Global SCM system: On premises or Cloud? Is cloud always the right choice?

ERP and Supply chain management systems came into favor in the 1990s as those held the first promise of an integrated set of business applications and processes than what had come before.

Then three groups got benefited from this integrated enterprise application boom:

1.       customers have received "real business value"

2.       software vendors have made plenty of money

3.       However, the main benefit was consumed by the major consultancies who managed the business process re-engineering and implemented the enterprise solutions. These service providers received lucrative continuous service contracts that went beyond implementation into extensive customization and global service.

Some organizations have actually more money on customization as on the initial license fees, and still spending huge amount to support and carry these customization forward and software upgrades. These continuous customization is becomes extremely problematic, costly, incredibly slow and expensive to change.

Cloud solutions are emerging in this area which actually can be more functional to the business in less cost.

However, large global organizations have really gigantic SCM systems in place. It may take 10 years or longer for a majority of companies to move to cloud-based SCM systems wherein some small or mid-size organizations can take this path much sooner, according to Gartner.

“If you’re running enterprise systems, it’s difficult to envision how you would take an Oracle or SAP solution and turn it into a cloud-based offering” Brooks Bentz, Partner, Accenture

Traditional SCM suites have done a better job of catering to large companies that deal in products and assets. It is more likely that core functions such as manufacturing and finance to mostly remain on-premises.

Comparative Study of Cloud based applications and On-premises based application:

	Cloud	On-Premises
Cost	Pay as you go, per user, per month, etc.	Up-front capital costs for hardware, software licensing, lab space, air conditioning, etc.
Customization	Limited customization	Somewhat customizable depending on software vendor
Hardware	Hardware and software owned reside at provider site	Customer must provide hardware and system platforms to run apps
Security	Access to SaaS apps is via Internet, creating security risks	Less risky because of on-premises location
Mobile access	Accessible via browsers running on mobile devices	Limited access to business applications via browsers running on mobile devices
Integration	Limited integration, even though this is an important requirement	Integration with existing software is commonplace
Control	SaaS provider controls systems and is entrusted with customer data	Control of systems and data

Below are some recent trends in the industry made by big ERP/SCM vendors:

-          Separate Cloud and On premises solutions by SAP Business Suite.

-          Fusion of cloud on on-premises by Oracle

-          Pure cloud ERP, even for manufacturers, given vendors such as NetSuite, Plex, Kenandy and Rootstock.

Industry Trend:

So there are multiple types of solutions available in the market. Now what to choose? What is better for your own organization? There are conflicts and each of them important to us. How do we make the choice between on-premises or cloud?

1.       Verify and validate the promised made by the vendors: Be meticulous in comparison the options. Consider each and every factor such as incremental cost, software updates, new hardware additions, backup/recovery, and personnel cost.

2.       Use multi-step process: Making the decision whether to stay with on-premises or move to SaaS is a multistep process. First question to ask is that is there a SaaS provider in SCM available that provides the software that you need and that you can trust? If you cannot that you then the decision is easy. Stay with on-premises. If you find at least one, the next step is to work your way through the conflicts between on-premises and cloud. This will help you determine if you want to proceed with SaaS or stay with on-premises. If your analysis indicates that SaaS is best for you, and then you have to decide which of the vendor, if you have more than one that looks promising, you have to select.

3.       Cost is not the only top most important factor:

Cost is obviously the primary concern, but so are security, customization, control, compliance, and so on. A cloud service could become expensive as your business grows. Customers are entrusting their data to a third-party SaaS provider; what happens if the security fails? Or the vendor/ provider goes bankrupt? 

Secondly, Customization of software and integration with existing data center systems can be a big issue. SaaS providers generally don't allow the degree of customization that you can often get with on-premises software.

Thirdly, Lack of control over data and processes could make an organization’s IT inoperable. There are often landmines in the path, so you must be careful what the cloud providers and on-premises vendors tell you and promise you.

4.       Know your requirement: Estimate your requirements such as needed computational capacity, number of users, and log in time, expected data volume, number of countries or divisions, number of supplier, distributor involved, complexity of the supply chain model of your organization. That boils down to the complexity of your supply chain. It has been seen that large organizations tend to have large supply chain which needs complex customization. It is true that on premises software costs them a lot but it’s always not feasible to move or opt for a cloud solution.

5.       Get free trial from the providers to evaluate: To evaluate whether your requirements are going to be fulfilled, get a free trial and simulate it. Verify whether your business model fits the solutions and what amount of customization is required.

6.       Know the contracts and relationship differences between different type of vendors: There are different types of different levels of contract. Evaluation of requirements is required in order to find out the best fit supply chain model.

7.       Go through success or failure case studies of other organization like yours: Try to evaluate real success or failure cases of other organizations trying to move/opt for a cloud solution in supply chain management system.

Supply chain firms are more inclined now using cloud computing for their services and using cloud services supply chain efficiently utilized. The various architecture of cloud is available and need to explore fully utilized and scale-able cloud infrastructure.

Here is a year based comparative study from Supply chain management’s processes, characteristics and interests:

Other than cost and scale-ability, what strategic advantage and disadvantages a cloud-based SCM system could bring? Definitely needs deep thought.  

Related video:

http://www.youtube.com/watch?v=igachEYVBIY

Sources:

http://www.ijitee.org/attachments/File/v3i5/E1286103513.pdf

http://www.cio.com/article/747329/Gartner_Today_39_s_On_premises_ERP_Systems_Will_Soon_Get_the_39_legacy_39_Label

https://blogs.technet.com/b/uspartner_ts2team/archive/2011/03/01/the-single-best-presentation-graphic-on-considerations-for-cloud-vs-on-premise-solutions.aspx

http://searchcloudapplications.techtarget.com/news/2240158719/Searching-for-the-right-SaaS-service-level-agreement

http://www.logisticsmgmt.com/article/supply_chain_technology_cloud_breakthrough

www.scmworld.com/Research/Reports/The-Supply-Chain-and-the-Future-of-Applications/

http://www.cio.com/article/734188/FAQ_on_Global_Supply_Chain_Security_Standard_to_Prevent_IT_Tampering_Counterfeiting

http://www.cio.com/article/734647/How_Cloud_Technology_Can_Transform_Supply_Chain_Performance?page=3&taxonomyId=3015

http://www.supplychain247.com/article/analysts_report_that_cloud_based_adoption_increased_40_percent_this_year/cloud

www.computerweekly.com/feature/Cloud-computing-The-answer-to-supply-chain-woes