Supply Chain In The Cloud: Enabled Just In Time

Although research firm IDC estimated that $7.7 billion will be spent worldwide on cloud services, most of it will go to enterprise requirements planning (ERP), customer relationship management (CRM) and cloud services providers, and supply chain management will lag behind. However, now there are signs that these predictions are changing. Much of the credit can go to the recent recession, when many companies outsourced manufacturing, scaled down inventories, and avoided major product commitments in an environment where it was virtually impossible to tell which items cost-conscious customers were going to buy.

This combination of keeping inventories scaled back, relying more than ever on "just-in-time" (JIT) inventory ordering and then having to blend ordering and production systems with systems of thousands of suppliers around the world finally created enough critical mass to overturn traditional industry wisdom about keeping supply chain systems in-house and protecting against leakages of production information and intellectual property.

Added pressure from outsourcing to suppliers around the world for "least cost" manufacturing was certifying all of these suppliers to communicate in secure environments with corporate IT systems. Supplier certification is a painful, iterative process capable of overwhelming an entire IT staff. The fix was obvious: Why not go to a supply chain, cloud service provider that already has 80 percent of your supplier base certified and ready to plug in to your supply chain?

"There are two aspects to the benefits of cloud computing models for manufacturing and logistics organizations," said John Brand, Research Director at Hydrasight, an IT research and analysis firm. "One is to remove the internal costs associated with running your own IT infrastructure. The second is the benefit of increased visibility across organizational boundaries, particularly if a third party is involved. In fact, when you consider what cloud-based e-mail services can do for the control and removal of spam and viruses, cloud-based supply systems can similarly reduce the noise within the supply chain to simplify and speed up data exchange."

Perhaps the most pivotal question for companies seeking the cloud, however, is the degree of integration their businesses and systems require with their supplier bases. There are two fundamental cloud computing approaches to be considered: either a Web portal that provides real time communications and collaboration capabilities between companies and their suppliers, or a fully integrated business-to-business (B2B) solution that not only provides real time communications and collaborations between all parties, but that also performs transaction processing and data base updates in real time."The reality is that organizations are often better served by data intermediaries who aggregate and value add to the data that passes through the supply chain. Most often this data is made anonymous or heavily obscured to ensure privacy and integrity, while giving organizations greater insight and intelligence into data which can be reasonably shared between parties, with the right security policies and protocols in place. These data hubs can provide very rich services beyond simple data aggregation, reporting and analytics," Brand said.

Many companies adopt the Web portal approach to a cloud-based supply chain and achieve fast results, getting their entire supplier bases online in a matter of several weeks. Other companies, mostly large enterprises with robust supply chain integration requirements, require considerable B2B integration with suppliers and with cloud-based supply chain solutions, just as they would with an internal supply chain system. In these cases, integration can be tricky, and is a project that gets into months rather than weeks.

"The biggest obstacles are usually inflated expectations for business users, obstructionary IT departments, and poor alignment in IT infrastructure," said Brand. "Getting the balance right between the level of investment required to move into cloud-based services and the execution of a migration and management plan is still a significant challenge."