The days of making hefty financial investments and enduring lengthy integrations in order to tap the latest transportation management technology appear to be numbered. Instead of the traditional "license and install" method of acquiring transportation management systems (TMS), more and more shippers are turning to the "on-demand" software model.

On-demand solutions, offered by both traditional and Internet-only players, employ a "pay-as-you-go" pricing model that's usually Web-based. These solutions are able to meet the needs of companies of all sizes and industries.

"We're definitely seeing an increased interest in on-demand or 'software-to-service' models," says Beth Enslow, vice president of enterprise research at Aberdeen Group in Boston. The results of a recent survey she conducted support that belief: Of the respondents who said they were considering buying a TMS within the next 18 months, 40 percent planned to seek an on-demand solution.

The new model is gaining in popularity among both new and larger, more established companies, says Enslow. One reason, of course, is the lower cost of pay-as-you-go service. But Aberdeen's survey found that buyers also liked the fact that they could get more capabilities faster and with fewer in-house resources. "They want to get up and running more quickly while easing the stress on their IT departments, which are stretched right now," she observes.

On-Demand Advantages

The main difference between purchase-and-install TMS and the on-demand version is fairly simple: With the former, shippers purchase a software program, install it on their own IT systems, and run it internally. With the latter, the buyer and its trading partners can access the same system, typically via the Web. Participants such as carriers, 3PLs, and internal departments like customer service, finance, and accounting use a password-protected interface to access information.

That saves time and money for all involved. "With permission, users can gain access to the data without having to go through separate implementations," notes Pete Stiles, vice president of marketing and strategy at Holland, Mich.-based Lean Logistics, which offers an on-demand TMS.

Authorized users usually need only an Internet browser to get started. "While on-demand TMS is considerably more complex than Google or Yahoo, a logistics manager accesses the system in much the same way that a consumer would access those search engines," explains Greg Johnsen, executive vice president of sales and marketing at GT Nexus in Alameda, Calif.

Johnsen points out that on-demand TMS products aren't limited to the Web, and that the systems can also send and receive electronic messages from both internal systems and those of outside business partners via the Internet. Such systems can help companies zero in on specific types of information—for example, tracking inbound shipments from a certain supplier, viewing outbound shipments from a particular DC, and analyzing the movement of a single product in various situations.

"The functionality of these systems is essentially the same in that they allow users inside the company and users inside partner companies to search and find information about shipments," says Johnsen.

For that reason, an on-demand TMS can function as a planning tool for logistics and traffic managers. Just one example: LeanLogistics' On-Demand TMS product, which encompasses 10 modules, includes such key functions as carrier procurement, daily load and shipment planning, execution and management of bookings and appointments, and settlement of payments.

In most cases, an on-demand TMS can get functions up and running within a shorter period of time and at a lower cost than a traditional installation can. Implementations can take a few days to a few months, with the average time spanning six to 12 weeks. Much of that time is spent managing the business-process changes that companies must undertake when implementing new software systems.

But it's not just the time consideration that makes on-demand TMS attractive to many shippers. Matthew Ward, vice president of Top Flight Concepts, the vendor of TFConnect, says a lack of in-house expertise is a key driver of the on-demand trend. "On-demand allows small to medium-sized businesses to offer services that they previously only could offer by buying an expensive package and having it custom-implemented at their sites," he says. "That's by far the top reason we see people willing to adopt it."

The financial case for on-demand is also compelling, says Erv Blumner, vice president of product marketing, transportation solutions at Waukesha, Wis.-based RedPrairie. "Through the on-demand model, shippers can acquire transportation capabilities as an expense item rather than as a license or capital allocation, thus giving them the opportunity to get into TMS without a major, upfront capital outlay," he says.

Choose Wisely

Enticed by the lower upfront costs, minimal IT infrastructure and support requirements, and the ability to easily connect with business partners, shippers are expected to embrace the on-demand TMS model at a healthy clip over the next few years.

Adrian Gonzalez, director of Dedham, Mass.-based ARC Advisory Group's Logistics Executive Council, expects the entrance of large vendors like Oracle and SAP into the market to help drive the on-demand model. The smaller players that helped create the space will continue to thrive, he predicts, but the on-demand market will likely consolidate as smaller vendors strive to create critical mass.

The fact that vendors are documenting and touting many successful on-demand implementations is also helping to drive market growth, says Enslow, who points out that Aberdeen's survey found "very high" customer satisfaction levels among users of on-demand supply chain software, including TMS (see the chart on Page 49).

Even though on-demand TMS may appear to have universal appeal, there are cases where shippers would be better off with a traditional installation. According to Gonzalez, a company that already has robust internal IT capabilities and a strong support staff would have less incentive to take the on-demand route. Enslow agrees; she says that shippers that have large IT staffs and extensive, traditional TMS capabilities probably will find it less expensive to run the system themselves.

Shippers that do choose on-demand delivery should do so only after careful consideration. Aberdeen's study found that both current and potential users of on-demand software have some concerns, including data security, difficulty of integration with internal systems, how "customizable" it is, and whether online delivery may be subject to interruption (see the chart on Page 49).

Buyers also need to decide whether they want a network solution that incorporates their carriers' systems. "The reason most companies still tender by e-mail, fax, and phone is that they haven't invested in electronic connections with their carriers," Enslow says. "If this is important to you, then outsourcing that work of connecting the carriers to an on-demand vendor, versus the traditional host or licensing model, is probably a good choice."

Don't assume, however, that the TMS vendor will handle all of the work required for implementing and using the on-demand system, Enslow advises. "There will still be some IT expertise required, albeit much less than what an in-house implementation would require," she says. "Shippers need to have as much responsibility for project management as they would with any other implementation."