6th Annual Software Survey: Scrutiny rules the day
It shouldn't surprise anyone that logistics and supply chain operations are being asked to weigh every penny of SCM software spending in 2009. However, industry analysts insist that you can't employ shrink tactics and expect to grow. What's a cost-conscience shipper to do?
By Bridget McCrea, Contributing Editor -- Logistics Management, 4/1/2009
The results of our 7th Annual Software Survey shouldn't come as a surprise to anyone. According to the responses gleaned from just over 400 shippers, tech spending in the SCM space has softened with a portion of respondents reporting that their companies are freezing software investment altogether for 2009.
Among those shippers that are purchasing and upgrading software, many say they are carefully scrutinizing those investments and "moving forward cautiously." However, we did find a percentage of respondents that do plan to buy new or upgrade existing supply chain management software in 2009. This more aggressive, perhaps more forward-thinking group, tells us that they're going to place the biggest emphasis on warehouse management systems (WMS) and transportation management systems (TMS).
Over the next few pages we'll reveal shipper intentions to purchase new software, upgrade existing programs, or even temper their investment in WMS, TMS, Yard Management Systems (YMS), Global Trade Management (GTM) systems and Enterprise Resource Planning (ERP) systems.
We also bounced our results off of two expert analysts in the SCM sector, Adrian Gonzalez, director of Boston-based ARC Advisory Group's Logistics Executive Council, and Greg Aimi, research director at AMR Research in Boston. While neither of the analysts was taken aback by this year's results, both Gonzalez and Aimi add their unique perspectives to the study's findings and share where they believe the future of SCM spending is headed despite the gloomy economic headwinds.
Wait-and-See Approach
As we mentioned at the top, it certainly shouldn't surprise anyone that logistics and supply chain operations are being asked to cut back on their WMS, TMS, GTM, YMS, and other SCM spending. In fact, the current economy has prompted 41 percent of respondents to more carefully analyze their SCM investments, while 34 percent plan to freeze software investment in 2009. Sixteen percent say they'll move forward with investments in software this year, while 15 percent expect to upgrade existing programs in lieu of buying new packages.
"When things started going south for the economy in the fourth quarter, the big question was: What is IT spending going to look like moving forward?" says ARC's Gonzalez. "With only 16 percent of companies ready to make software investments and over twice that (34 percent) planning to freeze budgets, software vendors are probably concerned." Of the SCM vendors he communicates with, Gonzalez says that most are seeing more "delays" than "cancellations" of orders.
"A lot of shippers are waiting to see what happens in the second quarter of this year," adds Gonzalez. "Customers still expect to move forward, but it's a question of when, with projects being pushed out a bit."
Of the 41 percent of shippers who say they're planning to purchase SCM software sometime in the next 12 months, the bulk (31 percent) will invest in WMS, with 29 percent interested in TMS. Other SCM packages of interest include ERP (18 percent), GTM (13 percent), and YMS (10 percent).
With 32 percent of respondents currently using on-demand supply chain solutions, Gonzalez says he's surprised that more shippers aren't considering this alternative to purchase-and-install systems, particularly for TMS. Among those companies that plan SCM purchases over the next 12 months, just 36 percent are looking at on-demand options. "I really would have expected more companies to be looking at on-demand," says Gonzalez, "which is resonating strongly out in the market right now, particularly for those companies that have tightened their budgets."
Behind The Wheel
While they may be operating in a global business environment, our survey found that many companies have yet to fully embrace GTM as the answer to mounting regulatory challenges.
According to this year's results, just 15 percent of respondents are using such solutions, while 13 percent plan to purchase or upgrade their GTM this year. Aimi says the numbers are indicative of the fact that global trade management remains a heavily-outsourced function. "GTM hasn't taken off because shippers, and the importers/exporters themselves, just aren't buying it," says Aimi. "Instead, they're allowing their freight forwarders and 3PLs to buy it."
Key drivers of all SCM purchases right now include the need for improved inventory deployment (according to 46 percent of survey participants), real-time control (43 percent), upgrade of existing package (39 percent), label printing (35 percent), and labor management (32 percent). From their new TMS, shippers are looking for functions like routing and scheduling (46 percent), shipment consolidation (38 percent), routing and rating (33 percent), and carrier selection/load tendering (33 percent).
Some shippers expect to extract those functionalities from their ERP systems, which are currently in use by 44 percent of respondents. Eighteen percent plan to purchase or upgrade their ERPs this year, with 45 percent likely to shop for a package that includes a WMS module and 34 percent looking for one that includes a TMS module.
Regardless of which package they may be buying or upgrading, companies are taking a frugal approach to budgeting for their SCM purchases (including license, integration, and training), according to the survey results. The bulk of respondents are allocating less than $100,000 for their WMS, YMS, TMS, GTM, ERP, and Supply Chain Planning (SCP) acquisitions. The highest portion of that investment (44 percent) will go to WMS, with YMS (40 percent) and GTM (40 percent) both claiming the second spot on the priority list among those shippers in the sub-$100,000 investment category.
Even those respondents with designs on new packages or upgrades this year appear to be sitting on the fence. For those shippers with WMS on their shopping list, 26 percent of respondents are evaluating vendors, 14 percent are in the process of buying, and 5 percent are selecting vendors. Of TMS buyers or upgraders, 23 percent say they are evaluating vendors, 13 percent are currently buying, and 8 percent are choosing vendors. Fifty-six percent of WMS buyers and 57 percent of TMS buyers say they're "not currently at any stage" of the purchasing process.
Quick ROI Now The Norm
Payback expectations for SCM investments haven't changed much over the last few years, with most respondents (40 percent) looking for ROI within 12 months to 18 months. Twenty-eight percent feel that 6 months to 12 months is a more reasonable timeframe, while 24 percent are willing to wait more than 18 months for payback. For the software installation, the highest percentage of firms (40 percent) handle the task in-house, while 27 percent turn to their software vendors, and 14 percent rely on business management consulting firms.
With so many shippers handling installation in-house, Gonzalez sees a possible opportunity for vendors to fill the gap by beefing up their implementation offerings. "Considering the fact that software vendors are looking to increase their services," he explains, "there could be an opportunity for them to assist that high percentage of customers that are trying to do it themselves."
When comparing supply chain software packages, shippers are most interested in finding products that have the right features for their operations (90 percent); good service/support (83 percent); configurability (81 percent); and compatibility with existing systems (79 percent). When dealing with software suppliers, shippers say their biggest challenges are getting vendors to understand the firm's operational needs (30 percent), accountability/getting the product to do what the vendor promised (24 percent), and implementation/integration (16 percent).
Down The Road
With ARC currently updating its SCM market research, Gonzalez says the general consensus points to a weaker year in 2009, compared to 2008, for software spending. To adapt, he says vendors are touting a number of "low-cost, low-risk" packages targeted to today's budget-conscious firms. "Companies are sitting on the sidelines right now, trying to figure out which investments to make," says Gonzalez. "Getting through that barrier requires a good business case and proven ROI."
But just how long can shippers sit on the sidelines and expect to grow and prosper, asks Aimi. For even in stagnant economies, companies have to spend money to make money, attract new customers and increase their bottom lines. Aimi, who says AMR is running into significant challenges itself this year as it works to fill seats at its annual supply chain conference (due to "travel bans" being instituted at firms nationwide), calls many of the budget cuts rash and unjustified.
"Instead of making blind, harsh moves like technology spending freezes, firms should be evaluating the options and deciding exactly what is valuable and what is not," says Aimi, who is hopeful that shippers will adopt this mindset as the year progresses. "Growth comes through innovation, and innovation through process. Firms just can't keep using shrink tactics and expect to grow."
| Currently use | Plan to Purchase Upgrade | Both (NET) | |
| Warehouse Management Systems (WMS) | 55% | 31% | 67% |
| Transportation Management System (TMS) | 36% | 29% | 54% |
| Yard Management Systems (YMS) | 14% | 10% | 21% |
| Global Trade Management Software (GTM) | 15% | 13% | 25% |
| Enterprise Resource Planning (ERP) | 44% | 18% | 53% |
| Supply Chain Planning (SCP) | 34% | 23% | 47% |
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