Cloud computing

“Cloud computing is defined here as covering software applications delivered through the internet, and also the hardware and system software that is used within data centres to provide those services”. This means that a third party (the vendor) provides the software to the customer over the internet, and the customer does not own the operating systems, data centres and or any other related technology. The customer outsources its IT

infrastructure, and the vendor is responsible for installation, updates and maintenance. (Ojala andTyrväinen 2011)

Cloud computing creates value by implementing a “multi-tenant architecture”, where the vendor provides the IT infrastructure and serves multiple clients simultaneously. This reduces costs by the client as the same infrastructure, management, monitoring and maintenance are concentrated to the vendor. This way hardware and computing capacity usage is optimized, as the clients pay for what they use. This reduces resource shortage and under-utilization. (Dhar 2012)

There are three different cloud service models: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), Software as a Service (SaaS) (Chandrasekaran 2015, p. 67).

In IaaS, a third party service provider provides the organisations all the IT infrastructure needed to run their software. The designers of the software are liberated from maintaining data centres and other physical infrastructure, but the designers are still responsible for the software itself (operating systems, data, updates, configurations and running of the software). In PaaS, software developers are provided a development platform online to program and deploy their application. This makes software and application development process more efficient as developers don’t have to invest in their own IT infrastructure, and deployment becomes instant through the same platform. In PaaS, the users are only responsible for the running and management of the application, and other issues are managed by the cloud service provider. Development can be done in cooperation with the service provider. (Chandrasekaran 2015, p. 67-83).

Providing software services to end users over the internet is called Software as a Service (SaaS). Traditionally, software needed to be installed to a certain computer, and licensing fees had to be paid. In SaaS, the software itself is not installed in the user’s computer, instead it is provided on-demand and the software is accessible by any device which has an internet connection and a web browser. In SaaS, users are not responsible for anything except for paying for the service, and the service provider is responsible for the physical IT infrastructure, running and functionality of the software. (Joint et al. 2009, Chandrasekaran 2015, p. 83-90)

Cloud computing has multiple benefits compared to conventional IT practices. By moving IT infrastructures to cloud, organisations can receive overall savings on capital and operational costs, as there is no need to invest in hard drives, servers and physical data storage equipment on site. There is also no need for infrastructure maintenance and

monitoring. This leads to savings in total cost of ownership. (Joint et al. 2009) Cloud computing enables faster implementation of new IT software in organisations, as the cloud IT infrastructure is less complex and is pre-integrated to some point as the infrastructure already exists by the cloud provider. (Dhar 2012) Cloud computing free users from being bound to a certain geographical place and time. “Data is no longer stored on one’s personal computer, but are hosted elsewhere to be made accessible in any location and at any time”. (Scale 2009)

Cloud computing uses a revolutionary business model in IT services. Services are delivered on-demand, so the customers pay only for what they use. This is linked to a fundamental benefit of cloud computing, scalability. In cloud computing, computing capacity can be suited to meet the changes in demand very quickly. This enables quick expansion in computing capacity if demand increases (more people using the software) and vice versa. So scalability in cloud computing removes the need for further investments in own data centres, and at the same time organisations don’t face situations where own computing capacity is under-utilized. This increases IT systems agility and efficiency, and promotes asset-free environment. (Durowoju et al. 2011, (Dhar 2012). “For the first time, organisations can realistically consider IT as less of an asset and more as an expense” (Dermirkan et al. 2010)

Cloud computing can be beneficial for SCM in many ways. Cloud computing can lead to increased integration between supply chain members as cloud computing enables data to be integrated internally and externally, and suppliers and customers can access reliable data sources about inventories, production and ordering processes on a real-time basis. (Bruque Cámara et al. 2015)

Cloud computing can be seen as a solution to reduce environmental and inter- organisational uncertainties. Environmental uncertainty arises from many sources, for example from shortage of resources (e.g. disruptions in raw-materials production), political tensions between countries and competition against other organisations. Inter- organisational uncertainty is associated with relationships with other organisations and trading partners. Problems in communications, trust and collaboration increase this uncertainty. Both uncertainties are reduced with effective information sharing. Cloud computing supports many E-SCM tools that are used for communication and information sharing, and possibilities for scaling, rapid deployment and cost savings, makes cloud computing a suitable solution for organisations to base their supply chain IT infrastructure on. (Cegielski et al. 2012)

Improved accuracy and timeliness of data and promoting supply chain partner accessibility to the data can improve supply chain reaction times to market changes and enable better planning i.e. supply chain agility is improved (DeGroote and Marx 2013). As cloud computing can be implemented quickly and scaled to meet user demands, supply chains using cloud computing would be able to respond and adapt to environmental changes faster as “cloud computing help organisations to maintain alignment between ever-evolving supply chain initiatives”, thus contributing to supply chain agility. (Wu et al. 2013) When IT infrastructure is moved to a cloud, this enables the users to access and use a common resource base. Cloud also enables these resources to be utilized not only by the internal users, but external as well. “Thanks to the use of cloud computing, people and organisations are now able to leverage the use of knowledge-generation-related applications both within an organisation’s boundaries and outside them”. (Bruque Cámara et al. 2015)

From all the three different cloud service models, SaaS is the most used model and most studied in overall literature and when it comes to SCM, and “compared with IaaS and PaaS, SaaS might be the only “visible” cloud computing contact for the end user” (Jede et al. 2015). Organisations prefer SaaS because it allows to access multiple applications on a global scale without having to use own resources in IT infrastructure development and management. So deployment is faster and therefore is the payback time. (Dhar 2012) As cloud computing allows better integration of data across the supply chain, SaaS has become the major model for providing E-SCM applications for organisations. (Bruque Cámara et al. 2015)

But still E-SCM software remains to be production and inventory management focused, sharing data only accordance to production schedules and demand planning. Although software is now easier to deploy with lower implementation costs, they lack properties in coordination and communications on the individual level, and in managing “the big picture”, such as projects and strategy formation. A solution for this could be web 2.0.