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Supply Chain Management- The Ideal Breeding Ground for Cloud?

The market for cloud-based services is expected to reach nearly $150bn by 2014. Gartner expects that one-fifth of all businesses will own absolutely no IT assets by 2012.

Manufacturing companies around the world, with their inherent penchant for low IT budget, are paying much closer attention to cloud computing and its potential value to supply chain processes - from sourcing to after-sale service.

Supply Chain Management space is, according to me, the ideal breeding ground for cloud computing. Let's explore how and look at its impact on various facets of supply chain management in a manufacturing company. Let us also look at some of the pitfalls that should be avoided.

Let's start with procurement. Enterprise applications in supply chain space, and especially in procurement domain, are mostly about B2B or inter-company coordination and collaboration among hundreds of supplier companies on a global scale. This geographical spread and need for collaboration makes it an ideal candidate for Cloud computing. One of the main value-proposition from Cloud computing is said to be reduction in 'total cost of ownership' and it is also the most commonly cited success metric in sourcing and procurement.

Now let's move to Supply Chain Planning. Production planning and forecasting are not normally the core components of companies' ERP systems. Clients therefore can run one vendor's ERP application and can leverage another's best-of-breed planning/ forecasting application via the Internet. (Of course, need for a proper coupling or integration between the two systems can never be undermined! The TESCO cloud computing fiasco in last December is fresh in our minds).

Now coming to Supply Chain Execution and visibility, Control Tower Systems, the most recent addition to supply chain visibility tools is now available in cloud. Control Tower technology for supply chain, in simple terms, is a Single-Version of Supply Chain Truth. A platform that makes that truth available across the value chain in an agile manner and that connect trading partners and service providers to create a vibrant, "always on" electronic community. When you want something to be always on, where else other than internet to host the application?

The IT landscape is fast evolving, leveraging the cloud-advantage. It's agile because the time to value is shorter and because massive capital outlays aren't required and because there's just a lot less risk in the model.

We heard a lot of good stuff about cloud. But is it all hunky-dory? Well, there are pit falls. I touched upon the interoperability or interface issues earlier. As with anything new, all the Doubting Thomas in the industry would want to adapt cloud in a phased manner. Move out all the non-core functions to cloud initially and if they are OK with it, move the rest of the stuff also into cloud. During this interim period, cloud has to talk to non-cloud applications -seamlessly. Since it's going to be a cloud-to-non-cloud integration, it is as good as (or as challenging as) a company-to-company integration project, and must deal with a few firewall and security issues- which at times can get very complex or can go wrong.

Well, now we know there is very low entry barrier to get into cloud- no hardware, capital investment. What about exit barrier? If you don't like an enterprise application you can switch to another one in the cloud. But what if you don't like the cloud service provider? Well! That switching is not that easy. At least, not yet. The cloud vendors are not showing the same enthusiasm in creating a global standard for cloud as much as they showed in moving applications in cloud. The reason is obvious- 100% portability is not in the interest of the vendors- that each one of them wants to protect the investments they have made.

Once such a standard (like Open Cloud Manifesto) comes into being, we can see a further shift in the bargaining power towards the buyer. An interesting analogy would be to compare this with the mobile number portability. The buyer would be less tolerant to SLA violations. The applications switching /cloud switching decisions would be taken at more operational level - as the stakes are much lower. The selection of service provider would be more service centric than product centric.

This inevitable and imminent adoption of cloud is going to bring about a paradigm shift in the way enterprise applications are dealt within manufacturing industry. The supply chain application vendors who are quick to internalize this change are going to hugely benefit from this.

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