software, apps

Can SaaS improve your Supply Chain?

Supply chain globalization, increased complexity, rising costs, and the need to respond rapidly to supply chain changes and disruptions are forcing companies across industries to consider new ways to quickly deploy and modify supply chain management solutions. With the present economic downturn, companies are reluctant on major investments which lack a clear and quick Return on Investment. On the other hand, the Total Cost of Ownership forces companies to find new strategy to improve there supply chain.

Software as a Service[Saas] has the potential to reduce the TCO while having a high ROI. A recent survey by Aberdeen Research identifies whether SaaS and related approaches are a long-term,viable option in the SCM space or not. In addition, the specific areas within SCM where SaaS applications have gained adoption, and reasons why they have, are also explored

Short definition
SaaS are software applications that are web-based provided. The user has access to the standard application through the Internet. All activities are outsourced and managed from an single location. Multiple customers can use the standard applications, although with different datasets. Using API[Application Program Interfaces] the customer can reach a higher level of integration with his existing processes and supporting software.

SaaS differs from Applications Service Provider[ASP]. ASP can be regular applications which are distributed through the Internet, while SaaS is fully web-based. Often SaaS applications are specific process related software such as CRM, Accounting etc, as ASP are often more technical based software such as used by ISP[Internet service providers]

Pro’s & Cons

  • The customer doesn’t purchase the software, but only pays for the usage
  • Software & hardware are not installed at the customer. It is fully web-based.
  • The Applications Service Provider [ASP] manages the application, such upgrades, maintenance, backups etc
  • No capital investments required
  • Lower Total Cost of Ownership
  • On usage of many API, vendor lock might become applicable
  • Security of sensitive company information
  • Higher cost on licenses.
  • Integration with complex local ERP systems can be costly
  • SaaS providers only have a limited number of applications. For governments with a numerous applications, this can be a drawback. It requires contracts with quite a number of suppliers.

Supply Chains challenges.
In order to determine whether SaaS can contribute to Supply chains a review of followed strategies and developments is needed. Can SaaS be incorporated into your strategy and how does it contribute to it?

According to research by Aberdeen Group[1]companies are working hard to reduce the non added value and complexity in the supply chain, followed by looking for opportunities to integrate requirements and simplify implementations. Companies have, under pressure of a tight investment market, not the luxury to spent time and money on complex software implementations. Implementations should be quick, easily out-rolled and have a short payback time.

Supply Chain complexity raises under the influence of continuous globalization which means global suppliers, global competition and global customers. The traditional ERP systems lack the required visibility and are quite rigid in usage once implemented. It forces companies to add supporting software to quickly analyze short term developments. Quite often, departments fall back on the traditional spreadsheets solutions. Thus reducing the value and significance of ERP systems.

Furthermore, in economic downturn companies tend to externalize business processes and return to there core competences. Still they need to be able to control and solve end-to-end supply chain challenges in order to reach maximum customer satisfaction.

Such challenges are dealt with Service Level Agreements including penalties and incentives. Adapting Service level agreements requires a clear definition en deep understanding of the various processes and procedures in order to connect SaaS and on premises solutions. Not only within the own organization, but also understanding the role of partners in the Supply chain is required. An overview of the framework can be found in table 2 aberdeen report

An important condition to the success of SaaS is getting IT on board and enable the business unit to support SaaS solutions. Getting IT on board will mean a change in IT strategy. As were most It departments are in control of distribution and maintenance of the companies application, SaaS drives towards another model of IT management. On demand solutions can be perceived by IT departments as a form of outsourcing. Without proper backup at board level, CIO, adopting SaaS solutions might fail. For IT, SaaS will allow them to put more focus on It strategy instead of fulfilling a maintenance role, which at it selves important, lowers the IT contribution towards the company. IT can work towards enriching strategic company plans or analyzing business processes for areas needing improvement.

Supply Chain
Companies are increasingly using Logistic Providers to reduce there own overhead and the cost of owning there own Fleet and Warehouses. Also, they are reducing the number of partners and alliances to gain volume discounts and build longterm relationships. Such developments justify SaaS environments. It opens the way towards quick and at a lower cost, connect the various partners and seamlessly exchange real-time data. Data that can consist of contract information, fleet tracking, ordering and planning, loading optimization or even enable Vendor Management Inventory. The use of SaaS between various partners, forces those organization to standardize there processes and align them with the demands of SaaS. This complies with of one the main conditions of SaaS to reduce the complexity of the supply chain.

Steps towards success.
Develop a holistic roadmap. Establish a map which describes your steps for further simplification, process standardization and the contribution and selection of SaaS and or on premises solutions. Develop a clear calculation model with upfront and ongoing costs, customer demands, requirements towards suppliers and the expected cash-flows and return on investments.

Improve your ability to respond quickly to market changes. Such demands agile and collaborative processes within the organization and between partners in the supply chain. Define and implement multi enterprise supply chain metrics which address and monitor the critical processes in the supply chain. Continue to strive for further flexibility from your own organization and your suppliers. The ability to support business requirements flexibly and rapidly is the number one requirement for SaaS providers from Best-in-Class companies.

Can SaaS fulfill it promises? It all depends on the willingness and ability of partners within the Supply Chain to break out of the traditional way of information management and exchange. Information critical to the SCM, stored and exchanged  using SaaS can contribute to simplify processes and reduce costs within the supply chain. Linked with on premises solutions using API can provide a closed circle of information management. SaaS allows a certain level of customizations at the various business unit, thus avoiding the rigid standards of the present ERP systems.

But it real success depends on the maturity of organizations in there approach towards Processes, Organization, Knowledge and Technology. Such change will prove to be a major challenge to all partners within the SCM.  Whether 3rd party logistic providers are willing to take such drastic steps, considering they are connected to multiple customers with different demands, remains to be seen. Building long term relationship with those parties might persuade them to become involved.

1)The Secret SaaS: On-Demand Supply Chain management. December 2008. Nari Viswanathan, Melissa Spinks. Aberdeen Group.