It may never be easy to ship oversized bridge hangers and concrete lifting systems. But it's about to get a whole lot simpler for managers at Dayton Superior Corp., a Dayton, Ohio-based company that makes coil inserts, precast anchors and other accessories used in concrete construction.
Sometime later this year, staffers at all of the corporation's shipping sites will begin using a state-of-the-art transportation management system (TMS) that promises to revolutionize the transportation planning and execution process. No longer will they spend hours seeking out the lowest-cost carrier or wrestling with shipping decisions. The new software will take care of that for them. Once it's up and running, the TMS will extract the pertinent shipping data from the corporation's order management system, make a swift determination of the optimum mode of shipment and automatically tender the freight to the chosen carrier.
Like many companies today, Dayton Superior Corp. is turning to a TMS to take the guesswork out of freight shipping. John Klima, Dayton Superior's director of transportation, says he sees it as an opportunity to optimize total costs and help assure that all facilities follow corporate policies for truck freight movements. As a step in that direction, he says, the new system will give managers at the corporation's 50-plus nationwide locations, many of which are sales and service centers, access to a central database of the corporation's 150 nationwide carriers and contracts.
But Dayton Superior will not be buying a license for the software and installing it on its corporate servers. Instead, it has opted to rent the application from the supplier, Descartes Systems Group Inc. of Waterloo, Ontario. Under this arrangement, known as the "software as a service" or "software on demand" model, Descartes hosts and maintains the application on its own computers. Dayton Superior simply pays a fee to access the application via a Web browser whenever it needs it.
Why choose the software as a service approach? For Dayton Superior, much of the appeal lay in the reduced upfront investment and the prospect of a quick, low-cost installation. "We wanted to get something implemented quickly and get the benefits right away," says Klima. "Because it's hosted, we're centralizing the transportation management functions with as little investment as we could."
It appears that Klima will get his wish for a speedy installation. Within just seven days, Dayton Superior had the system up and running, and was testing output at its headquarters. It plans to roll out the application to all of its shipping locations during the course of this year. Once the conversion is complete,Dayton Superior expects to see a reduction in its transportation spending.
Dayton Superior is hardly alone.When it comes to transportation software, more and more companies today are choosing the on-demand option. ARC Advisory Group, a research firm based in Dedham, Mass., estimates that one-third of all global TMS installations in 2005 were software as a service deals. And the model appears to be catching on quickly. "On demand will be the way all software gets delivered in the next five years," predicts Greg Johnsen, an executive vice president of marketing and a co-founder of GT Nexus, an on-demand TMS vendor.
A host of options
The emergence of the "rental" option is a relatively new development in the world of TMS. In the early years, a company that wanted to use a TMS had no choice but to buy it or to be precise, to buy a license and install the application on its own computers.
Those licenses, however, were costly, often running into the thousands of dollars. Plus they were limited in scope. A license was only good for a specific version of the software.Whenever the supplier introduced an upgrade, the customer had to pay for the new version if it wanted to use the new features.
Along with the hefty upfront licensing fees, customers also had to foot the bill for ongoing maintenance and support. And if they happened to be running other programs (say, an enterprise resource planning solution to manage finances and manufacturing operations), they also had to worry about integrating all their systems so they could exchange data. Those integration projects, which could cost thousands of dollars and take months to complete, often meant further delays before customers saw any kind of payback on their software investment.
In the 1990s, some software providers first began offering a "rental" option. These companies, known as application service providers (ASPs), would host and maintain the software on their own servers. Customers simply paid a fee in return for access to the software via their Web browsers.
About five years ago, a variation on this business model, the on-demand or software as a service approach, emerged. As with the ASP model, the vendor hosts the software on its own computers. But there's a key difference: While the ASP hosts a separate copy of the program for each user, the software as a service provider hosts a single application to which all users have access in other words, the users share the solution. Among other advantages, this makes updating the software a simple matter. "In the ASP hosted world, you have to install an upgrade 100 different times for 100 customers," says Adrian Gonzalez, director of the Logistics Executive Council at ARC Advisory Group. "In the on-demand model, the vendor makes one upgrade for all."
The multi-tenant software as a service model, which was pioneered by Salesforce.com, first took hold among users of customer relationship management (CRM) software. But it wasn't long before the approach caught on with vendors of transportation management systems, which typically handle tasks like carrier selection, shipment rating, freight routing, invoicing and billing, and appointment scheduling.
Companies that now offer TMS on demand include LeanLogistics, GT Nexus, Nistevo (now owned by Sterling Commerce), Descartes Systems Group, HighJump and MercuryGate. And the field is growing more crowded every year. Gonzalez reports that 63 percent of the 40 TMS vendors polled in a recent ARC survey said they planned to have an on-demand offering by 2011. Although some of the biggest names in the business Oracle and SAP, for example have yet to join the crowd, he thinks it's only a matter of time.
Less risky business
From the customers' standpoint, the rental option has much to recommend it. For one thing, many users find it's easier to get corporate approval for leasing a TMS than for buying a costly TMS license. "Because it's sold under the budgetary threshold, it's more of an expense than a capital budget decision," says Brian Klemenhagen, a senior principal at Triple Tree, a Minneapolis research-based investment banking firm. The corporate IT department is less likely to raise objections as well. "Because I'm passing a file to an on-demand solution, it's less invasive to the IT organization," says Foster Finley, a managing director at Southfield, Mich.-based AlixPartners Ltd. who served as a consultant on Dayton Superior's TMS project.
Renting software is also seen as less risky than buying a big selling point for companies burned in the past by expensive information technology fiascos. "From a risk standpoint, there's not a lot of money required to find out whether it will work for you," says Monica Wooden, chief executive officer and a founder of the ondemand TMS vendor MercuryGate International, which is based in Cary, N.C. "You don't have to spend a lot of time and money to find out if the dog will hunt."
On demand is cheaper as well, proponents say. "In the traditional software model, you have to have people to manage the software and you have to buy servers, firewalls [and other] technology," says Johnsen of GT Nexus. "With on demand, you don't have any of that." Johnsen says the on-demand option can be 40 to 50 percent cheaper than a traditional software deployment. That's in part because on-demand vendors can spread their costs for the software's daily operation, maintenance and support across their entire client base.
Although the on-demand model usually eliminates the need for systems integration, new users will still find there's some preliminary work to do. Before they can use the software, companies first have to enter their transportation data into the application. At Dayton Superior, Finley says, that included the corporation's list of carriers, contracts and rates, shipping locations and destinations, and accessorial charges.
Their way or the highway?
For all their advantages, on-demand solutions aren't for everyone. Companies that like their programs loaded with a lot of add-ons are likely to be disappointed. Most of the solutions currently available on demand provide only basic functions such as routing, rating and tracking, says Stephen Craig, a principal in CP Consulting, which has offices in Annapolis, Md., and Mexico City. "For instance, you can't match the ledger codes to allocate costs for carriers."
In addition, most of the on-demand TMS applications on the market today are limited to domestic movements generally truck moves. The majority of offerings still have limited, if any, functionality for air or ocean movements. "If you have a global operation, they are not there yet," says Gonzalez.
Then there's the lack of flexibility. Ondemand TMS imposes a regimented set of procedures on the user procedures defined by the vendor. "If you have a very complex transportation processes or a unique network pushing the envelope, these aren't right for you," says Gonzalez. "These solutions are geared for more standard processes."
That's not to say that on-demand applications can't be enhanced or modified. They can. But because even the slightest change may affect the entire group of users, the process is neither quick nor easy. "If the application was run on our servers, we could do a change with little impact," says Klima. "Here you have to go through the vendor to make system changes. An enhancement requested by one can affect a group of companies. So the vendor has to be diplomatic about changes."
But for users like Dayton Superior, that's a worthwhile tradeoff for the advantages of quick implementation and speedy payback. "It's what it is shared software," says Klima. "You have to weigh that against the other benefits of implementation and cost."
Gartner, Inc.
