Low costs and minimal hardware considerations have enticed some of the industry’s biggest suppliers to conduct their business on cloud networks. Malcolm Wheatley looks at how SaaS and cloud technology are transforming financial operations and establishing themselves as collaborative tools in supply chain management.
It should come as no surprise to learn that ArcelorMittal, the world’s largest steel producer, is also the top supplier of steel to the world’s automotive industry. Likewise, German lighting technology and electronics specialist Hella is well known as a major automotive parts supplier, employing 23,000 people in 70 manufacturing facilities around the globe.
But the two businesses have more in common than their position as leading automotive suppliers.
Both, it turns out, are heavy users of the world’s largest cloudbased trading partner integration platform, GXS Trading Grid, which in 2010 managed over ten billion transactions carried out between 400,000 companies.
“No business at Hella could be conducted without EDI,” said Udo Thienelt, manager of integrated applications at Hella in a company release. The company estimates that it exchanges 35,000 EDI transactions each day with customers, suppliers and third party logistics companies–a large and growing proportion of which are carried out through the GXS Trading Grid.
And at ArcelorMittal’s Flat Carbon Europe division, where a significant proportion of output goes to the automotive industry, the reliance on GXS Trading Grid is even greater–100,000 messages each month to and from ArcelorMittal’s different trading partners, equating to its entire messaging traffic.
“Historically, some 40% of our connectivity was achieved via the GXS Trading Grid while 60% depended on point-to-point connections,” explained IT team manager David Toulotte in a press release. “By replacing them with a single pipe between our IT operations and the GXS network, we boost efficiency, allowing us to connect more customers more quickly.”
But look closely at each company’s IT operations and the physical manifestations of this connectivity are minimal and in terms of software systems, effectively zero.
“Users of GXS Trading Grid need not license any software or purchase any server hardware to leverage its extensive suite of B2B integration services,” says Mark Morley, GXS marketing director for the manufacturing industry. “Many customers connect their SAP or Oracle ERP application to GXS Trading Grid directly, enabling seamless integration with their business partner community.”
And, he adds, GXS offers its Trading Grid integration services for a monthly subscription fee that is aligned with the actual usage of the services themselves.
“Companies can choose to pay an up-front implementation fee to reduce their monthly subscription cost or pay nothing up front with a higher monthly recurring fee,” says Morley. “Both fixed fee and usage based monthly pricing are available.”
What’s more, he adds, GXS Trading Grid’s cloud-style architecture enables GXS to dynamically scale its processing capacity as required. Users, in short, have effectively infinite processing capacity, with the ‘virtual server’ that handles their transactions flexing in size as its workload alters.
GXS Trading Grid is software that is sold as a service, rather than sold as a licensed applicatio to be installed on a company’s servers. And, given fresh impetus by the move to cloud computing, it’s a software paradigm that is undeniably gaining traction.
It’s not difficult to see why: Software as a Service (SaaS), it turns out, offers a number of compelling advantages over traditional on-premise applications. And while there are also some disadvantages to contend with, for a growing number of businesses the merits of SaaS increasingly outweigh its drawbacks.
In contrast to the IT investment called for by on-premise software, for instance, the SaaS model typically requires users to pay a fixed monthly fee, based on some mutually acceptable definition of usage, and it then becomes the concern of the SaaS provider to worry about servers, backups and the associated IT plumbing.
At a stroke, on-site software upgrades are eliminated, too: the roll-out of new software takes place on the host server, not the client computer or corporate server. Accordingly, users benefit from the moment the latest version is released–and not when their internal IT administrator gets around to installing it.
And cloud computing stretches the paradigm even further. While precise definitions of cloud computing vary, there’s no arguing about the core logic.
Instead of SaaS-based application vendors hosting their products in their own data centre, they simply hand the data centre side of the business to a third party specialist. With giant server farms and ‘fat pipes’ to the internet or other communications platforms, the economics and reliability of application hosting is transformed–especially for niche players.
If SaaS offers some tempting savings on hardware costs, the savings available on he licensing and software side of things are just as attractive–both from a cost perspective and a cash-flow perspective as well.
DPS International, for instance, offers its Logix vehicle route-planning and scheduling software in both SaaS and on-premise forms.
“The on-premise version of our software costs around £20,000 ($32,600) for a typical installation,” says DPS managing director Paul Palmer. “Go to your finance director for that and he might not like it. Go to him for the equivalent SaaS version–at a cost of £400 per month per user–and it’s a different proposition.” SaaS versions, he adds, now form 90% of sales–up from virtually nothing four years ago.
The combination of a low monthly cost and minimal hardware considerations is changing how companies contemplate the use of software applications, too.
Increasingly, lengthy pre-acquisition software evaluations are becoming a thing of the past; in short, there’s nothing to stop a company trying a SaaS application for a few months, to see if it suits their needs, then stopping if it doesn’t. Instead of the hefty licence fee involved in acquiring software, the only tangible cost will have been the monthly subscriptions while the software was in use.
No wonder, then, that a growing number of businesses see a good match between SaaS and their requirements. Jaguar Land Rover, for instance, is a user of one of the most well-known SaaS application there is–Google Apps, a cloud-based substitute for Microsoft’s familiar office productivity tools such as e-mail, spreadsheets, contact managers, word-processing and the like.
“We switched our entire global organisation of over 15,000 users to Gmail, Calendar and Contacts in one weekend in December 2009, as we separated from our former parent company Ford,” said Jaguar Land Rover’s chief information officer Jeremy Vincent in a company release. “Now, we have a truly enterprise-wide common critical business application which is delivering benefits continuously–especially as we turn on more Google applications.”
Clearly, though, there are downsides to SaaS. Data security, for one thing: with SaaS, a business’s data, like its applications, is hosted off-site. Not surprisingly, companies might be nervous about entrusting valuable data to the care of third parties– especially third parties at one remove, in the case of the cloud.
“The automotive industry has a huge concern over security and most IT executives have firm views about keeping data inside the firewall, on servers they themselves control,” argues Steve Jones, managing director of Vehnet, a vendor of automotive yard management systems.
Breaks in connectivity, too, are a concern; lose your connection to your applications and business grinds to a halt. And slow connections can be just as problematic. Indeed, it’s for just that reason, says Michael Mulligan, director of automotive solutions at real-time RFID-based location technology specialist Zebra Technologies Corporation, that Zebra’s customers are displaying no interest in a SaaS-based version of its software.
“We’ve talked to our customers quite openly about this, because our software will support SaaS, and they’ve told us that they prefer to run our application inside their plants, due to real-time speed and accuracy requirements,” he says.
What’s more, a SaaS subscription model can turn out to be a double-edged sword, as well. Over a long enough period, in short, ‘renting’ may turn out to be more expensive than buying.
Even so, spreadsheets and word-processing are one thing but the business-critical heavy lifting undertaken by enterprise applications quite another. Can an unconventional business model such as SaaS make the transition–especially given the automotive industry’s famed innate conservatism?
Perhaps surprisingly, the answer appears to be ‘yes’. Take, for instance, America’s Plex Systems, a vendor of a SaaS-based ERP system, Plex Online. Used by a number of automotive component manufacturers, the product has many automotivespecific features–TS-16949 compliance, integrated EDI and AIAG-compliant labelling and extensive support for lean manufacturing practices including electronic kanban scheduling, electronic pull, automatic replenishment and hiejunka load levelling.
“SaaS has turned a corner,” says Plex president and CEO Mark Symonds. “And specifically in a supply chain context, we’re seeing a lot of interest and uptake of in our lean replenishment and labelling capabilities.”
Indeed, viewed from the context of supply chain management and logistics, it turns out that the very things that some would cite as SaaS weaknesses turn out to be positive attractions. Put simply, as with the telephone exchange, connectivity is easier when multiple parties connect to a single point, rather than each party attempting to connect with every other party on their own.
“SaaS–and to a lesser extent, the cloud–would appear to be an ideal means of promoting collaboration in automotive supply, as they both potentially serve to connect multiple partners in time-sensitive environments, providing visibility both across enterprises and vertically with suppliers,” points out Germanbased international business adviser Dr Bruce Arlinghaus.
Nor do the much-vaunted downsides of SaaS bear much scrutiny, adds Julie Fraser, principal industry analyst at analyst firm Cambashi.
“Some companies–especially mid-size ones–are actually realising that having a hosted SaaS service is more reliable and more secure than what is achievable with their own IT staff,” she says. “While everybody talks about the downtime and security risks, the reality is that these can be just as great–if not greater–internally. So as a result, especially in instances where organisations are collaborating, we think that SaaS is the way the world is going.”
Jim LeTart, vice-president of marketing at inventory and transport optimisation vendor RedPrairie, says the power of SaaS is its ability to make supply chain visibility much easier than through any other computing paradigm.
“A company with multiple plants and suppliers must know when and from which suppliers and plants their raw materials will be coming and for traceability and potential recall purposes, they have to track these raw materials across their network and into the finished goods that they make,” he observes.
“Now, let’s move this scenario to the cloud. “What if all of this company’s raw materials and other suppliers, contract manufacturers and other partners could easily enter inventory information through a private cloud portal hosted by the company or a third party hosting service? Suddenly, all the information that the company needs for traceability and fulfilment is at their fingertips.”
Hence, of course, the attractions of ready-built SaaS platforms such as GXS Trading Grid, points out GXS’ Morley, adding that it connects 95% of the automotive companies in the Fortune 500, 75% of the top 20 automotive OEMs, and 81% of the top 100 global automotive suppliers–as well as being connected to numerous private automotive networks around the world including ANX (Automotive Network Exchange) in North America, ENX (European Network Exchange) and JNX (Japanese Network Exchange).
What’s more, a move to SaaS may even fill a growing strategic gap in automotive supply chain management, reckons Michael Tickle, a principal at specialist supply chain and logistics consultancy LCP Consulting.
“Inbound logistics has been very successfully optimised over the past few years, thanks to extensive outsourcing,” he notes. “Automotive manufacturers still need control and visibility, but the in-depth knowledge and experience necessary to manage automotive supply chains now resides in the service providers. Easy-to-access SaaS applications help them to achieve that control and visibility in a cost-effective manner.”
And certainly, it’s not difficult to find vendors of SaaS-based logistics and supply chain applications who can point to a growing uptake of their wares among automotive users.
Stacy Kannawin, vice-president of sales for Europe at LeanLogistics, an industry leader in SaaS-based technology transportation management systems, says: “We’ve always been a SaaS solution–right from 1999.” And the market has changed significantly since then, she stresses.
“Back then, 90% of the questions from our prospective customers were IT-related; ‘failover’, redundancy and our data centre. Now, there’s been a complete flip-flop: 90% of the questions are transportation-related and concerned with the benefits that we can offer them. We’ve moved from talking to early adopters to being mainstream.”
And for the UK’s Car Delivery Network, a finished vehicle transport platform that connects vehicle owners such as fleet managers with transporter companies looking for loads, SaaS’ easy connectivity is very largely what makes the service work, says managing director Wayne Pollock.
“We’re totally SaaS,” he says. “From the user’s point of view, it’s fast, it’s low-cost and there’s much less risk. It really is ‘turn-onand- use’ software that delivers standardised processes and best practice.”
And a similar message comes from Richard Barker, managing director of Sovereign Business Integration, which offers its Event Management Logistics product as an all-encompassing IT solution to manage the finished vehicle supply chain. SaaS, he argues, is a ‘win-win’ solution for both user and provider.
“We’ve never offered an ‘on-premise’ solution,” he says. “We didn’t want to be a software house, we wanted to be a service provider. Supporting multiple versions of systems is a chore: if you offer the capability as a service, you’re supporting just one version and it cuts your costs considerably. It’s a lower-cost model for the user and a lower-cost model for the provider.”
And interest, he adds, is high. “We’ve got more proposals out there than we’ve ever had–and we’re being contacted by unprecedented numbers of companies.”
Likewise, at vehicle supply chain planning and execution specialist ProAct International, chairman Garth Parker enthuses that “the whole of our technology is SaaS-based—although we don’t host it ourselves.”
Instead, he explains, ProAct sells its customers–who are largely logistics service providers such as ocean transport and terminal management specialist Wallenius Wilhelmsen Logistics–SaaS-based software suites for them to host in their own data centres, connecting their customers, suppliers and internal operations together.
“The beauty of SaaS is that it’s very easy to implement,” he says. “All you need is a web browser and you can get people on board very quickly. It’s not just the users who benefit: it’s easier for us to support and maintain the software, too.”
No wonder, then, that automotive supply chain and logistics software specialists who currently have a zero or very limited SaaS portfolio are contemplating embracing SaaS.
Germany’s Inform, for instance, currently offers just a truck appointment system and an inventory management system on a SaaS basis, explains Matthias Berlit, vice-president of manufacturing logistics. But customer interest is increasing, he notes, and it’s likely that a SaaS-based compound management system will follow.
“We have 15 SaaS customers now and only began offering SaaS nine months ago,” he says. “And although nearly threequarters of them are on our inventory management product, that was also the first SaaS product we launched.”
Even yard management specialist Vehnet–which openly cites automotive users’ concerns over data security as a barrier to be overcome–now has SaaS in its sights.
“SaaS is going to happen, although slowly,” says Vehnet’s Jones. “It’s definitely on our technology roadmap.”