Why Is the Cloud Cheaper for Supply Chain Organizations?

If your company’s on-premise servers are down more than 0.0001% of the time, your business is losing money. That’s one of the many reasons why cloud computing is beneficial for supply chain organizations.

If your company uses on-prem solutions, not only must you pay the hardware and associated operating costs, but moreover, your IT team is often spending its time fighting fires, instead of contributing to more value-added tasks. In addition, there are a variety of other cost savings associated with using cloud-based solutions that most people don’t think about.

In this article, we break down a handful of less obvious cost-saving areas associated with cloud-based SaaS software.

Indirect Cost Savings

Refocus Your Team

The most evident area of savings when using SaaS solutions is the ability to refocus your team. With cloud-based software, your IT team is not spending time debugging issues on your servers. Instead, your SaaS provider is responsible for maintaining your systems, freeing your IT team to focus on solving real problems.

For example, instead of your team having to restart your WMS multiple times a day to keep it from crashing, your people can focus on accomplishing more value-added tasks. How many hours in the day could your IT team gain back if not having to worry about constantly extinguishing fires?

When your company uses SaaS solutions, there are typically contractual obligations between your company and the provider requiring certain uptime and availability, and your provider will be on the hook for retribution if they miss their targets. The industry-standard SLA is between 99.5% and 99.99% availability, with some solutions even guaranteeing 99.999% availability.

Energy Efficiency

Cloud solutions can also save your company money on energy costs. Shifting from running your own on-prem solutions’ servers to cloud computing can be more energy efficient. On average, AWS reports that customers who use cloud solutions instead of operating their own servers use 84% less power, and cloud servers can help reduce a company’s carbon footprint due to computing by up to 88%.

Microsoft tested this premise in a 2018 study that compared the embodied greenhouse gas emissions of four of its cloud computing products with those of on-site IT and data storage solutions. Microsoft found that cloud software can be 93% more energy-efficient and up to 98% more carbon-efficient than on-premises solutions.

Most of the gains in emission reductions were due to decreased electricity consumption associated with not running on-prem servers. Furthermore, a portion of the reduction in energy and carbon footprint came from improved IT operational efficiency, equipment efficiency and data center infrastructure efficiency, which can be further improved by renewable energy usage.

Avoid Systems Upgrades

What if your WMS could be upgraded whenever needed instead of waiting years to push out one massive update? This flexibility can save time and money. Cloud-based solutions can save your company millions of dollars avoiding costly projects solely dedicated to updating legacy on-prem software.

Keeping your company’s technology up-to-date also boosts your employees’ productivity, which directly affects your company’s profitability. Instead of falling behind the technology curve that comes with operating and updating on-prem solutions, SaaS solutions can help your company run efficiently with the latest software versions.

Updates can also help decrease employee dissatisfaction, which can be caused by inefficient and outdated solutions that force your employees to perform time-consuming, inefficient and frustrating workarounds.

From CapEx to OpEx

There can also be tax savings associated with using SaaS solutions as opposed to on-premise software. Capital expenses (such as software and hardware) depreciate over time, but expenses from cloud-based systems can be considered operational and be deducted every year.

Shifting from CapEx to OpEx can create tax benefits for supply chain companies. CapEx purchases such as machinery and servers decrease in value over time. While the depreciation amount is tax-deductible, cloud-hosted computing and SaaS can be categorized as operating expenses rather than capital expenditures (meaning they are fully tax-deductible every year). OpEx spending is also considered a short-term cost via a lease or subscription instead of a “significant purchase.”  

CapEx spending often requires a major up-front investment, including setting on-prem servers and buying software licenses and other equipment. Cloud-based software’s simple subscription minimizes and streamlines these costs. An OpEx model allows companies to “pay as they grow,” helping scale companies. Cloud-based solutions help companies grow and expand quickly.

Direct Costs

The indirect cost savings your company can reap from cloud-based solutions is only part of the equation. There are also direct costs associated with on-premise solutions, namely the cost of the servers themselves, along with support hardware such as backup servers, load balancers, etc.

One study found that over a five-year period, on-prem solutions cost about $97k, including replacements—compared to cloud solutions, which typically would cost only about $19k for that same time period.

Cons to the Cloud

While cloud-based solutions tend to have a better ROI overall, you will hear some folks talk about the cost of migrating your data and getting your company up and running in a new SaaS platform.

Thankfully, modern systems don’t require you to move your data, and instead integrate directly with your existing systems and databases. SaaS software is able to securely communicate with your other systems using a variety of technologies, such as VPNs and dark fiber, as we have previously written about.

Additionally, there are cloud-based systems that allow for incremental implementation - in other words, you can transition portions of your business at your own pace, instead of one massive go-live which can be disruptive and jarring to business operations.

Conclusion

Hopefully this article has shed some light on some of the forgotten benefits of cloud-based software, and given you a renewed perspective on why SaaS solutions are the future of the supply chain.

PorterLogic is a leading supply chain software solution that allows for added flexibility and agility in your supply chain. Built cloud-native from day one, we understand the ever-changing landscape in supply chain, and we are ready to help with your organization’s digital transformation. Contact us today for more information about how we can help you wow your customers.

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