2021 State of the Cloud: No end in sight

As companies assess their current technology infrastructures and look for new ways to tackle the rigors of the current business environment, more and more of them are turning to the Cloud.

Whether they’re replacing existing, on-premises supply chain software or simply looking to add newer, more modern functionalities, these companies are tapping into Cloud delivery models. Promising faster implementation times, cheaper upfront costs, and less reliance on internal IT teams, these solutions are now being fully embraced by both shippers and software vendors alike.

Supply chain organizations are in good company. According to Accenture, the global Cloud services industry has been growing year-over-year since 2010 and is now worth $370 billion (as of 2020). It says worldwide spending on public Cloud services is expected to grow by 18.4% this year, driven in part by the move to more remote work—a shift that requires more flexible, Cloud-based software.

Calling 2020 a “pivotal year” for the Cloud, Accenture says it played a lead role in facilitating remote work solutions. According to Accenture, the Cloud has become an essential part of continuing business and is the key to unlocking organizational growth.

Cloud domination

A software sector that has been gradually moving into the Cloud for over a decade now, supply chain management (SCM) handles a broad range of functions for logistics and supply chain operators. Under that umbrella, supply chain execution (SCE) manages activities like warehouse management (WMS), procurement, transportation management (TMS), global trade management (GTM), yard management (YMS), and labor management (LMS), among others.

Also encompassing supply chain planning (SCP) solutions, SCM touches most links in the typical, end-to-end supply chain. Within that realm, Bart De Muynck, vice president of research at Gartner, says Cloud SCM has experienced steady growth over the last four years.

Consider this: In 2017, De Muynck says software as a service (SaaS) comprised about 30% of all new SCM implementations, with the remainder being on-premises installations. By 2022, he predicts that ratio will flip, as SaaS implementations will outnumber on-premises installations.

Certain market segments within SCM will move to the Cloud faster than others. According to De Muynck, roughly 62% of all new procurement implementations will take place in the Cloud by 2022, versus a current 40%—and around 30% in 2017. He says SCE solutions will follow a similar pattern, having grown from being 30% in the Cloud in 2017 and now on track to exceed 50% Cloud implementations by 2022.

Some of the drivers are economic in nature. With companies watching their spending right now, capital expenditures (capex) are taking a backseat to operating expenses that are quick-to-value and less resource constrained. At the same time, quick, easy implementations have taken precedence over long, drawn-out on-premises software implementations. “Companies are deferring their larger, capex software investments that take a long time and that consume a lot of resources,” says De Muynck. “Those have been put on hold.”

De Muynck says that other key market drivers right now include the need to replace legacy on-premises warehouse management systems. “We still see a high number of companies with warehouse systems on premise, in a server room in the back of their warehouses,” says De Muynck, who adds that some shippers are reluctant to move that data out into the Cloud. “Convincing a business to take a box that’s physically sitting in its warehouse and put it in a centralized location—let alone into the Cloud—can be difficult.”

Transportation management, on the other hand, has historically been one of the most Cloud-first SCM applications. To operate most effectively, TMS must be able to connect to many different carriers, trading partners, and even customers. As a result, this corner of the SCM market tends to be one of the biggest drivers of overall supply chain software Cloud adoption. This, in turn, has helped drive innovation within the segment, as new vendors come on the scene and find new ways to help shippers leverage the Cloud.

“Some vendors have made TMS much easier and cheaper to implement and use, and this has driven up the use of Cloud-based TMS,” says De Muynck, who points to the new crop of last-mile, rail management and fleet management software solutions as a few examples of the latest vendor innovations in this arena. “We’re seeing software providers developing Cloud-based solutions that are fairly reasonably priced and that can be live within 30 days, in some cases.”

No letup in sight

Over the last year, William Brooks, vice president of the North American transportation portfolio at Capgemini, says he has seen more customers asking for Cloud-based SCM systems. That interest reached new heights during the pandemic, as companies worked to shore up their supply chain operations, manage remotely, and fully leverage their technology investments.

“Cloud adoption is continuing its strong growth trajectory,” says Brooks. “I don’t see any letup in sight.”

At least some of that growth is being driven by the fact that the Cloud is now viewed as a tested and proven software delivery method. Past stigmas concerning data security and the possible “loss of control” that comes when the Cloud replaces on-premises servers have been dispelled by the 92% percent of organizations whose systems were already at least “somewhat” in the Cloud as of 2020, according to a recent InfoWorld survey.

“Companies are more educated on the Cloud, have tested its waters, and realize that it really does work as advertised,” says Brooks. “And because of that, the Cloud is becoming more and more mainstream.” Those converted organizations also like Cloud software’s lower upfront costs, the fact that it doesn’t consume internal IT resources, and because it can be scaled up easily as a company grows.

Knowing this, SCM vendors have steadily started offering more Cloud-based solutions. Some have made Cloud their core product offerings, says Brooks, and are using pre-built integrations and application programming interfaces (APIs) that allow shippers to “hook” those applications back into their existing, on-premises systems.

A new twist on the Cloud

Clint Reiser, director of supply chain research at ARC Advisory Group, says the big news on this front for 2020 was the introduction of Manhattan Associates’ Active WMS, a Cloud- native platform comprised of microservices architecture.

According to Manhattan, these platforms connect different applications (the “microservices”), each of which runs a unique process. In retail, for example, these applications may include order management, point of sale, inventory management, and fulfillment—each of which contributes to the overall
customer experience.

In 2021, Manhattan followed up with its Active TMS solution, which takes a similar approach with transportation. Reiser sees this as a key development in the push to create even more advanced, Cloud-based SCM solutions. “Manhattan built these solutions using different, interchangeable widgets [microservices],” says Reiser. “This isn’t just a ‘lift and shift’ to the Cloud; the platform is designed on a different infrastructure.”

Put simply, the software developer didn’t just move its existing WMS and TMS into the Cloud, it completely rearchitected the technology within the microservices environment. De Muynck says this allows shippers to more easily use the solutions, which can be acquired on a “microservice by microservice” basis. “It’s also makes it much easier for vendors to extend their solutions’ capabilities,” he adds.

Asked whether he thinks other SCM vendors will follow Manhattan’s lead on the microservices front, De Muynck says those that are “starting from scratch” may naturally move in this direction. Established vendors may have to rethink their current application stacks if they decide to move in the microservices direction.”

What’s ahead?

From the vendor perspective, Reiser says increased Cloud adoption has helped provide stability for the WMS market over the last three years to four years. In other words, even companies that backburnered their large capex investments and on-premises software implementations have been willing to give Cloud a try.

In response, vendors have created more Cloud offerings, effectively “stabilizing the revenues of the market,” says Reiser. “A percentage of the marketplace has moved to SaaS, so now there aren’t as many vendors that rely on the software portion of their revenues,” he continues. “This trend has also stabilized the vendors’ relationships with their own customers.”

With no end in sight to Cloud’s domination in the supply chain software arena, expect to see new innovations, functionalities, and capabilities hitting the market in 2021 and beyond. As companies continue to emerge from the pandemic and continue their digitalization journeys, De Muynck says that more of them will be seeking Cloud-based solutions that incorporate artificial intelligence (AI), real-time visibility and advanced analytics capabilities.

“The pandemic-related disruptions that have taken place over the last 16 months have suddenly made these needs much more acute,” says De Muynck. “As a result, companies are investing in these different technologies within the logistics space, where the race is on to get these digital capabilities in place.”