When C. Dwight Klappich talks supply chain software—what's hot, what's not, where the market's headed—people tend to listen. That's no surprise. Not only has he followed the business for over a decade as a logistics technology analyst, but he's also spent time on the inside. Earlier in his career, Klappich worked for such software developers as Ross Systems (where he was vice president of manufacturing marketing), LPA Software (which has since been acquired by Servigistics), Manugistics, and Distribution Management Systems.
Today, Klappich serves as a vice president of research at Gartner, where he continues to keep a close eye on IT trends. He joined Gartner in 2005, when the Stamford, Conn.-based research firm acquired his then-employer, the research firm Meta Group.
Klappich recently spoke with James Cooke, DC Velocity's editor at large and TechWatch columnist, about emerging software trends, the leading players in the market, and the next big thing in transportation management systems.
Q: Are there any trends in the supply chain execution software market that bear watching in 2011?
A: As the economy hopefully starts to improve, we'll see continued sales growth in transportation management software (TMS), more in the mid market than the high end of the market, which we define as $100 million a year shippers and above.
We also believe that software-as-a-service (SaaS) revenues will grow in that segment. By definition, transportation is normally a multi-enterprise process that includes at a minimum a shipper and a carrier, but could also involve other parties, like forwarders, 3PLs, and suppliers. Because of this "network effect," SaaS-based TMS systems that have pre-built carrier and supplier networks are appealing to all shippers, but especially mid-market shippers that often lack the IT resources to build and maintain their own networks.
The other thing that will help the market grow is that systems are broader today than in the past. They bring together a number of capabilities—like load consolidation, routing, tendering, planning, and freight payment/auditing—in a holistic solution. Even a small shipper—as small as $25 million in annual freight spend—can find enough benefits to justify the investment in the technology.
Q: Last year, you said that fear of the future was driving sales of transportation management software. Is that still the case?
A: Coming out of 2009 and into 2010, customers were looking at this technology mostly to plan for the future because they expected freight rates to rise and capacity to tighten. They wanted to have the foundation in place when that occurred.
Starting in the summer of 2010, we saw some of characteristics move into the carriers' favor. We also saw some capacity issues. And we saw some freight rates becoming a little higher. It wasn't dramatic enough yet to say, "Oh my gosh, I have to do something now." But it started to play on previous fears that shippers had better get ready.
I don't think we've gotten to the point where we're past the fear. We had a little glimpse of reality this summer, and it really confirmed to people that some of their concerns were legitimate and they had better do something.
Related: Market still strong for TMS and WMS: A conversation with C. Dwight Klappich
Q: Are TMS vendors adding any new features to their systems to encourage shippers to take the plunge?
A: At all levels we've seen vendors building out their suites. One area is better support for additional modes and parcel. In the past, these systems mostly focused on over-the-road truck or less-than-truckload shipments. But they didn't manage the entire process. We've seen parcel added to a common platform. We've seen more support for international moves.
Q: How about business intelligence?
A: We've had reporting on carrier performance in TMS for a while. But it was typically after the fact. The next cool thing in TMS is the inclusion of embedded analytics, which can be used as part of the decision-making process. For example, a shipper creates a carrier scorecard. Then, when it goes through the carrier selection process, that scorecard can be used to handicap a carrier. The low-cost carrier might turn out to have a high damage rate, so I would penalize him and go with a slightly higher-cost carrier that provides better-quality service.
Some of the SaaS vendors are also doing some pretty interesting things in this area. Now that they have enough data flowing across their network, they can provide benchmark information that shows the normal rate on this lane. They then provide that information to both the carrier and the shipper. That benchmark information was very difficult to get in the past because you had to do a survey and get people to share the data. Now it's all there on the platform.
Q: For what type of shipper does a software-as-a-service app make the most sense?
A: It's inversely related to complexity. For complex shippers, at this time, the on-premise systems are still more robust [than SaaS models], particularly in the area of planning engines and optimization.
You note that I referred to complexity, not size. I've had really large shippers—a billion dollars in freight spend annually—that are not really complex; they just move a lot of goods. I can have a $70 million shipper who uses multiple modes and makes a lot of shipments per day and does a lot of LTL consolidation. That $70 million shipper would need more sophistication than a much larger shipper would.
Q: Who do you consider to be the leading TMS providers?
A: Oracle continues to be among the leaders. I2—now part of JDA—is also in a leadership position. Leadership is not just product functionality; it's depth, market success, and support for multi-modes and multi-carriers. Manhattan Associates is starting to gain some traction, particularly in areas where fleets are really important. As for the SaaS providers, LeanLogistics, Sterling Commerce, and MercuryGate are some of the up and comers.
Q: What advice would you give someone who's looking to implement a TMS?
A: I would do a self-assessment. With TMS, the success of an implementation will depend more on the user's ability to fully exploit the app than on the particular system it chooses—these are fairly mature, well-proven, high-quality systems. If I'm a shipper that's moving from an undisciplined ad hoc process to one that's more methodical and disciplined, I need to worry about change management. The change management aspects are more critical than just the application.
You need to look at your organization, the state of your users, and your goals. You need to set reasonable expectations. Don't go in saying "I'm going to reduce my freight spending 20 percent in the first year" if the implementation is going to require a complete overhaul of your operating process.
Q: Gartner has gone on record predicting that best-of-breed applications are going to make a comeback. Can you talk about how that will happen in the supply chain execution area?
A: We do an annual supply chain management study, and we found last year that over 50 percent of the companies we define as leaders favor a hybrid application environment [using both enterprise resource planning (ERP) and best-of-breed applications]. They'll push commoditized processes—the things they don't see as a source of differentiation—onto an ERP platform. But they'll favor best-of-breed applications for processes they see as high value-add, differentiating activities.
Why? The best-of-breed [apps] have functionality. Best-of-breed vendors have domain expertise and an ability to innovate, and an ability to help their clients exploit their technologies.
We've seen a decline in the expectation that companies will someday be on a single ERP platform. Most companies recognize that ERP plays an important role. But if there are applications that are more cost-effective, they'll figure out how to make a best-of-breed solution fit.
Gartner, Inc.
