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For Supply Chain, the Cloud Is Still on the Horizon

Via Supply Chain BrainFor all its promise of lower cost and easier management of software applications, cloud technology has yet to be fully embraced by supply chain managers.

Cloud computing – the notion that information systems can reside and be managed at a location remote from the user – is at least 20 years old. Virtual private networks first came into being in the 1990s. Salesforce.com successfully brought the software-as-a-service (SaaS) model to customer relationship management in 1999. Big I.T. vendors such as IBM and Oracle Corp. have unveiled comprehensive cloud-based frameworks within this decade.

Over that time, the cloud has come to be embraced by multiple apps, both in the business and consumer sectors. (In the latter, Apple and others have been trying to push buyers of entertainment content into the cloud.) Acceptance in the supply-chain arena, however, has been slower in coming.

Speaking at Oracle’s Value Chain Summit in San Jose, Calif. last week, co-chief executive officer Mark Hurd laid out the benefits of the cloud for supply chain: simplicity of implementation and management, greater agility in adapting to changing markets, lower total cost of ownership. At the same time, he acknowledged some of the factors that have kept companies from making full use of the cloud: concerns about security, resistance from internal I.T. staff, and a sense of inertia when existing systems seem to be working satisfactorily.

Software vendors have done their best to counter those tendencies. But I.T. departments, with their limited budgets and worries about disrupting company operations, can be conservative. “Most people in the world today are working with 20-year-old systems,” said Rick Jewell, Oracle’s senior vice president of application development. His company wants to make companies aware of the opportunities that cloud technology presents, especially in the age of social networks.

“In cloud applications,” he said, “social enablement is permeated everywhere. You can do collaboration at every step.”

But collaboration offers both promise and problems. It requires companies to engage in a high level of internal communication across organizational siloes – not to mention with outside supply-chain partners. “Helping people to collaborate effectively remains for most companies a challenge,” said Jon Chorley, Oracle’s chief sustainability officer and group vice president of supply-chain management.

The maturity of Oracle’s own cloud offerings tracks with the acceptance level of the marketplace. The company announced Oracle Cloud in 2012, and all of the pieces have yet to fall into place. In the first part of this year, it will release cloud capability to support order promising “from quote to cash.” Later in the year, it plans to extend the cloud services offering to cover manufacturing activities from planning to production. Not until next year at the earliest, however, will it enable the full planning cycle, including demand management, supply planning and sales and operations planning, said Vikash Goyal, senior director of value chain planning product strategy. Only at that point will the company have what he called “a comprehensive value-chain planning suite optimized for cloud deployment.”

Jewell claimed that Oracle’s measured approach to the cloud for supply chain is entirely deliberate. “The timing of this is by design,” he said. “We believe in the cloud. It is coming – it’s a matter of when.”

Oracle didn’t start building out cloud capability for the supply chain until about two years ago. “We anticipated a slower uptake,” Jewell said. “It has been a conscious decision on our part not to start investing [earlier].” In the meantime, the company has been busy adapting other areas, such as enterprise resource planning and human capital management (HCM), to the cloud.

Jewell took particular note of a high level of customer acceptance for cloud delivery of ERP – a development that was considered unthinkable just a few years ago. Back then, many companies were balking at transferring this essential backbone of their I.T. infrastructure to servers outside the firewall. But in the last two quarters, the adoption of cloud-based financial, projects and procurement capabilities “has absolutely exploded,” Jewell said. “We’re adding 50 customers a month.”

In all, Oracle’s revenues from cloud applications were up 45 percent in the second quarter of its fiscal year, to $516m. (The total included software-, platform- and infrastructure-as-a-service offerings.) Chairman and chief technology officer Larry Ellison has said he expects new cloud bookings to top $250m by the end of the fourth quarter – and more than $1bn in the next fiscal year. But a lot of that business will come from areas other than supply chain.

The term “cloud” can mean several things. Goyal laid out three options:

Public cloud services, where Oracle hosts and manages the applications, as well as owns the software license change control;

Managed cloud services, where Oracle acts as app host and manager, but the customer owns the license change control, and

Business process services, where outside partners conduct hosting and application management, while the customer retains ownership of change control.

“We are banking on the public cloud,” said Goyal. “That’s why we’re investing.” For the most part, he said, customers haven’t moved in the direction of partner-based services, which would involve multiple cloud operating models.

The cloud will also be central to Oracle’s apps and services in the areas of global trade management, end-to-end visibility and business-to-business connectivity. As ambitious as the company’s plans might be in those areas, however, it can’t move any faster than the customer. Goyal said about 10 percent of companies are currently looking at cloud-based planning applications.

“Eventually, all of these things are going to transition [to the cloud],” he says. “But it won’t change overnight. It will just take time.”aced by supply chain managers.

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