TECH BRIEF CLOUD-BASED SUPPLY CHAIN
Cloud-Based Supply Chain Technology
vs. Traditional On-Premise
Five key reasons that give the cloud a distinct edge
Supply chains are inherently collaborative activities involving
multiple participants whose actions must be synchronized
to deliver maximum business performance. It makes sense
that a community where those parties are already present
and connected will be a superior solution framework than an
isolated, inward looking enterprise-centric architecture.
This short brief gives five specific reasons why supply chain
solutions delivered as a cloud platform service over the web
will outperform their on-premise alternative.
1. TIME AND RESPONSIVENESS
On-premise solutions artificially segment into buckets and
cycles what is in reality a continuous process. The artificial
batch “wait” time between a triggering event and a solution
response that is inherent in standalone systems leads to both
avoidable service failures and unnecessary inventory buildup.
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For example: A cloud platform-based model can detect in
real-time and selectively direct that add Item1 (displacing
filler Item2) be added to the truckload about to depart
and thus avoid either missing the sale or pushing another
complete truckload to the destination.
2. SHARED VIEW OF THE TRUTH
On-premise solutions have an internal perspective on supply
chain events. For example, a buyer’s OMS may have one
view of expected receipts; the supplier’s OMS an adjusted
view of what actually can be delivered. During the interval at
which those perspectives are not “synced”, the replenishment
process may iterate (and make poor decisions) for a couple of
cycles until the data variance is flushed. Cloud platform-based
solutions by design maintain a single version of the truth for
all parties.
TECH BRIEF CLOUD-BASED SUPPLY CHAIN

Cloud platform-based technology allows each enterprise to

connect one time to the “grid” and begin interacting with and
gaining visibility over all participants already present.

3. ASSET UTILIZATION 5. VELOCITY

Supply chains enabled with on-premise technology tend to
have fixed, well-defined resource pools from which they can
draw capacity. On the other hand, cloud platform-enabled
supply chains provide the capability for all types of assets
(manufacturing, storage, transportation, computing, etc.)
to be dynamically visible and allocated to match current
supply and demand conditions on the ground. For example,
if you know the inventory that is available, you can build full
truckloads that go to market with multiple stops, eliminating
excess miles and touches.
4. SIMPLIFIED CONNECTIVITY
On premise solutions typically require repetitive connections
to each trading partner or asset provider. This is costly and
time consuming to manage.
Often with legacy systems, integrations that include
enhancements or changes take months and sometimes years.
Cloud platform-based technology allows each enterprise to
connect one time to the “grid” and begin interacting with and
gaining visibility over all participants already present.
Supply chain performance is directly related to cost efficient
velocity. Serial (or vertical) integration up and down the
supply chain between direct trading partners has generated
significant benefits; however, the next major upgrade to
supply chain performance will come from velocity increases
associated with peer-to-peer (lateral) collaboration: co-
location and co-delivery of goods from suppliers using shared
resources to common channels and delivery points.
Such a process cannot be effectively managed by on-premise
tools from any single participant; it can be managed only from
a neutral, cloud platform-based perspective. Great examples
of networks can be found in social media where people are
reacting instantly to changes. Similarly, cloud-enabled supply
chains are able to move from weekly or monthly plans to
those that capture the critical changes that are happening
every day, every hour.

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TECH BRIEF PUSH VS. PULL SYSTEMS FOR THE RETAIL SUPPLY CHAIN

Push versus Pull Systems for the

Retail Supply Chain

Today’s supply chains are undergoing significant pressures to

become more “demand-driven”. Retailers, distributors and
manufacturers are forced to choose the approach they hope
will make them the most profit. Is it producing and making
goods available to forecasts of expected consumer demand,
or by reacting to what consumers have already bought? This
brief shows why companies are investing in a new generation
of cloud technologies that enable the transition from “push”
environments to “pull” environments.

WHAT IS A PUSH SYSTEM?
Most companies use the forecast approach today, in what is
called a “Push system”. Companies forecast to feel confident
that the goods they order will both find willing buyers and not
run out unexpectedly soon. In the Push world, decision points
occur at every reorder. How much should be purchased? In
other words, how often is it necessary to consider buying
each item?
The sheer volume of SKUs and associated decision points
mean that push systems use the “peanut butter approach”,
where all products are treated roughly the same despite their
different demand profiles. Thus we see the following:
• Forecasting done at the aggregate level. This is a weekly
forecast at best, and is from the DC to the store.
• Product is then pushed to the store weekly based on
this forecast with no granularity based on how much the
individual SKU is actually selling for that particular store.
The main problem with push systems is that they are based
on forecasts that are almost always wrong. Despite billions
spent annually in the US for the best computers and most
sophisticated software, actual demand varies from forecasts.
Forecasting does not make the end consumer react more
rationally or predictably. When it comes right down to it, no
matter how sophisticated its algorithm, a forecast is only a
guess. Wrong guesses mean excess investment and lower
profits, due to missed sales. They also lead to other problems
like high carrying costs, discounting, disposals, missed sales,
weak customer loyalty, shortages, high debt loads, inventory
disposals, emergency shipments, rescheduled production and
attenuated profits.
WHAT IS A PULL SYSTEM?
Modern cloud-based technologies are enabling a true pull-
based approach to retail replenishment that uses actual
daily consumer-level demand to generate a true forecast.
• Pull systems use demand data to drive both replenishment
and production. Only immediate customer requirements
are drawn from the protective inventories upstream.
• This approach is driven by actual consumption at the
store (store/SKU/daily demand with POS) as well as with
forecasts. This allows for a much more granular approach
than push systems.

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TECH BRIEF PUSH VS. PULL SYSTEMS FOR THE RETAIL SUPPLY CHAIN
• For example, a pull network supports multiple
replenishment policies based on the individual demand
profile of the product.
- E.g. for a “slow mover” you can manage by a simple
reorder point (sell one, replenish one).
- For a “turn item” however, you can use a more
sophisticated min/max policy with DOS.
• The result is an automated inventory policy driven by
actual pull requirements at the granular level. By acting
on actual demand, statistical variations are damped rather
than magnified, steadying on-hand inventory levels at every
stocking location.
• Since goods only flow downstream to cover immediate
need, the preponderance of the inventory remains further
up the supply chain, closer to the source. In contrast, many
push systems put the majority of the inventory at the retail
store.
ADVANTAGES TO PULL-BASED SYSTEM
All companies in the 2013 Gartner Top 25 are implementing
pull-based processes. Companies that have implemented a
pull-based network have seen the following benefits:
• Up to 30% inventory reduction
• 20% increase in perfect orders
• 10% increase in revenue
• Improved service levels
• Forecast Accuracy Improvements:
·· Manufacturing from 30% to 95%
·· Retail DC from 75% to 90%
·· Retail from 50% to 75%
WHAT ARE THE EFFECTS OF PUSH AND
PULL ON RETAIL?
Push systems are particularly devastating to the retail
industry. Retailers accept the massive inventory push from
their suppliers to drive local improvements such as the
following:
• Retailers choose long replenishment times in return for
lower costs to facilitate the highest possible markups.
• In many retail environments, retailers do not expect
replenishment within the season, so they accept everything
they hope to sell in advance of each season.
Corporate Headquarters US One Network Enterprises 4055 Valley View Ln, Suite 1000 Dallas, TX 75244 Tel: +1 866-302-1936 www.onenetwork.com
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• Retailers broaden their product selection to attract
customers to compete with other shops that sell
similar products.
• Retailers fear missing sales, and so, buy to
optimistic forecasts.
• Retailers choose higher quantity discounts or buy large
quantities opportunistically.
Consequently, nearly all retailers end up with much more
inventory than they need to cover immediate consumption.
In fact, as a result of the above choices and the lack
of aggregated demand at the retail level, the biggest
accumulation of inventory in a Push consumer goods supply
chain resides at the retail node.
In a Pull system, using readily available point-of-sale (POS)
data as inputs, shortages can be reduced by an order of
magnitude due to the quick response nature of these flow
systems.
RETAILERS ENJOY IMPROVED
EFFICIENCY, SERVICE, CUSTOMER
LOYALTY, AND PROFITABILITY
In short, what a Pull system means for retailers is:
• More product is always about to arrive, especially
when inventories are low.
• Customers find what they need, when they need it,
where they need it, and complete a purchase more
often.
• Customer loyalty and upbeat word-of-mouth increase.
Patrons are less likely to resort to a competitor.
• New sales are the result-sales that require no
additional operating expense.
• The retailer’s replenishment staff are automated,
and the people are redeployed managing exceptions
(potential stock outs in the future).
TECH BRIEF CPFR VS DEMAND DRIVEN VALUE NETWORKS
CPFR Versus Demand Driven
Value Networks (DDVN) Replenishment
Prior to today’s advanced capabilities around Demand
Driven Value Networks (DDVN), the prevailing strategy
was to implement Collaborative Planning, Forecasting, and
Replenishment (CPFR).
Given the state of technology platforms a few years ago, CPFR
was a prime focus for many of the ERP/MRP type vendors. In
fact some vendors have even published comparisons of the
workflows in their systems to the structure of CPFR.
What is CPFR? CPFR defines the flow as: Creating the Sales
Forecast, Creating the Order Forecast, Generating Orders,
Executing Orders, and then gathering Replenishment
feedback. In the past this flow was the best available option,
but in today’s fast-paced world it just isn’t sufficient.
What companies are demanding now is a DDVN oriented
architecture which is similar in concept to a “Consumer-
Driven” network. It seeks to align and synchronize demand,
supply, and product cycles, as well as enable the ability to
sense and shape demand to make a profitable demand
response.
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Focusing on a single view of the consumer for all members
of the extended supply chain requires an approach that
includes retailers, manufacturers, and logistics providers to
all be connected across a multiparty execution backbone that
orchestrates a coordinated response to the end-consumer’s
demand signal.
Unfortunately the CPFR design is a limited architecture
and basically constitutes a push or ERP batch oriented type
environment, where an attempt is made to collect and react
to exceptions, but this architecture just isn’t designed to
resolve these issues in a timely fashion (e.g. daily) given its
long lead times and serially integrated nature. Using this
method means a price must be paid in lost sales along with
excess and obsolete inventory.
Today’s DDVN technologies now provide new opportunities
to add value within the replenishment process such as by
optimizing truckloads simultaneously with inventory using
pull policies. In fact under today’s prevailing strategies around
Lean, many companies are implementing technologies that
will allow them to move from push to pull, basically moving
away from CPFR type architectures toward more DDVN
oriented capabilities.
TECH BRIEF CPFR VS DEMAND DRIVEN VALUE NETWORKS

Using these types of DDVN based inventory replenishment

policies (KanBan, Min/Max), allows customers to reduce
supply chain variability, optimize inventory levels, and
minimize freight expense.

For example KanBan, being one of the simplest DDVN
pull policies, is designed to pull supply based on a rate of
consumption. The KanBan binning technique is designed to
provide discrete quantities the supplier must monitor and use
to calculate required shipment quantities. Min/Max, a more
flexible pull policy, provides a range of acceptable inventory
levels the supplier must monitor and use to calculate their
required shipment quantities. Supply is done dynamically
based on a consumption rate, and therefore additional
consideration can be made for transportation optimization
under this policy.
Using these types of DDVN based inventory replenishment
policies allows customers to reduce supply chain variability,
optimize inventory levels, and minimize freight expense.
Typical measurements include inventory turns, truck
utilization, and premium freight reduction.
Unfortunately, in order to provide this type of functionality
most ERP-type vendors must use plug-ins that are not
integrated as part of the transactional flow. Thus, this type
of replenishment may be listed as a capability, but given the
batch architecture it just can’t be engaged on a real time,
exception oriented basis which is what is really required in
today’s rapid replenishment environments.
In addition to improved performance, companies that
expand beyond CPFR to a DDVN environment will also enjoy
full internal and external visibility of component parts (at
retailer DC’s, supplier DC’s, export hubs, etc.) based on a
technology platform which supports both an automated and
an interactive capability to enable full electronic commerce,
including the ability to communicate replenishment signals
across the global supply network in real time.
Finally, CPFR systems typically take retailers 1.5 to 4 years
to implement. Many of these retailers never get the system
to work properly in part because of heavy maintenance
requirements. Former demand planning sales executives
have estimated that as many as 60% of demand planning
system implementations have failed. Conversely, DDVN-based
systems have been implemented in major portions of retail
inventories in as little as six month windows.

Corporate Headquarters US One Network Enterprises 4055 Valley View Ln, Suite 1000 Dallas, TX 75244 Tel: +1 866-302-1936 www.onenetwork.com
International Headquarters One Network Enterprises PO Box 59383, London NW8 1HH, UK Tel: +44 (0) 203-28-66-901 Email: europe@onenetwork.com