At last, on-demand software for the small shipper

By James Aaron Cooke, Contributing Editor -- Logistics Management, 7/1/2006

The news that PeopleSoft founder Dave Duffield was jumping back into the software industry caught my eye the other day. Duffield plans to launch a new company, called Workday, that will start out providing human-resources applications and will later offer supply chain software for small and medium-sized companies. Workday will compete against such big players as SAP and Oracle, the company that bought PeopleSoft last year.

What makes this development noteworthy for shippers is that Duffield's company will be entering the market for on-demand systems.

The arrival of on-demand software is good news for small and medium-sized shippers that have been longing for the same type of sophisticated, supply chain applications that big shippers have enjoyed for a while now. On-demand software (or "software as a service," as it's sometimes called) is provided to the buyer through a network—usually via the Internet. Shippers pay either a subscription fee or a per-transaction charge to use the software. There are no messy installations or worries about whether the application will conflict with others already installed on a server. As a result, on-demand software promises both lower costs and greater ease of use.

Given those potential benefits, it's no wonder recent research by Boston's Aberdeen Group found that 50 percent of the businesses it surveyed were either already using or were considering on-demand software for supply chain applications.

What makes on-demand software different from other hosted solutions, such as those offered by Application Service Providers (ASPs), is that the vendors are knowledgeable about the industries in which they are offering their services. "ASPs have no process expertise, and they don't care what application they're hosting," says John Fontanella, senior vice president and research director, supply chain services, at Aberdeen.

On-demand software has already proven popular for other business functions outside of logistics. One example is customer-relationship management, where companies are using applications offered by such vendors as Salesforce.com, NetSuite, and Salesnet.

In the logistics realm, on-demand solutions are well suited for many applications. One example is transportation management; shippers could use such an application to select carriers, plan routes and shipments, and track carriers' performance. On-demand software can also improve supply chain visibility by helping them handle inventory planning and do a better job of forecasting demand.

Although on-demand software may turn out to be ideal for many supply chain activities, there's one area where it probably won't work, in my opinion, and that's the warehouse. In order to keep distribution centers running efficiently, companies may want the greater degree of control that comes with installing and operating warehouse management systems (WMS) on their own computers. And because a WMS must interface with materials handling equipment, this type of software still lends itself to the traditional approach: a company buys a license, installs the package on its servers, and performs the integration. "There's little or no advantage to [on-demand] software in areas such as warehousing," Fontanella agrees.

In other respects, on-demand software could give small shippers an affordable means of getting on an equal footing with the big guys when it comes to supply chain management. That's why I wouldn't be surprised if other, established software vendors as well as startup firms join Duffield in creating the next wave in supply chain applications.