Analyst insight: Over the past decade, cloud-based, software-as-a-service (SaaS) solutions have grown from outliers to commonplace for supply-chain systems. As they mature, these technologies will drive significant changes in supply-chain system functionality, interoperability and ownership costs. 

Most supply-chain software providers today offer cloud-based solutions or are pursuing cloud strategies. This has been driven by the emergence of a vibrant cloud-computing services market and client-side IT support. Cloud hosting is now a well-established commodity with major providers offering inexpensive, on-demand computing services with a high degree of reliability, scalability and security.  

Standalone supply-chain applications that cut across organization boundaries were an initial entry point. These included solutions for procurement, visibility, global trade and transportation management. Soon after, multi-tenant SaaS solutions emerged for small- and medium-sized businesses (SMBs), including enterprise resource planning (ERP), warehouse management systems (WMS) and e-commerce operations tools. 

Then, mid-to-large enterprises began leveraging the cloud for third-party hosting. Many mid- and top-tier vendors have released next-generation versions of their supply-chain solutions specifically architected for the cloud. These solutions featured browser-based user interfaces and web services integration frameworks that promote interoperability across enterprises and applications. They also provide an effective platform for sensor-based integration — bringing the internet of things (IoT) to the supply-chain world.

Mid- and top-tier vendors are now offering subscription-based pricing as well as traditional software licenses, as large enterprises have come to expect a hybrid payment approach. Some companies elect to purchase licenses and have vendors provide hosting services, while others pay subscription fees and have a third party provide hosting. 

Several top-tier vendors are struggling to align these pricing models with a compelling cost of ownership. Others are working through data access issues for the needs of large and complex enterprises.

Third-party managed services are starting to grow beyond data center operations and systems administration. Cloud-based supply-chain applications have become business process outsourcing (BPO) enablers, making it easier for operations to outsource specialty functions like freight management and customer service. Solutions based on a “microservices” architecture are becoming more prevalent. This allows vendors to deploy and upgrade application code at a more granular level, which enables a more seamless, continuous upgrade path.

Despite progress, many vendors are still lagging in their current offerings and future roadmaps. Investment costs are significant, but companies that fail to update will struggle to remain relevant.

Outlook

As the cloud continues to dominate the supply-chain systems marketspace, developing a microservices architecture will be key to eliminating version obsolesce. IoT-related usage and managed-services offerings will grow across applications, and competition will drive subscription-based pricing to the forefront.

Tom Singer is project manager at Tompkins International.