Be wary of one-stop shopping

By James A Cooke -- Logistics Management, 10/1/1998

After months of speculation, the market for transportation management software (TMS) appears to be undergoing a rapid consolidation. Business software players are snatching up the leading independent vendors of TMS applications--programs that help shippers plan and manage their transportation operations.

At first blush, this consolidation should make it easier for a shipper to automate its entire logistics operation, using one software company to provide both warehousing and transportation applications. But shippers should be wary about relying on a single software vendor for all their information needs.

Until recently, logistics managers interested in automating their transportation operations had to go to an individual vendor of TMS programs. Although there were a couple of software players that offered both TMS and WMS (warehouse management) programs, most shippers had to buy them as separate packages and then integrate them with their other business applications.

But that meant extra costs and extra time to build an interface between the TMS or WMS and other software programs used by the business. That's why for the past year, industry analysts have been predicting that U.S. businesses would want a full suite of supply chain software from a single vendor--a suite that would include applications for warehouse management, order management, advance planning and scheduling, and, of course, transportation management. In theory, the benefit of using such a suite would be that the various applications could readily exchange information because the interfaces to facilitate data transfer already would have been created.

The recent spate of TMS buyouts offers the promise of application interoperability. WMS vendor Optum merged with TMS maker Metasys. i2 Technologies, which sells APS (advance planning and scheduling) systems, acquired TMS player InterTrans Logistics Solutions. WMS vendor HK Systems bought the TMS vendor Kitimat Systems.

In all of the above cases, another best-of-breed logistics software concern bought a TMS company to boost its portfolio of distribution offerings. That's why it came as a shock when one of the Enterprise Resource Planning (ERP) firms--the big guys in the business software industry--decided that it, too, needed a TMS offering. ERP vendors specialize in providing software to manage finances and automation.

Although some claim to provide software for logistics functions as well, ERP programs historically have not measured up in scope and breadth to the specialized logistics applications developed by so-called best-of-breed players. Thus it was big news when the Dutch ERP vendor Baan signed an agreement to acquire CAPS Logistics.

Baan's entry into the TMS market and, by extension, the logistics software market, could signal a change in direction for the ERP vendors. Baan's competitors, such as SAP and Oracle, may conclude that they too must get into the supply chain software market and provide logistics applications. Because of the time required to build the software themselves, they likely would look to buy up one of the few remaining TMS providers.

Although such buyouts could provide one-stop shopping for logistics managers seeking software and would hold out the promise of lower integration costs, shippers shouldn't greet these consolidations with open arms. The cost of TMS packages is still so high--prices range from $300,000 to $1 million--that a business should buy the application that best meets its needs. In other words. a company should shop for the right software package and then worry about integration.

Furthermore, once a company casts its lot with a single vendor, it's tough to switch if the software doesn't work out. To make things worse, the company would bear the expense of integrating a TMS module into its information system all over again.