Cloud takes the starring role

Tasked with actively managing supply chain activities, enhancing customer value, and giving managers competitive edge in the marketplace, supply chain management (SCM) software is on a growth spurt—and there’s no end in sight.

Leading the SCM pack are popular supply chain execution (SCE) applications such as warehouse management systems (WMS), transportation management systems (TMS), labor management systems (LMS), and yard management systems (YMS), all of which converge to help shippers develop holistic supply chain management approaches.

On pace to surpass $19 billion in 2021, according to Gartner, the current SCM software market is getting a big lift from companies’ growing interest in Cloud computing. This comes as no surprise because the Cloud has been making an impact on software as a whole for more than a decade. However, the sheer amount of supply chain operations being offloaded to the Cloud continues to grow every year.

This year, for example, Gartner estimates that over 90% of SCE spending would be allocated to Cloud supply chain solutions, which it says 65% of companies see as a source of competitive advantage in the marketplace. Bart De Muynck, Gartner’s research vice president of transportation technology, says that Cloud-based SCM continues to play a starring role in the overall digitalization of the supply chain and logistics functions.

In fact, De Muynck says 2019 proved itself as a turning point for vendors as they moved further away from on-premise solutions and put more effort into their Cloud offerings.

“Much of that effort was focused around solutions that provide real-time collaboration and supply chain convergence,” says De Muynck, who estimates that Cloud-based software revenue grew twice as fast as the broader SCM market did in 2019. “Across SCM, this was the first time we saw Cloud growth surpass the typical licensed on-premise or more traditional software-as-a-service (SaaS) solution market growth so significantly.”

Cloud’s siren song

The allure of the Cloud attracts companies across all industries and of all sizes, with most of them interested in scaling their enterprises without the need for costly on-premise implementations, hardware costs, additional IT staff, and costly upgrade and maintenance fees. By moving away from on-premise software installations, companies also gain benefits like easier implementation processes and pay-as-you-go software subscription models.

Modern Cloud software options also give logistics managers data, analytics, reports and dashboards that provide 360-degree views of their operations. Unlike siloed solutions that don’t “talk” to one another, Cloud solutions are pretty good about sharing their data with one another—when permitted to do so, of course. Even when specific applications don’t directly integrate, application programming interfaces (APIs) can help close those gaps.

Earlier this year, the Cloud got another shot to prove its value when the COVID-19 crisis hit. When armed with current data, logistics and supply chain managers were able to make better day-to-day decisions based off those insights. In a recent Supply Chain Management Review (SCMR) article, for example, Google Cloud’s Dominik Wee discussed how the Cloud computing suite helped keep supply chain managers in the loop and support remote workforces during the disruption.

“Google Cloud has been well-positioned to support remote work at scale, though, through our collaboration and productivity apps, namely G Suite,” Wee told sister magazine SCMR. “Some of our customers were already ahead of this trend. For example, Koenig & Bauer, the world’s oldest printing press manufacturer, began migrating to G Suite earlier this year. That timely switch enabled its workplaces to stay connected and boost collaboration, irrespective of time zone.”

De Muynck says COVID-related supply chain disruptions drove more companies to consider Cloud implementations during the first half of 2020. He sees the Cloud’s fast implementation times as the key driver for companies that were dealing with unprecedented supply chain fluctuations and disruptions.

“A lot of Cloud vendors use templatized implementations that can be set up within a matter of days,” says De Muynck. “Compare that to on-premise, where it can take three months to get the services, databases and software in place.” That feature alone has led to faster value-to-market for Cloud applications, with lower implementation costs as a close second.

The remote work movement is also helping to drive Cloud adoption right now. “Companies using older on-premise systems like AS/400 are seeing how difficult it is to work from home,” says De Muynck, “where connectivity can be shaky even if someone is using a virtual private network (VPN). As people continue to work remotely, companies are turning to the Cloud to solve these issues.”

Getting into the Cloud

Even vendors that initially steered clear of the Cloud are now focusing on it as a core software delivery method. And as these mindsets evolved, the number of shippers gravitating toward Cloud-based solutions has grown exponentially. For example, Clint Reiser, director, supply chain research at ARC Advisory Group, points to Manhattan Active Warehouse Management as one of the newer Cloud-based options for shippers that want to move away from on-premise software installations.

“When Manhattan moved into the Cloud, it didn’t only add features and functionality to its existing solution,” says Reiser. “It rebuilt the application from the bottom-up with microservices.” Put simply, each “microservice” has its own database and can be updated independently of one another.

Along with faster implementations and lower upfront costs, Cloud SCM also offers fairly high levels of scalability that don’t require additional servers, hardware, or in-house IT staff. Because vendors are distributing the software across multiple different customers, shippers can tap into that power and scale up or down as required without the need for major internal IT infrastructure changes.

Combined, these benefits are pushing more shippers to move their SCM applications into the Cloud. “Cloud continues to grow and expand as more industries get comfortable with it,” says Bill Brooks, Capgemini’s VP, North American transportation portfolio. “As a software delivery method, Cloud spread pretty quickly across the SCM portfolio and well beyond only TMS, WMS and LMS. It just continues to expand.”

The wall is coming down quickly

Speaking of “comfort” levels, what about some of the challenges that initially held companies back from Cloud adoptions, like the fear of potential data breaches and an unwillingness to move control centers off-premise, into the Cloud?

The analysts say that much of that early apprehension has been quelled by ongoing cybersecurity improvements; the many business use-cases published on the topic; and the realization that repositioning data and operations doesn’t necessarily mean relinquishing control over those functions.

“There was some initial hesitation around security, and we definitely heard that a lot,” says Brooks, who says the popularity of platforms like Amazon Web Services (AWS), Microsoft Azure, and Google helped drive up companies’ comfort levels with sending their data and information into the Cloud.

“Early on, companies assumed their WMS data would be safer stored on a server in the corner of the warehouse,” adds De Muynck. “There was also a fear that if the Internet connection went down, you’d lose access to the whole system.” He says educating shippers on the secure nature of the Cloud and the robustness of today’s Wi-Fi connections has helped to minimize those objections.

“Shippers now understand that the Cloud is actually more secure than their on-premise application, and that the easiest way to get into an application is through an on-premise type of application,” De Muynck points out. “Even if you have firewalls, there are ways around it.”

Reiser says that while security remains a top concern for any software delivery method, the many successful Cloud implementations that have already taken place have helped prove the model’s value. “Concerns have diminished with respect to security,” says Reiser, who notes that ARC’s recent research revealed an uptick in WMS Cloud adoption. “That wall is coming down quickly.”

The right choice

As Cloud-based SCM applications continue to proliferate and improve, the number of shippers that are adopting and using these solutions will surely continue to growth. Whether they’re adopting best-of-breed TMS to run their transportation networks, adding WMS functionalities to their enterprise resource planning (ERP) platforms, or using YMS to orchestrate more “contact-less” operations out in the yard, shippers continue to place Cloud applications first on their shopping lists.

In doing so, the same shippers are advancing along their digital logistics transformation journeys. “TMS has always been a leader from a Cloud adoption perspective, but now we’ve seen the entire SCM suite market pivot toward the Cloud,” says De Muynck. “Companies are reluctant to make heavy capex investments right now, and they also don’t want to pay upfront for licensing fees and implementation costs. This makes the Cloud an attractive choice for a lot of shippers.”