Cloud Computing in Supply Chain Management

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TABLE OF CONTENTS

INTRODUCTION............................................................................................. 3

WHAT IS CLOUD COMPUTING?......................................................................4CLOUD COMPUTING SERVICE MODELS.......................................................5

HOW WILL CLOUD COMPUTING INFLUENCE SCM?.........................................7

WHERE WILL CLOUD COMPUTING APPEAR IN SCM?......................................9

WHY USE CLOUD COMPUTING FOR SCM?....................................................11

CONCLUSION & RECOMMENDATIONS.........................................................13

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INTRODUCTION

Most companies in today’s fast paced business environment struggle to operate an efficient, reliable and cost effective supply chain in order to respond to the ever-changing market conditions and customer demands. In this technological era, this management of supply chain operations is done using the incredible power of information technology which provides a variety of ERP solutions software designed to make a more dynamic supply chain and help manage it better.

Early ERP solutions and business software were only built to automate a single enterprise. They were incapable of automating processes and sharing information between companies that were global traders and located in different service regions. The need to share information between companies located in different corners of the world, such as manufacturers who depend on vendors located in other countries, grew over time in order to increase the efficiency of the supply chain system. This demanded for new technology that uses the power of the Internet to connect and help share information across borders efficiently, securely and quickly. This need gave birth to Cloud Computing Solutions.

Cloud Computing is a virtualized service that offers computing capabilities with the use of shared resources and software over a network or the Internet. This enables a quick and efficient solution to information sharing and automation of process across companies and across borders. This report will highlight the uses, advantages and disadvantages of this new technology in supply chain management. But first, what exactly is cloud computing?

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WHAT IS CLOUD COMPUTING?

Cloud Computing is a virtualized service that offers computing capabilities with the use of shared resources and software over a network or the Internet. It allows easy access of various online IT-based services such as infrastructure, platforms, applications and business processes using the Internet, hence enabling companies to respond faster to changing market and customer requirements.

The beginning of cloud computing can be traced back all the way to the 1970s. Many of the elements of cloud computing such as virtual networks time-sharing and virtual machines have been in use for several decades. Although elements of cloud computing have been round for years, it is only recently that cloud computing came into existence. The first real-time cloud environment was created only in 2008.

The underlying concept behind cloud computing is infrastructure convergence or centralization / sharing of resources. In cloud computing, a company no longer has to invest in expensive servers, applications, heavy operating systems, network drives and other network set-up. Cloud computing offers centralized servers, storage, open source applications and even computing power to its end users. This type of centralization of resources reduces capital costs of a company, helps share information better and eases the process of opening up in new markets.

More details on the different types of services that cloud service providers offer are discussed in this section.

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CLOUD COMPUTING SERVICE MODELS

Cloud computing service providers primarily provide three fundamental types of services –

Infrastructure as a service (IaaS) Platform as a service (PaaS) Software as a service (Saas)

Infrastructure as a Service (IaaS)

Infrastructure as a service or Iaas is the most basic model of cloud computing services. In this service, cloud computing service providers offer physical hardware such as computers (also at times as virtual machines), servers, network storage, firewalls, networks and load balancers. The service providers offer the resources from their large amount of hardware installed and set-up in their data centers. They also offer IP addresses, local area networks and even virtual private networks to companies that require them.

In this model, it is the cloud user’s responsibility to install operating systems and required applications on the service provided hardware. It is also the end users responsibility to maintain and patch their installed operating systems and applications.

The service provider charges the users based on the amount of resources consumed.

Platform as a Service (PaaS)

The Platform as a service model or Paas model is one in which the cloud service providers offer computing platforms to the end users. Computing platform include products such as operating systems, databases, internet servers and programming language execution environments.

This comes handy to application developers, troubleshooters and IT solutions teams to develop / debug their software on a cloud platform. This reduces a company’s costs by avoiding the need to procure and install the required hardware and software. In some models of Paas, service providers automatically allocate computing power and storage facility according to the end users consumption. As in the Iaas model, the cloud user is charged based on allocated resources and resources consumed.

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Software as a Service (SaaS)

The pricing model for SaaS applications is typically a monthly or yearly flat fee per user.

In the Software as a Service model or Saas model, cloud service providers install the required operating system, platform and applications that are accessible to the cloud users using cloud client software such as a light application or web browsers. Cloud users do not manage the operating system, platforms or infrastructure in this service model. Managing of resources and infrastructure falls under the responsibility of the cloud service provider. The cloud service provider hence helps eliminate the end users need to install applications on their own machines and share computing power by using the provider’s resources.

The key advantage of using SaaS over traditional non-cloud based computing is the elasticity of the cloud-based applications. Virtual machines are used to meet the load demand based on resource consumption. Load balancers are used to distribute the workload over the virtual machines. All of these processes are unknown to the end user. SaaS models can also accommodate a number of cloud users simultaneously by allowing multiple users to share any machine.

SaaS users are typically billed a flat rate on a monthly or annual basis.

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HOW WILL CLOUD COMPUTING INFLUENCE SCM?

Although cloud computing is a relatively new technology, it has already begun to influence and will continue to influence business models and their supply chain systems on many fundamental levels. Some of the areas where cloud computing would excel are discussed below.

START-UP COMPANIES

Cloud computing will play a key role in the start up of new companies. It enables a new start up company to take shape in very less amount of time as it eliminates the requirement for heavy infrastructure and hence reducing investments. This will potentially increase market competition.

COMPUTING INFRASTRUCTURE MANAGEMENT FOR COMPANIES

Traditional companies are always in the process of procuring and installing additional network hardware every time they added clients and products. Cloud computing helps relieve companies off the trouble of upgrading the company’s computing hardware when they need to expand their database by using the cloud service providers large number of servers. Applications are run on servers with allocated capacities and when required, the capacity may be distributed to other available servers on the cloud.

This makes the addition of data easier for any company. The cloud service provider is responsible to allocate and manage resources to handle the information the company wishes to store and process.

For the end-user, the key advantage of moving to cloud computing is the huge reduction in capital investments. As discussed above for start-up companies, the process of setting up of IT related equipment for the supply chain system is largely reduced and this would enable companies to enter new markets, release new product lines and services and even operate in different geographical locations with much ease and confidence.

Companies that operate global supply chains may also use cloud computing to institutionalize their IT infrastructure and processes by using private cloud networks. These private cloud networks can also be used across multiple firms

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that work together as trading partners or are co-dependent on each other.

Public clouds are more suitable for smaller companies and start-up companies. Public clouds are simpler cloud platforms where the end user does not have the ability to customize as per the business requirements. The platform is hence cheaper compared to private cloud networks and requires less maintenance and upgrades. Maintenance and upgrades are again in the responsibility of the public cloud suppliers.

DECREASE TIME TO RELEASE NEW PRODUCTS TO THE MARKET

Cloud computing has the potential to increase the pace at which new products are introduced to the market. Many companies struggle to meet deadlines to release new revenue generating products and services to the market. The quick and easy possibility to share information using cloud computing will ease the process and hence increase the speed at which companies can release new innovations to the customers.

SUPPLY CHAIN TRANSFORMATION OF TRADITIONAL COMPANIES

With advancement in cloud computing and Internet technology, it becomes easier for new competitors to arise and easier for new innovations and services to emerge in the market. This will force traditional companies to remap their existing supply chain and force them into a large-scale transformation, which will make their supply chain more dynamic, efficient and capable of meeting sales targets better.

 

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WHERE WILL CLOUD COMPUTING APPEAR IN SCM?

After only a few years of existence, cloud computing has already found its way into supply chain management systems. It has already started to transform existing methods of supply chain management to produce a more dynamic and efficient supply chain. Firms that provide supply chain management solutions such as transportation solutions, warehouse management systems, e- procurement systems etc. are now offering their SCM software as cloud based SaaS applications. The supply chain process where cloud computing will really bring about a difference is discussed below in this section.

PLANNING AND FORECASTING

Cloud service providers are already providing a variety of applications that can be used for supply chain planning and forecasting. Applications for the following processes are already available in cloud platforms.

Spending data collection software Manufacturing run planning software Basic analytics of supply chains Statistical demand forecasts Assortment and Space Pricing and Promotion Forecasting and Replenishment

The future promises more analysis, planning and forecasting tools to be included by service providers in cloud platforms.

LOGISTICS

Logistics applications on cloud platform include applications that handle inventory management, warehouse management, transportation and network strategies.

Applications that manage other logistics software replenishment planning, transportation fleet management and route planning, order processing and global trade compliance will soon be coming to cloud platforms.

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SOURCING AND PROCUREMENT

Sourcing and procurement are activities where information sharing and database centralization are becoming a necessity. Companies that deal with several vendors and manufacturers on a daily basis find a need for a better management and sharing of data. Information sharing between suppliers, manufacturers, distributors and retailers is very important factor in the success of a supply chain. This information sharing will directly influence a company’s sourcing and procurement activities. Cloud computing simplifies these activities by using a centralized collection of data which can be manipulated and accessed between various parties.

SERVICE AND SPARE PARTS MANAGEMENT

Cloud computing could improve the service and spare parts management division of companies with applications that will track and monitor services such as return shipments, spares inventory and replenishment, dispatch tracking, warranty validation and much more. A number of companies underperform in service and spare part management despite the advancements in technology and knowledge on service and spare parts management. Cloud computing could improve these activities of a company as capital involved to improve these services would be minimal using cloud technology. These are very important and high revenue generating sectors in any company.

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WHY USE CLOUD COMPUTING FOR SCM?

There are a number of reasons companies should adopt cloud computing. Some of the reasons are as mentioned below.

COST

Cost is considered to be the key advantage of using cloud-computing services. Cloud computing enables companies to reduce considerable amount of money in capital investments and operational expenditure by moving responsibility of procuring and installing hardware and software to a third party cloud solution provider. Companies are to simply pay service providers based on utility consumption for IaaS and PaaS services or a flat annual or monthly rate for Saas services.

SCALABILITY

The elasticity and scalability of cloud systems will help companies expand their database without the worry of physically expanding their networks and computing power. Service providers will automatically allocate resources based on the load or storage size required.

MAINTENANCE

Companies will find it easier to maintain and manage centralized databases and applications when compared to the traditional systems where applications are installed in individual machines. In some service models, it is the responsibility of the service provider to maintain and troubleshoot applications, operating systems and necessary platforms.

VISIBILITY

With centralization and quick sharing of data and relevant information using cloud computing, companies will be able to provide a high level of visibility to their supply chain management system. Centralization of databases collects and converts all information to one single focal point. These databases will be updated in real-time in the cloud platform. Cloud computing enables effective and accurate gathering of information for a supply chain. Any member with access to the company’s cloud network may view and analyze this data. This

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helps company partners, employees and analysts to view and study the behaviors of their company’s supply chain. This also helps analyze the bottlenecks in the system and gives companies an easier way to improve their supply chain systems.

STANDARDIZATION

Cloud computing helps standardize IT infrastructure that can connect a large number of end-users such as global partners, suppliers, manufacturers, distributors and retailers. It provides a common ground for the exchange of information between various entities in the supply chain. This standardization across the supply chain will increase the systems efficiency.

SECURITY

The centralization of data in cloud computing calls for improved security measures. Security in cloud platforms is often as good as traditional systems. Although concerns exist over the company’s lack of control over sensitive information, service providers take an extra step to protect their client’s information securely. This also gives an opportunity for smaller or medium-sized companies to have better security for their data, which under normal circumstances would be very expensive and time consuming to maintain.

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CONCLUSION & RECOMMENDATIONS

Cloud computing is a brand new technology that promises to be the future of the online computing. It is an even newer entrée in the supply chain management section.

The above discussions on what exactly is cloud computing and its capabilities in supply chain management show that it is one of those promising technologies that will truly take form to revolutionizing supply chain management systems.

Though the concept of cloud computing for supply chain management will take time to get adopted by most enterprises, there are a few sectors where it has already started making an influence. For instance, cloud computing has begun to surface in countries with less developed infrastructure. In such countries, cloud computing is playing a key importance in the set-up of new businesses and entrée of key global players into the region.

In net, chances are good that most companies’ supply chain operations will soon embrace some level of cloud computing. As they move toward that reality, potential users may wish to take several steps:

.  Develop  your  strategy:  which  processes should you retain internally and which processes might best be sourced to a cloud-based services provider? . Define the business case: develop a detailed ROI and risk analysis. Insist that prospective suppliers provide data-driven analyses to quantify expected benefits, based on total cost of ownership. .  Set the standards for success: define what success will look like. Clearly, it will not be based solely on costs, so be sure to define the sequence and scale of benefits: flexibility, scalability, speed to market, etc. .  Survey the market: cloud computing  is a largely new paradigm, with regularly emerging capabilities. Make a concerted effort to stay on top of developments. .  Collaborate  with  supply  chain partners: one of the benefits of cloud-based applications is easier integration, so it is particularly important to involve supply chain partners in decision making. .  Evaluate frequently: start with low-hanging fruit and measure as you go along to ensure that anticipated benefits are being realised.

The critical question isn’t whether cloud computing will become a fundamental technology in the next decade. It is how extensively companies will profit from the capabilities it offers. If your organisation has not yet started the journey to the cloud, now may be the time to start drawing your roadmap.

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