business systems, and the complexity of data migration. Other worries include the inflexibility of SaaS offerings to meet business-specific requirements, as well as the viability of the SaaS provider in the long run.

Some silver lining
However, James Loo, CIO of logistics and SCM company YCH Group, remains optimistic. He said the SaaS model cannot be ignored, given its advantage of usage-based pricing. In time, as more SaaS-based products enter the market, YCH may consider adopting the platform, Loo told ZDNet Asia in an e-mail. For a start, though, the company would consider SaaS applications only for specific applications, he said.

"My evaluation is that SaaS is most effective as a low-cost platform for data capturing or transaction-processing applications," Loo said, but explained that as his company's business management and SCM tools are more strategic and complex in terms of requirements, "I am doubtful that SaaS vendors are able to offer these applications at competitive pricing".

For user organizations like YCH, the key challenge to adopting the SaaS model is integration, he noted. "It has to come with a comprehensive integration toolkit [which is] a must for end-to-end SCM visibility. We can't afford to have an 'extract and forward' FTP-type protocol for information exchanges between supply chain members. We need real-time information integrated to our own SCM management software."

However, Loo believes such technology-linked issues will be resolved in time and further improved with the advancement in telco and network services. "It can only get better, more reliable and cost-effective." he added.

Holmes added that telco providers are becoming a "new breed of solutions providers", helping to make inroads into the SaaS market. "These telco providers usually bundle business solutions with unified communications capability, and have the potential of making the adoption of collaborative business solutions seamless," he said.

Revenue Forecast for Supply Chain Applications Delivered by SaaS, 2007-2012 (US$M)

2007 2008 2009 2010 2011 2012 CAGR (%)
CRM 1,265 1,737 2,074 2,419 2,803 3,258 20.8
ERP 1,045 1,239 1,428 1,588 1,734 1,884 12.5
SCM 603 746 890 1,048 1,240 1,438 19.0

Source: Gartner (August 2008)

Addressing common concerns
As businesses evaluate the tradeoff between owning and managing various applications or relying on a third party, Jasbir Singh, Oracle's Asean senior director of supply chain management, product and solution consulting, said: "This is similar to the decision to rent a home versus purchasing one."

"Some companies are cautious and would want to find out more about the implications of having off-premise information and infrastructure," Singh told ZDNet Asia in an e-mail.

As for the underlying infrastructure, Holmes said this depends on the type of application companies deploy. Issues that need to be considered while deciding on the infrastructure include the number of concurrent access and scale of operation; geographic spread of customer and time zones; and how resource-intensive the processes are. Companies will also need to consider the kind of service level commitments for availability, response time made to the customers, nature of data transmitted whether video, audio or data, and whether the functions offered are transactional or analytical in nature.

Warrilow highlighted that consumers and providers of cloud-based services need the ability to provide sufficient capacity to service all customer technology needs.

"With respect to manufacturing and logistics...today's supply chain now involves the exchange of all types of electronic business documents and data such as demand estimates, inventory analysis, purchase orders, advanced shipment notices and invoices," he said. "The supply chain is therefore highly dependent on reliable, always-available, secure networks that deliver applications and information to the right people at the right time, across any location."

According to Holmes, SaaS providers will also need to take into account country-specific infrastructure constraints that potentially will impact the response time, and make provisions for bandwidth-optimized solutions, particularly if the data involves rich media.

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