A tool for all tasks

Software vendors are assembling suites that cover the full gamut of logistics activities. The question remains: Are shippers ready to use them?

By James A Cooke -- Logistics Management, 2/1/1999

Not too long ago, the idea of buying a single software package to coordinate all of a company's major logistics activities was a pipe dream. There wasn't one software solution on the market that could handle the full array of tasks involved--warehousing, transportation management, order management, inventory control, and employee scheduling.

Well, the future may be just around the corner. As a result of recent mergers and acquisitions, several companies now offer suites of software modules for logistics operations. Industry analysts refer to these packages of distribution-related programs as logistics execution software (LES).

It's easy to see what has piqued software vendors' interest in being first out of the gate with a successful LES suite. A quick rundown of the market estimates for some of the individual software applications gives an idea of just how large the LES market could be. One observer--Steve Banker, a senior supply chain analyst with the Automation Research Corp. in Dedham, Mass.--has pegged the worldwide market for warehouse management systems (WMS) in 1998 at $729.7 million, transportation management systems (TMS) at $239.2 million, and order management software at $156 million.

Judging from market estimates for those three LES components alone, it appears that the worldwide market for an integrated logistics execution software suite could readily exceed a billion dollars. "Logistics execution software or whatever you want to call it is clearly the next evolutionary stage of supply chain decision-support tools," says Rich Thompson, a partner in the supply chain management practice in consulting firm Ernst & Young's Chicago office.

One of the pioneers in the LES arena is McHugh Software International of Waukesha, Wis. Originally a WMS provider, McHugh in 1996 merged with Weseley Software, which offered transportation software. This past year, McHugh added a labor-management system to its software suite when it acquired the consulting firm Gagnon & Associates. Ever since, it has been out in the marketplace promoting the value of an integrated solution that covers core logistics activities.

"LES offers the ability to ensure that the customer is receiving the right product at the right time at the right cost," says Jeffrey B. Cashman, a senior vice president with McHugh. "With disparate systems, you can't control that. With integrated solutions, you can."

Mergers & Acquisitions

Recent mergers indicate that other vendors of best-of-breed software--packages that handle single applications--are of like mind. Early last year, WMS vendor Optum Software of Costa Mesa, Calif., joined forces with TMS provider Metasys Inc. of Charlotte, N.C. The combined companies operate under the name Optum Software. "We believe that many potential customers have been waiting for a complete, integrated strategic product line to emerge as a single-vendor offering," said Optum's CEO David J. Simbari at the time of the merger.

Not long afterwards, another WMS provider--HK Systems Inc. of New Berlin, Wis.--bought two other best-of-breed software companies. First, HK Systems acquired TMS vendor Kitimat Systems Inc. of Mississauga, Ontario, and then it gobbled up Endura Software Corp. of Seattle, which offered order management software. HK refers to its combined offerings as supply chain execution software. "The culture of impatience is driving this," says Tom Dowd, a vice president of product and industry marketing at HK Systems. "I don't have the time to assemble my own best-of-breed products into a solution. The integration should already be done."

Another big player in this arena is Descartes Systems Group Inc. of Waterloo, Ontario, which now provides applications for order, inventory, and transportation management as well as warehouse optimization. (The latter application generally is attached to a warehouse control system.) "In today's market, you need a portfolio of products because customers want broader solutions," says Art Mesher, Descartes' executive vice president of corporate strategy. "They don't want to assemble five different solutions."

Big Players Weigh In

Also eyeing the LES market are the so-called Enterprise Resource Planning (ERP) system vendors, which historically have sold corporate finance and manufacturing applications. ERP market leader SAP AG of Waldorf, Germany, has announced plans to introduce a Supply Chain Optimization Planning and Execution (SCOPE) software suite.

Another ERP vendor, J.D. Edwards of Denver, Colo., has been marketing a bundle of related distribution applications for some time now. Its logistics suite includes modules for order, transportation, customer service, and warehouse management. The software runs on the UNIX, Windows NT, and AS400 platforms.

The Colorado software vendor is making a push to sell the entire logistics suite, rather than single modules, reports George Gulliford Jr., product marketing manager for logistics at J.D. Edwards. The price of the suite for 10 users would range from $100,000 to $110,000, he says, adding that installation would be extra and would cost a buyer one to two times the license fee.

Gulliford says his company views logistics execution software as a growth market. "This is the last frontier of software," he says. "Companies have identified warehousing and transportation operations as places [where] they can reduce cost or gain a competitive edge."

Buying a suite of LES applications saves a user the expense and time of integrating various distribution applications, Gulliford adds. "Every piece is talking to [every other module] on a real-time basis. It's one software system that looks and feels the same across the board for employees," he explains. "We see more and more people wanting the whole suite now, especially companies that have attempted to bolt on applications--they know the advantages of a suite."

Ahead of the Curve?

Despite all the merger activity and reported vendor interest in suites, some experts wonder if these companies aren't pursuing a market that isn't quite ripe. They question, for example, whether logistics managers will rush right out and purchase a suite of software when they're still learning to cope with a single application. "The software companies are a bit ahead of customer demand," says John Seidl, a partner at Deloitte Consulting Inc. in Atlanta.

Seidl says he finds that most companies are still seeking specific solutions for warehousing or transportation functions rather than an integrated one that encompasses all distribution activities.

If that is to change, LES vendors will have to ensure that all of the applications in their suites interact seamlessly with one another. This isn't the case right now. "They don't have the value proposition yet," says Beth Enslow, an analyst with the Gartner Group, a research firm headquartered in Stamford, Conn. "because they don't have tightly integrated products."

Along with integration, LES firms will have to concentrate on creating synergies among their software applications. Banker, for one, would like to see LES vendors provide joint optimization, a feature not currently offered. He explains that there are constraints built into today's warehousing and transportation applications that keep companies from weighing tradeoffs. He cites the case of a truck driver who receives and responds to a message to pick up a backhaul. Although eliminating empty miles improves efficiency on the transportation side, going out to pick up that load might mean that goods from an important customer are left waiting in a warehouse. Optimization would make companies aware of the tradeoffs between warehousing and transportation and show them ways to improve distribution efficiency.

In short, it may be a few years before LES vendors offer something that's enticing to shippers. "LES is a work in progress," says Gregory D. Girard, a senior analyst with AMR Research in Boston. "LES is two to three years away in the pricing and robust functionality it needs."

More Mergers to Come

Although customers have yet to fully accept LES software, most experts expect to see more choices in this area in the months to come as vendors of single distribution software applications join together for survival. Art Mesher of Descartes notes that, in a competitive marketplace, software companies are driven to merge to obtain a critical mass that allows them to pay for software development and underwrite larger sales staffs.

Indeed, the pace of consolidation among distribution software players should pick up in the coming months. "We've just seen the tip of the iceberg in terms of LES-related mergers," predicts Olin Broadway, a managing associate at the consulting firm PricewaterhouseCoopers in Atlanta. "More TMS and WMS marriages are ahead. You'll see the order management guys join the fray."

But even LES may be just one stage in the evolutionary process. Many analysts foresee the creation of a broader category of software--supply chain planning and execution software--sometime soon. This umbrella product would encompass both LES types of applications and those designed to plan and schedule production. Says Banker of Automation Research Corp., "There's a movement toward a full supply chain suite that has order management, planning, and execution."