When it comes to selecting so-called "cloud" software apps for their distribution operations, logistics managers have two choices: a software-as-a-service (SaaS) offering or a hosted solution. Each approach has its pros and cons, says Frank Camean, president of consulting and systems integration firm 4Sight Supply Chain Group. A clear understanding of the two choices is critical to making the right decision for a given company's operations.

SaaS is generally a good choice for companies getting started with cloud computing. Under the SaaS model, a company rents the software, paying a periodic subscription fee. The software application is housed on a remote server and accessed via the Internet. More than likely in this scenario, the company will be sharing that application with multiple users. In computer jargon, this is known as a "multi-tenant" solution. Since the software is shared among users, it has a set of common code. "In this model, the vendor will license this application on demand," says Camean.

With a hosted solution, by contrast, a company sets up the software application on an Internet-based server, which is run and maintained by an outside vendor. In essence, it's a private cloud except that the vendor owns the hardware and provides the support. Camean advises companies opting for this "single tenant" approach to get a clear upfront definition of the fees, particularly whether the charges will be based on transactions or period of usage.

For warehouse management systems (WMS), in particular, it makes sense to start out with the SaaS version if the company has low to medium volumes or a simple operation with a limited number of users. Companies with tight information technology budgets are also good candidates for this approach.

But over time as the distribution center operation expands or becomes more complex, a company should take a look at the hosted version. That's because a hosted solution allows for flexibility in configuring the application to meet a company's unique operational needs. "If you're debating between SaaS, hosted, or on-premise [WMS], I would encourage you to look at the maturity or complexity of your overall operations," says Camean. "Don't [make the decision] strictly on the basis of the size of your company or your annual revenues."

In fact, if the company is running a sophisticated DC operation with automated material handling equipment, then it really should consider a hosted solution (or the traditional on-premise model) for its WMS, Camean says. "You can't do customizations in a SaaS WMS," he explains.

Although cloud-based solutions are relatively new, they are drawing a lot of interest because of their promise of a quick payback. "You get to reap the benefits of ROI much, much quicker in the cloud," says Camean. "There's a heavy capital investment that comes with on-premise solutions."

Indeed, Camean sees cloud computing as a "game changer" for supply chain and logistics professionals. "The migration of supply chain companies to the cloud represents one of the biggest shifts in the history of our industry," Camean says.

Editor's note: To learn more about cloud computing, check out DC Velocity's free "Monthly Briefing" webcast with Frank Camean, "Cloud-based WMS: Is it ready for prime time?"