Eyes on the skies
Cloud-based technology is being hailed as the next big thing in the parcel management sector. But first, providers have to allay shippers' concerns over cost, reliability, and data security.
In April, the U.S. division of the British firm Kewill PLC, a major player in the parcel technology segment, met in Nashville, Tenn., to hold its annual customer conference, which was dominated by the company's parcel clientele.
Though the conference covered various topics, the most popular, according to those in attendance, was the symposium on cloud computing.
The popularity of the cloud session is not surprising. Like other businesses, parcel shippers and providers have heard their share of glowing reports about the edge afforded by cloud computing, leaving them eager to learn how the technology could be integrated into their own operations and how it could present a different—and potentially better—way of managing their parcel affairs.
"The whole topic of shipping spend management tends to revolve around things going out the loading dock, not what happens in the offices above the loading dock," said Peter Starvaski, director of product management, parcel shipping, for Kewill. "That spend—and the policies that go along with it—tends to be a black hole for most companies."
Cloud technology could fill that hole, many believe. In a cloud computing setup, the parcel-shipping application and data for it reside on an Internet server. Anyone in the organization can access the application and data from any location as long as they have a Web browser.
Users of cloud technology don't have to invest in capital equipment such as servers, and are freed from the ongoing and often escalating costs of upgrading and maintaining their systems. Cloud software providers manage the network and systems, and charge either a transaction fee—known in IT lingo as "paying by the drink"—or a subscription fee, often assessed on a monthly basis.
Supporters of the platform say it gives everyone on the system real-time information to manage compliance with shipping policies, ensure the contracted rates and the invoiced charges are aligned, and allocate expenses accurately, among other things.
MAILROOM IN THE CLOUD
Phoenix-based Apollo Group, the for-profit adult educational giant, has seen the benefits of using a cloud system for its parcel shipping. Apollo uses Kewill's cloud-based desktop shipping program to connect the more than 22,000 employees at its flagship University of Phoenix institution.
Each employee has his or her own user ID and password to log on to the system, according to Beth Gambaro, director of facilities at Apollo. Regardless of their location, all employees have real-time visibility of providers, rates and service levels, and compliance requirements, she said. Because the system is automated, employees don't have to pore through manual routing guides to decide which carrier to use.
The Kewill system connects Phoenix's parcel shipping activities—Phoenix ships about 3,000 pieces a month—with its mailroom receiving operations, and back-end billing and reporting functions, according to Gambaro. Before the system was installed two years ago, Phoenix employees would bring packages to the company mailroom for processing, she said. Today, much of that work is done on the desktop, reducing or eliminating the need for mailroom employees to perform such labor-intensive activities.
A BETTER MOUSETRAP
Software vendors pushing cloud-based solutions believe they've just scratched the surface in persuading companies—shippers, couriers, parcel companies, and third parties—to ditch their old systems and switch to the cloud. Some providers say they have already seen the shift and believe there is much more to come.
For example, CXT Software, a Phoenix-based vendor to "last-mile" parcel providers (think a courier that ships medicines from a DC to a pharmacy), introduced cloud services in April 2009 to accompany its traditional offerings. Today, the cloud accounts for about 40 percent of CXT's revenue, and 90 percent of its new customers come on board using the cloud-based platform, according to Darin Soll, the company's CEO.
By contrast, growth in CXT's traditional on-premise business has remained flat during that time, though it still represents 60 percent of the company's revenue base, Soll said. About two-thirds of CXT's customers are small to mid-sized businesses, many of which lack the in-house capabilities to run a system to maximum benefit.
Soll said businesses initially resist switching to the cloud because of the higher up-front management expense and concerns about the security of their data once it is removed from a proprietary network. However, many become "cloud converts" once they realize how much they can save by avoiding the purchase of hardware as well as the ongoing expenses associated with system maintenance and domain management.
"We save companies a ton of money over the long run," he said, adding that many small to mid-sized businesses "underestimate the 'soft' costs of running a system."
CHANGE IS ... GOOD
Yet with any new and disruptive technology, there are factors that trigger pushback. Worries have surfaced—mostly from operations folks—over the performance and reliability of a cloud-based system, especially in high-volume distribution centers processing large volumes of packages. (One of the biggest challenges for high-volume parcel shippers is to make cloud technology work with package weighing and cubing equipment that is already integrated into the premise-based systems.)
There can also be resistance from in-house IT professionals who see the cloud as a threat to their relevance, even though many acknowledge the benefits of the technology.
Then there are the unusual incidents that are seared into memory and become an obstacle for those seeking to promote the cloud-based model. Starvaski of Kewill recalled a situation where a customer, a large Midwest-based e-tailer, had his communication line to the cloud accidentally severed by a farmer plowing a field above where the line had been laid. The incident occurred just at the start of the e-tailers's peak shipping season. The company was offline for several crucial days, costing it large sums of money and prompting it to swear off the cloud for good.
"It's a situation like that which makes it hard to persuade a company to use the cloud," Starvaski said.
Gene Trousil, chief deployment officer at One Network Enterprises, a Dallas-based provider, says cloud-based systems have built-in redundancies so that data can continue to flow without interruption if a site goes down. Soll of CXT added that a large number of companies have come to him seeking cloud-based solutions after their own servers crashed and they needed to get back online quickly.
Some worry that their data will be compromised once it's removed from a proprietary "firewalled" system and exposed to the Internet. In an effort to allay those fears, cloud providers point to the sophistication of their high-end systems, which they say can protect information far more effectively than most conventional networks can. They claim that they are subject to regular outside audits to evaluate the integrity of their systems and that they have no interest in their customers' data anyway.
Cloud-based software vendors also note that a cloud infrastructure is more scalable than an on-premise model, meaning that it's easy to expand the cloud's capabilities to keep up with a user's needs. They point out that the cloud network benefits from being a multi-tenant model; because a cloud network is supporting dozens of customers instead of just one, the cost of upgrades and improvements can be spread across the entire customer base.
"We can pass on economies of scale pretty easily to our customers," said Soll of CXT.
Cloud software providers contend that customers who adopt the technology as simply a way to save money are missing the larger benefits of using it for competitive advantage. But Trousil, for one, says that One Network's customers have no trouble seeing the forest for the trees.
"They are not coming to us for cost savings," he said. "They want to have a better service. They want better tracking and routing capabilities."
Starvaski of Kewill acknowledges that businesses comfortable with the status quo often have a hard time embracing a new IT approach such as the cloud. But as more companies of all sizes and stripes build applications for the cloud platform, it will become the rule rather than the exception.
"As with any new concept, there needs to be evaluation and vetting out," he said. "But it's a technology rationalization, not a philosophical one."More articles by Mark B. Solomon
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