The days when buying new supply chain software meant shelling out a large sum of money and waiting patiently for a vendor team to converge onsite to install the new system are long gone, especially for users of transportation management systems (TMS), global trade management systems (GTM), as well as a few warehouse management system (WMS) users.
News Article – Logistics Management – August 01, 2008
SaaS is on the map
Called the polar opposite of traditional license-based software, software as a service (SaaS) is gaining momentum as shippers become more comfortable with the model and vendors add more relevant modules. Here’s how it works and a look at two shippers who’ve taken the road less traveled.
By Bridget McCrea, Contributing Editor — Logistics Management
Credit the growth of software as a service (SaaS) solutions with helping to eradicate—for most companies—the need for traditional purchase-and-install software.
At its most basic, SaaS is software that, instead of being installed on any computer or server, is accessed from a third party on the Internet. “Things get a little muddied from here, as other terms such as ‘hosted,’ ‘on demand,’ and ‘ASP’ are used synonymously with SaaS,” explains Adrian Gonzalez, director of ARC Advisory Group’s Logistics Executive Council. “But all of these terms don’t necessarily refer to the same thing.”
According to Gonzalez, hosted and ASP (application service provider) imply each company gets its own instance of the software application and associated hardware. “It’s like traditional IT outsourcing, where a company’s IT environment is simply transferred to, and managed by, a third party,” he explains. “SaaS and on demand, on the other hand, generally imply a multi-tenant model, where multiple companies share a single instance of the software application and associated hardware and infrastructure.”
For most SaaS systems, pricing models remain a work in progress, with the most common approach being a one- to three-year subscription with monthly payments, and with implementation services paid for upfront. According to Gonzalez, the SaaS subscription fee is based on the number of users, locations, and modules, as well as transaction volumes that are typically linked to freight volume.
With the bulk of SaaS systems developed within the TMS and GTM spaces, Gonzalez says the model makes the most sense for business processes that are inherently network centric and involve extensive communication and collaboration between many different trading partners. “Transportation fits this requirement perfectly,” says Gonzalez, “as does global trade management.”
Where SaaS has clear advantages over purchase-and-install options is that it puts little or no strain on capital budgets, which are already stretched to the max in today’s challenging economic times. “Logistics still remains at the bottom of the priority list when it comes to capital allocation and IT resources,” says Gonzalez. “SaaS is a way around this problem.” Another key benefit is the way that SaaS creates a connectivity network that allows companies to interface with all of their trading partners via a single connection to a network, instead of establishing one-to-one connections with multiple trading partners.
Last year, ARC conducted a survey of 28 leading TMS vendors, 60 percent of which expected subscription and transaction fees to grow significantly faster than license fees over the next five years. It’s important to note, says Gonzalez, that the transition to a SaaS model won’t be easy for many traditional software vendors. “Simply put, selling and managing a service is completely different than selling and supporting a product,” he says. “You can quickly tell which vendors understand the model and which don’t by comparing the details (or lack thereof) of their service level agreements.”
Calling SaaS the “polar opposite” of traditional license-based sales and deployment models typically found in the enterprise software industry, John Fontanella, vice president of research at AMR Research, Inc., says the SaaS systems are operated and maintained by the service provider on its own hardware, with no costs shared by the entire customer base and no large capital investment demanded of any single client. “Because customers pay for only those services used,” says Fontanella, “SaaS is often heralded as a much more economical way to adopt technology over the traditional software license model.”
But the advantages of SaaS don’t stop at lower price points, according to Fontanella, who says that the strategic supply chain implications of multiple companies using the same set of “software stretches far beyond the cost of ownership equation.”
Gonzalez adds that SaaS and on-demand solutions also alleviate the pain that many companies face in their quest to compile a “critical mass” of data (from procurement software vendors, for example) and then use it to make meaningful comparisons. “While this information has some value, it’s also static (remaining constant and not dynamic), devoid of context, and cannot be used on an ongoing basis to drive continuous improvement,” says Gonzalez, who adds that companies using networked TMS often discover a more significant and lasting value proposition in the external benchmarking, best practices capabilities, and ability to stoke continuous improvement.
As an example of SaaS, LeanLogistics has nearly 50 shippers, 2,000 suppliers, and 4,300 carriers connected to its network. Almost $4.3 billion in freight is managed using a common TMS, which currently processes 5 million loads and 150 million transactions per year. “All of this data, flowing through a single system,” Gonzalez says, “enables network-level benchmarking, so companies can compare their rates and performance against an external benchmark and quickly pinpoint problem areas.”
With vendors like Descartes, Freightgate, GTNexus, Management Dynamics, and One Network offering their own versions of SaaS systems, many shippers are turning to the model as a way to streamline their supply chain operations. Here are two that are already reaping the benefits of making the move.
Barilla Connects the Pieces
With two pasta plants and five distribution centers, Barilla America of Bannockburn, Ill., services the retail mass merchandise and food service industries across the U.S. and Canada. All of its transportation services are managed on a contract-carriage basis and its DCs are operated by third parties. About five years ago, the company realized that it lacked what many other shippers also can’t seem to get enough of: visibility of its shipments.
“We couldn’t service our customer once an order had gone to the DC and been picked up by the carrier,” recalls Sandy Evett, vice president of logistics and customer service. “We wanted more control over our costs and data in order to develop KPIs that would help us manage our business.”
After conducting a complete RFP process, Barilla spoke with 10 different vendors, including those offering license models, on-demand options, and in-house, server-based models. “We also looked at completely outsourcing the function,” recalls Evett, whose team selected LeanLogistics’ on-demand TMS.
“At the time LeanLogistics had the only solution that went from the beginning to the end of the transportation management process,” Evett says. “They were able to take any kind of a transportation order, plan it, execute it, rate it, manage exceptions associated with it, and get it ready for payment.” The latter was particularly attractive for Barilla, which was previously using a third-party freight payment service.
Evett says implementation took just a few months, with the solution rolled out on a site-by-site basis. “Within a year, all of our locations were up and running,” she says. Key benefits that the food manufacturer has realized include improved visibility over its shipments, the ability to connect all supply chain trading partners and improve information-sharing between them. The company can also better plan, execute, and settle accounts, manage inbound suppliers, schedule appointments, and create network-wide reports.
With its five-year anniversary of using the SaaS system nearing in late-2008, Barilla has also benefited from improvements and additions to the LeanLogistics system over the last five years. The updates have been “very easy to handle,” according to Evett, who says that overall “the on-demand system has met and exceeded our expectations.”
Connell Brothers Centralizes Data
To say that Connell Brothers Company, Ltd., thinks globally would be a major understatement. Based in San Francisco, the company imports and exports products to and from the U.S. and Asia, and also does business in India, Australia, and New Zealand. “With the volume of cargo we’re moving throughout Asia, we’re shipping to almost every country there from origins nationwide,” says John Figura, the company’s logistics manager.
Knowing that technology could play a major role in running and expanding its globally-oriented operations, Connell started working with GTNexus about two years ago, beginning with the vendor’s no-cost solutions. In March 2008, the manufacturer installed GTNexus’ on-demand ocean contract procurement tool.
Figura says that the company selected an on-demand solution based on scalability and ease of integration. “We didn’t have to devote internal IT resources to it, and we were able to start using it immediately without having to worry about integration issues with our existing system,” Figura says. “Nothing affected our computers, and the only thing we had to do was learn how to use the system.”
Not yet able to measure the benefits of the SaaS system, Connell has already gained visibility over its cargo as it moves to and from its national locations. “We no longer have to go to individual Web sites for each of our carriers,” says Figura. “All of the information is available at a single point. We have all of our contracts in one repository where sales, purchasing, and anyone else who needs the information can access it instantly.”
Expect to see more companies like Barilla and Connell embracing the SaaS approach over the next year or so. Fontanella, who estimates that the sector is growing at a rate of about 15 percent annually, says the GTM space is especially poised for more growth in SaaS, based on the high volume of content (trade agreements, party lists, etc.) and functionalities (such as plotting capabilities) being gathered and/or developed by vendors who offer the global solutions.
Calling SaaS a “well-established model,” Gonzalez says the days when companies were reluctant to take this alternative route are gone. “The SaaS model will continue to grow faster because it’s smaller than the license model, which is still the largest component of supply chain software offerings,” says Gonzalez. “I don’t foresee SaaS representing 50 percent of the market for a few years to come, but I do think certain applications (such as GTM) will get there faster.”
Freightgate has been delivering hosted services since 1994. As another industry first, Freightgate building upon its original Freightgate Portal released Freightgate 2.0 which brings with it the Personal Logistics Web Desktop. Rather than being bound by a standard interface, for just pennies a day, users can now leverage the object oriented Web 2.0 architecture to customize their desk top with the information specific to their jobs. This information could include:
- Latest Headlines
- Customized News with RSS
- Freight & Logistics News Archives
- Page Ratings
- Community Boards
- Code Lookup
- Conversion Tools
- Shipment Tracking
- Online Documentation
- Much more
Martin Hubert, President and CEO of Freightgate said, “This is an exciting breakthrough for supply chain and logistics professionals and we are very proud to be the first to market with the Personal Logistics Web Desktop.” Continuing, “The global marketplace is growing more complex and dynamic every day, with an ever increasing premium placed on timely and accurate information. Core to the Freightgate 2.0 launch is our firm belief that our members deserve technology tools that adapt to their needs and maximize their productivity”.