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Journal of Management Research
ISSN 1941-899X
2016, Vol. 8, No. 4
www.macrothink.org/jmr
145
The Prospects of Cloud Computing in Supply Chain
Management
(A Theoretical Perspective)
Bahjat E. Al-jawazneh
Department of Business Administration
Faculty of Business & Finance Al-albayt University, Mafraq, Jordan
Tel: 96-25-938-745 E-mail: dr.jawazneh@gmail.com
Received: Sep 7, 2016 Accepted: Oct. 13, 2016 Published: October 13, 2016
doi:10.5296/jmr.v8i4.9998 URL: http://dx.doi.org/10.5296/jmr.v8i4.9998
Abstract
Today’s world organizations are searching for ways to minimize the cost and maximize the
efficiency of each cycle of their supply chain, such as procurement, manufacturing, and
distribution, particularly for those that handle multiple supply chains. Cloud computing
technology emerges as an effective tool that, according to some researches, contributes to
firms’ effectiveness and competiveness by providing the right infrastructure and business
solutions for the entire supply chain via the Internet.
This study aims to shed more light on the prospects of cloud computing in supply chain
management. More specifically, with focus on cloud computing’s suitability and benefits by
offering a thorough review and analysis to previous and current research, including all types
of published materials that lead to an adequate answer for the main research problem, as
follows:
What are the prospects and benefits of cloud computing technology in the supply chain of
business organizations?
This research method relies solely on secondary data, such as research papers, reference
materials, conference proceedings, and all types of reliable data that serve the purpose of this
paper.
The major conclusion of this study is that; Organizations that work in a more turbulent
environment are the ones that feel the effect of the cloud computing technology on their
supply chain performance compared to those that work in a more stable business environment.
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Therefore, the degree of importance of cloud computing adoption varies from one sector to
another, therefore, cloud computing—if adopted properly—can improve the supply chain
performance in terms of cost, quality, speed, and flexibility.
Keywords: cloud computing, supply chain management, supply chain collaboration,
information sharing
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1. Introduction
In light of today’s technological turmoil, organizations are trying shift to new business
models, changing their strategic plans and reorganizing their structures to be able to survive
and continue to offer products and services to consumers.
On the other hand, the shift of organizational strategic orientations from competition to
collaboration forced companies to look in to new ways in managing their operations, which
calls for a strong connection among three major production activities: procurement,
manufacturing, and distribution, paving the way to a new management concept known as the
supply chain management (SCM).
One of the major developments in the information and communications technology that may
contribute to the efficiency and effectiveness of the SCM is the evolution of the concept of
cloud computing which is a kind of Internet-based computing that offers shared processing
solutions, resources, and data to computers and other devices on demand (Hassan, 2011). It is
an IT service model where computing services that include both hardware and software are
delivered on-demand to customers over a self-service fashion, independent of device and
location (Marston et al., 2011). Therefore, having local servers or personal devices to
handle applications are no longer needed.
The technology of cloud computing is still somewhat surrounded by ambiguity and
uncertainty in terms of how useful and effective it is for business organizations that have
already adopted it or are still undecided. Thus, this paper tries to offer a theoretical review on
that matter.
2. Statement of the Problem
Businesses across the globe are always looking for ways to cut down on cost and at the same
time maximize the efficiency of each cycle in a supply chain. Businesses that handle multiple
supply chains in particular are eager to find ways of achieving maximum efficiency at
minimum cost. By providing the right infrastructure and business solutions for a company’s
entire supply chain via the Internet, cloud computing is beginning to be credited for firms’
effectiveness and competitiveness.
Casey et al. (2012) stressed that the concept of cloud-based SCM is still new, and theoretical
frameworks are still in its infancy stage. Hence, one way of adding extra knowledge and
understanding of cloud computing and its relationship with the SCM is to enrich the theory
through qualitative approach, such as grounded theory.
Despite recent studies, there still exists a significant hole regarding the level of usefulness
and success of cloud computing as utilized in a supply chain. A number of questions still
remain, which prompts this paper’s research into the prospects of cloud computing in
application to SCM, with regard to cloud computing’s suitability and benefits. This research
is powered by an offering of literature review and an analysis of both past and present studies,
including all types of published materials that should lead to an acceptable answer for the
main research problem:
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What are the prospects and benefits of the cloud computing technology in the supply chain of
business organizations?
3. Research Significance
Cloud computing is a technology that is in need for more studies as it is still relatively new.
Additional research into this system can only contribute to its growth and development, thus
enabling supply chains to benefit from the knowledge and understanding gained.
Furthermore, many organizations are still in doubt regarding the gains and risks associated
with adopting cloud computing, and are still waiting for the science and the practice to prove
its use and reliability. Hence, the researcher hopes this study can arrive at a convincing
answer for business organizations all over.
The researcher’s interest lies in exploring topics related to the supply chain development and
optimization, particularly at this point in time when competition is based on cost, speed,
flexibility, and delivery, and not just end result results alone.
4. Research Methodology
This research relies solely on secondary data, such as research papers, reference materials,
conference proceedings, including all types of reliable data that serve the purpose of this
paper. Therefore, this paper consists of an introduction, a brief overview on the concept of
SCM and cloud computing, the relationship between cloud computing and the supply chain
performance, the results discussion, conclusions, and recommendations.
5. Literature Review
5.1 The concept of cloud computing
Computing services are getting to be commoditized in a nature similar to ones currently being
supplied in the same manner such as water, electricity, and communications services. Users
can have access to such service according to their computing needs, regardless of where the
services are hosted or how they are delivered. Several computing models have promised to
deliver this utility computing vision, and these include Cluster Computing, Grid Computing,
and more recently, Cloud Computing (Buyya, et al., 2009). Internet service providers (ISPs)
came up with the idea of cloud computing in order to support the maximum number of users
and elastic service with minimum resource (Qian, et al., 2009).
Cloud computing began to gain popularity in 2007 as a resource optimization tool that
provides services to geographically separated clients on demand (Etro, 2011; Ruan, Baggili,
Carthy, and Kechadi, 2011). According to Armburst et al. (2010), cloud computing may also
be referred to as follows:
“refers to both the applications delivered as services over the Internet and the hardware and
systems software in the datacenters that provide those services, when a Cloud is made
available in a pay-as-you-go manner to the general public, we call it a Public Cloud; the
service being sold is Utility Computing. We use the term Private Cloud to refer to internal
datacenters of a business or other organization, not made available to the general public”
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(Armburst, et al., 2010).
Therefore, according to Foster et al. (2008), cloud computing or grid computing can be seen
as a specialized, distributed computer paradigm that is different from the traditional ones
because of its ability to be distributed massively, and perform under an increased or
expanding workload. It is able to offer a wide variety of services that can meet different
clients’ needs, and it is driven by the economy of scale (Foster et al., 2008).
Cloud computing is getting to be a key strategy for information technology vendors, Internet
service providers (ISP), and telecommunications service providers. Even further, the United
States of America and Japan have made cloud computing a national strategy and a concern
(Qian, et al., 2009).
Taking into consideration the business model (Figure 1) of cloud computing, said technology
offers services that can be divided into three types: software as a service (SaaS), platform as a
service (PaaS), and infrastructure as a service (IaaS) (Zhang, et al., 2010).
Figure 1. Business model of cloud computing
1. Infrastructure as a Service: IaaS refers to on-demand provisioning of infrastructural
resources, usually in terms of virtual machines or VMs. The cloud owner who offers IaaS is
called an IaaS provider. Examples of IaaS providers include Amazon EC2, Go Grid, and
Flexiscale.
2. Platform as a Service: PaaS refers to providing platform layer resources, such as
operating system support and software development frameworks. An example of a PaaS
provider is the Google App Engine.
3. Software as a Service: SaaS refers to providing on-demand applications over the
Internet. Examples of SaaS providers include Salesforce.com, Rackspace, and SAP Business
By Design.
5.2 The concept of the supply chain management
As a term, “supply chain management” (SCM) was coined during the early 1980s. Later,
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SCM became a very popular term and concept, as well as an attractive topic for researchers.
Such is the case to the extent that it is quite impossible to see a journal on manufacturing,
operations, marketing, customer management, inventory management, and others more
without seeing a research paper about SCM and topics related to it. SCM represents a
paradigm shift that extends one’s appreciation for the concepts of cooperation and
competition. Cooperation is no longer seen as a process between one set of trading partners
but along the entire supply chain (Spekman, et al., 2008).
Stock and Boyer (2009) view SCM as
“The management of a network of relationships within a firm and between interdependent
organizations and business units consisting of material suppliers, purchasing, production
facilities, logistics, marketing, and related systems that facilitate the forward and reverse flow
of materials, services, finances and information from the original producer to final customer
with the benefits of adding value, maximizing profitability through efficiencies, and
achieving customer satisfaction” (p. 706).
A supply chain is a network of organizations that are involved, through upstream and
downstream linkages, in the different processes and activities that produce value in the form
of products and services delivered to the ultimate consumer (Christopher, 1992). SCM, on the
other hand, is “an integrative philosophy to manage the total flow of a distribution channel
from supplier to the ultimate user” (Cooper et al. 1997). SCM concept enforces the system’s
approach by viewing the organization and its partners as a system with different parts that
must work together in a collaborative manner in order to reach the organization strategic
goals (Ellram and Cooper, 1990).
Figure 2. A company’s supply chain source (Chen and Paulraj, 2004)
Mentzet et al. (2001) identified three levels of supply chain: a direct supply chain, an
extended supply chain, and an ultimate supply chain. A direct supply chain is made up of a
company, a supplier, and a customer having a part in the upstream and or downstream flows
of products, services, finances, and /or information. An extended supply chain consists of
suppliers of the direct supplier and customers of the direct customer, all actively participating
in the upstream and/or downstream movements of products, services, finances, and/or
information. An ultimate supply chain contains all the organizations participating in all the
upstream and downstream flows of products, services, finances, and information from the
ultimate supplier to the ultimate customer.
Naturally, another reason for the increased interest is the potential benefits of SCM. Benefits
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include improvement in returns on investments (ROI) and returns on assets (ROA).
“Ultimately, the goal of SCM is to achieve greater profitability by adding value and creating
efficiencies, thereby increasing customer satisfaction” (Stock and Boyer 2009, p. 703).
Ideally, improvement of the supply chain translates to how the SCM is gaining popularity due
to the perceived benefits that organizations can get as a result of SCM adoption, such as
improvement in ROIs and ROAs. In the end, the purpose of SCM is to increase profit by
adding value and maximizing efficiency, which would lead to a higher level of customer
satisfaction (Stock and Boyer 2009, p.703). Other benefits may include decrease in cost due
to the reduction of redundancies, lower level of inventory, shorter lead time, and less
uncertainty in demand, (Fisher 1997; Lambert et al., 2005; Lee et al., 1997).
To sum it up, the SCM is no longer considered a new concept, but a concept that requires
continuous development and improvement to maintain its validity and suitability for the
current production and manufacturing trends. Therefore, the evolution of cloud computing
can be treated as a new method for improving SCM.
5.3 The supply chain management (SCM) and cloud computing
IBM conducted a study which revealed that the use of cloud computing will more than
double until 2014. The very same research also found that many companies are considering
the adoption of cloud computing, and that some have already piloted and implemented the
technology (Berman et al., 2012). Cloud services bring flexibility, configurability, cost
effectiveness, low implementation cost to IT, and— by extension—SCM.
The Internet and web technologies can support the entire supply chain’s operations.
Internet-based supply chain operations are fast and inexpensive. Moreover, customers can
instantly check the status of their orders by simply clicking their computer mouse. Corporate
executives and managers can conduct real-time access to firm’s inventory level, and so can
their suppliers and distributors (Chou et al., 2004).
Cloud computing is a new and promising paradigm delivering IT services as computing
utilities. As Clouds are designed to provide services to external users, providers need to be
compensated for sharing their resources and capabilities (Buya et al., 2009). The synergy
gained through shared expertise and resources and the business advantages (i.e. lower product
costs, reduced time to market, improved quality, advanced technology, or improved
service/delivery) gained from the relationships among organizations have prioritized the
management of relationships (Daugherty, 2011).
Cloud computing technology carries with it flexibility, cost efficiency and effectiveness, and
configurability, which, if adopted by organizations, can lead to better supply chain
performance (Durowoju et al., 2011). McCrea (2012) conducted a study on supply chain
technology, specifically cloud computing breakthroughs:
• the adoption of cloud computing rates are highest in areas of collaborative sourcing and
procurement, demand planning, global trade management, and transportation management
systems; and
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• cloud computing will lead to new forms of collaboration that cannot be developed with
traditional solutions in traditional architecture
Therefore, different business processes can be performed and managed efficiently when
applying said technology (McCrea, 2012).
Cloud computing is becoming an opportunity for small organizations to share the same
services as larger firms. This opportunity includes the benefits of being able to openly interact
and manage processes outside the organization, which results in the reduction of the cost of
ownership of supply chain collaboration (Aviles, 2015). To reach the expected success, cloud
computing requires the mediating support of supply chain integration. However, there is no
concluding evidence that cloud computing has a positive effect on either supply chain
integration or operational performance. A positive significant relationship was found between
supply chain integration and operational performance in all of the models used (Camara et al.,
2015).
The Internet enhances SCM’s performance, which is an essential part of e-Commerce. As the
SCM evolves in the information age, the network supports coordination among business
partners to ensure all information, transactions, and decisions flow through the network. As a
successful SCM model, Dell Computers has established competitive advantages with the
advancement of the networked economy (Chou et al., 2004).
Of organizations that currently use cloud-based solutions, the benefit mentioned most
frequently is that it can be rapidly deployed and upgraded, as indicated by 50% of all
organizations. However, the second most common benefit of cloud is that it reduces the risk
of IT disruptions from external factors such as natural disasters.
This is increasingly becoming recognized as a major benefit of cloud-based solutions,
particularly given the impact on business operations of natural disasters, and the ability of
cloud-based solutions to reduce this risk (Frost and Sullivan, 2012). Further details are shown
in the table below:
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Table 1. Benefits of SaaS cloud solutions versus on-premises solutions
Can be rapidly deployed and upgraded 50%
Reduced risk of IT disruptions from external factors such as natural disasters 45%
Enables accessibility via mobile devices (smartphone, tablet) 42%
Can easily set up multiple subsidiaries in different locations and currencies 40%
Seamless integration with in-house infrastructure 38%
Can more easily keep up with regulatory changes 37%
More predictable monthly expenditure 31%
Enables better support of a decentralized business spanning multiple locations 30%
Can reallocate IT budget from maintenance to enable innovation 29%
Single integrated suite, doing away with the need to integrate disparate systems 28%
Enables better collaboration with suppliers, customers, and channels 24%
Source: Frost & Sullivan, APAC survey of 167 companies, in Logistics, Distribution and Manufacturing
verticals
Schniederjans and Özpolat (2013) conducted a study on an empirical examination of cloud
computing in humanitarian logistics and found a positive association between cloud
computing use and collaboration among humanitarian organizations and their suppliers, as
well as the ultimate positive impact on agility. Cloud computing offers its users massive
scalable services and pricing options that allow humanitarian organizations to scale according
to their own needs, as well as the needs of their supply chain’s partners (Marston et al., 2011).
Humanitarian supply chains often require the use of several transport modes, as well as the
involvement of several government and independent non-governmental organizations
(Oloruntoba and Gray, 2006).
Research by Gartner predicts that the total public cloud services’ market size will expand to
$206.6 billion by 2016. The assertion is that the adoption rates are highest in the areas of
collaborative sourcing and procurement, demand planning, Global Trade Management
(GTM), and transportation management systems. As manifested by that big investment in
cloud services, we may conclude that companies are already convinced with the benefits
attained by the implementation of cloud computing in their operations (Srivastava, 2012).
Cloud-based procurement enables companies to manage different suppliers in one integrated
database, and provides tracking in forward and reverse logistics in one closed-loop supply
chain model (Aivazidou et al., 2012). Enterprises that fail to integrate the capabilities of
business partners and exploit the new functionalities and favorable economies of cloud
services risk competitive disadvantage (Stamas, 2013).
We also found that all of the cases implied that cloud computing greatly enhanced
information sharing among supply chain partners. Cloud computing provided firms the ability
to share information internally and externally throughout their companies and supply chains.
That being said, it was only through the alignment with the business strategy that cloud
computing provided a basis for secure, efficient, and effective information sharing. Moreover,
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the positive impact that cloud computing has on information sharing ultimately leads to
greater supply chain performance. Various researches have outlined that, although security is
important in the use of cloud computing technology, measures to address these issues are
being taken, including private cloud use (Cao et al., 2012).
Lindner et al. (2010) reported a comparison of cloud supply chain concepts that counters
those of the traditional supply chain concepts.
• Supply demand at the lowest level of costs and respond quickly to demand.
• Create modularity to allow individual setting while maximizing the performance of
services at the same time.
• Lower margins, as high competition on comparable products.
• High utilization while flexible reaction on demand.
• Optimization of buyer for unpredicted demand and best utilization.
• Strong service level agreement (SLA) for ad hoc provision.
• Select on complex optimum speed, cost, and flexibility.
• Implement highly responsive and low-cost modes.
The real-time demand of information and inventory visibility problem in demand
management (DeM) and distribution management (DiM will be resolved by having cloud
computing. Real-time information travels immediately backwards by cloud and inventory
flows swiftly forward. Most importantly, goods and services are delivered quickly and
reliably when and where they are needed. Therefore, the more integrated the flow of data
between customers and suppliers are, the easier it becomes to balance supply and demand
across the entire network. Eventually, it reduces lead time and helps in defeating the bullwhip
effect in the industry and contributes to higher performance in supply chain (Ali, 2012).
Organizations using cloud computing showed significant differences in their collaborative
relationships, in trust, and in terms of communication. The results showed remarkable result
for large organizations using cloud computing in the association between collaborative
relationships and relational outcomes. According to the aforementioned result, logistics
managers from large organizations perceived that organizations using cloud computing were
generating higher relational outcomes (Aviles, 2015).
6. Summary of Literature Review
1. Researchers such as Berman et al. (2012) agreed on the ability of cloud computing to bring
flexibility, configurability, cost effectiveness, low implementation to SCM, and its ability to
make Internet-based supply chain operations fast and inexpensive.
2. Synergy can also be gained through shared expertise and resources and business
advantages such as lower product costs, reduced time to market, improved quality, and
improved service/delivery (Daugherty, 2011).
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3. The synergy can lead to new forms of collaboration that cannot be developed with
traditional solutions in traditional architecture. Therefore, different business processes can be
performed and managed efficiently when applying this technology (McCrea, 2012).
4. Another significant relationship was found between supply chain integration and
operational performance in all the models used (Camara et al., 2015), which may be due to
the reason that cloud services’ corporate executives and managers can conduct real-time
access to firm’s inventory level, and so do their suppliers and distributors (Chou et al., 2004).
5. Cloud computing has been considered as an opportunity for small organizations to share
the same services as larger firms, as well as share in the benefits garnered from their ability to
openly interact and manage processes outside the organization. At the same time, this also
allows organizations to reduce the cost of ownership of supply chain collaboration (Aviles,
2015).
6. Another benefit mentioned most frequently is that it can be rapidly deployed and upgraded,
thus reducing the risk of IT disruptions from external factors such as natural disasters (Frost
and Sullivan, 2012).
7. Cloud-based procurement enables companies to manage different suppliers in one
integrated database. It provides tracking in forward and reverse logistics in one closed-loop
supply chain model (Aivazidou et al., 2012).
8. It provided firms the ability to share information internally and externally throughout their
companies. For supply chains, the positive impact that cloud computing has on information
sharing ultimately leads to greater supply chain performance (Cao et al., 2012). Therefore, the
more integrated the flow of data between customers and suppliers, the easier it becomes to
balance supply and demand across the entire network (Ali Sayed, 2012).
9. Gartner predicts that the total public cloud services’ market size will expand to $206.6
billion by 2016. He asserts that adoption rates of the technology are highest in the areas of
collaborative sourcing and procurement, and demand planning (Srivastava, 2012).
7. Conclusion
The previous literature review made it clear that cloud computing implementation is not just a
strategic option, but also a great opportunity for business firms to excel at all aspects of their
operations. As a matter of fact, what was once considered as a tool that consumes much in
terms of money, effort, and time, apparently is already available and for a very low cost.
The reasons behind the convergence of collaboration between competing companies, rather
than stiff competition, can be traced to the cloud computing technology capability in making
sharing of information and resources a lot easier compared to decades ago.
The shift in the industries structure from fragmentation to consolidation is what previous
literature indicates, and that is because business firms which work at the same industrial or
service sector can unify their sources to reap the benefit of the economy of scale, increase the
quality of their purchased materials, and have a high negotiating power.
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Organizations that work in a more turbulent environment are the ones that feel the effect of
the cloud computing technology on their supply chain performance compared to those that
work in a more stable business environment. Therefore, the degree of importance of cloud
computing adoption varies from one sector to another.
To sum it all up, cloud computing—if adopted properly—can improve the supply chain
performance in terms of cost, quality, speed, and flexibility.
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