cloud computing in the consumergoods industry

Cloud computing in the consumer products industry

IBM Global Business Services White Paper

Cloud Computing

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Executive OverviewSmart consumer products companies use the power of cloud computing to respond more quickly, improve service delivery, reduce costs and drive business innovation.

As the consumer products industry faces unprecedented change to meet the needs of consumers, retailers, new markets and challenges in commodity prices, two things will separate the winners from the losers: speed and agility. Technology will have a key role to play in providing business leaders with the information and predictive capabilities to make decisions quickly. But with business still suspicious of the actual value added by information technology and the ongoing pressure on budgets, a new delivery model must be found that is fast, secure, cost effective and has the ability to bind business and IT. That model is cloud computing.

Consumer products companies are drawn to cloud computing for its ability to speed service delivery and increase service and infrastructure availability while creating an elasticity that allows services to be expanded — or contracted — as demand changes. Cloud computing gives you the ability to take action with much greater speed and reduces IT labor costs by up to 50 percent in configuration, operations, management and monitoring.1

Because companies can leverage economies of scale through a cloud environment, they can reap this higher ROI through greater staff efficiency and optimization of IT resources. Cloud computing supports efforts to establish and enhance information management and service management architecture. With all these benefits in place, cloud computing also help improve the perception of IT as being both flexible and responsive.

Cloud computing helps reduce costs — not simply contain them. This approach has already helped IBM consumer products clients achieve breakthrough productivity gains through virtualization, optimization, energy stewardship and flexible sourcing. With IT spending at a very small percentage of total revenue (most of which is spent on maintenance and management of existing systems), and with billions of dollars lost annually to supply chain inefficiencies, consumer products companies trust IBM cloud computing solutions to help them become truly capable of glocalization and differentiation, to integrate information and foster innovation and to demonstrate the consumer-centricity and corporate responsibility that keep their organization strong.

This whitepaper gives an overview of cloud computing and illustrates how IT and business leaders at consumer products companies can use IBM cloud computing to:

• Developsolutionsinashorttime• ReduceITlaborcostby50percentinconfiguration,

operations, management and monitoring• Improvecapitalutilizationby75percent,significantly

reducing license costs• Reduceprovisioningcycletimesfromweekstominutes• Improvequality,eliminating30percentofsoftwaredefects• ReduceITsupportcostsbyupto40percent


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The consumer products industry is changing to meet the needs of the consumer and retail customer and their IT organizations cannot stand still. IT groups at consumer products companies must continue to control costs — yet they are also charged with creating business value. But where will they get the budget? According to a 2008 IBM study of CIOs, spending is very low and staying flat.

Themostrecentfiguresfromastudyof134CIOsindicate that IT spending as a percentage of total revenue was 2.11 percent — and much of that spend is on maintenance and existing systems. Little money is allocated to growth and new areas of opportunity.

Further supporting this view, the 2008 GMA IT Study reportedthat2007IToperatingbudgetsaspercentageof total revenues was 2.11 percent. See Figure 1.

The consumer products industry: Plenty of IT challengesBusiness leaders at consumer products companies have been diligent about cost takeouts — and in support of this effort, IT departments have moved to a distributed computing environment. But despite much effort to streamline, the same problems persist. The consumer products industry continues toloseaboutUS$40billion(3.5percentofsales)1annuallytosupply chain inefficiencies and customer trade promotions still account for approximately 15-25 percent1 of revenue spend. Adding to these pressures for IT is the perception of business leaders that IT does not drive or deliver value. The business side also perceives projects as taking too long to complete, and quality is not what it should be.

IBM Global Business Services

Figure 1: The average IT budget has remained flat as a percentage of revenues

Despite the need to enhance these capabilities, IT spending remains flat and substantial change within IT is seen as needed

As % of revenue, most IT budgets haveremained flat over the last 5 years

Chief Information Officers and ChiefExecutive Officers see need for change

Total IT BudgetOperating Budget

Capital BudgetIT Depreciation

and AmortizationNo/limited Change Moderate Change Substantial Change

ChiefInformation

Officers

ChiefExecutiveOfficers

Amount of IT change required to respondto changes in the marketplace

0.39% 0.33% 0.35% 0.35%0.39%

0.82%

0.41%0.42%0.44% 0.42% 0.42% 0.43%

1.38% 1.39% 1.33%

1.70%1.71%

1.42%1.56%1.62%1.59%

2.11%2.17%2.12%2.09%2.10%

2.24%

2.04%2.03% 1.97%

3%

2%

1%

0%

2000 2001 2002 2003 2004 2005 2006 2007 2008

10%

28%

62%

4%

14%

82%

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Flat spending and the need for substantial change within IT results in meaningful gaps that need to be embarked upon and beyond. New IT consumption and delivery models demand new strategies from IT if leaders are to position the enterprise for the speed and agility needed to fill these gaps. (See Figure 2). In this document we will discuss how cloud computing can help.


IT executives can no longer allow the power of IT to lie dormant. The industry is undergoing the most dramatic change seen in years, with new availability of data driven by enterprise resource planning (ERP) implementations and new sources of external data. Considering all this, a fresh approach must be taken by IT organizations at consumer products companies if they are to work with business leaders to enable transformation to succeed in a dramatically different future2.

Figure 2. Flat spending, coupled with the need for substantial change within IT, results in meaningful gaps that must

be addressed by consumer products companies in 2010 and beyond.

Increased internal efficiency/productivity

Increasing supply chain visibility for traceability

Increasing efficiency of trading partner interactions

Increasing understanding of consumers needs

Growing market share

Complying with customer requirements

Supporting ongoing business operations

Increasing sales to consumers

building consumer brands

Reducing procurement costs

Lowest importance/poor performance

1 5 6 7 8 9 10 Highest importance/good performance

Chief Information Officers and ChiefExecutive Officers see need for change

Despite the need to enhance these capabilities, IT spending remains flatand substantial change within IT is seen as needed

Key:Importance

Performance

Importance

Performance

Gap

8.1

7.4

7.4

6.5

6.4

8.6

8.4

6.7

6.2

7.06.1

5.3

5.9

7.5

7.6

5.3

5.3

6.2

6.1

6.5

5 IBM Global Business Services

Cloud Computing can deliver Cloud computing is a way to deliver IT services within the enterprise, over a network or over the Internet. Service consumers are only aware of the service; they have no need to understand details of the underlying IT infrastructure, its technology or its implementation. The service provider is responsible for implementing the service and managing the required infrastructure.

The best cloud computing solutions are those that provide a safe and secure method by which to enable a business use case. Security is an important consideration, because in consumer products today, the organization acts only as a transport mechanism for the transactions; it is not the retailer, it is not the bank and it is not the carrier. Instead, the consumer products company acts as the broker to drive consumers to retailers.

Three different types of cloud computing implementations have been defined: A cloud within the enterprise, commonly called a private cloud, a service provider-owned cloud accessed over the Internet, commonly called a public cloud, and a hybrid cloud, in which the IT services of the private cloud are supplemented by those of a public cloud. (See Figure 3).

Cloud computing is defined based on its characteristics of scalability, virtualized resources, rapid provisioning and standardized offerings as an emerging style of IT delivery. Applications, data, and IT resources are rapidly provisioned and provided as standardized offerings to users over the network (Internet or Intranet) in a flexible usage model.

Figure 3. There are three primary delivery models for companies to consider when implementing for cloud computing.

Enterprise

Private Cloud

Hybrid Cloud

Public CloudTraditionalEnterprise

IT

Private Cloud

IT activities/functions are provided“as a service,” over an intranet,within the enterprise and behind the firewall

Key feature include: - Scalability - Automatic/rapid provisioning - Chargeback ability - Widespread virtualization

Transform to a dynamic infrastructure

Hybrid Cloud

Internal and externalservice deliverymethods are integrated, with activities/functionsallocated to based onsecurity requirements,critically, architectureand other establishedpolicies

Public Cloud

IT activities/functions are provided “as a service,” over an intranet,

Key feature include: - Scalability - Automatic/rapid provisioning - Standard offerings - Consumption-based pricing - Multi-tenancy

Today there are three primary delivery models that companies are implementing for cloud

6 Cloud computing in the consumer products industry

Whether deployed within the enterprise or by a service provider, resources are pooled and virtualized so that they appear as a combined single resource which can be provisioned to deliver services with elastic scaling. In addition to the provisioning and virtualization of services, private cloud computing de-provisions these services as well, making possible the “freeing-up” of resources for other purposes. The concept of re-purposing and reuse is a key tenet of the cloud.

Figure 4. A comparison of enterprise private clouds vs. cloud service providers.

Cloud computing is a cost-effective way for your company to transform to a more dynamic, agile infrastructure — but be aware of the economics of the different approaches. Enterprise clouds, for instance, deliver operational efficiencies that can make a real difference for consumer products companies because they make virtualization and image management possible. But cloud service providers with highly-standardized workloads can drive even higher levels of cost savings for mega-data centers. (See Figure 4.)

Enterprise private clouds offer significant operational efficiencies through virtualization and image management

Cloud service providers with highly standardized workloads can drive even further cost optimization for mega-data centers

SMB

Unitcost


Cloud Scale EconomicsEnterprise private clouds vs. cloud service providers

Enterprise

Enterprise privatecloud costs Cloud service

provider costs

Cloud serviceprovider prices

Traditionalarchitecture

Cloud serviceprovider

Cloudarchitecture

10000+ servers2000+ servers Scale

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Cloud computing: Four service categoriesFor companies that seek to obtain value with cloud services, it is important to understand the different ways in which the various categories of services can be delivered. There are four main categories of services provided by cloud computing.

Business Process as a Service (BPaaS)BPaaS makes it possible for companies to consume business outcomes by accessing business services using web-centric interfaces on multi-tenant and shared infrastructures — without the need to own or manage the underlying resources. BPaaS is an effective and efficient way for consumer products companies to create value quickly for processes such as trade promotions and Vendor Managed Inventory services, and relieves your organization from the need to support multiple dedicated resources to manage back-office processing of financials, business travel and property management transactions, procurement and employee benefits management.

Software as a Service (SaaS)SaaS is a software distribution model in which software is hosted by a provider in a central and remote location and made available to consumers through the Internet or an Intranet. SaaS is based on a pay-as-you-go pricing model. Consumer relationship management and procurement supplier management are two areas that IBM has seen deployed on this service. This gives consumers of the service a way to decrease or increase the number of software licenses based on need without having to install or maintain software or hardware or incur ongoing maintenance costs.

Platform as a Service (PaaS)PaaS is a form of cloud computing in which the computing platform (hardware and software) is delivered as a service, typically over the Internet. PaaS enables consumer products companies to 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 can also be referred to as “cloudware.” With PaaS, web services, web 2.0 capabilities and middleware can all be offered as a platform on top of which applications can be built, assembled and run.

Infrastructure as a Service (IaaS)IaaS provides hardware components such as servers, network equipment, memory, CPUs and disk space. With IaaS, consumer products organizations can run their entire operations without installing and maintaining in-house data centers. Access to IaaS provides consumer products companies with a means to expand the reach of their existing internal enterprise applications to user groups in new markets without the capital expense and time required to build out private infrastructure. The approach to delivery of these services varies from provider to provider and market to market. This service should be considered as consumer products companies globalize their operations.

The platform and infrastructure layers are optimized and streamlined in the way they function. For instance, when a cloud-enabled application is deployed, it may not have traditional relational SQL access to data. This abstraction is what allows infrastructure providers to offer scale throughout all three layers (software, platform and infrastructure).

The business model for cloud infrastructure focuses squarely on efficient utilization of the base infrastructure. The economies of scale of cloud are driven by the degree of virtualization of the physical infrastructure, including servers, network and storage. The cloud platform manages the services running on the infrastructure. The services being provided by the cloud are what the ultimate consumers use.

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To succeed, consumer products companies must possess specific capabilitiesGone are the days when consumers trusted a name brand; instead, they trust Internet chatter, community blogs and web reviews about products. Increasingly volatile commodity prices must be managed intelligently. Shifts in business models themselves must occur as the dynamics of the industry change and the value chain becomes even more complex. There are plenty of channel challenges, too, as the retail industry continues to consolidate; for the first time, consumer products companies find that retailers are both customers and competitors. And all this is set against a backdrop of economic uncertainty and an ever-increasing growth in the importance, power and influence of developing economies.

To win in an industry that is becoming more competitive by the day, your organization must possess six capabilities — and technology will be at the core for delivering them. But business leaders, due to past experiences with IT, are often apprehensive about IT’s ability to deliver. Cloud computing can change the thinking of business leaders who distrust the ability of IT to deliver, and can provide IT with a delivery model with which to execute with speed and agility. Working in the cloud, IT organizations can bring forth solutions that strengthen brand and consumer insights, that foster global collaboration and that are implemented very quickly.

It is important to consider the workloads that apply to success-fully achieving these six capabilities, since the kind of work that an organization must accomplish possesses inherent characteristics that make it run most efficiently on certain types of hardware and software. Some activities demand fast transactions, while others, like predictive analytics, require intense calculations.


Consumer products companies must acquire specific capabilities

In a world that is increasingly intelligent, instrumented and interconnected, IBM has identified six capabilities that consumer products companies must execute in order to be successful.

• Glocalization. Balance local with global systems and processes.

• Differentiation. Pinpoint the processes, assets and resources that create value, and then improve them.

• Integrated information. Capture, integrate and analyze data to better deploy business performance.

• Innovation. Create an open model that encompasses differentiated and value-oriented offerings that exceed consumer expectations.

• Consumer-centricity. Connect with consumers directly through popular channels and also through retailers.

• Corporate responsibility. Conduct business responsibly, efficiently and effectively and consumers will react positively to your brand.

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To build cloud strategy, understand workloads Smart consumer products companies know that they must develop the six capabilities mentioned above if they are to thrive — and they are aware that technology is at the core of success in all six areas. The most efficient and effective IT approach will be one that is specifically suited to your organiza-tion’s workloads — and one that makes the most of the standards and processes. You should think in terms of workloads when building your cloud strategy.

Since workloads vary according to platform requirements, complexity, business criticality and data sensitivity, some are ideal for a public cloud, while others are more suitable for deployment in a private cloud. For this reason, a workload-based approach to cloud computing is essential in determining which delivery model — public, private or hybrid — is best for that workload. It crucial to understand which workloads can realize the greatest benefits in a cloud service environment.

In addition, some workloads, due to their characteristics (low risk and high potential for ROI) are better candidates for a cloud pilot project. Business use cases are workload-based, so know how you will deliver your workload and business use cases to understand not only which cloud strategy suits your need, but which service is best suited for delivery of those particular use cases.


Workload recommendations

IBM has identified workloads that will most likely offer highest potential return and pose the lowest risk for cloud projects.

Public cloud entry points: infrastructure workloads are most appropriate

• Audio/video/webconferencing• Infrastructurefortraininganddemonstration• WANcapacity• VoIPInfrastructure• Desktop• Testenvironnentinfrastructure• Storage• Datacenternetworkcapacity• Server

Private or hybrid cloud entry points: database and application workloads are most appropriate

• Datamining,textminingorotheranalytics• Security• Datawarehousesordatamarts• Businesscontinuityanddisasterrecovery• Testenvironmentinfrastructure• Long-termdataarchiving/preservation• Transactionaldatabases• Supplychainapplications• Tradepartnerapplications• ERPapplications

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Use case scenario: Business analytics in the cloud One of the world’s largest food companies has engaged IBM to develop a cloud-based platform to support analytics. A technology-enabled pilot is providing insight and decision making capabilities that link the company’s digital, consumer and supply chain initiatives into a single program. These linkages are fundamental to sophisticated forecasting and deliver advanced brand performance monitoring and execution.

Cloud computing has made it possible for this company to break free from an analytics environment that had impeded swift execution. Because IBM has invested heavily for years to help consumer products companies achieve business goals, the cloud solutions implemented encompassed three dimensions: consumer, brand and channel.

IBM cloud solutions brought these elements together to create a near real-time analytic and action environment to enablemoreefficientandeffectivetradeprograms.Datafromconsumer, brand and channel sources is normalized using statistical analysis and presented in a dashboard framework. Managers get performance visibility against retail level data and can take action while a promotion is underway.

Demandsignalsarecollectedfromheterogeneoussources(both internal and external) to increase visibility throughout the value chain. Forward viewing improves internal execution and drives actionable collaboration with business partners.

The IBM integration suite helps the company load, cleanse and harmonize a vast amount of disparate data into a consistent information platform. IBM business intelligence and dashboard technology deliver trustworthy information to the right stakeholders. And longstanding relationships with leading industry partners made it possible for IBM to create solutions that specifically address the needs of retail store operations.


An expansive vision of the future: Strengthening customer loyalty

Cloud computing can help consumer products companies expand their capability in new arenas around the world, delivering the ability to support initiatives in markets where supporting infrastruc-ture does not exist.

Organizations find cloud solutions especially valuable for social analytics and collaborative new product innovation, since business leaders gain the ability to scale up quickly as they expand throughout their brand portfolio.

These companies see real value in an approach that enables permission-based marketing securely and easily. They enjoy better management of their business reality—a pervasive digital environment in which marketing and new product innovation never stops.

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Getting started with cloud computingIBM can help your company identify and prioritize your cloud computing initiatives. With decades of industry experience and demonstrated success implementing cloud solutions, IBM can help your organization determine how to examine workload and business use cases.

IBM offers a roadmap to help you understand not only which cloud strategy suits your need, but which service is best suited for delivery of specific business use cases. Look to IBM to help you assess and plan cloud adoption. Expect a “level of readiness” evaluation that gives you a clear idea of what to address first.


Change is possible. The tools exist today.Discoverthepowerofcloudcomputing.Investigateanapproach that delivers the kind of rapid transformation you need to succeed in an environment that grows more vibrant and complex by the day. Create a truly dynamic infrastructure that lets you use collaborative technologies to the fullest. Experience a world in which business goals and IT capabilities have fused. For consumer products companies, success resides in the cloud.

For more informationTo learn more about IBM cloud computing for consumer products companies, contact your local IBM representative or visit: ibm.com/solutions

IT Roadmap


Six Steps to Getting Started with Cloud Computing

Architecture WorkloadAssessment

ImplementationROIEnterprise & Cloud Mix

1 2

4 5 6

3

Figure 5. IBM offers six proven steps to help you get started with cloud computing.

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1 IBM, Cloud computing for the consumer products industry solutionbrief,November2009,CPE03005USEN-002P.Taylor,FinancialTimes,DigitalBusiness,October2008 (Article and Podcast)

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