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-- Logistics Management, 5/1/2005

LMreaders are planning to dig deep into the till to pay for new software, according to the survey results. All told, respondents said their companies planned to spend an average of about $600,000 on all types of supply chain software this year. That number reflects the fact that some respondents' companies plan on spending millions of dollars on enterprisewide applications.

That's a pretty hefty figure, but it makes sense when one considers that for the third consecutive year, respondents reported that their companies had increased their deployment of supply chain software. This time out, 55 percent of polltakers said they had increased their use of software. In addition, 49 percent said they had increased the number of software packages they were employing in their distribution operations. Most likely that indicates logistics managers are increasingly relying on software for assistance in implementing sophisticated supply chain strategies and complex tactics for reining in costs.

And there's more good news for software vendors: Thirty-nine percent of survey participants said they were seeking to work with more application providers than they did in the past. Another 41 percent said they were continuing to work with the same vendors as before.

If shippers are going to spend a lot, they're also going to demand a lot in return. Just under 40 percent said they expected a payback on their software purchases in less than a year. That's actually a bit more patient than respondents have been in the past: Last year, 47 percent wanted a payback in one year or less.

Some respondents, though, planned to drive an even harder bargain. Twelve percent said they wanted a return on their software investment in less than six months, while 27 percent expected a return in 6–12 months. Another—perhaps more realistic—27 percent were willing to wait more than 18 months for a payback on their purchases.

The Right Features

When it comes time to select a supply chain software package, some 64 percent of polltakers employ a formal process for rating software vendors and their wares. Given the cost of most packages, it's understandable that logistics managers would want to ensure that any such expenditure is money well spent.

Respondents placed a high degree of emphasis on selecting a package that can meet their specific job requirements. Almost half—48 percent—said their primary consideration when selecting software was getting the right features to meet the specific needs of their operations. Another 20 percent cited compatibility with their existing IT system as the most important factor when selecting a package.

Once that selection has been made, the majority of logistics managers count on the vendor to provide training. Some 88 percent of survey takers said they required their software vendors to provide instruction as part of any deal. A similar number (86 percent) said they expected vendors to adhere to an implementation schedule.

Surprisingly, if a purchased application must be tied into existing or legacy software systems, most companies take it upon themselves to perform that integration. More than one-third of the survey sample—35 percent—said they handled software integration in-house, while 27 percent looked to the software supplier for support in this area. Another 16 percent said they hired a systems integrator for the task, and 11 percent turned to a consulting firm for integration services. The rest said "other" or "not sure."

Ready and Willing

The survey results provide plenty of evidence that in a recovering economy, logistics and supply chain managers are ready and willing to boost their software spending. Many are responding to a more demanding business environment by replacing their existing applications with newer versions that have more features and capabilities.

As the demands of business evolve to require increasingly sophisticated supply chain and cost management strategies, software will evolve along with it—and shippers will buy those new products, provided they can meet their specific needs.