Cloud-based computing has swept through the logistics and supply chain landscape in recent years, with businesses in every corner of the market embracing this software delivery model. What that basically means is that these companies are opting to "rent" software that's hosted on computer servers in remote locations, rather than buying it and running it on site. Users access their programs and databases via an Internet connection, while the cloud provider—either the software vendor or a third-party cloud services company—takes care of maintenance, patches, and upgrades.
As for what makes the cloud model so appealing, it's largely a matter of economics. The cost advantages are significant. For one thing, because an outside company hosts the application on its servers, the user avoids the expense of hardware needed to run the program. For another, since the software is usually "rented," the user avoids a hefty upfront expenditure on licensing fees. Furthermore, because the software provider assumes responsibility for upgrades, the user avoids the costs of software updates and maintenance.
The result has been runaway growth in cloud-based versions of many common supply chain-related applications, including transportation management systems (TMS), enterprise resource planning (ERP) solutions, and labor management systems (LMS). But one sector of the market has lagged behind the others in the march to the cloud: warehouse management systems (WMS).
CONCERNS INCLUDE LATENCY, SECURITYThe sluggish uptake of cloud-based WMS can be traced to a number of factors, not least of which is customers' wariness about letting an activity they see as critical to their operation out of their sight. Concerns about the technology play into it as well—concerns that touch on many aspects of the systems' operation.
For starters, there's the matter of basic Internet connectivity. As every computer user knows, Internet connections sometimes go down. Although a few minutes of downtime might sound like a minor inconvenience, in the warehouse business, where time is money and every second counts, that could be a major hit.
Another concern is the so-called latency issue—that is, the potential for delay caused by a hiccup in computer response time. For an operation with high-speed automated systems that process thousands of items per hour, this could create enormous headaches.
"Some [of our] customers are running WMS in the cloud, but it can be a challenge because there are real-time requirements for high-speed scan times and response times; you need milliseconds instead of seconds," said Sean Wallingford, senior director of strategic operations at Intelligrated Systems Inc., a systems integrator that specializes in automated warehouse solutions. "If you have a carton that's moving on a conveyor running 600 feet per minute and there's a 500-millisecond delay in the response from the WMS, then that box might not get diverted and might just go back around and recirculate."
For that kind of operation, one option might be to take a selective approach to cloud computing, running some components of a warehouse software suite on the premises while sending others to the cloud. For example, the DC might run the systems that control its high-speed sortation equipment on its premises, but rent cloud space for more forgiving operations like slotting, receiving, and inventory. "We very much agree that the future is in the cloud, but some percentage of the solution needs to be on premise, at least for our biggest tier-one customers," Wallingford said.
Another concern that's deterring companies from taking the cloud-based WMS route is security. Whether the facts support it or not, many perceive cloud-based data exchange to be less secure than the on-site alternative.
That can be a deal-breaker for today's retailers, which typically have a low tolerance for risk. Some are concerned about protecting customer data—due to the explosion in e-commerce, warehouses increasingly handle personal customer data such as home addresses. Others want to keep proprietary market data—like details on the type and volume of SKUs (stock-keeping units) they handle—close to their chests. Either way, they're unlikely to embrace the cloud computing model if they think it will put their data at risk.
"A certain number of CIOs are saying 'I'd never want my information in the cloud, with the proprietary information about the SKUs we handle.' They feel more comfortable on-premise, in terms of security and privacy," said Craig Moore, vice president of sales for North America at HighJump Software Inc.
However, cloud proponents argue that remote servers are actually a safer option than on-premise computers. A cloud provider is likely to have specialists on staff who can devote their full attention to security, they argue. That's a big step up from having to rely on an IT jack-of-all-trades who also has to tend to an array of office hardware.
What all parties can agree on is that there's a lot at stake. "The execution of [the tasks this software enables] is crucial to the bottom line. Activity in fulfillment channels determines the success of the business," Moore said.
SMALL DCs LEAD THE WAYDespite these concerns, plenty of businesses are following the siren song to the cloud. Among them are retailers seeking 24/7 visibility of their goods as they move through the supply chain. As the retail industry shifts to an everything-is-a-warehouse mentality, retailers increasingly want the capability to pinpoint the whereabouts of their inventory at all times, whether it's in the DC, in transit, or in the store.
That's where the distributed nature of cloud technology can be an advantage, according to Guy Courtin, vice president for industry and solution strategy in the retail and fashion division at Infor, the parent company of logistics information services provider GT Nexus. An isolated, on-premise WMS cannot provide data needed to track goods through the entire supply chain, he said, but a cloud-based WMS that can be integrated with other software systems could provide that capability. Even better, that type of networked system will make it easier for retailers to make adjustments to shipments on the fly, such as diverting goods to cross-docking or redirecting them for drop-shipping, he said.
Regardless of the industry, it has largely been the tier-two and tier-three players—not the multimillion-dollar enterprises—that have led the charge to the WMS cloud. That's partly because cloud computing is seen as a less risky proposition for the smaller players. The little guys aren't likely to be using the kind of advanced warehouse technologies and high-speed automated systems their larger counterparts do. As a result, they face less risk of disruption in the event of a hiccup in computer response time.
Another part of it is economics. The cost advantages of cloud computing are a particular draw for small and medium businesses (SMBs) that don't have big IT budgets. Because they have limited resources, many don't want to manage "the iron"—industry shorthand for computing hardware, said Scott Fenwick, senior director for product strategy at Manhattan Associates Inc. They want to focus on using the software, not managing the software, he said.
That thinking now appears to be taking hold among their larger brethren. "In the last 12 months, we've seen more tier-one multibillion-dollar [enterprises] coming to the same conclusions. Confidence [is] growing as more and more types of apps move to the cloud," Fenwick said.
COMMERCIAL SUCCESS ALLAYS FEARSWhen it comes to building confidence, it's hard to overstate the effect that successful consumer cloud-based ventures have had on the model's public image. Although they operate outside the logistics industry, players like the subscription entertainment giant Netflix and the customer relationship management (CRM) specialist SalesForce.com Inc. have amply demonstrated the feasibility of running a thriving business on a cloud platform, experts say. That case continues to build as public cloud service platforms such as Amazon Web Services, Microsoft Azure, and Google Cloud Platform invest heavily in expanding their networks.
As these commercial cloud providers bulk up their computing muscle, supply chain operations are starting to give serious consideration to the cloud option for even their most demanding applications. "WMS still tends to be a laggard in terms of the move to the cloud. But it is happening," said Steve Simmerman, senior director of North America sales for JDA Software Group Inc. "Concerns about running WMS in the cloud is legacy thinking. A lot of things run extremely well in the cloud."
Even so, Simmerman acknowledges that there are still pockets of resistance in the market to the notion of a cloud-based WMS. In general, he says, the pushback comes from companies that argue that their warehouse operations are "mission critical" and they, therefore, cannot risk connectivity lapses that could cause expensive backups. He doesn't buy that argument, however. "A fair amount of TMS and LMS applications are in the cloud," he points out. "And from my perspective, routing and brokering freight and getting your trucks and railcars off on time ... that's mission critical as well."
In the end, the decision about running a WMS in the cloud comes down to balancing priorities such as the cost of buying servers and hiring IT staff against the need for data security and fast response times.
Each business must find its own solution, but as cloud providers continue to build faster, safer, more reliable products, the choice is getting easier. "I'm very bullish about WMS in the cloud," Simmerman said. "As cloud becomes more pervasive in all areas of business, we'll see more adoptions."
