Cloud Computing: Nothing but “full forward”

Shippers are getting more and more interested in the cloud as a software delivery method for supply chain management (SCM) applications. And while transportation management systems (TMS) and global trade management (GTM) solutions have long been considered the top candidates to move into the cloud, other applications are now being offered up as cloud and software-as-a-service (SaaS) models.

And the truth is in the numbers.

The supply chain management (SCM) and procurement software market grew by 10.8 percent last year, outpacing most software markets to total $9.9 billion, according to Gartner. Within that software sector, SCM offerings delivered via the cloud posted above-market growth of 17 percent in 2014, Gartner reports, while new on-premise licenses grew by 9 percent “as organizations sought to modernize their supply chain portfolios through a variety of different deliver models.”

Gartner points to SAP, Oracle, and JDA Software as the top vendors in this area, where about 10 vendors claim 55 percent of the total market share. Over the next few pages we’ll explore the growth of cloud in the SCM space, find out what’s driving this growth, discuss any lingering limitations holding it back, and figure out what’s ahead in this realm for the coming year.

Cloud is on a growth tear
Bart De Muynck, research director at Gartner, says cloud is No. 1 on a list that the company recently compiled of the “top digital business technologies.”

Looking at supply chain technology as a whole, he says that there’s been a significant increase in the growth of supply chain management applications in the cloud. The trend is being driven both by shippers that want a seamless, affordable way to get up and running with SCM, and vendors that know they need to answer that call or risk getting left behind.

“We’re seeing more and more SCM vendors moving into the cloud, including a number of smaller software providers that are only doing cloud applications,” says De Muynck, “and that no longer offer on-premise solutions.” On the shipper side, he says Gartner has picked up on “a lot of new investment being put into SCM applications—much of it on the cloud side.”

De Muynck estimates that between 30 percent and 50 percent of new SCM application purchases are cloud-based right now. In addition to TMS and GTM—both of which rely heavily on outside “connections” to business partners and carriers to operate effectively—a number of warehouse management systems (WMS) are being offered up in the cloud.

The push into the cloud
The business case for cloud SCM applications hasn’t changed much over the last few years. For the most part, shippers opt for this delivery method because the up front costs are cheaper, there’s no need for big IT infrastructure upgrades or support, and hooking supply chain partners into the online space is fairly easy.

“Up front, the decision to go into the cloud is usually made purely from a financial perspective,” De Muynck points out. “When an application doesn’t require any additional hardware, licensing fees, or lengthy implementation time, it can be pretty compelling.”

Robert Hood, a principal at New York-based Capgemini, says both TMS and GTM are “a long way down the road” in terms of cloud-based applications, with WMS lagging behind those two frontrunners.

“At this point, traditional providers like JDA, Manhattan, and Infor are being pulled into the cloud,” says Hood, who credits competition among software vendors with driving some of that momentum. “Some native SaaS providers like LogFire [a cloud-based WMS vendor] are pushing particularly hard, especially with smaller shippers that have less complex DCs.”

According to Hood, larger shippers that have complex, high-volume warehousing operations are still most interested in on-premise SCM applications. In some cases, it’s a matter of trust (will we be supported adequately in a multi-tenant, off-premise environment?), and in other cases the choice is based on the company’s current level of automation.

“Firms with high-volume networks and heavily-automated DCs aren’t usually willing to make that leap,” says Hood, who points to order management systems (OMS) as a potential new entrant into the SCM cloud movement. “We aren’t seeing any of the major providers (Manhattan, Sterling, etc.) migrating to the cloud yet,” says Hood, “but I’m sure they’re all talking about it.”

For some companies, the barriers associated with the cloud revolve around security concerns, particularly when it comes to private and proprietary data that has traditionally been stored and managed in-house.

“Concerns about security are slowly going away, but the issue is really rooted in the way the cloud is set up—private, public, multi-tenant, or single-tenant,” says De Muynck. “There are still industries whose master and transactional data require a high level of security, and those companies typically opt for an on-premise solution.”

Full-forward motion
In last year’s Logistics Management article on the evolution of cloud-based SCM, Gary Hanifan, managing director at Accenture, called the movement one of several “disrupters” that are currently making an impact on the supply chain software space.

His viewpoint hasn’t changed over the last year, and in fact he says that there’s been even more uptake in cloud computing as part of the typical “digital” supply network. “Cloud continues to grow in this space, and I haven’t seen any backsliding at all,” says Hanifan, who has seen more companies starting to use cloud-based planning management (PLM) and even research and development applications. “It’s nothing but full forward.”

Driving that full-forward motion is a shipper that wants to create a digital tapestry of products and services in a way that allows them to share information, collaborate, and otherwise work with their supply chain partners in the most seamless manner possible. “Using the cloud, companies can share information and infrastructure and gain access to a level of connectedness they haven’t had in the past,” Hanifan explains. “As a result, we’re starting to remove the excuses for not having good visibility.”

Put simply, excuses like, “I didn’t know this was going to be late,” or, “We didn’t realize it was being shipped to the wrong location” no longer hold water. “We’re actually starting to see those excuses being removed from the business organizational standpoint altogether,” says Hanifan.

De Muynck adds that being able to develop a common platform that requires little or no costly software customizations is another attraction point for shippers. “We’re moving away from an IT strategy where companies customized software to the use of more ‘common’ platforms,” says De Muynck. “This, in turn, helps companies upgrade their solutions at a much more affordable price point. They can seamlessly get a new version of an application.”

More to come
With worldwide usage of cloud-based software expected to continue growing through 2016 and beyond, a growing number of shippers are rethinking the way they purchase and use SCM applications.

Concurrently, both enterprise resource planning (ERP) and best-of-breed SCM providers are coming up with new ways to deliver their state-of-the-art applications in a cloud-based format. Clint Reiser, ARC Advisory Group’s analyst overseeing enterprise applications, doesn’t expect either of these trends to end anytime soon, although he says the way the software is financed could change in the near future.

“The growth of the cloud SCM solutions, and SCM software in general, is forcing the market to rethink how they sell perpetual licenses—namely in terms of the pricing on those licenses,” Reiser points out. “Going forward, I think there will be additional pricing pressure and new pressures to offer up even more flexible options for on-premise software.”

Borrowing a page from the cloud playbook, for example, sellers of on-premise SCM software may offer five-year payment plans to help shippers defray the high up front costs and even offer to host the software for the user. Such shifts could help shape a new “hybrid” SCM model that falls somewhere between traditional purchase-and-install and cloud-based options. “Don’t be surprised to see things changing,” says Reiser, “both in terms of financial provisions and deployment options.”

De Muynck projects more growth for both the SCM market as a whole and for the cloud-based options that fall under its umbrella. And while cloud was historically considered a good option for smaller companies that lacked the capital and resources necessary for a traditional SCM implementation, De Muynck predicts that a higher number of large firms will move in the direction of the cloud in the coming months.

“Large shippers are adopting more and more cloud-based applications, while at the same time the cloud continues to open doors for companies that didn’t have access to a full range of SCM capabilities,” says De Muynck. “That’s driving double-digit growth in the adoption of cloud applications and it’s why vendors are so focused on cloud-based options—or, at least offering cloud deployment in addition to on-premise choices. We don’t see this momentum ending anytime soon.”