Cloud Computing and its impacts on the textile supply chain

Cloud Computing and its impacts on the textile supply chain

Cloud Computing is already reality for quite many companies around the globe. We present to you facts and figures and explain also what it means for the textile supply chain

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A study by Deutsche Bank (DB), Frankfurt (D) defines what Cloud Computing means for a company: It is designed to enable users to concentrate on their core competences. The author Stefan Heng adds: Cloud service providers advertise their ability to deliver memory capacity and software over the Web where ever the user’s location and whatever device he is using, claiming that they can rapidly adapt the system to customer’s requirement. This allows to the users to farm out peripheral business activities to specialised providers. However, Cloud Computing is not yet meeting the ambitions of its providers, because there are resistance and structural hindrances existing both on user and provider sides. The DB study reveals that in Germany following the launch of Cloud Computing half of the SMEs declare that they are not convinced by the results and most of all, there are security concerns and a certain uncertainty is reigning over which technical version will likely make the major inroad in the breakthrough.  Only 16 % of German SMEs are using already Cloud Computing.

Rainer Baeder from Fortinet, a real time security solution provider, gave a total picture of the Cloud Computing area, this at a conference of Swiss Infosec in June 2011.

Table 1 shows the NIST Cloud Definition Framework and shows its possible functions

 table_1 (zip)

Table 2 presents the biggest security challenges involved with Cloud Computing

 table_2 (zip)

The security threats and their security protection

Of course, there are also security threats such as abuse and nefarious use of Cloud Computing, insecure interfaces and APIs, malicious insiders, shared technology issues, data loss or leakage, account or service hijacking and unknown risk profile. In other words, not much different between on site and Cloud Computing, therefore the same security policies and rules still apply. The only difference is – according to Fortinet – the location of the server farm and the access to it. Baeder is convinced that the next generation Firewalls are still required to protect the existing Campus (on site) and the remote cloud computing facility. In addition, identity management and access management will be enhanced.

What a Complete Cloud Content Protection means can be had from Table 3   

table_3 (zip) 

When identifying the threats, there is only one direction, they continue to grow as shown in Table 4

table_4 (zip) 

Cost savings

Of course, one of the main reasons for a company to decide on Cloud Computing is cost cutting. The DB study cites an expert, Federico Etro from the think tank Intertic: Companies in the EU can reduce their total fixed expenditure by up to 5 % by using Cloud Computing. The costs addressed are capital and labour costs, since IT capabilities are outsourced reducing capital costs and the need for internal IT specialists is drastically reduced. Energy costs will decrease because less hardware is installed and there will be fewer costs for operation and cooling. The DB author continues to state that Cloud Computing is more than simply a cost cutter, because it allows greater flexibility, wider access and probably a higher level of data protection and security, but the latter is still in discussion as we have shown before. On the other hand, the further favourable facts are that Cloud Computing probably allows a shorter time to market for innovation and start-ups can launch themselves without a costly IT infrastructure, and therefore they can focus on their core business.

Further challenges

However, there are some technical, economic, organisational and legal challenges involved, continues the DB author: Cloud providers must find an economically efficient way of coping with daytime and day zone, seasonal and cyclical fluctuations in capacity demand. In order to reach the optimum utilisation of their IT infrastructure, they intend to acquire an ideally complementary customer portfolio of diversified users across individual sectors and time zones, but they encounter difficulties in attracting the ideal mix of users.

Another hindrance to overcome is the legal contractual relationship between Cloud Computing providers and users since the partners frequently fail to negotiate a sufficiently comprehensive agreement and in many instances users remain in the blue as to who is actually delivering the services at the end of a long value chain of sub-contractors. Thus, a legally enforceable contractual relationship will exist only indirectly and issues of pertaining liability, responsibility and contractual obligations can often only be examined legally on a case by case basis.  Such examination must, for example, take into account that cloud users are, in turn, liable to their customers in the event of the cloud vendor’s failure to provide the adequate service, insofar as the cloud provider is acting as a vicarious agent of the cloud user in a legal sense. In long value chains with companies cooperating across national borders, cloud computing liability issues definitely ex ante are fraught with considerable complexity. Benchmarks might be certifications, such as ISO27001/2, SAS70 and PCI DSS. A harmonised legal framework for data protection and security such as the EU is currently targeting in the amendment to its Data Protection Directive and a universally recognised international seal of approval might give users a greater sense of confidence when Cloud Computing packages are offered.

The quality of services offered should be stipulated on an agreed minimum level of service quality in view to system availability and speed, but exactly this aspect is often left open in the service level agreement or the infringement of contractual obligations seldom triggers clear sanctions. 24 % of German companies interviewed by PwC Management Consultants stated that their agreements did not set out conditions governing service availability.

As stated above, pivotal challenges are data protection and security, and there is also the inherent risk of data concentration and a high dependence being tied to a single Cloud provider for a very long time (vendor lock-in).

Affinity and satisfaction hinge on three aspects: Duration of the company: The younger the company, the less IT infrastructure is already in place, the greater the likelihood for using Cloud Computing. The more specialised the company’s requirements, the more difficult it becomes to outsource strategic corporate processes and business critical processes to a public cloud. Data protection and monitoring has to differ from one sector to the next. IT companies tend to culturally being more receptive to innovations whereas the public sector and the financial services industry are obliged treat these aspects far more cautiously and consequently they are today making very little use of Cloud solutions and public cloud in particular.

It is noteworthy to state that there are fewer reservations towards private clouds, because such users tend to favour tailor-made private cloud service packages over standardised public cloud products, and luckily for the providers they are evidently prepared to accept higher service charges, on the other hand, there are lower returns to scale of smaller private clouds in comparison to large public clouds. However the expectations are often not entirely satisfied, neither for consumers nor companies as surveys have revealed, because initially opting for Cloud Computing means investment, for companies in consulting, hardware and training.

Cloud Computing obliges also IT providers or vendors to rethink their traditional business model and companies do face resistance from their own IT departments. There is also a lack of generally accepted standards and communication networks have to face the network’s availability and speed.

The (textile) supply chain relevance for an omni-channel world

A special report by American TradeCard, Inc. and Sourcing Journal online, on supply chain capabilities required in order to meet consumer expectations in an omni-channel retail environment is bearing the title “Cloud Sourcing for an Omni-Channel World”. It concludes that supply chain visibility across all sales channels, powered by smart deployment of Cloud technologies, will be the key enabler for omni-channel retail success.

In recent months, as consumer spending has rebounded in the U.S., omni-channel strategies have emerged as essential retail practices. Statistics from the U.S. Commerce Department reported that U.S. retail sales increased 1.1 percent year-over-year in January and 4.6 % in February and online sales are the key driver of this growth. Forrester, a specialised firm, forecasts that U.S. online retail sales will reach USD 262 billion in 2013, or an increase of 13 %. Online sales for apparel and accessories are expected to exceed USD 40 billion. Therefore, retailers are racing to deliver a consistent consumer experience online, in-store and via mobile apps.

The TradeCard Inc. – the company has transformed global supply chain collaboration by boosting visibility, cash flow and margins for over 13000 brands, retailers, suppliers and service providers operating in 78 countries – explains in the report how Cloud technologies can connect the entire supply network to enhance visibility, speed, efficiency, savings an agility, all essential to omni-channel retailing.

The Credo

The report’s credo: The omni-channel movement is revolutionising the retail world. It is changing the ways consumers do shop, which is driving the way retailers plan, produce and sell goods. Supply chain visibility across all sales channels, powered by smart deployment of cloud technology, will be the key enabler to tomorrow’s omni-channel retail strategies.

The changes are already visible

 Today, consumers can buy goods online by using computers, mobile phones or tablets or through catalogues, in-store, at kids, pop-up shops, sponsored events, or discount stores. All these factors and same day shipping and in-store pickup were pushing retailers to find new ways to sell and deliver goods. Therefore retailers are forced to re-think their supply chain strategy to better plan, deliver and sell and with agility to accommodate any consumer who walks into any store and requesting any particular item. Thus, the retailer has to know the exact location and stock of the item, the requested colour and size and have it available to the consumer in his or her preferred mode. This means also that power has shifted towards the consumer and consumers are more informed, knowing options and they will buy elsewhere if their needs are not met. Channel-agnostic consumers want a seamless brand experience. As a result, according to Tamara Saucier, Vice President of Market Development at TradeCard, indicates that omni-channel fulfilment is the major challenge, but the meaning is different for consumers and retailers. She adds “From the consumer perspective, you do want to be known consistently across all channels. For the retailer, it’s about seamless inventory knowledge. Having a view of inventory that is precise, and knowing that information is actionable to allow the fulfilment of the demand”.

The ultimate example

The study describes an ideal ultimate example we wish to pass on to you for illustrating the changes needed in retailing as well as in its supply chain.

Table 5 gives retailing aspectstable_5 (zip)

Source: TradeCard

 

According to TradeCard, brands and retailers are finding that cloud-based solutions are a reliable and efficient means for managing the global supply chain. This could mean that instead of updating 10 or 20 trading partners on order changes, a more collaborative approach, using Cloud technologies, allow brands to post their updates in one place, where they are viewable by the entire supply network. It is a kind of similar to updating a Linkedin or Facebook profile and everyone sees the update instantly. This increases speed, efficiency and leads to savings, visibility and agility. The same goes for planning to purchase order, settlement and delivery.

Table 6 provides the impacts on the supply chaintable_6 (zip)

Source: TradeCard

 

A steady aim to perfection technology

Cloud Computing in the supply chain area is also making use of tracking technologies such as RFID Radio Frequency Identification for instance to identify each product on inventory and on a factory floor, and to track each product through every stage of production,  distribution and sale. And since tags become less expensive, they are appearing on shop floors and in production facilities.

Textile based solutions

In this respect, we wish to underline that developments in Technical Textiles are adding new possibilities, and we would like to give an example from Swiss Sefar Group, founded in 2006 as part of Sefar AG, with worldwide presence and subsidiaries in 21 countries and agencies in further 75 countries. The company’s focus is on Smart Fabrics in the areas of solar power, sensor system and heating sectors. The company has developed a transparent front electrode on a one-side coated fabric, and gas resistant, for flexible solar cells, offering better than 85 % light transmittance and by using the roll-to-roll application. The conductivity is provided by embedded woven metal wires. Another example is a sensor tape for leakage detection, further a cargo container lined with knitted fabrics destined to detect a break in.  Other examples are a flat temperature sensor in conjunction with the EU project PROSPIE or a flow-speed measurement through a filter fabric, not to forget a stretch sensor yarn to measure mechanical processes in fabrics and plastics. More can be had from the company’s website link below. And for the record, Sefar’s weaving accessories to process its sensitive warp yarns are provided by German Groz-Beckert and for the highest weaving densities, 12-row warp stop motions are used. Carbon fibre reinforced Groz-Beckert hybrid heald frames allow Sefar to weave at widths up to 430 cm and without intermediate struts.

Cloud’s impact on revenues

Coming back to Cloud’s impacts and the TradeCard report, we point to an example of Macy’s apparel business. Macy’s 2012 gross margin was up 0.4 percentage points and total revenue was up by over USD 700 million and its e-commerce division increased by 40 % to over USD two billion. Additionally store managers noticed more customers checking prices on their smart phones and using the store like a showroom to examine products, but not buy them, a fact that also many other retailers claim.

Macy’s apparel e-commerce grew 2012 by 20 % to USD 48.6 billion and apparels represent the fastest growing segment of e-commerce, and online sales are the fastest growing niche in the apparel business. Meanwhile, a Nielson survey indicates that 54.9 % of consumers own and use smart phones. Obviously, it is cheaper to distribute via e-commerce than to run a bricks and mortar storefront, and it is easier to keep the products in stock and sold out products can be removed immediately from the website but such a move can be beneficial to someone who has the product rightly on stock. In other words, fulfilment is also the key question in Cloud Computing and in the textile value chain.

It has to be added that TradeCard is serving leading retailers and brands, including Levi Strauss & Co., Columbia Sportswear, Guess and Rite Aid, leverage its platform and its member network for sourcing and global trade. The company is headquartered in New York City (USA), with offices in San Francisco, Amsterdam, Hong Kong, Shenzhen, Shanghai, Taipei, Seoul, Ho Chi Minh City and Colombo. For more, please refer to the link below.

If you wish to download the report of Deutsche Bank Research, please refer to the accordintg link below.

www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000285827/Cloud+computing%3A+Clear+skies+ahead.pdf

www.fortinet.com

www.tradecard.com

http://powermatrix.sefar.com

www.groz-beckert.com


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