Endangered species
The days of the independent TMS vendor may be over. More and more are being devoured by larger software companies looking to add transportation modules to their supply chain software suites.
By James A Cooke -- Logistics Management, 12/1/1998
Transportation Management Software (TMS) vendors may no longer stand a breed apart. In the past year, many of the leading independent makers of TMS packages have been bought out by other types of software companies. Such premier TMS vendors as InterTrans, Metasys, Kitimat, and CAPS Logistics all have been gobbled up by larger software concerns in just the last few months.
What's prompted this flurry of acquisitions? Most likely, the software's increased stature in the marketplace. Corporations are realizing the value of transportation management software, which enables companies to plan and execute deliveries to their customers. "Transportation's importance to the total supply chain solution is becoming more apparent," says Chad Quinn, a senior business manager for transportation at Manugistics Inc. in Rockville, Md., which makes transportation as well as manufacturing and inventory-management software. "People want to know when things are coming to them."
Just as shippers are embracing transportation management packages, so are the larger software concerns, which are lining up to add these modules to their supply chain management software suites. "There's a big push on the part of ERP [Enterprise Resource Planning] and supply chain application vendors to incorporate every aspect of what's involved in the process of moving product into their software," says Gil Bautista Jr., a consultant with IBM in its New York office. "We've got the supply chain management concept, but we have no one vendor who can fill all those functions."
Wide World of TMS
What exactly do TMS software packages do? As a general rule, the leading TMS applications plan shipments based on sales orders and then select the carriers for delivery. Other common features include carrier routing, trailer load optimization, the scheduling of carrier appointments, and tracking of deliveries. Many also contain a yard-management application, which helps manage the flow of trucks into and out of a facility to prevent a pileup at the dock.
For the most part, TMS software applications oversee ground deliveries by trucks. "The programs are biased toward the motor carriers," says James J. Talarek of the consulting firm PricewaterhouseCoopers in Atlanta. He adds that software makers originally designed their applications that way because companies spend the biggest share of their shipping dollars on trucking.
Unlike other types of software--Warehouse Management Systems (WMS), for instance--there's wide variation among the TMS packages on the market. "When it comes to transportation management, the solutions are different from vendor to vendor," says Steve Banker, a senior supply chain analyst with Automation Research Corp. in Dedham, Mass. "Some focus on domestic, others on international. Some focus on inbound, others on outbound. Some are focused on private fleets. The solutions are all over the map."
Like most business software programs, a TMS package represents a major investment. A complete installation, including license fee and integration costs, can easily run to a million dollars. Yet demand for this type of software has been huge. Automation Research Corp. estimates that North American businesses spent about $190 million on TMS software in 1997.
But companies that have taken the plunge have found their investment in a TMS solution to be worth the price. "A TMS is one way to differentiate yourself from your competitor," comments Dirk Du Toit, an analyst with the Gartner Group, a market research firm headquartered in Stamford, Conn. "People are starting to use TMS packages to guarantee delivery dates and times."
TMS Buyout Binge
In the past year, other business software makers have begun to take notice of the importance of TMS applications ... and many have concluded that they need to include a TMS module in their supply chain applications suites. Because it takes considerable time and money to develop a TMS program, many software companies have decided to acquire or merge with an existing TMS player.
Although some distribution software firms--McHugh of Waukesha, Wis., for instance--traditionally have included transportation applications with their warehousing software, TMS packages generally have been sold separately. But that started to change this year as makers of other distribution applications went on a TMS-vendor buying spree.
The spate of TMS acquisitions got under way this past spring when Optum Software of Costa Mesa, Calif., and Metasys Inc. of Charlotte, N.C., combined forces. Optum had provided warehouse management software, while Metasys had focused on transportation. The merged companies have retained the name Optum Software.
Shortly thereafter, i2 Technologies in Irving, Texas, announced a merger with InterTrans Logistics Solutions of Markham, Ontario. i2 had specialized in planning and scheduling software, whereas InterTrans made transportation software.
About a month later, the Canadian software concern Descartes of Waterloo, Ontario, purchased the Mineola, N.Y.-based Lightstone Group Inc., which sold software for route optimization and scheduling for field personnel and delivery vehicles. Descartes' management said it planned to include Lightstone's applications in Descartes' Energy software suite, which handles such tasks as order and inventory management and customer service. Interestingly, about a year earlier, Descartes had bought another transportation software firm, Roadshow International of McLean, Va., to gain Roadshow's dynamic vehicle routing and scheduling applications.
Early this fall, WMS vendor HK Systems of New Berlin, Wis., bought Ontario-based Kitimat Systems Inc., which produced transportation management software. At about the same time, HK also signed an agreement to buy Endura Software Corp. of Seattle, which provided order-management software and had been working on an advanced planning and scheduling (APS) application. Michael J. Neary, formerly an executive with Kitimat and now a vice president of sales with HK Systems Canada, says the combination of those three companies will provide a complete supply chain package. "Within a supply chain, more customers want one-stop shopping where vendors are concerned," he reports.
Up to this point, the buyouts were taking place among the so-called best-of-breed distribution software players, companies that specialize in providing business software for a specific task. These best-of-breed providers were pursuing a strategy of combining various software components to provide a system that would cover all of the key logistics functions: order management, warehousing, and transportation.
That's why the acquisition of CAPS Logistics Inc. of Atlanta produced such a shock wave in the business software industry this fall. The buyer wasn't another WMS or APS vendor. Instead, it was the Baan Co., one of the leading makers of Enterprise Resource Planning (ERP) software. ERP software generally provides a company's "information backbone," handling such tasks as accounting and manufacturing. In the past, ERP vendors had left the market for logistics software to the best-of-breed makers, but that may be about to change. "The market is calling for end-to-end solutions," says Quinn of Manugistics, which competes with CAPS. "Baan has been one of the first [ERP] companies to build upon this trend."
Baan's buyout of CAPS raises the question of whether the other dominant ERP vendors--SAP, Oracle, and PeopleSoft, to name a few--will follow suit. When asked about his company's plans, Rick Pitts, SAP's director of complementary software programs, said the German ERP vendor was committed to expanding the breadth of its transportation management capabilities. "We also will continue to build interfaces so our partners in this space [other TMS vendors] can also interface," he said.
Whether they develop their own transportation modules or acquire an existing TMS company, many analysts believe, ERP companies soon will charge into the TMS market. "Anytime they [ERP vendors] see a software market adjacent to their own, you can bet they'll get interested," Banker says.
Slim Pickings
If the ERP vendors--or the other WMS or APS software providers, for that matter--go hunting for TMS vendors to acquire, they'll find slim pickings at this point. One of the few leading players left in the TMS market is Manugistics, which also has a suite of other distribution-related modules. In fact, Gartner analyst Du Toit says buyers may have to look overseas at companies like DPS International Ltd. in the United Kingdom, which has a strong TMS product.
Although there aren't many TMS packages left, a number of transportation-related niche software players remain. Analyst Greg Girard of AMR Research in Boston notes that in the next round of acquisitions, buyers might have to go after vendors that make shipping system software--companies such as Pfastship Logistics International in Irvine, Calif.; Varsity Logistics in San Francisco; TanData in Tulsa, Okla.; and Transcape in Bloomington, Minn. Other transportation software segments include makers of routing and scheduling software, and freight-bill-auditing software.
Girard, in fact, has advanced the notion that the recent TMS acquisitions have split the supply chain software vendors into two camps. One group, represented by HK Systems, McHugh, and Optum, offers supply chain execution systems. Another group, which includes i2 and Baan/CAPS Logistics, concentrates on supply chain planning suites. "Neither camp has a great solution that spans both planning and execution," Girard notes.
Miles to Go
The recent rash of company buyouts notwithstanding, the development of TMS software itself isn't over yet. As the software companies continue their development work on supply chain solutions, they'll need to make further enhancements to the transportation management software. Michael Micco, director of products at CAPS Logistics, notes that TMS applications eventually will need to be capable of supporting transactions across the Internet. "You can imagine that years from now," he says, "you may be tendering your loads on the Web."
In addition, Banker of Automation Research says that the current TMS packages really are designed for distribution within the United States. "Most solutions assume that you are in the United States trying to lower your freight bill," he says. "The most undervalued part of the transportation software market is the [development] of a global logistics solution."
Likewise, AMR analyst Girard says he expects that customer demands will compel the current owners of the TMS software to expand the breadth of their transportation applications. "People will have to build out from their strengths," he declares, "and build functionality that they don't now have."
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