What's driving the need for TMS? (page 3)

-- Logistics Management, 1/1/2005

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LM: How will performance-driven metrics change TMS packages?

Gonzalez: Part of it is driven by Sarbanes-Oxley. Part of it is just a need for companies to really understand things like the financial impact of on-time delivery, and being able to link operational metrics with financial metrics. As companies are looking to understand what are the costs to serve a particular customer and who are the most profitable customers, there is a strong desire to get more granular information with regard to transportation costs and logistics activities in general.

You'll see more efforts to get information related to the transportation operation. Right now it's amazing that many companies don't have any information about what they're actually spending on transportation. It's rolled up in other costs.

LM: With the continuing increase in international trade, do you expect to see more integration between TMS and export/import applications?

Gonzalez: When you talk about integration—connecting two different applications together—it may not make sense to integrate them directly. But if they're integrated as part of some overall workflow, then that makes sense. Ultimately, they need to be integrated at that level, certainly on the visibility side and certainly in terms of automating the filing of (export/import) documents and bills of lading.

Caplice: If the purpose of the TMS is to improve the efficiency and effectiveness of the flow of materials and information within your network, then anything that deals with the import or export process will be part of that network. When you look at the material coming in these days, we're a trading nation now more than a manufacturing nation, and that situation is only going to increase.

Gonzalez: For the most part, vendors have always sold TMS software as an unbundled solution. One thing that's made it easier is that these vendors have moved toward a Web-based architecture. Even within the TMS application, one can unbundle specific functionality, such as a routing guide. Many companies are unwilling to buy an entire suite of solutions. They want to focus on their pain points today and add on as their needs evolve.

LM: Do you think logistics networks will replace TMS packages?

Gonzalez: "Replace" is too strong a word. This is another option to consider.…When an end user is looking at what they want to do from a transportation standpoint, it will assign different values to optimization, to connectivity, to execution, to whatever. In some cases the scale will tip in favor of a network-based solution. In other cases it will tip toward a more traditional solution.

LM: Finally, will there be fewer TMS vendors next year than there are now?

Gonzalez: We tend to use a broad definition of TMS at ARC, but you have somewhere in the neighborhood of eight or 10 respectable players. Some of the ERP players are becoming stronger competitors in this market. At the same time, as some of these vendors have been acquired or have gone out of business, another one pops up that approaches the transportation problem differently.

In the past 18 months, for example, there have been three different vendors that popped up to focus on visibility in spending on parcel shipping: IntraVex, nSite, and BirdDog Solutions. In many ways, you can look at it as a visibility tool in terms of companies understanding the different parcel carriers and their charges. They didn't exist years ago, and now you've got three little vendors fighting it out.

Caplice: There's consolidation going on and it's not going to stop. There aren't as many stand-alone TMS vendors as there were five years ago. There are a lot of startups for niche areas, but they will be bought sooner than they were in the past.

Gonzalez: The [stand-alone vendors] come at it from the network side. They are doing the on-demand piece. They are presenting a slightly different value proposition or deployment option.

All indications from the acquisitions are that it's harder and harder for stand-alone vendors—not only in TMS, but in any market—to compete. They have to constantly innovate or come up with a slightly different value proposition to justify being a stand-alone.

Caplice: That's a good sign for the market because that tells us that supply chain management software is now truly being treated as supply chain management and not software in different functional areas that just happen to be talking to one another. It's moving in the same direction and mirroring the organizational behavior of most companies. Supply chain management is too important a topic to keep in its own silo.

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