Cloud computing for retail

IBM Global Retail White Paper

Cloud Computing

2

Retailers constantly strive to improve efficiency and reduce cost. Managing their large application portfolios has become increasingly complex and expensive and their IT departments frequently must support vertically-focused applications with overlapping functions. Distributed infrastructures and multiple architectures “inherited” from packaged solutions complicate the management of information. As retailers add new capabilities and enter new market segments, the challenges of complexity and cost of managing their IT increase. This paper explains how cloud computing can help retailers address these challenges.

Why cloud computing for the retail industry?Simply put, cloud computing can reduce the IT costs of managing existing and new systems. We see retailers constantly exploring new business models and adding new capabilities to their application portfolios, which in turn increases the complexity of IT infrastructure, volume of data and demands more computing power. For example:

• Grocery chains are increasing private label assortments and developing new product life cycle management, manufacturing and recipe management capabilities.

• Food safety requires specialized systems to track inventory.• Drug and pharmacy chains, offering medical care and private

labels, now behave almost like pharmaceutical companies and require new applications.

• The use of social networks to increase business requires specialized vertical systems to manage customer reviews, unstructured content, digital media and more for websites.

• Fashion apparel retailers focus on localized assortments, shorter cycle times and customized offers that require specialized inventory, faster execution of sales promotions and greater visibility of the supply chain.

• General merchants offer more consumer electronics and subscription plans with specialized application needs.

• “Do-it-yourself” retailers continue to develop more precise solutions for delivery scheduling, installation and setup, including optimization of field service management.

Such a customer-focused retailing approach creates a tremendous amount of data — driving a 54 percent growth in storage shipments every year.1 Yet retail IT operating budgets, as percentage of revenue, are one of the lowest in the industry. The need to do more with less is therefore a continuous imperative for these IT departments.

Cloud computing for retail

IT challenges in the retail industry •“Alwayson”requirementsforcustomer-facing ITservicessuchaswebsites

• Significantvariancesincomputingcapacities betweennormalandpeakworkloads

• FlatITbudgetshavingtoabsorbnew capabilitiesandgrowth

• Consolidationofsoftware,hardwareand systemsmanagement

• Alackofinternalexpertise

• Efficientreuseofhardwareinvestments (astestanddevelopmentenvironments)

• Supportformorecomputationallyintense services

3

What is cloud computing?Cloud computing is an emerging computing model that offers users access to their applications from anywhere, with any connected device. The services themselves are in data centers where computational resources can be dynamically provisioned and shared to achieve significant economies of scale.

Cloud computing focuses on:

• Virtualization of infrastructure and services• Automated provisioning of services• Elastic scaling (increase or decrease) of computing

power—on demand• Increased availability and connectivity with end users

There are different types of cloud offerings — public, private and hybrid—all of which can help retailers better manage their application growth and computing costs.

PublicThe infrastructure in a public cloud is owned and managed by an organization selling cloud services and is made available to the general public. In this model, computing capabilities and services such as standardized business processes, applications and infrastructure services are accessed by multiple subscribing clients on a flexible, pay-per-use basis.

PrivateThe infrastructure in a private cloud is operated solely for a user organization. The organization can own the private cloud or they can engage a third party to host it—either on site or off. A private cloud provides restricted access to the computing capabilities and resources to be shared by employees; internal departments such as human resources, IT or marketing; and external partners such as distributors and manufacturers.

At the same time as they are ramping up their capabilities, many retailers are trying to cope with expensive, complicated IT infrastructures. On average, 70 percent of retail IT budgets is spent maintaining current infrastructures.2 Annual operational costs (that is, power, cooling and management) of distributed systems and networking can exceed double their acquisition cost — and all these costs continue to increase.

Even worse, the utilization rates of these commodity servers hover around 5 percent to 15 percent, on average — wasting capacity. This means that as much as 85 percent of retail computing capacity sits idle in distributed environments. It can take months to provision new servers (from purchase to installation), hampering lines-of-business efforts to respond quickly to competitive threats or new opportunities.

To minimize such disintermediation, retailers must reinvent their data centers and infrastructures so that they use virtualization and consolidation to improve server utilization levels with a corresponding reduction in power consumption. They need a data center model that dynamically provisions IT services in minutes or hours rather than months (and at lower cost).

Cloud computing is a compelling answer to many retail challenges. For example, recent analysis indicates that, in some cases, private cloud implementations built around larger virtualized servers are almost 90 percent less expensive than a distributed, stand-alone server approach.3 Cloud computing also offers virtualized storage at significant savings and efficient service management and automated provisioning, which can lower the costs of adding IT resources than doing so with traditional mechanisms.

IBM Global Business Services

4

Private cloud computing helps drive efficiency, standardization and best practices in the services it provides while retaining greater customization and control than public clouds would permit.

HybridThe infrastructure in a hybrid cloud consists of a combination of both private cloud and public cloud features. In this model, computing capabilities and resources are owned and maintained by both the user organization and the cloud provider. An organization uses public cloud computing capabilities and services for general computing, but stores customer and sensitive data in its private cloud to ensure security.

Choosing your cloudTo compare the benefits of public clouds with those of traditional dedicated services, you should evaluate the software services provided by application service providers (ASPs) compared to the software services that are available on the public cloud.

Similarly, for private clouds, you should compare the traditional hosted enterprise IT infrastructure available in data centers to services that are available from a private cloud.

Dispelling the misconceptions

Noteverybrowser-basedapplicationaccessibleoveranetworkcanbeconsideredacloudsolution.Doingsodilutesthevaluepropositionofcloud,whichisaboutflexibilityandefficiencyofcomputingresourcesandcost.

However,fromabusinessperspective,cloud,especiallyapublicorahostedone,canalsobeconsideredadifferentcommercialmodel,onewhereresourcescanbepurchasedbyusage,shiftingtheexpensesfromacapitalexpendituretoanoperatingexpenditurebucket.

Despitethepopularassumptionthatallcloudsare“paybythedrink,”themarketplaceisrealizingthatthereistremendousvalueinprivateclouds.Retailersdon’tnecessarilywanttogiveupcontrol,theircompetitiveadvantagesortheirdifferentiatedcapabilitiesandmovetoshared,standardizedcapabilitiesthatputsthemon-parwiththeircompe-tition.Retailerswouldrathersimplyavailthemselvesofthebenefitsofcloud,withoutgivingupcontrol.Insuchsituations,aprivatecloudisanexcellentchoice.

Notallaspectsofthesolutionneedtobe“cloud.”Traditionalsoftwarevendorscontinuetostrugglewithhowlicensingwouldworkinapayperusemodel.Itisstillpossibletodevelopacost-effectivesolutionwheretheinfrastructurecanbeonacloudandthesoftwareislicensedbytraditionalmeans.

Cloud computing for retail

5

Types of services provided by cloud computingCloud computing provisions and delivers standardized IT ser-vices to users over a network (Internet or intranet) in a flexible pricing and usage model. The users are only aware of the ser-vice. They have no need to understand details of the underlying IT infrastructure, its technology or implementation. The ser-vice provider is responsible for implementing the service and managing the required infrastructure.

In addition to provisioning and virtualization, the cloud model also deprovisions these services so they can be reallocated for other purposes. The concept of repurposing and reuse is a key tenet of cloud computing.

IBM Global Business Services

VIRTUALIZATION STANDARDIZATION AUTOMATIONReduced

Cost

CLOUD TYPES

Business Process as aService (BPAAS)

Software as a Service (SAAS)

Platform as a Service (PAAS)

Infrastructure as a Service (IAAS)

Business processes as a service; e.g. indirect procurement, payment processing etc...

Software as a service e.g. email, CRM, eCommerce, merchandise optimization etc...

Application servers, databases, middleware, development tools as a service

Infrastructure such as servers, storage, file-systems as a service

Figure1:Servicesinacloudcomputingarchitecture

The cloud infrastructure focuses squarely on efficient utilization of the base infrastructure (Figure 1) This includes virtualization, routing and storage management. The cloud platform manages the services running on the infrastructure. The services provided by the cloud are what the consumers actually use.

Business Process as a Service Business Process as a Service (BPaaS) is when a third party leases business processes and capabilities to a company so that the company does not have to handle them in house. The services are available by network and the company either pays as it uses them or makes a low, upfront investment to get started.

6

Software as a ServiceSoftware as a Service (SaaS) is the distribution of software hosted by a provider in a central and remote location and made available to consumers over a network. SaaS uses a pay-as-you-go pricing model, which decreases or increases the number of software licenses based on need, without having to procure, install or maintain software or hardware or incur ongoing maintenance costs. When retailers use the SaaS delivery model, they can access, business applications, such as accounts payable and customer loyalty virtually.

Platform as a ServiceWith Platform as a Service (PaaS), the complete application development and deployment platform (both hardware and software) can be delivered as a service, typically over the Internet. Developers can create, test, deploy and host applications quickly without having to bear the cost and complexity of buying and managing the underlying software and hardware. PaaS is often referred to as “cloudware.” In some cases, Web services, Web 2.0 capabilities and middleware are offered as an integrated platform on which applications can be built, assembled and run.

Infrastructure as a ServiceInfrastructure as a Service (IaaS) provides hardware components such as servers, network equipment, memory, CPUs and disk space. With IaaS, a retailer could run all operations without installing and maintaining in-house data centers. The approach to the delivery of these services varies from providers to provider.

The benefits of cloud computing for retailersCloud computing provides dynamically scalable and virtualized resources as a service. Users don’t need knowledge of, expertise in or control over the technology infrastructure that supports them. Whether you understand all the technical details involved or not, the crucial issue is: “What can cloud

Cloud computing for retail

computing do for a retailer?” Some of the most noticeable benefits that cloud computing can bring to retailers are:

• Fasterdeploymentofnewcapabilities. The use of a common repository, combined with scheduling and automation, means that new capabilities can be deployed much more rapidly. This is due, in part, to faster testing and ensuring tests are thorough and complete (for both unit and integration tests).

• Improvedconsistencyandqualityofnewcapabilities.A common image repository — one in which common and reusable images are tested and hardened — ensures consistent, higher-quality results.

• IncreasedefficiencyintheuseofITresources. Cloud computing helps provide significant reuse of existing compute, storage and data resources by simplifying access to them.

• Fasterintegrationwithpartners,vendors,customersandsuppliers. A cloud-based test environment requires standardization and consistency. This approach allows external partners (such as outsourced development firms) to plan test phases more efficiently and confidently, because the environment is consistent and well known.

How retailers can put cloud computing to workSavvy and market-leading retailers are aggressively pursuing the use of cloud computing, primarily for cost reduction, speed-to-market and quality benefits. The key to doing this is to not “boil the ocean,” that is, create a cloud enablement plan that is so complicated it’s hard to know where to begin. Getting precise about which retail capabilities can benefit from cloud and moving specific workloads will be lot more effective than simply trying to “cloud enable” an entire IT infrastructure all at once. IBM’s methodology, for example, is to take a Component Business Model (Figure 2) view of a retail enterprise and identify specific workloads that match the characteristics that are most suitable for movement to a cloud infrastructure.

7

Retail functions suited to cloud computing include:

• Merchandise analytical functions that require significantly varying compute power can benefit from server and storage virtualization

• Store back-office functions running on desktops can benefit from desktop virtualization

• Card-based payment processing by settlement can be moved to a shared, public cloud for PCI-DSS compliance and better privacy

• Development and testing of retail applications can benefit from an infrastructure-as-a-service cloud

IBM Global Business Services

Marketing and CustomerManagement

Customer Relationship Strategy

Consumer Segmentation

Marketing Strategy and Planning

Merchandising andProduct Management

DIR

EC

T

Brand Strategy

Strore and Channel Supply Chain Business and FinanceAdministration

CO

NTR

OL

EX

EC

UTI

VE

Merchandise Strategy

Price/Promotion Strategy

Supplier Strategy

Customer Behavior Modeling

Market & Competitor Research

Product Development/Design (PLM)

Merchandise Planning

LOB Hierarchy and ClusterManagement

Price & Promotions Management

Category Management

Segmentation Management

Customer Service Managementand Assessment

Campaign Management

Customer Service(pre & post sale)

Call Center (multichannel)

Marketing Execution(Loyalty, Mass, Targeted)

Customer Repository

Customer Communications

Open to Buy (PO Management)

Trade Funds Management

Demand Forecasting

Master Data Management

Markdown Optimization

Stocking and Replenishment

Resets and Price Changes

Service Delivery

POS Execution/ Cash Management

Web and Mobile Execution

Labor Scheduling Resource Optimization

Transportation / Fleet / DC Ops

Loss Prevention

Returns and Reclamation

Physical Inventory(Product Track and Trace)

Supplier Performance

HR Admin/Payroll

Corporate Audit and Accounting

IT Systems and Ops

Credit Ops

PR Investor and Relations

Business Performance Reporting

Legal and RegulatoryCompliance

Real Estate Management

Stock Ledger

HR Management/Career

Corporate LOB Strategy

Financial Management Planning

Real Estate Planning

Alliance Strategy

Supply Chain Strategy(DC and Distribution)

Sourcing Strategy (Logistics)

Transportation Planning

Transportation /Fleet Management

Supplier Terms Administration

Inbound and Outbound Logistics

Perpetual Inventory

Warehouse ManagementAllocation

Workforce Management

Planograms

Markdown Management

Store Ops Management

Space Planning

Store and Channel Design

Store and Channel Strategy

Customer Experience

Merchandising and Supply Chain

Smarter Operations

Other

Figure2.Retailcomponentbusinessmodel

When trying to compare the characteristics of a service suitable for private clouds versus a typical enterprise data center, it is useful to examine the workload characteristics of the service. If these characteristics can benefit from operat-ing on a virtualized, self-provisioned platform with elastic computing capacity, you can safely and profitably move those workloads to a private cloud.

Note: Getting specific workloads to move to cloud is a practical way to

get started. The economics of cloud become more attractive when large

chunks of workloads are migrated, however, because the virtualization,

automation and service management can take advantage of the varying

SLA requirements to maximize the usage of the computing resources.

8

A private test cloud can reduce costs by reusing existing equipment and limiting future purchases of additional hardware and software. This reuse comes from idle test computing resources and automated reprovisioning and deprovisioning of the hardware and storage as needed for different projects. With the ability to schedule and automate reprovisioning, for example, an existing one-month process for provisioning an operating system (OS) can be reduced significantly. In addition, the result of enhancing the consistency of what actually gets deployed to the testing equipment improves quality. A multi-operating-system image hosting capability and automated provisioning make it possible to maintain a very large number of images and to ensure their consistency with the reduction of manual steps. Exception conditions can still be supported with manual intervention. However, for most of the scenarios, significant error reduction in the deployment of environments to test hardware can be achieved.

Cloud computing also creates the possibility of “mashing up” services (such as combining multiple cloud-based applications) to provide higher value-added services for retailers. Consider this benefit when deciding on the best way to begin using the available cloud platform and services.

A good way to begin to use cloud computing is to move noncritical services to the cloud first. As confidence improves, some of the more critical services can then become part of the cloud. Some of the other services that are good candidates for the cloud are electronic commerce, test and development and distributed business analytics.

Electronic commerce on a private or hosted cloudAn online, electronic commerce channel is a strategic capabil-ity for many retailers. In 2009, many retailers experienced flat or lower store sales while their online channel grew substan-tially. Retailers constantly grapple with cost-efficiently

providing an “always on” electronic commerce channel that can vary significantly in its computing requirements between nor-mal and peak seasons.

Electronic commerce, therefore, is a natural fit for cloud because it can provide computing capacity on demand and pro-vision services for ubiquitous access. Furthermore, retailers deal with significant variations in compute capacity between peak and off-peak loads, which are better managed in a cloud environment.

Retailers who maintain their own websites and electronic commerce channels invest in the software, hardware and human resources required to manage it. Moving websites and electronic commerce channels to a cloud platform allows retailers to get more out of the underlying hardware, storage and networking infrastructure. If this channel is moved to a dedicated, third-party cloud host, it is no longer necessary to provision for peak capacity and retailers can instead pay for computing capacity based on usage patterns.

Cloud computing for retail

Type of

cloud

Type of

service

Benefits Risks

Private Information On-demand

computing capacity

Availability of

services

Centralized IT

management of

channel

Accountability

for loss of

revenue or

security

breaches

9

Test and development environments Often in retail environments, test and development environments are periodically underutilized. Maintaining these environments is so expensive that retailers typically prefer to let those machines sit idle until their next period of use.

Rapid automated provisioning and deprovisioning of services by moving entire images online and offline quickly are core functions of cloud computing, and this includes entire software configuration environments. These images can also be moved online or offline at a lower cost, allowing the underlying infrastructure to be used for provisioning new services.

Distributed business analyticsBusiness analytics are a key component of retailing. Metrics help retailers make data-driven decisions about marketing, merchandising and purchasing. Analytics are also increasingly needed for transactions between business partners, such as manufacturers and retailers. When analytics are incorporated into retail operations and supply chain systems, reporting services are more readily available. Retailers need sufficient computing capacity so that additional partners can be added quickly and easily.

When a cloud-based platform supports business analytics, retailers can “pay-per-use” or “pay-per-need” for analytics that might be needed less frequently, such as analytics that have higher demand (burst mode) capacity and periodic social network analyses or market analyses. Cloud computing is also an option when a retailer wants a common analytics platform for sharing. information with business partners.

Easy access to analytics services on the cloud platform, combined with the ability to adjust computing capacity on demand, makes a multipartner analytics solution a good fit for the cloud. Depending on the metrics to be gathered, data can grow exponentially. Business requirements can often push reporting customization beyond the capabilities of internal development staff.

Note: IBM also recognizes the value for electronic commerce in a public

cloud. However, that model might not be suitable for all retailers. A public

cloud is a shared infrastructure and a multi-tenant solution. This means

the retailer’s website will structurally look the same as other retailers on

the same platform. Although the look and feel can be tailored, there are

limits in a multitenant model. Given our experience in working with retail-

ers who are constantly looking for a highly tailored website that reflects

their brands, IBM’s approach is to be able to support public and private

models, recognizing that private clouds offer more flexibility that our

retail customers demand.

IBM Global Business Services

Type of

cloud

Type of

service

Benefits Risks

Private Information Reuse existing

investments in

hardware and

software

Cost of switching

from an existing

test and

development

environment to a

setup based on

a private cloud

platform

Type of

cloud

Type of

service

Benefits Risks

Private or

public

Software and

information

Analytics on

collaborative

data is easier to

deliver

Increased data

risk because

considerable retail

data may need to

be loaded to the

cloud

Elastic

computing

capacity

Up-front data load

effort

Lower capital

expense if using

a public cloud

Difficulty in

switching providers

once data has

become entrenched

with a particular

provider

10

How retailers can get started with cloudWhen adopting cloud computing techniques, tooling and processes, it is important to use a phased approach, with each step building on the previous. The initial phase should establish capability, so that evaluation and testing can determine viability, and then enhance those capabilities as appropriate.

The initial phase should also address specifically those characteristics of reprovisioning technologies that use automation and virtualization. Begin by identifying and prioritizing cloud initiatives. Evaluate your “cloud level of readiness” to determine what to address first.

Figure 3 shows a roadmap you can use as a starting point. You should then refine it, using detailed information from your organization, such as the specific distribution of mainframe (such as IBM z/OS®), midrange (for example, IBM AIX®), UNIX® (such as Linux® and non-AIX) and Intel® systems.

Phase 1 Phase 2 Phase 3

Expand toTier 1

ApplicationTesting

EstablishPerformance

TestingEnv.

Implementand Maintain

SecurityProvisioningEnforcement

StorageAddressStorage

Virtualization

CreatePerformance

TestingMetrics

ImplementImage

Management

DefineSecurity

ProvisioningPolicies

ImplementMetering andAccounting

Mechanisms

IdentifyAdditionalNon-Tier 1

Applications

Integratew/BMC

MonitoringEnvironment

EstablishBackup &RecoveryTooling

UpdateFunctional

TestingScripts

EstablishAutomation

Scripts

ImplementLicense

Management

IdentifyApplications

DefineMonitoring

ToolConfig.

InitialCloud Service

Definition

DefineProvisioning

Steps

Define SLAConformance

andGovernance

Model

Define UsageAccounting

Model

Define LicenseManagement

Define andImplement

UpdateMechanism

Define andImplement

ImageManagement

Define ServiceTemplate

Define ServiceProvisioning

Policy &Governance

Identifynon-Tier 1Apps forTesting

DefineMonitoring

Metrics

ProtoypeImage/Service

Repository

Figure3.Exampleofacloudcomputingroadmap.

Cloud computing for retail

11

Also, include network segmentation and virtualization, along with storage deployment and LUN configurations to further refine this model. The effects on the SDLC, budgeting processes and other issues can be addressed, if appropriate.

ConclusionCloud computing can provide retailers with a list of benefits— today. Retailers should evaluate cloud computing as a viable solution for reducing operating costs, simplifying business processes and collaborating more easily with partners and suppliers.

Why IBM?IBM leadership in cloud computing extends to delivering enterprise-wide solutions. IBM cloud computing offerings address infrastructure issues with business process services. Three key highlights include:

• Optimized workloads• Integrated service management• Choice of delivery models

With optimized workloads, workload characteristics determine the rate and degree of standardization of IT and business services. The increasing complexity of IT systems requires advanced service management, visibility, control and automation. Private, public and hybrid models support the wide variety of retailers’ computing environments and system requirements.

IBM Global Business Services

PleaseRecycle

LBW03004-USEN-00

For more informationTo learn more about how cloud computing can help retailers, visit:

ibm.com/cloud

Key contributorsVishGanapathy is the Worldwide Industry Solutions Architect for the Retail Industry in IBM. He has over 20 years of experience in implementing enterprise business applications in the retail, wholesale and supply-chain industry segments. Vish can be contacted at vishg@us.ibm.com.

Martin(Marty)Wolfe is an Executive Client Architect and CTO of the Global Cloud Tiger Team for industries in IBM. He has over 15 years of experience in defining Enterprise Architectures, Implementing Complex Technology Solutions, and defining the link between business goals and IT strategy. Marty can be contact at martin.wolfe@us.ibm.com

© Copyright IBM Corporation 2010

IBM New Orchard Road Armonk, New York 10504 U.S.A

Produced in the United States of America June 2010 All Rights Reserved

IBM, the IBM logo, ibm.com, AIX and z/OS are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. If these and other IBM trademarked terms are marked on their first occurrence in this information with a trademark symbol (® or TM), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this infor-mation was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the Web at “Copyright and trademark information” at ibm.com/legal/copytrade.shtml

Intel, Intel logo, Intel Inside, Intel Inside logo, Intel Centrino, Intel Centrino logo, Celeron, Intel Xeon, Intel SpeedStep, Itanium, and Pentium are trademarks or registered trademarks of Intel Corporation or its subsidiaries in the United States and other countries.

Linux is a registered trademark of Linus Torvalds in the United States, other countries, or both.

UNIX is a registered trademark of The Open Group in the United States and other countries.

Other product, company or service names may be trademarks or service marks of others.

1 Based on an IBM study for Dynamic Infrastructure/Smarter Planet2 Based on an IBM study of virtualization technologies on various platforms3 Also based on the same IBM study of deployed virtualization.