October 29, 2012

Future Supply Chains: on Cloud Nine with Cloud Computing

Last month, Pfizer, one of the major global pharmaceutical giants, completed transforming its complex and sensitive supply chain into a robust, more efficient and well-insulated one by moving it to “the cloud”. Needless to say, Pfizer isn’t the first company to do it. Philips, DHL, Nestle and Hewlett Packard are some of the other organizations who are already enjoying the fruits of mounting their respective supply chains on “the cloud”, and many more are likely to follow suit.

Let’s start by understanding the definition of cloud computing or “the cloud”. The National Institute of Standards and Technology (NIST), U.S. Department of Commerce, defines cloud computing as follows:
“Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.”

The above definition is a brief, but somewhat exhaustive description in itself about the underlying benefits and attributes of this technology. It is widely believed that cloud computing could be the answer to the following woes of the modern supply chains:
1. Increasing Complexity: Globalization and internet have made it possible for organizations to build huge, global supply chains. But to manage them is a whole different game. And as these networks get more complicated and bulky, they might even fail to meet the very purpose they were built for. “The cloud” enables seamless sharing of information between the many partners (vendors, suppliers, buyers etc.), hence allowing them to function in sync with each other and take quick decisions to maximize profitability and efficiency of the whole supply chain.
2. High Set Up Costs: Cloud computing allows one to do away with the otherwise essential expenses - procurement of expensive software, building and maintaining infrastructure and hiring people to operate the system. So it is much cheaper and easier to set up. Besides, it allows the popular “pay as you use” model. All of this while providing any time access to the services.
3. Problems with Legacy Apps: The traditional on-premise enterprise software solutions are called legacy applications. Though in many cases, they might be good enough to handle the supply chain challenges at the present, the pace of change is high in this field. And upgrading legacy apps can be very tedious. Modern cloud based solutions are built to be highly configurable and adaptable in anticipation of rapid changes in the business.
4. Rising Competition: The famous adage “Organizations don’t compete, supply chains do” could have never been more correct. Since cloud computing is known to enhance the efficiency and productivity of the supply chain, it provides a significant edge over the competition. It has already been established that this technology will only accelerate the speed with which new products and service reach the markets.
5. Low Flexibility: Each organization or business has its own requirements that it expects its supply chain to meet. Going back to the case of Pfizer, it is worth mentioning that the company competes in two distinct drug markets – “patented” and “generic”. While the former calls for speedy and agile delivery strategies, even at higher costs, eg. overnight air delivery, the latter favours highly optimized logistics and tight control over inventory. Cloud computing ensures that the supply chain is flexible and adaptable enough to cater to such varied needs of the organization.

Now that we have listed almost all the benefits that come with “the cloud”, a few words of caution wouldn’t hurt.
1. Implementing cloud technology might require a lot of time (Pfizer took 18 months). More importantly, the decision to go for it usually involves several partners in the supply chain, which makes it vulnerable to even minor conflicts between these parties.
2. It should not be taken for granted that cloud computing would fit all the requirements of any supply chain or organization. Meticulous research is advisable.
3. Security of data could be a problem in cloud-based supply chain. This factor has gained even more prominence with some recent events which indicate the importance of securing one’s intellectual property.

In conclusion, it can be said that for most organizations, switching to cloud-based supply chain is a matter of “when” rather than “if”.

1. http://www.supplychaindigital.com/outsourcing/cloud-computing-in-the-supply-chain
2. http://www.logisticsmgmt.com/article/cloud_computing_and_supply_chain_a_natural_fit_for_the_future/
3. http://www.ft.com/intl/cms/s/0/1608e5d6-fc59-11e1-ac0f-00144feabdc0.html#axzz2AfeOg9o8
4. http://csrc.nist.gov/publications/nistpubs/800-145/SP800-145.pdf

This article has been written by Akshay Agarwal. He is a PGP student of Indian Institute of Management, Raipur and has done his B.Tech from Indian Institute of Technology, Guwahati. He can be reached at pgp11004.akshay@iimraipur.ac.in.


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