Supply Chain and Logistics Technology: TMS users being driven to the cloud

When it announced in September that both its transportation management and global trade management solutions would now be offered in the cloud, Oracle effectively threw its hat into the ring and—like many other software vendors—opened its arms to companies that are moving away from traditional, on-premise software delivery models. As a company that traditionally sold transportation management systems (TMS) via the latter, Oracle, like others, is now enabling shippers with quicker deployments and for a lower upfront investment.

By definition, cloud computing is the deployment of software on virtualized servers. Using this method, the TMS runs on multiple different servers as demand increases or decreases.

Users essentially rent the servers, communications, data storage capacity, and other elements that make up the platform, and are charged based on usage.

As evidenced by the growth of the cloud over the last few years, using such services generates the types of economies of scale and sharing of resources that can reduce costs and increase choices of technologies.

The fact that Oracle has moved its TMS offering into the cloud doesn’t surprise Dwight Klappich, research vice president at Gartner. In a recent examination of shippers’ intentions in the supply chain software space, he found that 8 percent of firms are already using a cloud-based TMS while another 51 percent of companies are “likely” to use TMS in the cloud. 

Klappich identified fast and easy deployment, better total cost of ownership (TCO) versus on-premise solutions, and limited capital expense budgets as the top three motives for moving supply chain management (SCM) software into the cloud. Of those firms that are not already using the cloud, Klappich says that overall uncertainty about how well the solutions fit within the organization, data security, and the fact that current IT management does not support the option were the three main drawbacks.

Over the next few pages we’ll explore the top six trends that are currently driving shippers to use the cloud-based TMS model, hear how these trends are affecting end-to-end supply chains, get the inside track on a few up and coming trends in the space, and learn how to discern between cloud-based
delivery methods.

Why the cloud is on a roll
There’s little doubt that cloud-based solutions are making inroads in the supply chain management space. Here are six reasons why.

1. Setup is quick and easy. Since the first iterations of cloud-based software began to appear on the market one thing was clear: setting up shop in the cloud versus going through a traditional
purchase-and-install scenario took less time and required fewer shipper resources. That key value proposition hasn’t changed much over the last 10 years.

“Speedy implementation is a big draw,” says Shanton Wilcox, vice president of supply chain management for Capgemini Consulting. “Companies like GT Nexus, for example, have been able to get complete supply chains up and running quickly on their cloud platforms.” Wilcox says cloud-based deployments typically require less customization and configuration—two other factors that tend to drive down lifecycle costs and make web-based applications that much more appealing to shippers. 

2. Startup costs remain low. Upfront costs can be a major inhibitor for small- to mid-sized shippers that lack huge IT budgets. Software vendors have leveled that playing field by delivering robust TMS packages in exchange for subscription fees.

Wilcox points to MercuryGate, as a best-of-breed player in the space, and Oracle, an ERP player, as two different examples of how the cloud is lowering the financial barriers to entry for TMS users. “Subscription fees are ongoing expenses versus upfront capital expenses,” says Wilcox, “so they make TMS capabilities accessible to a broader range of companies.”

3. Minimized stress on internal IT departments. For most small- to mid-sized firms, having enough IT hands on deck to select, manage, and maintain software solutions is an ongoing challenge. Cloud-based TMS helps to free up precious resources by taking those platforms out of the internal IT department’s hands and putting them back on the vendor’s shoulders.

“In a lot of organizations, the IT department is overwhelmed with projects and just doesn’t have the time or money to manage a full-blown implementation,” says Klappich. By using a cloud-based solution, the same IT department can fund and support a project with minimal impact. “Shippers still need internal IT support, but not to the same extent as you would find with an on-premise software model,” says Klappich.

4. Omni-Channel is exploding. In its 2015 Third-Party Logistics Study, Capgemini Consulting found that because retailers are increasingly dependent on technology for real-time visibility into operations, they’re gradually moving all of their platform-based solutions to the cloud—TMS included. According to Wilcox, retailers are also using integrated technologies to improve their omni-channel networks.

Respondents are investing in warehouse management systems (58 percent), enterprise resource planning software (54 percent), transportation management systems (54 percent), supply chain visibility (43 percent), warehouse management system add-ons (33 percent), and RFID (21 percent) to achieve that goal, says Wilcox.

5. The need for broader visibility. Because retailers are increasingly dependent on technology for real-time visibility into operations to track products when they leave the manufacturing facility, throughout the supply chain, and until they arrive at the final point of sale, retailers are gradually moving all of their platform-based solutions to the cloud. According to the Capgemini Consulting study, this enables retailers to process large amounts of customer data faster, better match customer demands with a sales season, and provide personalized solutions—not only in what customers buy and how they buy it, but also in how they receive it.

“By obtaining and transmitting information more efficiently and in new ways, retail shippers are able to offer more fulfillment options, giving customers the choice of picking products up in the store or the warehouse, or having them delivered to their locations,” says Wilcox. “These technologies, along with others, enable the concept of mass customization, which has been of growing interest to both manufacturers and retailers.”

6. There’s potential for broader collaboration. Up until now, TMS has been used to manage a single company’s transportation network. Going forward, Klappich sees that model evolving into one where numerous shippers and carriers are leveraging one another’s resources via the platform. As capacity constraints continue to become a bigger problem for shippers, Klappich expects more of them to move in a more collaborative direction.

A carrier that is hauling an empty truck back to a specific endpoint, for example, could use the TMS to find a shipper that requires such capacity. “That carrier with the empty leg is liable to offer you a better rate than you’d pay for a one-way move,” Klappich points out, “and a better price than you’d get by just asking 10 different carriers for their best rates.”

In the future, expect cloud-based TMS to play an even bigger role in helping shippers exploit their networks and work in more collaborative capacities with their trading partners and carriers. “We’re in the very early stages right now, with vendors like MercuryGate and Transporeon [in Europe] both doing work in this area,” says Klappich. “In the end, it’s about doing things that benefit both the shippers and carriers within the network, putting more logic into the systems, and getting everyone to participate.”