21 May 2014 10:44 [Source: ICB]
Only a few years ago cloud computing was regarded in many business sectors as a technological fad which would soon pass and be forgotten. Instead its appeal has strengthened so much that its application is likely to become widespread in the chemical industry and other sectors.
“While cloud computing take-up has been relatively slow in the chemicals industry, a growing number of chemical companies are coming to appreciate and exploit the cloud’s potential,” says management consultancy Accenture in a recent report on cloud systems in chemicals. “As a result, cloud adoption in the industry is both accelerating and moving up the IT stack,” it adds.
AlamyThe cloud enhances supply chain communication
Increasingly, however, it is also seen in the longer term as a mean of integrating supply chains. For distributors a switch to the cloud is not only necessary to remain cost competitive in the IT area but also to be able to join a move to greater collaboration and partnership, in particular with chemical producers but also customers.
In recent years the global growth in chemicals distribution has been higher than that for the chemicals sector as a whole. Over the period 2008-2012, the chemicals distribution market increased by 9%/year on average, while chemicals consumption went up by 8%/year, according to a report last year by The Boston Consulting Group (BCG).
This faster growth was mainly achieved by distributors keeping down costs and by the offer of value-added services. BCG forecasts that over the five years from 2013 distribution growth is likely to continue to remain ahead of that of chemicals demand for the same reasons.
The main value-added services cited in the report include packaging, formulating, customs handling and vendor-managed inventories. But there are some trends which could require expanded IT services, in areas like customer relations, product stewardship and data management. The report quotes one regional distributor in Europe as commenting: “Our suppliers ask us to give more accurate and up-to-date revenue forecasts than a few years ago.”
FLEXIBILITY AND LOW COST
Upgraded IT capabilities are likely to put distributors in a stronger position to tackle an increasingly complex market both in the developed world but also particularly in emerging economies. “Cloud computing has many benefits for chemicals distribution,” explains Jean-Bernard Moens, principal at McKinsey Solutions, part of McKinsey & Co, the management consultancy. “Cloud has the flexibility to deal at a relatively low cost with the highly fragmented chemicals market which is generating large amounts of data.”
McKinsey is among a growing number of management consultancies and IT specialists offering cloud services which they set up and manage themselves for customers. “As a service supplier we provide all the hardware and software and run everything on behalf of the client,” says Moens. “We develop software ourselves so that it can be configured to meet specific needs. It’s simple. A company signs up for a subscription. Their staff open their browsers and have immediate access to the whole system.”
Cloud computing effectively puts parts of a company’s IT operations – or even all of them if it wants – on to the internet where the hardware and software is rented rather than purchased.
“Instead of IT being part of a company’s capex, it’s part of opex, or operational expenditure, which helps cash flow,” says Moens. “With cloud systems you pay only for what you need, while if you purchase hardware and software there could be large sections of it which you don’t require.”
Cloud computing usually has four different models. There are private clouds restricted to the computing activities of a single company, which can be owned or run by the company or by a third party. But most clouds are public so that although owned and operated by a third party they are accessible to anyone paying a subscription.
Then there are hybrid clouds, which merge public and private clouds, and community clouds, bringing together companies with similar needs.
Clouds provide different levels of computing from basic to highly sophisticated services. These include infrastructure with provision, for example, of servers; platforms which enables the user to develop tailored in-house applications; software with access to newly developed applications made available by the cloud operator; and networks linking, for example, data sources and business process centres.
In addition to the lower costs, cloud computing is considered by IT experts to be gaining a growing number of other advantages compared with in-house systems.
One of the biggest of these is extra and cheap storage capacity, not only for day-to-day purposes but as a backup facility. Some users have complained about incidents when their cloud provider has run out of storage room but this should be put right by the provider himself quickly renting more capacity.
Another major benefit is scalability, so that when a user needs additional processing or other capacity for specific tasks it is immediately available. New cloud systems can be operational and accessible within a short time while software integration takes place automatically.
SUITABLE FOR LARGE AND SMALL
Mobility is another convenience. Cloud infrastructures are accessible from virtually any location by any electronic means, such as smart phones and tablets.
The cloud is also suitable for any sized business. “SMEs are mistaken in thinking that it’s not for them and is something only for big businesses,” says Moens. “Even one-man operations can benefit from it because it is so cheap and flexible.”
Nonetheless, even large companies are taking a step-by-step approach to cloud with few moving large proportions of their computing operations to the system. A major reason for this is that they have large amounts of in-house installed IT capacity which they do not yet want to write off.
Most companies have started by transferring to cloud basic activities like document management, emails and storage and then tasks like invoices and procurement.
For distributors cloud would be appropriate for more complex areas like customer relations and analysis of purchasing and pricing data for which they may need the expertise of management consultancies like McKinsey.
Product stewardship and compliance is another field suitable for cloud applications which could be used by distributors. The software company SAP has set up a cloud-based Product Stewardship Network (PSN) which confirms Reach compliance of chemicals. “Our PSN is aimed at companies which would like to drive supply chain management in order to avoid risks and to comply with the ever-changing regulations on product production and origin,” says Randolf Hager, product compliance manager at SAP.
Despite its many advantages, companies in the chemicals and other sectors are still being circumspect about cloud computing because it is seen as having major disadvantages. The biggest of these, which has been hanging over the concept since its inception, is a perceived lack of security and privacy.
Cloud operators have been able to improve security by the development of tools like encryption or other means for restricting parts of their systems only to authorised parties. “Hacking attacks can happen to any computing system whether it is on cloud or on company premises,” says Moens. “Hacking with the objective of obtaining specific information is actually more difficult on cloud because the intruder would have to find ways of picking out specific hard drives out of millions of them.”
Another fear is the occurrence of a major dysfunction either within the cloud systems itself or on a part of the internet which could leave companies without crucial computing operations for several hours or even much longer.
Perhaps in the longer term the greatest concern is about companies losing control of a vital part of their operations. Effectively choice of IT technologies and their developments, particularly for special corporate needs, is taken out of their hands.
Nonetheless, chemical distributors may have to sacrifice management power over computing technology in order to remain competitive and even to stay within specific markets.
Some cloud experts believe that the full long-term benefits of the system lie in its potential for creating highly integrated supply chains. Within these distributors would have a key role but possibly with less independence of action than at the moment.
Accenture has a vision of cloud-based supply-chain collaboration in sectors like chemicals creating chains “with greater visibility, speed and agility than ever before (with the ability) to react rapidly to customers’ demands and respond resiliently to unexpected disruptions.”
But the management consultancy warns that if chemical companies do not seize these opportunities by exploiting through cloud the value of “Big Data” along their value chains they may find themselves at “a growing commercial and competitive disadvantage”.
However, it points out that there would need to be someone in charge of the chain. This could be done through a “control tower” approach providing “integrated, centralised oversight and co-ordination of the various components of the supply chain, including outsourcing partners.”
Cloud computing could be taking the chemicals sector into new managerial territories which could result in radical changes in strategies among its distributors.
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