By Amar Singh
When has advanced supply chain management technology been available to companies of all sizes, even those with ever-shrinking budgets?
Since cloud computing has transformed how global business networks interact, delivering a flexible, collaborative model without breaking the bank.
"We didn't think we could get into a supply chain solution for a price that met our budget," says Thomas Pichler, CEO of Orthera, a startup that delivers custom orthotics through retail locations.
Orthera's ability to produce custom orthotics on a massive scale hinges on a seamless supply chain, wherein business processes are disparate and complex: orders come in from several hundred retail locations around the country, which then interface with corporate in California and manufacturing sites in South America and Southern California. But investing in traditional SCM software was simply not an option for Orthera. First of all, the company viewed traditional software as too rigid and failing to meet the needs of today's global manufacturing communities; and secondly, Orthera felt that the traditional software options were cost-prohibitive for small to midsize companies.
"Especially for a company our size, it's all about a low-cost, low-risk model that helps us serve our customers better than our competitors," says Pichler.
Orthera is not alone. Across all industries and regardless of company size, many supply chain executives are fed up with the steep prices and outdated architecture of traditional SCM software. Most companies today don't have the power and influence to dictate standardized business processes across the supply chain like, for example, Wal-Mart; nor do they have the money and resources to pay an army of people to tightly manage an agile, cost-effective, global supply chain. As a result, many companies are finally demanding a better way to create a collaborative, transparent and flexible supply chain.
Collaborative Computing — The Holy Grail of SCM
While planning a production line based on just-in-time (JIT) supplier and inventory management was a leading edge capability for SCM a decade ago, many businesses — both large and small — have embraced a new way of doing business, extending far beyond this model. But SCM software hasn't kept up, and for many organizations that operate in this new outsourced manufacturing environment of multinational, multi-enterprise community relationships, traditional SCM is no longer relevant.
The gap between business model and available software is being closed by workarounds and "management by spreadsheet," a people-intensive, expensive way to operate — and one fraught with data fragmentation and lack of visibility. The game-changer for the SCM world is "Cloud computing" and, as a subset of that, software-as-a-service (SaaS) applications.
Simply put, the "Cloud" is a metaphor for the Internet-based tools used by a multitude of diverse customers at any time from any location. Industry analyst firm Gartner defines Cloud computing as a style of computing where massively scalable IT-enabled capabilities (such as software) are delivered as a service to external customers using Internet technologies.
As a subset of Cloud computing, SaaS is defined by Gartner as software that's owned, delivered and managed remotely by one or more providers. The provider delivers an application based on a single set of common code and data definitions, which are consumed in a one-to-many model by all contracted customers on a pay-for-use basis or as a subscription based on use metrics. If the software application is written in such a way that it is "massively scalable," then SaaS is considered a form of Cloud computing.
In addition to SaaS, integration-as-a-service (offered by companies like Cast Iron, Boomi), platform-as-a-service (Amazon, SalesForce.com) and infrastructure-as-a-service (HP IaaS, Go-Grid, Box.com) are also components of Cloud computing.
According to IDC, the Cloud computing market has matured and continues to evolve on a number of fronts: the move from earlier standardized applications to more customized applications; increased service levels and load capacity; reduced operating costs; and a computing environment able to handle and distribute ever larger amounts of data across more organizations. As a result of this, along with the highly cost-effective "shared" nature of Cloud computing, IDC analyst Frank Gens, in his 2009 report "Clouds and Beyond: Positioning for the Next 20 Years in Enterprise IT," predicts that spending on Cloud applications will increase steadily — the Cloud computing market could reach $42 billion by 2012 — and that Cloud services will soon be essential tools for addressing the biggest business demands of IT and the Cloud.
By leveraging "SCM in the Cloud" technology, companies are finally able to make good on the promise of collaborative computing for supply communities. According to Joshua Greenbaum, principal with Enterprise Applications Consulting, "SaaS-based SCM solutions are ideal for cost- and risk-averse supply communities, who can take advantage of critical advancements in the scalability, security and reliability of today's more mature cloud environment."
To position the company for growth, Orthera turned to an SCM in the Cloud solution for three reasons: 1) low total cost of ownership; 2) flexibility, with the ability to customize; and 3) simple implementation, with minimal technical requirements and easy management. With a customer-specific, SCM in the Cloud-enabled solution, Orthera is able to centralize information, bridge process gaps and create real-time, cross-community visibility with their retail customers. And, critically important in the reality of economy-driven business decisions, they're able to accomplish this with a budget-friendly "pay-for-what-you-use" model.
Cloud — A Natural Fit for SCM
True Cloud computing is a natural fit for today's model of community supply chain management. Intercompany supply chain communication, collaboration, transactions and movement of goods are like the Cloud itself: distributed, shared, in constant flux. And like a community of supply chain partners, the Cloud's shape and size changes frequently and dynamically with the fluid business environment it supports.
When you put together the maturity of Cloud services as a technology, the cost/benefits and the already distributed nature of key data in outsourced manufacturing environments, it becomes clear that Cloud computing is practically tailor-made to solve the top challenges of SCM. Cloud computing is therefore an accelerator for the great leap forward in SCM software for this conservative realm.
Let's examine the challenges this catalyst will enable supply chain professionals to overcome:
Challenge #1: Real-time Business Process Management
SCM business processes — forecasts, planning, purchasing, inventory management, order management, fulfillment, invoice reconciliation — are interdependent and infinitely parallel, not simply linear in nature as traditional software is designed to support. Sharing information and performing intercompany transactions is difficult because each company performing multi-enterprise activities manages tasks and processes in their software packages of choice, which aren't designed to talk to each other. Since there is no common language across the community, sharing information has typically been handled one of three ways:
1. Companies share information manually and/or electronically via spreadsheets, phone, fax and e-mail;
2. Trading partners adopt electronic communication standards (e.g., EDI), which only handle discrete activities and require a network to share information among systems; or,
3. Companies build system-to-system integration, which also requires a network to share information between systems.
With Cloud computing, truly collaborative community SCM becomes a reality as broad SaaS application functionality combined with integration services enables multiple, interdependent end-to-end processes. This includes management of discrete intra-company activities (e.g., forecast creation by individual end customers), as well as end-to-end intercompany activities (e.g., forecast collection from multiple customers, de-aggregation, scrubbing, re-aggregation, sharing with suppliers).
Challenge #2: Cross-community Visibility
The greatest supply chain challenge facing companies today is visibility. A February 2009 IBM supply chain survey, "The Smarter Supply Chain of the Future," cites that 70 percent of respondents say supply chain visibility impacts their supply chain to a significant or very significant degree. While it's the number one problem, most companies still fail to address it, since traditional SCM software has made it an expensive proposition.
SCM in the Cloud has created end-to-end business process management of both discrete and multiple processes, delivering universal access and SaaS business process enablement for cross-community visibility unavailable until now. Visibility has to be built from the ground up, not layered on like a bandage over fragmented business processes and siloed data. By enabling supply chain communities with secure, Web-native collaboration, they can get off the spreadsheets and confidently share information with their partners.
Challenge #3: Cost
Companies still struggle with building flexible, scalable SCM business process management and information access cost-effectively. While cash-rich Fortune 100 companies like Bechtel have the financial resources to build "private Clouds," that is not a viable option for the midmarket. Instead, small and midsize manufacturers need to get involved on a Cloud that another company builds and maintains.
Compared to the immense capital expenditure and collaboration services required by traditional SCM models, Cloud computing significantly reduces the cost of community SCM. SCM in the Cloud scales with utilization, offering companies a flexible, cost-effective pricing structure. Additionally, since implementation, customization, integration and trading partner onboarding services can be managed remotely, companies don't need to devote additional dollars or human resources to deployment and maintenance.
Challenge #4: Technology Elasticity to Match Community SCM Needs
A supply chain community is dynamic and complex, always changing with the mix of products, partners, processes and geographies the community manages. Traditional systems lack the flexibility and elasticity to dynamically scale computing infrastructure to meet the ebb and flow of supply chain community demands.
SCM in the Cloud matches the continuous change in supply chain activity that today's extended business networks face, enabling users to share services to effectively meet both the changing shape of a supply chain network (product mix, processes, trading partners) and the volume of activity (seasonal, economic, etc.). Because not all users of SaaS, PaaS and IaaS scale together, the balance of usage among participants allows the shared services provider to meet the macro needs of the pool of users along with the micro needs of individual users. This provides effective price elasticity that individual users cannot create themselves.
Challenge #5: Effective Partner Onboarding and Sustained Use
A major hurdle to enabling community SCM has been finding a simple, affordable means for onboarding and ensuring sustained use by trading partners. Traditionally, partner collaboration and business process management were managed via one-to-one point connections that were unique, complex and expensive. Despite advancements to create views into discrete packages (i.e., Citrix for remote workers on an enterprise resource planning, or ERP, system), but not among systems (no single sign-on), cost and complexity prevail. As a result, companies have typically reverted to spreadsheets and phone, fax and e-mail to coordinate among trading partners, leading to data and information fragmentation, security and regulatory issues, time lags, errors and economic inefficiency.
SCM in the Cloud creates a single platform for comprehensive business process management in a one-to-many format for the supply chain community. Instead of a host of point-to-point integrations, the end-to-end capabilities enable trading partners to have a single view for multiple activities. Now when a supply chain team needs information or wants to make timely decisions, consolidated and rationalized information is at their fingertips. Contrast that with attempting to compile information scattered among participants' disparate software — and spreadsheets — and one can easily see the immediate benefits for efficiency and competitiveness to be found in the Cloud. ¦
About the Author Amar Singh Amitive