hey! you! Get on the cloud

Mick Jagger had it wrong. You don't want to get off the cloud; these days, you want to get on the cloud and stay there. The cloud I'm referring to isn't cirrus, stratus, or cumulonimbus; it's cloud in the sense of "cloud computing," the latest information technology buzzword. If you haven't heard much about cloud computing yet, you probably will this year. Major software companies like Microsoft are expected to announce initiatives in this area.

What is cloud computing? In simple terms, it's the sharing and storing of information over the Internet (the cloud is a metaphor for the Internet). Under this setup, applications and data are stored on servers on the Internet, where they are accessible via desktop computers, sensors, monitors, smart phones—practically any electronic device anywhere on the globe.

Cloud computing is considered a step beyond software as a service (SaaS), a business model in which a user accesses a software application hosted on the Internet through a standard Web browser. The difference has to do with where the data are stored. With SaaS, the user generally maintains the data on a computer in his or her office; with cloud computing, both the data and the application are stored somewhere off in cyberspace.

Cloud computing is expected to gain traction quickly with supply chain software users, who are already accustomed to using applications—particularly transportation management systems (TMS)—that are hosted on the Internet. That "rental" option has proved to be popular with TMS users for a variety of reasons. For one thing, they don't have to spend a lot of money upfront to buy a software license; instead, they simply pay a relatively modest monthly fee. For another, the company can avoid both the cost of integrating the application with other internal information systems and the cost of maintaining the program.

The advent of cloud computing should only hasten the movement of other supply chain applications to the Internet delivery model. A number of big software vendors are readying cloud computing platforms to facilitate this transition. For example,Microsoft announced that it will debut a cloud computing system dubbed "Azure" later this year. Others, like IBM, HP, and Google, have already moved into this area.

With companies like Microsoft entering this space, it's no surprise that at its October IT symposium, the research firm Gartner Inc. identified cloud computing as one of the key trends to watch in 2009. In fact, the firm's analysts believe cloud computing could level the playing field in corporate America. That's because it would give small companies access—at a low cost—to many of the same software applications that big companies have spent big bucks on to deploy.

That could portend big changes in distribution. In the past, many small companies couldn't afford (or couldn't justify) the costs of enterprise resource planning (ERP) or supply chain execution systems— never mind the expense for emerging applications like demand forecasting, supply chain redesign, and inventory optimization. But the delivery of software applications over the Internet could finally put these systems within their reach.

Although cloud computing would make it possible for a small company to use an inventory optimization or ERP system, there's one software category where it won't have an immediate impact. And that's warehouse management software (WMS). While it's certainly possible to put warehousing systems in the cloud, this software would likely remain unaffordable for small players because of the costly systems integration work that would still be needed to get the various pieces of warehouse equipment to work together.

Even though WMS in the cloud may not be totally practical at the moment, there will be plenty of other types of supply chain applications that lend themselves to this approach. In an economic downturn, this development could make it easier for companies both big and small to apply software intelligence to their supply chain operations to gain the efficiency needed to survive—and even thrive— in hard times.