Steady march into the cloud

Companies like cloud software for a lot of different reasons. Considered more cost-effective than traditional, on-premises solutions, cloud-based software is paid for by subscription, requires fewer onsite services—or, none at all—and is accessible from anywhere using just an internet connection. This software delivery method is also highly scalable and is generally updated “behind the scenes” and without the need for time- and resource-intensive upgrades.

The cloud was almost immediately embraced by the supply chain management software (SCM) sector, where transportation management systems (TMS) and global trade management systems (GTM) were among the first to leverage the cloud’s “anytime/anywhere” qualities.

Shippers were connecting to carriers in the cloud with TMS, and GTM providers were able to better orchestrate the dynamic, ever-changing global compliance environment. From there, the rest of the supply chain solution pack caught on pretty quickly.

Fast-forward to 2023, and many of the new warehouse management systems (WMS), yard management systems (YMS) and other applications that fall under the supply chain software umbrella are cloud-based versus on-premises. This is of course part of a much larger trend.

In total, Gartner, Inc., expects global spending on public cloud services to reach $598 billion in 2023—up from $491 billion last year.

“Hyperscale cloud providers are driving the cloud agenda,” says Sid Nag, VP, analyst at Gartner. “Organizations today view cloud as a highly strategic platform for digital transformation, which is requiring cloud providers to offer more sophisticated capabilities as the competition for digital services heats up.”

According to Gartner, this year, 94% of businesses are using the cloud in some capacity, with the most popular cloud services being Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS). The retail, healthcare and financial services industries are currently the top cloud computing users.

Taking the cloud-first route

Organizations across most industry sectors are placing a greater emphasis on supply chain management this year. Whether these companies are overhauling current approaches or rolling out completely different solutions,
new technology investments are playing a role in these changes. This, in turn, is driving even more growth in the cloud-based supply chain management software market.

A market that reached $15.8 billion in revenues in 2022, the supply chain management software market is now on track to more than double in size to nearly $34 billion by 2030. The market, which is exhibiting a compound annual growth rate of 12.6% right now, is largely being driven by the adoption of cloud applications that can infuse greater adaptability and flexibility into the supply chain management process.

“We’ve stepped into the digital era, where more companies are adopting next-gen and digital supply chain solutions that support smart, strong and more resilient operations,” says Nishanth Sridharan, senior director, cloud and custom applications at Capgemini Americas. As part of that push, cloud computing is being used to drive more speed, increase agility and create even higher levels of visibility.

Cloud is also a good sustainability partner for companies that use it. Citing statistics from IDC, Sridharan says continued adoption of cloud computing may eliminate 1 billion metric tons of carbon dioxide emissions between 2021 and 2024. “A key factor in reducing the CO2 emissions associated with cloud computing comes from the greater efficiency of aggregated compute resources,” IDC states in its report.

“The emissions reductions are driven by the aggregation of computation from discrete enterprise datacenters to larger-scale centers that can more efficiently manage power capacity, optimize cooling, leverage the most power-efficient servers, and increase server utilization rates,” IDC adds.

A steady march into the cloud

The steady march into the cloud is happening both in the United States and in Europe, according to Clint Reiser, director, supply chain research at ARC Advisory Group. The trend is also picking up speed.

Where just last year Reiser talked to Logistics Management about how WMS cloud adoption was more prevalent in North America compared to Europe, the latter is now seeing higher demand for cloud-based applications in the supply chain space.

For example, Reiser says that one Denmark-based WMS provider recently shared that eight out of 10 of its new customers were choosing the SaaS model, and that the vendor was no longer selling perpetual licenses (a license that allows the buyer to use the software indefinitely and on any number of computers) for its WMS. “For users, the options are to either go with the SaaS model or choose on-premises, knowing that you’ll be paying through subscription either way,” Reiser explains.

Another European software developer in Italy told Reiser that its current licensing revenue was nearing 0%. The company’s logistics execution architecture (LEA) platform helps shippers manage their supply chains, and its go-to-market WMS is a cloud solution that’s based on microservices, which is a “self-contained” architecture used to develop large applications. “These are two of several European software vendors that are definitely going cloud-first,” says Reiser.

Other companies—both in North America and in Europe—have been offering SaaS solutions for years. Still others are now using microservices architecture to build new, cloud-native solutions “from the ground up,” says Reiser, who points to Körber Supply Chain as one of several providers that are moving in this direction. Manhattan Associates is another SCM provider that’s made significant progress with its cloud applications.

Reiser recently attended one of the Manhattan’s conferences where it was revealed that the number of Manhattan Active WM (the company’s cloud-based WMS) users stood at 113 live sites across 51 customers—versus 41 live sites and 24 customers in May of 2022. “If you measure by sites or customers, [Manhattan’s] numbers have doubled in this area,” says Reiser. “That’s pretty substantial growth.”

Cloud helps blur the lines

Where SCM software helps shippers manage the various aspects of their supply chain, supply chain planning (SCP) focuses more on demand planning, network optimization, forecasting and analytics. The former helps improve efficiencies, reduce costs and improve the customer experience, while the latter is more centered on optimizing supply chain performance, reducing risk and growing corporate profits.

Historically, SCM and SCP applications fell into two different camps. More recently, however, companies have been blending the two in order to gain access to more comprehensive supply chain management solutions. The cloud is helping to blur the lines between SCM and SCP.

Available 24/7 online, applications that may have previously been siloed and only available to select departments or job roles are now open to all authorized users.

Due to its ubiquitous nature, the cloud supports real-time collaboration, enables file sharing and makes it easy for users to get updates, track progress and assign responsibilities to other departments or managers. For example, cloud-based SCM can be used to forecast demand and SCP can then use those forecasts to lay out more accurate procurement and manufacturing plans. Or, SCM tracks customer orders while SCP uses the gathered data to improve future supply chain performance and/or customer service.

Amber Salley, a Gartner senior director analyst, sees this as yet another sign that SCP is becoming less of a “functionally-focused activity” and serving as a guide that logistics departments can then use to make their warehousing, transportation and manufacturing plans.

“Many times, the different aspects of the supply chain are viewed in isolation, so the related technology tends to get deployed in isolation,” Salley explains. “We’re predicting more of a convergence, at least between planning and the other parts of the supply chain, over time.”

Start small, scale swiftly

Cloud will continue to play a role in the SCM-SCP convergence trend. In fact, Salley says most providers of traditional planning software applications are either already offering or currently working on their cloud-based platforms.

Some are completely re-platforming onto cloud native architectures, she says, while other companies are hosting their existing applications—those built for the client-server environment—in cloud-based environments.

These moves are beneficial both for the shippers that are using the applications and for the vendors that are developing and selling those products. “By getting all of their customers into the same cloud environment, software vendors can reduce the number of resources needed to support all of the older application instances that are still being used,” Salley says. “Knowing this, vendors may see the cloud as a way to reduce spend and to be able to focus more of their resources on development.”

Sridharan expects the cloud to continue serving as the “arm” or underpinning for advanced technologies like AI, machine learning, IoT and even blockchain—all of which rely on cloud’s “anytime anywhere” status, clear access points and collaborative qualities. To companies that want to leverage the cloud’s power, Sridharan has a simple piece of advice: start small and scale swiftly.

“The finish line includes improved supply chain visibility, better transparency of shipments and effective inventory management, among other benefits,” says Sridharan, a long-time cloud computing proponent who sees only good things ahead for this software delivery method. “The growth of digital commerce will continue to drive investments in cloud as a path to faster decision-making and the elimination of inefficiencies.”