Oracle’s Larry Ellison may have shrugged off the notion of growth in on-demand computing when talking to analysts at a conference recently, but hundreds of shippers have already proved him wrong by buying into this innovative way to purchase and implement software.

Also called “grid computing,” “cloud computing,” and “software as a service (SaaS),” on-demand is a way of storing data on one or more servers (rather than on a PC) that are maintained by the software vendor, who in turn grants access to users via a password-protected Internet portal. The concept caught on fairly quickly with transportation management systems (TMS) users and the vendors that develop software for them—and the trend is building speed.

The idea is also taking hold in the global trade management (GTM) space as well as in other non-logistics areas. Both Microsoft and Apple have announced their forays into the market, with the latter introducing its MobileMe application to maintain calendars, address books, and Internet bookmarks synced on the firm’s computers and phones.

In the transportation management world, on-demand caught on like wildfire with shippers looking for a fast and economical way to obtain state-of-the-art TMS. Such services differ from managed transportation services, which Adrian Gonzalez, director, logistics executive council at Boston-based ARC Advisory Group, defines as “quasi-3PL services through which companies contract with third parties to handle tasks like carrier management.” On-demand, he says, leaves the power and control in the hands of the shipper.

Much of the growth in on-demand right now can be credited to the economic downturn, says Gonzalez, who points to the financial crisis, high fuel costs, and overall economic malaise as the key drivers. With the conditions expected to continue into 2009, he says many vendors will offset the drop in “traditional” business by developing and honing their on-demand options.

“When times get tough, companies tend to put IT projects on hold,” says Gonzalez, adding that the on-demand model’s low upfront costs and low time to ROI are particularly attractive. “Companies can come up with a stronger business case to move forward with on-demand initiatives, rather than doing in-house projects that require more money upfront.”

Also making on-demand TMS compelling for shippers is the fact that most come with good planning and optimization capabilities that go beyond the basic “execution capabilities” such systems were traditionally known for. “When they first came to market, on-demand TMS focused on execution,” explains Gonzalez. “Over the past few years, vendors have expanded these capabilities, making the option that much more compelling for shippers.”

Brian Popoff, principal of CapGemini’s logistics and fulfillment practice, says he’s seeing shippers using on-demand TMS in two ways: as a permanent solution for more effectively managing transportation spend and as a temporary solution during the early planning stages of a “full” purchase-and-install implementation.

Ultimately, Popoff says the choice to use on-demand versus purchase-and-install TMS comes down to economics. “Large companies that are shipping several hundred truckloads annually would find it less expensive to buy and install an application, whereas a smaller firm with $50 million or less in annual transportation spending may fare better with an on-demand option,” says Popoff.

It’s no secret that companies of all sizes are using on-demand TMS to help reach their goals faster—and for less money and hassle. Here are two shippers that have taken the on-demand route and achieved success.

When KIK Custom Products was ready for a state-of-the-art transportation management system to replace its existing, multiple legacy systems, Chet Barrows knew that the fastest, most painless route from point A to point B would not be a traditional purchase-and-install option.

“It really came down to the question: What’s the easiest way to get a TMS?” recalls Barrows, director of corporate transportation for the Toronto-based firm. From its 15 warehouses, KIK ships private label bleaches and household cleaners to national retailers and major consumer packaged goods companies throughout North America.

“I knew it would be difficult to get the capital necessary for the traditional option, but I also knew that our company would benefit greatly from a TMS,” says Barrows, whose biggest challenge at the time was a lack of visibility over shipments. “We really needed to improve the quality of our information to enable effective decision-making.”

To select an on-demand vendor, Barrows says he reviewed several options before discovering OneNetwork’s solution, which was already being used by several of KIK’s largest retailer customers. “It made for a nice synergy,” says Barrows. Implementation took place in late-2007 and took about three months to complete.

Making the system especially attractive, he adds, was the fact that it required no additional hardware, nor did his team have to worry about whether it would integrate with KIK’s existing IT solutions. The company rolled out the solution over a six-week period to a single site first and then embarked on an aggressive strategy that resulted in eight more sites using the on-demand TMS within 30 days.

Barrows says the TMS has allowed his company to operate in a paperless environment that includes functions like electronic tendering and acceptance. Visibility over shipments has improved dramatically, as have the reporting systems that Barrows’ team uses to make sound decisions.

Also because of the new TMS, KIK is handling freight payables in-house, where in the past it had to pay a third party to handle that aspect of its business. The icing on the cake, according to Barrows, is the fact that these changes will require no additional human capital or overhead. In the near future, Barrows says KIK plans to leverage the system’s scheduling, online appointment-setting, and load tendering capabilities—with the latter including loads tendered on behalf of individual customers.

“Many customers look to us as transportation vendors, hand us routing guides and ask us to handle the task for them,” says Barrows. “With our TMS, we’re able to handle that for them without much added expense, thus increasing our value-added service offerings.”

Up until 2006, The Jel Sert Company relied on a manual, paper-based system of transportation management. “We were printing about 18,000 orders out one-by-one on a printer and processing them manually,” recalls Michael Martinez, director of distribution for the West Chicago manufacturer of foods like freezer bars, Wyler’s Light Lemonade, and the Royal brand of puddings and gelatin. With 13 warehouses throughout North America, the company delivers truckload shipments to customers across the continent.

“It was just getting to be too much to handle,” says Martinez. And because the company lacked “big picture” visibility over its logistics operations, he says half its truckload shipments were handled and put on the “done pile” without much thought about whether they could have been combined with other shipments to achieve cost and time savings.

“We’d have a half-truckload going to Pittsburgh in the morning, and one hour later we’d have another one going to Harrisburg,” says Martinez. “Because we had no visibility, we never knew that just an hour earlier we had a truck going to the same area.”

Intent on solving those challenges, The Jel Sert Company explored its TMS options and selected LeanLogistics’ on-demand option. Implementation took about nine weeks and the company was going live with a new TMS solution in late-2006.

Since rolling out the system, the company has increased its order numbers from 18,000 to 25,000 a year, with 75 percent shipped between March and July. “During that period the need for processing speed is paramount,” says Martinez. “The system allows us to quickly analyze shipments, route, and make the best purchasing decisions in a short period of time.”

On the human capital side, Martinez says the company has been able to handle the growth in orders without having to hire any new employees. “The fact that we have an automated system allows us to process all of those orders systematically, rather than manually,” he says. “That’s translated into significant cost and time savings.”

With economic conditions forcing companies to conserve cash and spend more wisely than ever, the need for on-demand systems will likely grow in 2009. “We’re going to see a lot of companies being cautious about how they spend their cash,” says Greg Aimi, research director at Boston-based AMR Research. “The idea of paying for a system out of your monthly operating budget—rather than putting out a major capital outlay—seems pretty good.”

Expect to see on-demand slowly making its way into other applications, adds Aimi, including GTM and WMS, the latter of which are “light on functionality” right now, but showing promise. “The on-demand WMS may lack the functionality of a Manhattan or Red Prairie system,” says Aimi, “but for some companies, it’s more than enough.”

Looking ahead, Aimi predicts slow-but-steady growth in the adoption of on-demand systems as an alternative to—and not a replacement of—licensed software. “There’s a variety of reasons why companies still like licensed software options,” says Aimi, “but there are also many instances where on-demand fits the bill nicely.”