Cloud Computing and Supply Chain Management

As supply chains start to look more like tangled webs with many suppliers, requester, and shipping partners, cloud-based solutions will be the solution of choice to improve visibility, decision making, and scaling with cost savings. Cloud computing has created new opportunities for network management and information sharing across many industries and business needs. With so many people involved and so many pieces of information vital to know, cloud solutions might be the only realistic way to keep track of it all moving forward.

What is cloud computing?

“The Cloud” has become a term as misunderstood as “The Web” was in the 1990s. For mid-sized to large businesses, it means using shared servers and software that are maintained and administered off-site. Rather than buying a huge set of servers and mainframes with the additional cost of hiring IT employees to manage them, companies can hire outside companies to provide Software as a Service (SaaS) solutions. That solution provider takes care of information security, server maintenance, updating the software, and training the users.

Common IT problems in supply chain and procurement

Larger organizations and companies can have many supply partners, and each one of those partners will have its own supply chains and dependencies. A company may have many offices and outlets that need to request or track supplies and inventory. This can be a heavy burden on internal IT departments just to store and process this information, much less communicate it to all the stakeholders.

Changing suppliers, updating costs, and tracking shipments manually – or by manually importing data from elsewhere – can result in time delays or costly errors. Improving information storage and communication with an in-house supply chain management system can mean huge technology capital costs. Then add on IT labor to set things up and keep an eye on suppliers and requesters for changes in their own systems.

Natural or man-made disasters and security issues for in-house systems can each be a huge risk for a company. A fire, storm or other problem at a company’s IT office can bring their procurement system nationwide to a screeching halt. Even simple upgrade and maintenance downtime can impact business processes.

How cloud computing can help solve those problems

Procurement will only get tougher to deal with in-house as nation-wide and international supply chains get more complex and more information becomes available. It will become too much to ask for an IT department to update off-the-shelf procurement software for how dozens of partners report tracking, costs or availability. Especially when they also need to keep the email running and keep critical information safe.

Cloud-based SaaS systems are responsive to communication and feedback between suppliers and requesters. Third-party suppliers and logistics companies can update their own information, with complete separation from other business-critical secure systems like HR. Requesters within the company can also update their needs and give feedback about the partners’ quality and service. All this can be done without expensive technology investment in connectivity or server space because it will be provided as needed by the cloud.

How cloud computing can leverage new opportunities

There are three ways cloud computing and SaaS can help businesses grow and improve – not just solve existing problems: visibility, reaction to change, and scalability.

Visibility

Cloud-based procurement and supply chain systems can give all decision-makers a full view of supply and inventory needs, where the materials to fill those needs are in the logistics system and the most up-to-date and complete information about costs and reliability.

Users are used to seeing exact inventory counts, cost comparisons, and tracking to the second when they buy a DVD on Amazon. They are coming to expect that same level of visibility in their business environments. Budgets and inventory are updated instantly since all the users are able to see changes in real-time without waiting for central servers to populate information out across a network. Sales team members no longer will have to worry about promising customers an item that shows as being in-stock but isn’t there anymore.

Reaction to change

Even very large companies that already know how to manage supply chains in their home areas sometimes have problems moving into new or larger markets. As Sean Kolenko described here on Procurement Sense, retail giant Target closed its Canadian operations largely because of supply chain and warehouse issues. Target might have had a better chance at success in Canada with a robust and adaptable cloud-based supply chain system able to quickly and effectively combine a point of sale and store-level inventory information with their transportation and warehouse systems.

According to a Forbes article about SCM World’s “Supply Chain and the Future of Applications” report, cloud-enabled collaboration provides the most benefit “for functions that are best served when a large number of suppliers and/or customers benefit from rapid access to information that can streamline the business.” The team members on the front lines who interact with clients and see what is on the shelves can let decision-makers elsewhere in the company or at the third-party partners know if there is unexpected new demand or important feedback about an item.

Scalability

Adding additional suppliers, requesters, and IT resources to manage them can be more challenging when trying to do it internally. A cloud solution can mean adding additional storage and server capacity with just a phone call or email. New suppliers and partners’ issues can be handled by your SaaS company’s help staff rather than the company’s IT department.

With cloud-based software solutions, companies can add resources during high volume seasons or periods of growth, and then reduce those resources during downtimes. If handled internally, sudden increases in the new staff followed later by headcount and budget cuts in IT can mean morale and productivity problems. “Most cloud and SaaS providers charge only on monthly intervals with no upfront setup costs,” said Procurify founder Kenneth Loi. “Most procurement software can cost upwards to tens of thousands of dollars annually with service and IT time to set up the software.”

How mid-sized and large companies can start using the cloud

As Kenneth Loi pointed out, SaaS options reduce the amount of time to set up a full supply chain and procurement solution. The cloud also reduces total costs because of lower up-front capital investments. There are no additional servers to buy and people to hire.

The harder it appears to implement cloud computing and this increased level of interaction and visibility, the more the organization needs it. The SCM World report noted that “technology stacks of respondent companies attempting to migrate to the cloud have been developed and deployed in layers and is generally hard to modify in response to changing business conditions.” Modifying systems as conditions change is vital to grow and improve in a high-information economy.

As all business owners and managers know, the only constant in business is changing. Cloud computing and SaaS options can be a great way to manage that change and use it to your competitive advantage.

Learn more about the relationship between procurement and supply chain management.