Supply chains are the lifeblood of any business. Increasing the speed and scale of suppliers is an essential catalyst for driving future revenue growth. With the revenue of every business, especially manufacturers, dependent on having an efficient, integrated and stable supply chain, the need for scalable and secure cloud-based Supply Chain Management (SCM) systems is increasing. Logistics, strategic sourcing, and transportation are areas where cloud SCM applications continue to lead adoption. Companies competing in this area of the supply chain rely on geographically-distributed business models that thrive on tight integration, real-time communication and global real-time collaboration. Cloud-based SCM systems can deliver on these requirements while increasing the quality of analytics, improving data management and defining a single system of record for the entire company.
Some Cloud-Based SCM Facts
- A recent Gartner survey of supply chain executives found that more than 75% of companies with digital capabilities in place expect digitally-based strategies to contribute 50% or greater revenue growth for products and services by 2021.
- The global Cloud Supply Chain Market is predicted to reach $11B by 2023, with the majority of new application and platform sales integrated to existing Enterprise Resource Planning (ERP) systems.
- Gartner predicts the global SCM market will reach $19B by 2021, fueled by increased Cloud and SaaS-enabled application sales. Gartner reports that the SCM market will exceed $13B in 2017, up 11% from 2016 as cloud applications gain increased adoption globally.
- Over 90% of new supply chain execution management software sold in 2020 will be cloud-based.
The Era Of Cloud Supply Chain Management Has Arrived
Supply Chain Management software has historically been on-premise, managed from a central location by IT teams that work to keep the system reliable. Onboarding suppliers in an on-premise world was often a tedious, time-consuming process that would take days and, in some cases, weeks. Relying on manual methods of supplier management alone drastically slowed down a company’s ability to develop and launch new products. On-premise SCM often created data silos that slowed down collaboration, communication, selling and service revenue opportunities.
Across all industries, and especially in manufacturing, customers’ expectations are driving a higher level of accuracy, speed, scale, and variety of new product development and services. Manufacturers have no choice but to step up their ability to deliver excellent, innovative, unique products on time and at the highest levels of quality to keep their existing customers while winning new ones. Cloud SCM systems and the cloud platforms they’re being built on today are providing the foundation all companies need to excel in meeting and exceeding customer expectations. Delivering greater speed, scale and simplicity, the era of Cloud SCMs has arrived.
The following are the key factors and catalysts driving the adoption of Cloud Supply Chain Management:
- Supply Chain Management software delivery models continue to proliferate, driven by the need to support high-growth, early-adopter companies globally with cloud platforms. The first generation of SCM systems was designed to be on-premise only, which proved to be sufficient for relatively simple supply chains. But as supply chains grew in scale and complexity, Managed Hosted and Private Cloud platforms began to gain acceptance by companies implementing SCM systems. Enterprises have decades of data that’s useful in planning supply chain growth, and making the most of it required the development of Hybrid Cloud platform support. Today, SCM systems in the Fortune 500 are being customized in Hybrid Cloud environments. The fastest growing SCM cloud platforms are public cloud dedicated, community and multi-tenant configurations. The proliferation of platforms reflects how in-demand supply chain management systems are across modern organizations.
- Cloud SCM applications are the catalysts enabling Digital Supply Networks that serve as an integration hub, uniting business processes and digital technologies needed to accomplish company goals. Enabling greater digital transparency throughout a supply chain increases on-time order performance, reduces stock-outs and can avert allocations. The greater the integration of supply chain functions, including the talent, physical, information and financial aspects across core business functions, the higher the probability of achieving revenue goals. Cloud-based SCM applications are the glue that brings together analytics, Big Data, mobility, logistics, sourcing, warehousing and more into a single system of record. In a recent study, Accenture found that these factors, when taken together, form a scalable and secure Digital Supply Network. What’s encouraging about the study is that the greater the digital foundation of supply chains, including SCM application support, the more efficient, agile, transparent and demand-driven they become over time. The following graphic from the Accenture Supply Chain Management In The Cloud study explains how the additive effects of automating supply chains over time create a Digital Supply Network that’s capable scaling globally quicker than a single supply chain.
- Larger enterprises are integrating cloud-based SCM applications to increase the speed, scale and accuracy of Digital Supply Networks. The following graphic from the Accenture Supply Chain Management In The Cloud study illustrates how supply chains begin to gain a Network Effect that further accelerates performance, reduces costs and enables supply chains to scale with greater intelligence and insight than before. SCM applications are the foundation that enables digital supply networks to transform and become more demand-driven and invaluable in exceeding customer expectations.
- Cloud-based SCM applications are predicted to be a $4.4B global market by 2018, growing at a 19% compound annual growth rate (CAGR) from 2012 to 2018. Cloud-based platforms that SCM applications rely on to scale globally are maturing rapidly to support Application Programmer Interfaces (APIs) and Web Services. These two technologies, along with others like them, enable real-time integration with databases, 3rd-party applications and suppliers’ ERP systems. Cloud platforms and the APIs and Web Services they are perfecting daily with R&D investments are the technology enablers of Digital Supply Networks. Accenture’s latest forecast of SaaS-based SCM applications reflects how greater speed, scale and simplicity enabled by these applications is changing the nature of supply chains, creating Digital Supply Networks.
- Transportation Management Systems (TMS), Warehouse Management Systems (WMS), and visibility & event management-based applications have been the most customized of all cloud SCM applications, and show the greatest potential to streamline distributed supply chain operations. Many manufacturers are either piloting or in full production with these three core areas, with the most distributed operations-based business models being the most advanced in fine-tuning them to their specific needs. Gartner’s recent study, Supply Chain Management Moving to the Cloud: The Steps to Take and the Benefits You Can Expect reflects how the adoption of these three core technologies has significant potential beyond the costs of customization. Enterprises are looking to add in TMS, WMS and visibility and event-based management apps within the next two years. They’re expecting to see innovations from the SCM vendors to make that happen.
- Mobile-enabled SCM applications that rely on a common, easily integrated cloud architecture are the most likely to be adopted by organizations in the next 24 months. By their very nature, SCM applications rely on orchestrating the many requirements of distributed warehouses, transportation management locations, production and service centers. Cloud-based SCM applications that are mobility-enabled provide supply chain, production and senior management with greater visibility into each specific operational area of the supply chain. Having a mobile-enabled SCM application that’s cloud-based also makes it possible to support several roles across the supply chain with specific data that each needs to do their jobs. In evaluating cloud SCM applications and platforms, taking the extent of mobile application support to the cloud platform level into account is an imperative.
- Easier to deploy than on-premise SCM apps (56%), lower Total Cost of Ownership (TCO) than on-premise solutions (51%) and limiting capital expense for software (45%) are the top three reasons organizations are adopting cloud SCM applications. Organizations also cite access to trading partner networks, cloud SCM applications being a better alternative to on-premise regional deployments and the potential that cloud SCM apps have of reaching higher levels of overall adoption in their organizations. In addition, 14% of the supply chain executives surveyed believe that cloud SCM applications will be adopted faster due to the ease of user interface customization, as well as the overall better customer experience. These and other findings came from the Gartner study, Supply Chain Management Moving to the Cloud: The Steps to Take and the Benefits You Can Expect.
- Cloud SCM adoption is most prevalent in companies that have a stable ERP system in place, providing a system of record to reference and manage suppliers more effectively. SCM World specializes in global supply chain research, and is a subsidiary of Gartner. Their studies provide insights into supply chain management best practices and adoption of key strategic technologies, including cloud computing. Their study, Supply Chain And The Future Of Applications, provides valuable insights into how and why organizations are adopting cloud SCM applications. One of the most valuable takeaways from their study was that every successful cloud SCM adoption project had legacy ERP systems in place that served as the system of record. 56% of supply chain organizations interviewed have standardized on SAP ERP systems, followed by 16% using Oracle (including PeopleSoft & JD Edwards) and the remainder using various other ERP systems. 7% of respondents don’t have an ERP system today. The following chart from the study shows whom SCM World respondents rely on as their system of record for cloud SCM apps, distributed by ERP system vendors.
- SCM World recommends beginning a cloud SCM application strategy by concentrating on Sales & Operations Planning (S&OP) and Transportation Management Systems (TMS). Like Gartner, SCM World sees the need for greater coordination and collaboration across geographically diverse supply chains using cloud-based apps. Sales & Operations Planning (S&OP) improves every aspect of supply chain performance that impacts the customer experience. SCM World also mentions Spare Parts Management and Store Shelf Optimization as additional modules in cloud SCM applications that deliver ongoing value. The following graphic illustrates the features of SCM applications that are the most and least cloud-friendly. Product Lifecycle Management (PLM), Computer-Aided Design (CAD) and supply chain network planning are among the most cloud-unfriendly and difficult to accomplish on a cloud platform.
- 64% of supply chain executives say Big Data Analytics, digital supply chains, digital supply networks and the Internet of Things (IoT) will be the most disruptive technologies impacting their businesses in the next three years. The emerging area of predictive analytics based on Big Data has the potential to revolutionize supply chain management processes by providing greater visibility and real-time insights. These four technologies are setting the foundation for long-term revenue growth across organizations. The following graphic from SCM World’s Chief Supply Chain Officer Report provides insights into which technologies supply chain executives view as the most disruptive and important from the perspective of their strategic priorities.
Benefits Of Cloud Supply Chain Management Software
Cloud SCM applications and the platforms supporting them create new opportunities to capture and act on a new series of supply chain metrics and key performance indicators. The Gartner Supply Chain Hierarchy of Metrics is a framework built on 17 key supply chain metrics. Using cloud SCM applications and the cloud platforms they’re based on, it’s now easier to capture data that had been difficult to obtain from on-premise systems in the past. Cloud SCM systems are delivering the following benefits today:
- Greater supply chain visibility multiple layers deep into a supply chain
- Real-time price and availability for the first time in many manufacturing centers, especially those with multiple production locations
- Better costing predictability and cost management across all levels of the supply chain, including foreign operations
- Real-time inventory updates that assist in defining accurate Available-To-Promise (ATP) and Capable-To-Promise (CTP) dates on quotes and purchase orders
- Creating a single version of the truth so WMS and TMS systems can operate more accurately and effectively
- Knowing, for the first time, how key manufacturing performance metrics, including Overall Equipment Effectiveness (OEE), impact supply chain performance. Machine-based latency on the shop floor can have an impact on supply chain availability and performance. With cloud SCM systems that integrate with Manufacturing Execution Systems (MES), it’s possible to gain new insights into how shop floor machinery impacts overall supply chain performance.
Adoption of Cloud SCM applications continues to accelerate based on the fact that they’re easier to deploy than on-premise SCM applications, they’re easier to customize, they can scale globally, they can be accessed through any Web browser and they can be configured to save on costs compared to on-premise systems. The greatest benefit that cloud SCM systems provide is the orchestration of globally distributed and diverse supplier networks to a common goal of becoming more demand-driven and responsive to customers.
Manufacturing strategies are becoming more diverse, ranging from assemble-to-order (ATO) to engineer-to-order (ETO). The greater the complexity of customized, configurable products, the more reliant manufacturers are in their supply chains. Manufacturers are more dependent on their supply chains than ever before. The opportunity to capture new metrics and KPIs related to supply chain performance is delivering insights many organizations never had before. All of these factors, when taken together, are leading to more efficient, economical supply chains that are driving greater business growth.