October 13, 2010
Column | techwatch

Clouds thicken over the supply chain

New study shows cloud computing is taking the supply chain community by storm. And users are saving a lot of money.

By James A. Cooke

A cloud seems to be descending on distribution, and that's probably a good thing for companies looking to save money. The cloud in this case is not a mass of water particles, but cloud computing, the latest development in information technology. A new report from the research and advisory group Gartner suggests that companies are increasingly turning to cloud-based solutions for supply chain applications and that by doing so, they're shaving beaucoup dollars off their information technology expenses.

What's cloud computing, you ask? It's an arrangement in which services and data storage are provided over the Internet (the cloud is a metaphor for the Internet). Basically, the vendor hosts the application on its own servers, and the user obtains access to the application through a Web browser. Companies using cloud computing avoid the hassle and expense of installing software programs on their on-site computers and servers.

If the Gartner report ("Significant Benefits Realized With Supply Chain Management in the Cloud") is any indication, cloud computing has taken the supply chain community by storm. In a survey conducted this summer over 130 companies in the retail, consumer goods, manufacturing, and high-tech sectors, the research firm found that 95 percent of the respondents were either using or were considering using cloud-based supply chain applications. That's a jaw-dropping finding when you consider that there were few cloud-based supply chain solutions available just two years ago.

You're unlikely to hear complaints about software availability today. When I first reported on this development in 2008, I noted that it was mainly transportation management systems (TMS) that were delivered via the cloud. But now users can choose from a broad array of offerings. In fact, the Gartner research suggests that the cloud has enveloped virtually every category of supply chain application—from supply chain execution to planning, from manufacturing to e-commerce.

As for which apps companies are most interested in using over the cloud, the Gartner survey indicated that customer relationship management (CRM) software was the top choice, with 82 percent of the respondents either using or evaluating the use of a cloud-based solution. Next on the list were supply chain execution programs, which were cited by 76 percent of the respondents. That's significant since execution applications for warehousing, transportation, and yard management are among the most commonly used in distribution and logistics operations.

That's not to say there haven't been holdouts. There are still some companies that are dragging their feet when it comes to cloud computing. As for what's holding them back, in some cases, it's concerns about security and data ownership. In others, it's a reluctance to undercut a heavy investment in enterprise resource planning (ERP) systems.

Those who have taken the leap are already seeing benefits. Thirty-eight percent of the respondents to the Gartner survey reported that they had reduced their supply chain costs through cloud computing. For industrial manufacturers, most of the savings came from optimizing supply chain expenses. For consumer goods companies, the gains came largely through reducing their costs to serve customers.

Although the survey respondents had little trouble identifying the source of their savings, it was a different story when it came to quantifying those savings. Only 41 percent of the respondents using cloud-based solutions said they were able to measure the savings they had achieved. Those that could, however, reported impressive results. Nearly three-quarters said they had cut their information technology expenses anywhere from 5 to 20 percent.

Given the savings potential offered by cloud-based applications, it's a sure bet that more and more businesses will be embracing this approach to software use and deployment. My forecast for the next year: Expect to see the clouds thicken over the supply chain.

About the Author

James A. Cooke
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP’s Supply Chain Quarterly and a staff writer for DC Velocity.

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