Six questions every supply chain

executive should ask about cloud

computing
By Thomas Schramm, Jonathan Wright, Dirk Seng and Derek Jones
Supply chain executives should
evaluate what cloud computing
can mean for their operations.
Asking the right questions is a
good place to start.
In today’s world, companies
are striving to operate a more
dynamic supply chain to react
to ever increasing volatility
in customer demands and
market conditions. And as
supply chains are increasingly
powered by information
technology, flexible solutions
are an important part of a
supply chain design.
Against this background, it’s
no surprise that the topic of
cloud computing is generating
intense interest, after all major
businesses across the world
are already applying cloud
technologies successfully in
other business areas. Some
analysts estimate that the
market for cloud-based
services will reach nearly $150
billion by 2014. Many global
organizations in industries like
retail, banking, and consumer
products are using cloud-
based technologies to analyze
data, provide applications to
employees and run special
projects.1 Media giants are
reported to be working on a
cloud-like service that will
enable content to be delivered
2
dynamically in multiple more supply chain services
formats and on a variety of are provided, shifting away
devices.2 And more cloud from traditional, contracted
services will soon be available, outsourcing models to more
as established IT and telecom flexible, transaction-based
providers including Accenture, models.
Microsoft, Fujitsu, KDDI, China
With so many issues to
Mobile and SingTel join cloud
explore, supply chain decision
pioneers like Google, Amazon
makers can easily succumb
and Salesforce.com.3
to “analysis paralysis” or the
However, along with growing temptation to abandon their
interest, cloud computing in inquiry to the IT department.
supply chain also generates But cloud computing is too
difficult questions. While important; supply chain
it promises to enable a executives have much to gain,
wide and powerful range of and should involve themselves
capabilities, its potential uses in the dialogue.
are exceptionally broad and
difficult to foretell. What is
certain is that it will radically
affect how computing is
done and managed, how
information is controlled, and
the economics of supply chain
information technology. The
technology’s novelty and the
hype found in some media
stories make it even harder
to evaluate its potential,
costs, and risks. But beyond
the technology, we believe
cloud computing will lead
to a revolution in the way
When compared with the leaders in
other aspects of the business world,
supply chain executives face a different
set of challenges in their choices
around cloud computing and will need
to scrutinize their decisions by looking
through a unique lens. Specifically, they
need to pay close consideration to the
following trends that cloud computing
will drive in supply chain:
New competitors
Cloud computing has the potential
to enable start-up companies to
establish themselves in a short period
of time, without significant investment
in infrastructure. This could have
a remarkably disruptive impact on
the competitive landscape of many
established market leaders.
Speed to market for new products
and Services
The pace at which new revenue-
generating products and services are
introduced has put constant pressure
on supply chains in recent years. Cloud
computing will speed up that pace
even more.
Large-scale transformation
The threat from new competition
and the increased pace at which
new products and services are being
introduced will drive companies with
traditional, infrastructure-intensive
supply chains to re-invent themselves.
Supply chains will become more
dynamic, more scaleable, and more
capable of supporting the financial
objectives of boards and shareholders.
Cloud-based supply chain solutions will
enhance competitiveness.
Yet the promise of cloud computing also With capital already tied up in IT
raises concerns that executives must infrastructure, the next decade will
take into account when formulating their see supply chains augment existing
strategies: solutions with evolving albeit proven
technology that will keep them flexible
Collaboration and the partner and successful going forward. To date,
eco-system these innovations have included mobile
Very few companies control, own applications, advanced analytics and
or operate their entire supply chain digital receipts. Cloud computing
internally from end-to-end. So decisions likely represents the next step in this
about using cloud technology may progression.
involve multiple partners, creating
complexities and sensitivities between
the participating organizations.
Six key questions
So, cloud computing is very much on
Competitive essence the supply chain agenda. But how
Companies use sophisticated and
can supply chain executives keep
effective supply chain management pace by coming to a timely, focused
(SCM) to differentiate themselves in
and productive evaluation of cloud’s
the marketplace and gain competitive potential and pitfalls? To help them
advantage. So how can reusable do this, Accenture has identified six
applications and processes that are not key questions that we believe decision
specifically customized for them deliver
makers should ask about this still-new
what they need? phenomenon. By focusing on these
questions, supply chain executives can
Security
narrow their inquiry without succumbing
Whether they are operating on
to superficiality, and can start to identify
traditional or cloud infrastructures,
the real opportunities and risks that
companies still have an absolute need
cloud computing brings for their own
to protect their products and customers.
organization.
Lost data can lead to lost intellectual
property (IP), lost products, and lost
business. So security is a prime concern.
Given these considerations, it is not
surprising that companies are moving
relatively cautiously towards leveraging
cloud technologies in their supply chains.
However, studies in various sectors show
that interest in the potential of cloud in
supply chains is already strong.
In our view, it will not be long before this
high level of interest in SaaS in supply
chain progresses into rising adoption
of cloud. Historically, supply chain
operations have proven to be adept at
adopting and capitalizing on innovative
technology solutions, and we believe
cloud will be no exception.
3
1. What is cloud computing, and how does
it work?
Cloud computing allows companies
to access IT-based services, including
infrastructure, applications, platforms
and business processes, via the internet.
Cloud technologies allow IT to better
respond to the changing needs of the
business, create new services and
open up new markets, thereby helping
companies to achieve high performance.
Although the term “cloud computing”
was coined relatively recently, many
elements of the concept, such as
timesharing and virtual machines, have
been around for several decades.
What makes cloud computing a growing
reality for today’s businesses is the
pervasiveness of the Internet and
Internet technologies, combined with
advances in virtualization, hardware
commoditization, standardization, and
open source software. A key catalyst is
the success of major Internet companies
such as Google, Amazon Web Services
and Microsoft.
The highly global and scalable
infrastructure these companies use
to power Internet search, electronic
commerce, social networks, and other
online services is an important enabler
for cloud computing. In parallel, a
distinctive group of highly capable
business solutions firms have emerged,
including proven providers such as
Salesforce.com and Workday.
Across all these offerings, cloud services
tend to share several characteristics:
• Little or no requirement for capital
investment to enable usage
• Variable pricing based on consumption
— buyers “pay-per-use”
• Rapid acquisition and deployment
• Lower ongoing operating costs than IT
owned and managed in-house
• Programmable and adaptable in use.
4
A continuum of cloud
options: from infrastructure
to business processes
As companies map out and plan their
cloud strategies, it is important that
they appreciate the full implications and
business potential of cloud. In general
terms, companies need to align their IT
with their specific strategic challenges
and aims. In seeking to do this, the initial
focus area for considering cloud has
usually been IT infrastructure, in order
to target benefits including financial
flexibility, lower total cost of ownership
(TCO), needs-based utilization, speed
to market, and the availability of
information anywhere and anytime.
However, cloud is about much more
than infrastructure. It also brings major
opportunities to expand similar benefits
up the value continuum to applications
and processes, and then into the design,
development and delivery of new and
innovative product and service offerings
for customers. The escalating hierarchy
of cloud opportunities starting with
infrastructure, and then moving up
through platform, application, and
business process clouds is summarized in
Figure 1.
Businesses have already begun to
move up this hierarchy in search of
the escalating benefits that each level
can deliver. At the infrastructure level,
companies have begun to source raw
computing resources, processing power,
network bandwidth and storage from
the outside on an on-demand basis.
Infrastructure cloud providers draw
from a pool of shared resources and
dynamically expand and contract to
accommodate fluctuating demand
from different user organizations. As a
result, they provide far greater elasticity,
economies of scale, and cost advantage
compared to standalone data centers.
At the platform level, cloud-based
environments provide application
developers with similar functionalities
to those available in traditional desktops
including tools for development, testing,
deployment, runtime libraries, and
hosting. The emergence of cloud-based
platforms enables independent software
vendors (ISVs) and IT staff to develop
and deploy online applications quickly
using the third-party infrastructure.
At the application level, the first wave
of cloud-based services, also known
as software-as-a-service or SaaS, falls
broadly into the areas of CRM, human
capital and financial management.
The second wave focuses on desktop
productivity tools, including word
processing, spreadsheets, e-mail and
Web conferencing. We can also foresee a
third wave, as core business applications
become available as cloud solutions.
Already, application clouds running on
third-party infrastructure span all major
enterprise solution areas, ranging from
procurement to enterprise resource
planning and content management.
Organizations generally subscribe to
these services based on the number of
users or seats. Because these services
are available via standard browsers,
they support device independence and
anywhere access.
At the business process/industry level,
cloud-based solutions, also known as
business process utilities or platform-
based business process outsourcing
(BPO), offer an Internet-enabled,
externally provisioned service for
managing an entire business process,
often specific to a particular industry.
Unlike traditional BPO, which often
requires the service provider to take over
an existing software installation, the
process cloud uses a common, one-
to-many platform to automate highly
standardized processes. It differs from
application clouds in that it provides
end-to-end process support, covering
not just software but also processes
that may be supported by people, such
as contact centers. These processes are
typically priced on a per-transaction
rather than per-seat basis.
Going “private” or “public”
Clouds at each and every level of the
hierarchy can take two forms: private
and public. Private clouds are built
within a company’s data center and are
designed to provision and distribute
virtual application, infrastructure and
communications services for internal
business users. These service components
are designed to use the available IT assets
in a highly efficient way.
In contrast, public clouds extend the
data center’s capabilities by enabling the
provision of IT services from third-party
providers over a network. For example,
software-as-a-service (SaaS), platform-
as-a-service (PaaS) and infrastructure-
as-a-service (IaaS), all of which offer
virtualized solutions based on a variable,
pay-as-you-go pricing model, are
emerging as important elements of next-
generation IT service capabilities.
The choice between private and public
clouds represents a trade-off between
security and flexibility, as shown in
Figure 2. A company using a private
cloud gains the perceived benefits of
Figure 1. A continuum of four cloud
computing opportunities4
Process/Industry clouds
Standardized horizontal or vertical business
processes provided on a subscription basis
to individual clients or industries: Business
Process Utility
Perceived security
Application clouds
Business application provided on a
subscription basis
Platform clouds
Virtualized development and run time
platform
Infrastructure clouds
“Raw” infrastructure (CPU, memory,
storage, network) available on an
Flexibility & cost
as-needed basis in public or private
clouds
lower risk and higher data security, since
it owns and holds the cloud data and
services within its own infrastructure,
an approach that is sometimes required
by regulators. A public cloud is seen as
involving higher risk, since the user’s
data is held externally alongside that
of other businesses, but it also tends to
offer greater flexibility and scalability
than a private cloud.
Different business will
choose different routes
to cloud
With these considerations in mind,
different types of business may make
different choices between public
and private clouds for running their
supply chains. Large multinational
companies with multiple global
supply chains may use private clouds
as a way to standardize their IT
infrastructure, simplify their upgrade
paths and standardize their processes,
while still retaining some degree of
customization at the enterprise level.
Private clouds may also span multiple
Figure 2. Two forms of cloud computing
The choice between private and public clouds represents a trade-off between security
and flexibility.
Private cloud
Data security &
business continuity
Process & competitive
advantage
Infrastructure
flexibility & scalability • Network
Availability of new
business capabilities
Build & maintenance
costs
Public cloud
companies, effectively becoming
private ‘trading exchanges’ for
partners in the extended supply chain.
The large third-party logistics (3PL)
companies may adopt a similar approach,
again opting for private clouds. However
the story with 3PLs may differ slightly
from multinationals, in that they may
need multiple ‘flavors’ for different types
of operations and customers .
In contrast, small and medium-sized
enterprises may find public cloud to
be the best solution. What they will
sacrifice in the ability to customize
the solution will be more than offset
by the benefits in terms of lower
cost, simplification of the necessary
IT support, scalability, and ongoing
innovations and upgrades by public
cloud suppliers. Crucially, they will not
need to run complex implementation
projects, but only training and change
management for the affected users.
• Full data protection only possible in private cloud
• Service level agreements expectations might only be
fulfilled in private cloud
• Unique & leading processes only in private cloud
• Internal process detailed know-how & skills
• High customization abilities
• Resources
• Processing
• Fast & relatively cheap access to new capabilities
• Relatively low costs per user
• Pay per use instead of fixed costs
5
2. Is cloud more than just a technology or
applications play?
Certainly, technology is the basis for
cloud computing. However, cloud
represents anything but ‘just’ another
technology platform. In fact, it promises
to transform the very nature of the way
companies buy and use IT services, both
within the supply chain arena and also
across the broader enterprise.
However, moving further up the cloud
computing continuum, we believe
that cloud technology will also be the
enabler for an entirely new paradigm:
cloud-based supply chain processes,
or ‘Supply Chains in the Cloud’. Put
simply, in the not-too-distant future we
expect to see providers of supply chain
services leverage the technology of
cloud computing to provide services on a
transactional ‘pay-per-use’ basis to any
customer, anywhere, anytime.
Freight Audit and Payment
services
Many companies recognize freight as a
necessary—but not necessarily core—
part of their business. Outsourcing
the function of auditing, approving,
and paying freight bills can provide
significant cost benefits, since service
providers can leverage economies
of scale, and because their focus on
technology and process improves
accuracy, preventing duplicate charges
and overcharges. While these services
have been around for some time, cloud
computing is beginning to change the
way they are delivered. For example,
provider CT Logistics has started to offer
its service in the cloud.
6
The emergence of Supply Chains in
the Cloud will have a transformational
impact on how supply chains are created,
managed and optimized. For this reason,
the remainder of this paper will focus
on what we believe to be the long-term
future of Supply Chains in the Cloud.
Key enablers
What is it about cloud technology that
will enable it to transform supply chains
in this way? This essentially comes down
to a few key attributes for providers and
buyers of cloud-based services.
For providers of cloud-based services,
the attributes are:
1. Massive scalability
Cloud computing has effectively solved
the problem of scalability of IT systems.
Whereas traditional service providers
Allan Miner, president of CT Logistics,
described his company’s take on cloud
computing: “It’s possible for us to offer
CT’s FreitRater system as Software-as-
a-Service (SaaS), rather than purchasing
it under a license. The clients get a
monthly variable fixed fee, thus better
pricing, because we are using less
servers than before, when we had to add
a new server every time we added a new
client to the SaaS model.”5
needed to size and provision computing
hardware each time they added
customers, cloud computing utilizes
server ‘farms’ consisting of hundreds, or
even thousands, of servers. Applications
run on any server with available
capacity, and capacity is added by simply
adding more servers to the cloud.
2. Multi-tenant (one:many) capabilities
Cloud computing applications are
designed to house multiple tenants
(users, instances, or customers). They
leverage common software code, and
new ‘tenants’ can be added quickly.
In combination, these attributes mean
cloud service providers can on-board
new customers quickly and flexibly,
without the traditional ramp-up efforts
and costs. Because they do not need to
bear these overheads, providers do not
have to lock customers in to lengthy
contracts to recoup the costs, and
they can offer genuine transaction-
based pricing. One example of these
benefits in action is Freight Audit and
Payment services, as described in the
accompanying information panel.
For buyers/consumers of cloud-based
services, the key attributes are:
1. Little or no CapEx required
Providers of cloud-based applications
and services will do so on an almost
entirely transactional basis. That
means companies require little or no
capital expense outlay to get started
in new business segments, markets, or
geographies.
2. Low barrier to entry will create new
market entrants
Because major capital investments and
staff ramp-ups are not required, new
companies will find it easier to establish
themselves in the marketplace. These
new competitors will combine innovative
ideas with readily available, cloud-based
services to challenge established market
leaders, without the need to build up an
entire supply chain infrastructure.
sector. Sectors like pharmaceuticals and
high-tech will likely be further down the
road, though as the capabilities emerge
in other industries, they will likely start
looking for ways to leverage Supply
Chains in the Cloud for their non-core
processes.
Markets
Since Supply Chains in the Cloud will be
characterized by a more efficient way
to use services, the most likely early
services could emerge in countries with
less developed infrastructure. This could
mean the traditional big-four (or BRIC)
developing economies, but also in places
like the Arabian peninsula and parts of
Africa, where companies look for ways
to leapfrog development cycles and have
minimal access to capital.

The reality is that Supply Chain in the

Cloud is a concept that is in the earliest
of stages. And it’s likely to develop at
different paces in different process areas,
industry sectors, and markets.

Process areas
Supply Chains in the Cloud are likely to
initially take hold in those areas that
are on the fringe of what many people
consider core capabilities. Processes like
global trade compliance, transportation
route planning, freight bill audit and
payment, and even basic product design
engineering are all likely candidates
(refer to next section for more on which
supply chain processes are headed for
the cloud).

Industry sectors
The early adopters will likely be
industries both with products that
are less complex, and those with the
greatest cost and margin pressure.
That means most likely first consumer
goods (particularly those that are
commoditized) and parts and supplies in
the automotive and industrial equipment

7
Supply chain applications in
the cloud
Cloud computing is already making a
significant impact on the supply chain
management (SCM) application market,
and adoption is expected to continue
to grow. Companies that provide SCM
software applications — including
eProcurement, Warehouse Management
Systems (WMS), Transportation
Management Systems (TMS), Supply
Chain Planning, and Business
Intelligence/Analytics — are either
already offering SaaS solutions, or are
articulating a clear strategy to move to
SaaS solutions as increasing numbers of
customers demand it.
In a December 2009 Gartner survey6,
340 U.S.-based senior supply chain
executives across all company sizes
and supply chain subindustries were
interviewed about their organizations'
supply chain strategies and tactics.
Surveys were completed online
by subscribers to Supply Chain
Digest. IT services providers and
consultancies were excluded from the
sample. Approximately 20 percent of
respondents indicated they had sourced
SCM applications using a SaaS/hosted
model in the past 3 years. More than 30
percent said they plan to in the next 3
years (see Figure 3).
As the SCM application market expands,
it is evolving into two camps:
1) Incumbent leaders in the SCM
application software markets are making
the move into cloud computing. To
do this, companies such as Ariba and
Manhattan Associates are taking their
existing application suites and turning
them into SaaS applications, typically
offering the options of using a public
cloud (i.e. a multi-tenant) environment,
or a private cloud (i.e. single-tenant)
environment. Of course, these vendors
are also still maintaining their traditional
delivery models, where clients buy a
license and host the software on their
own infrastructure.
2) New entrants. The cloud computing
wave is bringing a new set of entrants
into the SCM software market. These
8
companies are building their applications
for SaaS delivery from the ground up.
Many of them are new startups, or are
springing from the complete overhaul
and relaunch of existing software
vendors who have become early
adopters of the new trend towards cloud
technology. Several companies already
fall into this category, and new ones are
entering every year. Here are three that
are going aggressively to market:
Amitive
A relaunch of Mitrix, is effectively a
new company with new management,
funding, and positioning. It offers
software for the full end-to-end supply
chain, and is striving to create a new
category C-SCM, or community supply
chain management. This is targeted
at a broad array of brand owners who
have outsourced manufacturing and
need technology solutions to help them
manage across their extended enterprise.
OCO
A SaaS Business Intelligence provider,
delivers business intelligence, multiple-
source data integration, and data
warehousing as a comprehensive,
integrated solution that scales to
meet the needs of large and medium
sized organizations. Because Oco’s
Figure 3. © Gartner— User Survey Analysis: Understanding Supply Chain
Management Software Buyers, North America, 2010
Chad Eschinger, C. Dwight Klappich, Tim Payne
Percentage of respondents
80 Historically
70 Future
60
50
40
30
20
10
0
BPO/Managed Hosted by third
service party
solutions are delivered as SaaS, they
require minimal capital investment,
are completed quickly, and cause less
IT distraction than traditional business
intelligence.
Predictix
Founded in 2005, offers global retailers
and brands on-demand software for
Planning and Allocation, Assortment
and Space, Pricing and Promotion, and
Forecasting and Replenishment. Predictix
has a particular focus on technology that
enables a revolution in configurability.
While customers use a common code
base, the applications can be configured
in real-time by functional domain experts
(not software developers).
As with any application selection,
companies evaluating SCM SaaS
applications must weigh up the pros and
cons of the incumbent providers (with
their established track record, mature
business financials, and security) against
the new entrants (with their innovative
technologies and ‘out-of-the-box’
thinking).
On-premises Open source SaaS/Cloud
(Traditional (Subscription)
licensed
applications)
3. Is cloud a reality for all supply chain
processes?
While supply chain process clouds will
have a transformational impact, it is
unlikely that every process will be a
candidate for cloud. Two categories of
process in particular may prove unsuited
to cloud computing:
• Complex and/or unique processes that
require a heavy degree of customized
processing are less likely to be
delivered as cloud-based services, at
least in the near future.
• Processes that require heavy
integration with either a physical flow
or with other information systems
particularly those requiring ultra-fast
response times are also not well-
suited to cloud.
However, these exceptions aside, there
are many supply chain processes that
do lend themselves to being cloud
Figure 4. Implementation waves for SCM processes on cloud-based platforms
Wave 1
2010-2011
Processes & providers characteristics &
examples
Early pilots. Driven by innovation and
continuous improvement needs, testing
attitude.
Support & administrative processes. These
can easily be abstracted and isolated,
and do not require complex integration.
Examples:
• Capability development/training
delivery
• Simple analytics
User group interests
Companies with highest pressure for
operational excellence and through
competition, e.g. Products / Consumer
Goods, High-Tech
based. These include some that are
already available today, if not in a fully
cloud-based model, then somewhere
on the spectrum towards cloud-based
processes. Current examples include
Freight Bill Audit and Payment, as
highlighted earlier in the information
panel on CT Logistics; spare parts
locating, such as www.sparesfinder.
net; and transportation sourcing/bid
management, such as ConfirmIT.
Future migration of SCM
processes to the cloud
Going forward, those supply chain
processes that lend themselves to being
cloud-based can be divided between
the ‘lower-hanging fruit’ that is likely to
move to cloud in the short-to-medium
term, and the more challenging and
complex processes that are longer-term
Wave 2
2011-2013
Processes & providers characteristics &
examples
Maturing phase, first providers disappear
from the market, others invest to grow and
improve service offering.
Higher focus on core and rather complex
processes. Examples:
• Pricing optimization
• Replenishment planning
• Order processing
• Transportation load building
User group interests
Broader industry scope, companies with
higher integration needs will start using
cloud based services as part of their
operating model
candidates for cloud. At the same time,
the market for cloud-based solutions
will become more mature, standards will
be defined, and leading players will be
established (see also question 5 of this
document).
Taking all this into account, we
expect cloud-based processes will be
established in three major waves of
cloud-based processes by 2015, as
shown in Figure 4.
Of course, these are simply suggestions
of areas that might evolve. Over time,
innovate ideas from providers and
demand for services from consumers will
ultimately determine which processes
move to the cloud. In all process areas,
the basis for successfully providing
supply chain processes in a cloud is a
strong combination of IT infrastructure
and process excellence and expertise.
Wave 3
2013-2015
Processes & providers characteristics &
examples
Consolidation phase, major players in each
category defined. Well established models
for usage and payment of cloud based
services.
Also complex processes covered in cloud,
e.g. requiring collaboration between many
entities and tighter integration with other
processes, and perhaps involving physical
capacity constraints. Examples:
• Collaborative engineering
• Warehousing and distribution of
physical product
• Reverse logistics/returns processing
• Fleet management
User group interests
All industries applied cloud based
processes
9
4. What benefits can cloud bring to my
supply chain?
Supply Chains in the Cloud will bring
an array of benefits both for providers
of services and the companies that buy
these services. We can group these
benefits broadly into two categories:
financial and operational.
Financial benefits
For companies that provide supply chain
services today, cloud-based processes
represents a unique opportunity to
drive revenue growth: an entirely
new way to provide services to a new
potential market of customers. Those
providers who act quickly and decisively
stand to re-draw the graph of supply
chain services market share.
Providers also stand to benefit from cost
savings on service delivery, leveraging
the pure technology and software-as-
a-service provider landscape to reduce
their IT and application management
costs. Companies that currently
support multiple distributed instances
of software will see great benefit in
migrating to common, cloud-based
multi-tenant environments.
For consumers of cloud-based services,
one of the most powerful benefits of
supply chain in the cloud will be the
ability to switch capital expenditure
into operational expenditure. This is
especially attractive in the current
environment, where companies are
limited by the capital markets in terms
of the amount of capital expenditure
they can make. On top of that, capital
expenditures are typically not variable;
once an asset has been purchased, it is
on the books whether it is fully utilized
or not. This is the same reason many
companies lease real estate rather than
own it. By utilizing cloud-based supply
chain services, companies will reduce
the amount of capital investment they
require to operate and to grow.
10
A related advantage is the opportunity A further operational benefit of cloud
to move to a more variable cost is process excellence, taking advantage
structure. By taking advantage of of ‘best of breed’ processes and services
transactional commercial terms, in a lower-cost and more flexible cloud
companies will be able to ‘variablize’ environment. Cloud will also enable
their cost structures, so that costs move companies to focus more effectively
more in line with revenue. Compared on running their most important and
with traditional outsourcing models— differentiated core processes in the
which typically had fixed prices and most efficient manner. Traditionally,
long-term contracts—cloud-based outsourcing has involved leveraging
services will enable companies to ramp external providers for non-core
up in times of growth, and ramp down in functions. With cloud-based processes,
times of lower demand, without finding the barrier to outsourcing non-core
themselves stuck with excess capacity functions should shrink significantly,
and cost. enabling a sharper focus on the truly
core processes.
Operational benefits
Cloud’s advantages in terms of
variable costs are also reflected on the
operational side, with transaction-based
services enabling quick ramp-up and
ramp-down of process volumes, and
even of new processes and services. For
example, assuming availability of viable
cloud-based capabilities, companies
may decide in times of unusually high
demand to use a demand & supply
planning solution for a limited period
of time. This enhanced flexibility also
allows faster entry into new markets and
geographies.
Companies should also benefit from
improved uptime in their supply chain
applications, as having fewer instances
of software simplifies the support and
maintenance.
5. How will cloud computing change
business models in supply chain?
Cloud computing will have a major
impact on supply chain business models,
again affecting both providers of cloud-
based services and buyers/consumers of
those services.
For buyers/consumers of cloud-based
supply chain services, we anticipate
this impact will make itself felt in
several ways.
Better and broader decision-making
The integration enabled by cloud-
based applications and processes
will enable faster and more effective
cross-enterprise and extended supply
chain analysis and reporting. This
will result in more accurate, timely
and comprehensive management
information, supporting better decisions.
IT governance
IT governance will undergo a significant
change, in that it will need to consider
standards and expectations towards
providers of cloud-based services, not
just infrastructure and applications. It will
need to define factors such as interaction
models, service levels for availability, and
potential downtimes. Perhaps the most
significant change, though, will be to
architect the application integration with
cloud-based services in a way that will
enable changing a service provider on a
rather short-term basis (assuming that
other providers are in the market with
comparable services).
Business process governance
Companies will need to ensure that
cloud-based processes are used across
all regions and legal entities in order to
standardize the global operations and
take full advantage of the financial and
operational benefits. This will require
process governance that can plan
and manage all continuous process
improvements across the enterprise.
Further complicating the governance,
it needs to enable local deviations in
the process in case of legal, regulatory,
or other constraints which might also
require configurability in the cloud-
based solutions.
Financial governance
Companies who opt for Supply Chains
in the Cloud will come to look at all the
aspects of contracting for services in a
different way from how they do it today.
• Administration and budgeting
While cloud-based services will enable
ultimate flexibility, it will also require
companies to re-think the way they
budget and control use of these
services. Traditional outsourcing works
on long-term contracts, typically with
fixed pricing. Companies who take
their supply chains into the cloud will
need to govern who is using services,
how often, and account for the costs
accordingly.
• Measuring and monitoring
Because cloud-based service may
be provided by multiple providers,
companies will need new ways to
ensure service levels are met. With
traditional outsourcing, SLAs are
often based on averages or totals over
periods of time. The transactional
nature of cloud-based services will
require a new model. Cloud SLAs may
be based on response time, accuracy, or
some other measure of effectiveness,
and companies will need to implement
controls to ensure their providers are
meeting their targets.
• Billing and payment
The transactional nature of cloud-
based services will help companies
scale up and down to match their
overall business, but will also increase
the complexity of billing and payment
over traditional outsourcing. Companies
will need accounting systems and
processes that allow them to accurately
pay for services that were requested,
provided, and met any contingent
criteria (i.e. satisfied SLAs).
Providers of supply chain services will
also experience major changes to their
operating model. These shifts will impact
two classes of potential providers.
Existing outsourcing service providers
will undergo a significant shift in the
way they operate:
IT
Many supply chain service providers
today operate legacy systems that they
take over from clients. This approach
does not lend itself to Supply Chains
in the Cloud. While these types of
arrangements will not necessarily go
away, providers who want to enter the
cloud-based service markets will need to
operate using truly multi-tenant, cloud-
based applications and infrastructures in
order to deliver services.
Finance
Shift from long-term contracts to
transaction-based fees will represent
a major change for these providers and
will impact many aspects of financial
planning and reporting.
Standardization of services
Cloud-based services will need to be
standardized as much as possible in order
to implement multi-tenant environments
and achieve economies of scale.
Globalization of control
The flexibility required to provide cloud-
based services will require demand that
companies pool available resources and
manage them centrally.
New players will surely want to
participate in the market. These may be
pure providers of cloud infrastructures
and applications that will also begin to
provide cloud-based processes, so long
as they have the right detailed process
skills. On the one hand, these companies
will also be in a position to define the
necessary operating models, without
the barrier of organizational inertia that
faces the traditional service providers
with whom they hope to compete.
However, on the other hand, operating
supply chain processes in the cloud will
require detailed industry and functional
knowledge, which could present a high
threshold for successful market entry.
For this reason, some of these new
players might actually emerge from
global industry companies who see
cloud-based processes as more than
just an opportunity to restructure their
own operational processes to be more
efficient. Having such capabilities in
place, some corporations may venture
to externalize these operations to a
company-owned subsidiary, and assume
the role of a specialized service provider
to the industry.
11
6. What are the challenges — and how can
they be managed?
The journey towards Supply Chains in the
Cloud will face a number of challenges,
both for service providers and service
consumers.
Service providers
Providers of supply chain services who
move to providing cloud-based services
will stand to reap big rewards in terms
of market share. But they will also face a
number of challenges.
Ability to scale
The technology behind Supply Chains in
the Cloud is well-established, and will
enable companies to quickly scale IT
capabilities to meet growing demand.
But offering a cloud-based service will
often require additional resources that
are more challenging to scale – human
resources and in some cases plant,
property, and equipment (PPE).
• Traditional outsourcing of supply
chain processes and business operations
typically involves long ramp-up times,
and often includes transferring staff
to the service provider. Cloud-based
service providers will need advanced
capabilities to forecast demand for their
services in order to create appropriate
plans. With very little history to go on,
these forecasts will need to look to new
ways to predict the future – market
surveys, trends in other cloud-based
service verticals, even tools like ‘Google
Trends’ to indicate how many people are
searching for these types of services.
Since the very essence of offering
cloud-based services will be the ability
to scale, forecasting demand will need to
be a core competency.
• In the case of human resources,
cloud-based service providers will
need to master the arts of recruiting,
on-boarding, and managing new talent.
They will need to define standardized
processes and develop and utilize
tools to help new staff execute those
processes. Training will need to be
delivered quickly, efficiently, and to an
audience which may not have any pre-
existing knowledge.
12
• In the case of PPE, those cloud-
based services which require handling
of physical products (manufacturing
and warehousing) will be among
the most difficult to provide. Unlike
technology, where servers can be
easily added, adding new physical
space and equipment takes time and
investment. Providers who do enter
this space will look to build the most
flexible infrastructures possible to
enable flexible provision of services.
Warehouses will need to be easily
reconfigurable, and able to be moved
quickly to new, leased building space.
Manufacturing processes will need
to be geared for short runs and fast
changeovers. And most importantly,
these service providers will need to be
much more focused on the definitions of
the services which they provide.
Fierce competition
The provision of cloud-based services
will likely create an initial rush of new
entrants into markets. This will have
parallels with the dot-com boom of
the late 90s, when hundreds of startup
companies were formed to capitalize on
the new online marketplace. That boom
was triggered by technology (i.e. the
establishment of the world wide web)
and changed the way the world looked
at shopping and order fulfillment. After a
period of exuberance and hypergrowth,
the market ultimately underwent a
painful round of high profile failures and
consolidations, leading to fewer, more
mature providers. The Supply Chains
in the Cloud boom will likely follow a
similar cycle. The challenge for service
providers will be to balance the drive
for market share with the development
of sustainable business practices to
position themselves to be standing when
the dust clears.
Pricing
Providers of cloud-based services
will also face significant challenges
around pricing. Compared to traditional
outsourcing, which typically involved
lengthy due diligence processes to
establish long-term contract prices,
cloud-based service providers will
utilize a standard, published rate card
for services. And while standardization
of the services will help them estimate
costs, there will likely be a period of
evolution as providers experiment with
elements of the pricing model. Some of
these elements might be:
• Pay for speed
While processes will be standard, the
speed with which they are delivered
might not necessarily be. Providers may
elect to use price as a way to ‘smooth’
demand, charging a premium for fast
turnaround, and offering discounts for
cycle time flexibility.
• Peak pricing
Another tool providers may use to
‘smooth’ demand might be peak pricing.
Consumers might choose to request
services during periods of relatively
low demand – which may be certain
months, weeks, days, or times of day
– in exchange for lower pricing. Other
consumers who need time-specific
processing may pay a premium for
high-demand times (such as month-end
auditing of freight invoices).
• Discounts for volume
Cloud-based services will be
transactional in nature, but providers
can benefit from volume commitments
(in improved demand forecasting)
and will likely reward them with price
discounts. Because of the transactional
nature of the services, these pricing
elements may be implemented in the
form of pricing based on assumed tiers
of volume, with periodic ‘true-ups’ in the
form of rebates or surcharges.
• Service and pricing configurability
Even standardized processes will
likely be offered with a degree of
configurability, with consumers choosing
from a standard ‘menu’ of components.
Pricing will need to reflect that, and
may not be as simple as the sum of
components. Providers may use more
advanced, combinatorial methods to
price service configurations.
Service consumers
Surveys about cloud computing
consistently show that data security
is companies’ number one concern
about joining a cloud-based service
environment. However, these worries have
now been largely overcome and addressed
by cloud providers. Companies using
cloud-based services should perform data
security audits together with the cloud
provider, to ensure that their customer
data is properly protected.
A further risk is a loss of skills and
knowledge from the organization.
Since cloud-based process solutions
will facilitate the externalization of
processes beyond the borders of the
organization, companies need to have
a very clear and deliberate strategy
covering which processes are to be
owned and operated internally (mainly
core processes), and which other, less
critical and less strategic processes
could be operated by a service
provider. Once detailed knowledge of
these non-core processes is lost, it
could be very difficult to re-establish
them in-house. So companies should
proceed in a considered and cautious
way when selecting processes to
entrust to the cloud.
Similarly, since competitors may be using
the same or similar service offering the
same supply chain capabilities, some
companies perceive a risk that using
a public cloud may result in a loss
of competitive advantages in their
marketplace. However, if a process gives
a company a significant competitive
advantage, it most likely isn’t a candidate
for a public cloud process anyway. Also,
companies can still take advantage of the
technology benefits with internal/private
clouds, and create competitive edge
through differentiated capabilities.
And while these are all important
concerns for companies considering a
move to Supply Chains in the Cloud,
in many cases the most significant
challenge will be to the changes
required to the overall business model,
as outlined in the previous section. Quite
simply stated, most companies today are
not governed in a way that will allow
them to take advantage of new cloud-
based services.

Compounding this risk of losing valuable

skills, particularly in the early stages,
will be the danger of service provider(s)
going out of business. As with any
supply chain partnership, companies need
to mitigate this risk by evaluating the
strength of the overall market and the
specific strength of their chosen provider
within it. This should involve using
traditional risk-management and due
diligence techniques to determine the risk
of failure and identify viable alternatives.

Given the one-to-many nature of many

cloud services, companies also worry
about a loss of customization fearing
they will have to use a standardized
process that does not fit their specific
business needs and operating model.
This risk can be offset by increases
in configurability. Software vendors
and service providers are going to
increasingly offer the ability to configure
within a standard code base. As we
noted earlier, companies like Predictix
are doing this already.

13
Taking the first steps
As we highlighted at the start of this
paper, cloud computing is too important
to leave entirely to technologists. While
the work of migrating from conventional
to cloud computing is likely to fall on the
shoulders of the CIO, supply chain senior
executives have important roles to play
in moving towards Supply Chains in the
Cloud.
For those companies who might be
providers of cloud-based supply chain
services, executives should take the
first steps:
• Evaluate the market need
Are there service you provide today
that could easily be provided in a
cloud-based model? How feasible will
it be to move to transactional-based
provision of services? Evaluate your
assets and infrastructure to identify
your ability to scale, and identify the
process areas, industries, and markets
that are going to give you a real
chance to take advantage of market
demand.
• Evaluate the competition
Take a good look around to see if you
are being beaten to the punch. The
race to Supply Chains in the Cloud is
going to be won by the swift and the
strong. Don’t assume this is a fad that
will pass quickly – there are too many
examples in other industries that
indicate otherwise.
• Crunch the numbers
Once you decide to enter the cloud-
based service market, apply the rigor
to the business case on both the cost
and price side. Remember, this is a
new paradigm, so don’t assume old
models will work. Particularly in the
beginning, this will not be a ‘cost-
plus’ world. Look at the value these
flexible service delivery models will
bring to consumers – and price them
accordingly.
To make sure an organization maximizes
benefits and minimizes risks, executives
who might be consumers of cloud-based
supply chain services should take a
number of proactive steps:
14
Develop your strategy
Which are the processes that you want
to retain internally, and which are the
processes that could be sourced to a
cloud-based provider? Call this your
‘process cloud road-map’.
Define the business case
As cloud service providers establish
themselves in the market and build up
a track record of delivery, you should
evaluate the true cost benefits with a
detailed ROI and risk analysis. Start by
clearly identifying and describing the
issues and potential pain points in your
processes and systems that you want to
address with a cloud solution. Demand
that prospective suppliers provide data-
driven analyses to quantify the expected
benefits of change, helping to map out
cloud’s role in delivering your business
strategy for the coming years.
Set the standards for success
Defining what success for your cloud
strategy will look like. Clearly, it will not
be based solely on costs, so be sure to
define the scale of the benefits that will
constitute success for your supply chain:
flexibility, scalability, speed to new
markets, and so on.
Survey the market
We are very much in the early stages
of this new paradigm. Over the next
few years, more and more supply chain
processes will be offered in the cloud,
by more and more providers. Make
a concerted effort to stay on top of
developments in the market, always with
an eye on your roadmap.
Collaborate on decisions with key
supply chain partners
One of the benefits of cloud-based
applications is easier integration, so
you should involve your extended
supply chain ecosystem partners in your
strategy and choices. Cloud computing
may very well deliver the benefits that
were initially promised by B2B exchanges
in the late 90s.
Approach cautiously and evaluate
frequently
Start with the low hanging fruit, and
measure as you go along to check that
you are realizing the hoped-for benefits.
Supply chain’s migration to
cloud: not a question of “if”,
but “when”
While it may take time for supply chains
to transition to cloud computing, we
believe it is already clear that the
capabilities and potential savings
from clouds are too great to ignore.
Executives are still grappling with
its risks, possibilities, and the cost
of writing off current investments
in systems and processes. However,
beginning the journey early can deliver
some substantial financial benefits—and
for several companies the transition to a
cloud environment is already under way.
In addition, a widening array of systems
houses, service providers and venture
capitalists will be drawn to this new
market. Given the low development
costs, short development cycle and quick
return on cloud services, the fact is
that future advances and innovations in
supply chain IT and processes are much
more likely to be based on clouds than
conventional computing.
So the critical question isn’t whether
cloud computing will become a
fundamental technology in the next
decade. It is how successfully companies
will profit from the capabilities it offers.
If your organization has not yet started
the journey to the cloud, now is the time
to start drawing up your roadmap.
Accenture and the Cloud
When Supply Chain in the Cloud is
the right move, Accenture is the right
partner. With deep knowledge of
cloud technologies and supply chain
processes, are uniquely positioned
to help clients create strategies that
are well researched and incremental.
Whether they are providers or consumers
of cloud-based services, clients rely on
us for:
Industry knowledge
Insight into industry and supply chain
drivers help clients identify cloud
services for competitive advantage in
their markets.
Skills
From strategy through operations we
help clients identify the right strategy
and design a pragmatic approach for
implementation.
Strategic acumen
We help bridge the gap between
technology and business impact by
understanding your business realities as
well as available cloud capabilities.
Proprietary methodologies
Proven roadmaps and implementation
frameworks help clients minimize risk
and optimize costs.
Implementation and management
experience
We draw on our experience in migrating
and managing complex environments,
as well as our deep knowledge in
governance models, to provide services
in both traditional and cloud-based
business models.
Industrialized delivery
Development of our cloud factories
based on decades of delivery experience
makes us a low-risk, reliable partner.
Through it all, Accenture is with you,
speaking your language, understanding
your needs, and reducing your risk of
adopting new technologies. We’re rapidly
changing our business model to help you
bring cloud innovations that result in
breakthrough business benefits. Working
together, we can help you redefine your
path to high performance with Supply
Chains in the Cloud.

Reference
1. Eric Auchard, “Salesforce.com
Signs Citigroup Deal,” Reuters.com,
November 15, 2007; “Salesforce.
com Powers Starbucks Campaign to
Mobilize Americans in National Service,”
Salesforce.com press release, January
21, 2009, http://www.salesforce.com;
Ron Condon, “The Opportunities and
Risks of Cloud Computing Services,”
SearchSecurity.co.uk, February 23, 2009.
2. Ethan Smith, “Disney Touts a Way
to Ditch the DVD,” Wall Street Journal,
October 21, 2009.
Regional Cloud Computing Hub,” SingTel
press release, July 14, 2009; Chris
Preimesberger, “Fujitsu Launches Cloud
Services in North America,” eWeek.com,
December 8, 2009.
4. Source: Accenture Analysis
5. Source of quote: http://www.
conconnect.com/Workingpapers/
joc2010freightpaymentadvert.pdf —
The Journal of Commerce (www.joc.com)
special advertising section on Freight
Payment — June 21.2010

3. Ben Worthen and Justin Scheck, “Tech 6. © Gartner, Inc. Source: Survey of
Giants Ramp Up Their Online Offerings,” Retailer Use of Software as a Service –
Wall Street Journal, June 22, 2009; 15 September 2009
“Cloud Services/SaaS: What Telcos Are
Doing,” IDC Technology Assessment,
October 2009; “China Mobile Enters
Sphere of Cloud Computing,” Interfax,
November 17, 2009; Bernard Golden,
“The State of Cloud Computing in
Japan,” CIO.com, November 5, 2009;
“SingTel to Help Establish Singapore as a

15
About the authors
Thomas Schramm
is an executive in the Accenture
Management Consulting practice.
Mr. Schramm leads the Supply Chain
Management Service Line within Austria,
Switzerland, and Germany, and was
formerly the Global Lead for the Service
Management practice.
thomas.a.schramm@accenture.com
Jonathan Wright
is an executive in the Accenture
Management Consulting practice. He
leads the Supply Chain Management
Service Line within Southeast Asia,
Australia, and Korea, and was formerly
the Global Lead for the Fulfillment
practice.
jonathan.j.wright@accenture.com
Dirk Seng
is an executive in the Accenture
Management Consultant SCM service
line. He is focusing on transportation
management and order management
and is leading the Accenture order
management offering in Austria,
Germany and Switzerland.
dirk.seng@accenture.com
Derek Jones
leads the Research and Development
department for the Supply Chain
Management Service Line.
derek.m.jones@accenture.com

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Performance creates strategic insights
are trademarks of Accenture.
into key management issues and
macroeconomic and political trends
through original research and analysis.
Its management researchers combine
world-class reputations with Accenture’s
extensive consulting, technology and
outsourcing experience to conduct
innovative research and analysis into
how organizations become and remain
high-performance businesses. Both
research fellows at the Accenture
Institute for High Performance, Jeanne
G. Harris (jeanne.g.harris@accenture.
com) and Allan E. Alter (allan.e.alter@
accenture.com) led the Cloud Computing
research that is referenced in this paper.
Accenture is a global management
consulting, technology services and
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