Executive Briefings

The Cloud's Message Continues to Evolve

Analyst Insight: In recent years, Software as a Service and hosted solutions have made some significant in-roads in the supply chain application space, but their success has been somewhat limited. Continuing IT budget and resource constraints are causing many firms to take a serious look at on-demand supply chain applications. And software vendors have responded by increasing the number and variety of services provided. This mixture is expanding the horizon of on-demand supply chain IT solutions. - Tom Singer, principal, Tompkins International

Similar to other IT application spaces, the appeal of on-demand solutions in supply chain IT has been the opportunity to reduce total cost of ownership. Pure multi-tenant SaaS solutions have established a strong foothold in certain areas. Many traditional supply chain suite and best-of-breed vendors have responded to this demand by offering hosting services for their licensed on-premise applications. Small and large enterprises continue to encounter constrained IT budgets and resources. The necessity to replace aging legacy platforms and provide extended supply chain functionality is prompting many previously reluctant organizations to take a closer look at an on-demand deployment model for supply chain applications.

While on-demand solutions offer the promise of reduced IT ownership costs, they can vary significantly in services provided and overall cost structure from on-premise packages. Key differentiators include:

Functional fit -  Pure SaaS solutions may not be as functionality robust as corresponding on-premise packages. Since they are multi-tenant, they may not be as customizable as an on-premise or hosted solution.

Cost components -  Subscription fees cover administrative services and software maintenance as well as software and IT infrastructure usage. Vendors offering both on-premise and hosted options typically seek to recoup perpetual license costs within a 3- to 4-year period through their hosting fees.

Long-term flexibility -  Since they do not require significant investment in infrastructure, licenses and ongoing internal operating costs, subscription-based on-demand pricing can be more flexibility in realigning IT budgets to meet changing requirements. Contract terms and the cost of changing solution providers determine the real value of this flexibility. Furthermore, hosted contracts generally do not give the customer the option of dropping software maintenance support.

Security and application integration implications -  Security and integration approaches can vary significantly by on-demand solution. The customer's ability to obtain desired requirements in these areas for on-demand solutions may present more challenges than for on-premise deployments.

Business continuity approach -  Availability and disaster recovery provisions can vary by vendor, and requirements can be clearly defined through a service level agreement.  Also, several vendors offer their hosting capabilities as hot site recovery services for on-premise customers.

Value-added services -  Some vendors provide managed services that support daily operations normally performed by client super users or business analysts. They can provide these services to both on-demand and on-premise clients.

Third-party hosting services - Software vendors are not the only source for hosting services.  Plenty of firms purchase perpetual licenses, but turn to third parties for hosting services. Since hosting is a core competency, these firms may provide superior IT services and better IT usage fees than the software vendor.

                                        The Outlook

On-demand solutions will continue to make in-roads across the supply chain application space. Traditional on-premise vendors will actively pursue opportunities in the cloud by marketing subscription-based hosting services. Success in this area may depend on the ability of the software vendor to offer a value proposition that goes beyond subscription-based pricing and infrastructure hosting.

Similar to other IT application spaces, the appeal of on-demand solutions in supply chain IT has been the opportunity to reduce total cost of ownership. Pure multi-tenant SaaS solutions have established a strong foothold in certain areas. Many traditional supply chain suite and best-of-breed vendors have responded to this demand by offering hosting services for their licensed on-premise applications. Small and large enterprises continue to encounter constrained IT budgets and resources. The necessity to replace aging legacy platforms and provide extended supply chain functionality is prompting many previously reluctant organizations to take a closer look at an on-demand deployment model for supply chain applications.

While on-demand solutions offer the promise of reduced IT ownership costs, they can vary significantly in services provided and overall cost structure from on-premise packages. Key differentiators include:

Functional fit -  Pure SaaS solutions may not be as functionality robust as corresponding on-premise packages. Since they are multi-tenant, they may not be as customizable as an on-premise or hosted solution.

Cost components -  Subscription fees cover administrative services and software maintenance as well as software and IT infrastructure usage. Vendors offering both on-premise and hosted options typically seek to recoup perpetual license costs within a 3- to 4-year period through their hosting fees.

Long-term flexibility -  Since they do not require significant investment in infrastructure, licenses and ongoing internal operating costs, subscription-based on-demand pricing can be more flexibility in realigning IT budgets to meet changing requirements. Contract terms and the cost of changing solution providers determine the real value of this flexibility. Furthermore, hosted contracts generally do not give the customer the option of dropping software maintenance support.

Security and application integration implications -  Security and integration approaches can vary significantly by on-demand solution. The customer's ability to obtain desired requirements in these areas for on-demand solutions may present more challenges than for on-premise deployments.

Business continuity approach -  Availability and disaster recovery provisions can vary by vendor, and requirements can be clearly defined through a service level agreement.  Also, several vendors offer their hosting capabilities as hot site recovery services for on-premise customers.

Value-added services -  Some vendors provide managed services that support daily operations normally performed by client super users or business analysts. They can provide these services to both on-demand and on-premise clients.

Third-party hosting services - Software vendors are not the only source for hosting services.  Plenty of firms purchase perpetual licenses, but turn to third parties for hosting services. Since hosting is a core competency, these firms may provide superior IT services and better IT usage fees than the software vendor.

                                        The Outlook

On-demand solutions will continue to make in-roads across the supply chain application space. Traditional on-premise vendors will actively pursue opportunities in the cloud by marketing subscription-based hosting services. Success in this area may depend on the ability of the software vendor to offer a value proposition that goes beyond subscription-based pricing and infrastructure hosting.