Tuesday, February 19, 2013
A Schumpeterian Cloud: Internet Based Supply Chain Management
Neoclassical microeconomic theory predicts that in the long run there will be no entry costs to an industry and that any new firm would be able to enter; a fact that will push profit margins down and ultimately lead to a Schumpeterian process of hyper competition. The cloud based supply chain services may have already brought us closer to that theoretical scenario.
At the beginning of the 2000s decade, only large companies with substantial amounts of capital were able to invest in supply chain management as well as Enterprise Resource Planning (EPR) software (Rettig 2007). Ten years later a new revolution in the capabilities of the internet as well as the greater expertise of software developers in cloud solutions is changing the way firms understand supply chain management. The cloud based SCM increases visibility by providing real time access to products, forecast, inventories, transport etc., (Dredge 2011). It also means less need to invest in IT infrastructure, practically limitless storage capacity (the cost of an additional GB can be as low as $15c), less in-site consultants, and a more uniform and less complicated network and businesses processes (Rettig 2007). Some of the cloud services offer individual user payment schema while software access setup takes only a few minutes (Dredge 2011).
The advantages are already increasing competition and innovation as a myriad of small and medium size firms are taking advantage of reduced cost and tailored software (Tomkins 2009). Small manufacturing firms, retail stores, transportation firms, internet retailers, health care services are just some of the industries that have greatly benefited from the new technology.
But the increase in demand, approximately 40% in 2012 in comparison with the previous year (McCrea 2012), is not only driven by small and medium size companies. Giants like Mitsubishi are starting to adopt cloud supply chain management solutions (Business Wire 2013). Traditional champions of logistics are also exploring the new possibilities of this type of technology. Last year UPS adopted a cloud-based technology platform that increases customers’ collaboration with international suppliers and provides better management of their inbound supply chains (Yahoo Finance 2012).
Nevertheless not everyone is eager to support adoption of the cloud revolution. Some critiques have stressed the reliance of cloud services on internet availability and the trustworthiness of servers. However this argument fails to consider that the IT revolution and the way supply chain functions today are already based on a fragile equilibrium of complex interdependent systems. With this in mind I cannot help but bear in mind Walter Benjamin’s reflection on the Crystal Palace of the Great exhibition of London in 1851; how it represented the epitome of progress and will of mankind to alter nature while at the same time it was a reminder of civilizations infinite fragility. Perhaps the cloud supply chain is a new metaphor for the endless capability of innovation and progress and the brittleness of civilization altogether.
Rettig, Cynthia (2007), “The Trouble with Enterprise Software”, MIT Sloan Management
Review, Fall 2007.
Tomkins, Benjamin (2009), “Cloud Based Supply Chain Management Offers SMBs Flexibility”, Information Week, May 27, available at: http://www.informationweek.com/smb/ebusiness/cloud-based-supply-chain-management-offe/229206285