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Most companies are still lagging behind in the use of information technology to manage their supply chains and logistics. But now a major development is changing the way companies use their software.
Denis O’Sullivan explores the concept of software as a service.
Left: Denis O'Sullivan |
The leaders in IT are usually the very big companies who have spent millions to buy or to develop major customised systems. However, this is not always as beneficial as intended. Upgrades and enhancements are expensive and changing systems can cause major business disruption. But, changing market requirements and customer demands mean that regular changes and upgrades are essential. This in-house approach is no longer economical for even the largest of companies, and certainly not for smaller companies. It is the software equivalent of painting the Forth Bridge. However, even this analogy is no longer valid; technology means that this once symbol of never-ending work is now only painted once every 20 years!
Major changes in applications incur major investments beyond the cost of development or licences. New software usually brings with it the need for updated hardware, or at least some additional expensive hardware. Then there is the need for maintenance contracts or in-house maintenance costs and often additional support staff. But, without leading-edge logistics solutions, companies cannot meet customer and consumer expectations. Therefore, the opportunity to grow and win business, by adding value through advanced use and sharing of information, is often based on the commodity concept of low-priced transport. In-house operators will often outsource rather than face up to the need for huge investment in IT.This may not solve the IT problem – if their logistics partner also does not have the best possible computer systems – but at least it moves the IT investment problem off the balance sheet.
Software as a service
A major development in IT is changing the way companies use software. It is a new approach to how we access and pay for the applications and is known as software as a service (SAAS).
SAAS – also referred to as on demand – has been talked about for several years and was originally fanfared as the end of the desktop PC. As is often the case, it took a breakthrough by one company to start the ball rolling. In this case that company was SalesForce, a traditional PC-based applications provider. When it changed to SAAS, it turned the customer relationship and sales force management market on its head. Now other software companies, including supply chain and logistics applications providers around the world, have followed this course. In fact, in several cases the UK SAAS providers are absolute world leaders.
These solutions provide access to business functionality remotely as a service, with costs that are aligned with usage, minimal upfront expense, rapid implementation, and time to value. The investment to get up and running is often very low and very quick, and the return on this investment (ROI) is almost instant. However, even better, the service is usually charged on a transaction basis. This means that companies do not have to pay for tomorrow’s needs today, but can wait until the business expands and more capacity or additional features are needed: in other words, not just a case of pay-as-you-go, but you also pay-as-you-grow.
Advantages of SAAS
SAAS is a good fit for small companies that do not have the IT staff or infrastructure in-house to manage information systems. Implementation is typically quicker than with systems deployed in-house, and the in-house support requirements are fewer. The service provider is responsible for all necessary software upgrades and system maintenance, and also relieves the customer of having to worry about IT infrastructure requirements, such as security, backups, and disaster recovery.
SAAS is also proving popular in large companies, especially when business units have difficulty getting new systems developed through the central IT function. Senior management often welcome this approach as a way to satisfy user requests without extensive support from the IT staff. Because SAAS deployments are usually funded on a pay-as-you-go basis out of operating expenses, they avoid capital expenditure requests that would require authorisation by the central IT function.
The fact that this technology and service approach is popular with small, medium and large companies is very unusual.Technologies usually appeal to one or two sizes of companies only, because of the different scale and functionality involved and the cost implications. However, many smaller companies are kept from growing not because of the lack excellence of their management and operations, but because they simply cannot afford the best IT. With SAAS, because payment is made for the functionality needed and charges are based on transactions, smaller operators can punch above their weight by offering IT that is as good as or better than large competitors. If they win the contract, they can pay for the extra functionality and transactions; if they do not, they have not wasted any investment. Rapid return on investment Because there is no or minimum capital expenditure, the return on investment is rapid. In a study conducted in the USA and Canada by Computer Economics in the summer of 2006, the amazing figure of 91% showed a first-year ROI. Of these, 57% of the total had economic benefits that exceeded the SAAS costs and 37% broke even in year one – see Figure 1.
The same survey showed that in 80% of cases, the total cost of ownership came in either on budget or lower. There are few traditional applications where these figures can be equalled – see Figure 2.
The current SAAS logistics offerings in the UK range from those that have taken established and well-tried desktop applications and developed them to take advantage of the latest web technology, to applications that have been developed solely as web applications.
Vehicle routing and scheduling as a service
An example of a company in an industry that would never have contemplated using such systems is Waste Per Se, which specialises in the collection and treatment of agricultural wastes and animal by-products. Its subsidiaries, WRE Collection Services and WRE Disposal Services, are going through a period of unprecedented operational growth.
The Animal By-Products Regulations prohibit farmers from the traditional practice of burying dead livestock on the farm. Ian Bryan, Managing Director, WRE, had secured access to this innovative product that combines proven performance and a high level of functionality with a low entry cost per site. WRE has already secured two multi-site accounts where the ability confidently to predict base costs and service levels was key to securing agreement with new customers.
DPS International of Halesowen has taken a long-established desktop application, LogiX, and produced a SAAS offering. DPS was established 25 years ago by Paul Palmer, CEO, to develop transport planning and operational systems. He is convinced that logixcentral will overcome the perceived problems of companies who have shied away from such systems in the past. DPS provides an on-demand service so that smaller companies, including those with a small number of vehicles, can now access logixcentral via the Internet and use the system on a pay-as-you go basis.There is no need for an in-house system and no need for a licence. Because logixcentral is based on the long-established LogiX family of routing and scheduling products, the customer can expect a rapid return on investment.
DPS CEO Paul Palmer in front of a screen showing a shot of logixcentral in use as
a remote service. Users can pay as they go for the routing and scheduling products.
Visibility, collaboration, track and trace as a service
Deltion of Feltham, Middlesex, has taken the approach of developing a logistics system – CarrierNetOnline (CNO) – which is available exclusively as an Internet version. Piyush Shah, CEO, believes that SAAS is the way forward for logistics operations, whether they are third-party or in-house operators: ‘The key to both effectiveness and efficiency in the extended supply chain is the achievement of visibility and the establishment of collaboration.’ He says that to achieve this, it is critical that supply chain partners are able to work together in real time and exchange information and resolve problems as they happen – or in some cases even before customers are aware there is a problem. The CNO service already has more than 1,000 UK users who have processed over three million orders at a value in excess of £1 billion.
Two major pallet networks using CNO are HazChem and Fortec. The HazChem service is hosted by CNO but the Fortec service is hosted by Fortec parent company GEODIS. This shows the flexibility of SAAS offerings.
Hurst Transport of Stallingborough, Lincolnshire, is a member of both the Fortec and HazChem networks, but was so convinced of the benefits that it has now taken the CNO service in-house, where it is used by its own customers, as well as for an access point to Fortec and HazChem. Graham Hunt, Managing Director, who led a management buy-out three years ago, is in no doubt about the benefits of SAAS: ‘We are growing largely as a result of being able to offer our customers better information than our competitors, using web technology. Hurst offers its customers complete visibility of order progress, full track and trace capability, and the ability to print consignment notes and bar code labels anywhere.We know exactly where a consignment is at any time and when it will be delivered. So do the customers – online anytime.’
Online and on-demand tool
SAAS can also provide opportunities for consulting companies, offering an easily accessible solution that would be far more expensive if the Internet option were not available. Scala Logistics Consulting offers a fuel management and benchmarking service based on ESSACTA Internet software, which is a solution for fuel management and benchmarking. Information on fuel consumption can be either input manually or, far better, directly from fuel cards by automated input from the fuel card company.This allows monitoring of use of fuel by driver and vehicle. It is then possible to make benchmark comparisons internally and externally using the database created by the consultants.
As with other software services, there is no capital requirement; the service charge is based on use of the service on a cost per vehicle basis, and because there is no capital investment, payback can be achieved in a few months. Already many logistics consultancies, including SCALA, are adopting the DPS logixcentral SAAS model, paying on a usage basis, this time depending on the extent to which the service is used in consulting assignments.
There are two important variations in the model for SAAS today: the service provider may host a separate system for each customer – the single-tenant model; or, the vendor may host multiple customers on the same instance of the system – the multi-tenant model. Only vendors that have specifically designed their systems from the ground up to host multiple clients on a single instance can deliver SAAS under the multi-tenant model.
The above examples, logixcentral, CNO and ESSACTA, are multi-tenant examples, but one USA company, E2open, offers a single-tenant service to major companies in the hi-tech industry. Over 15,000 companies worldwide currently use E2open for greater supply chain visibility and control through accurate, timely, and cost-effective access to information. E2open offers a solution that combines: inter-company process management functionality; event management tools; performance management capabilities; and an open system-to-system integration platform delivered in a software-as-a-service model, resulting in lower total cost of ownership and shorter deployment cycles. Among the hi-tech companies who have signed up for this service are IBM, Agere, Hitachi, and Seagate.
Just over half of 180 companies surveyed by the analysts Aberdeen in March 2006 use or are considering on-demand supply chain applications. These companies are in the main major organisations, but the exciting thing about SAAS or on-demand software is that it is available for companies of all sizes. The examples of companies using SAAS technology quoted in this article range from the UK transport company Hurst, with a turnover of £7 million, to IBM, with a turnover of more than $100 billion.
In Conclusion
Is SAAS the long-term answer to affordability of powerful logistics solutions? That depends on your definition of long term. In the world of rapid development of technologies, long term tends to be seen as what other industries would call short term. However, I am convinced that the key aspects of providing an Internet-based service,with no capital expenditure for licences or hardware, no ongoing charges for maintenance, and an automatic upgrade path for latest developments is here to stay. The technologies being introduced as part of the move to Web 2.0 can only serve to strengthen the on-demand model.
Reference
1 www.computereconomics.com
About the author
Denis O’Sullivan was, until recently, IBM e-business solutions Strategy Manager Europe and a member of the IBM World Wide Business to Business Solutions and Service Team. He is co-author of a major Financial Times report on e-business for corporations. He spent 18 years in management consulting and was in senior management roles in international services companies, including as CEO of a global container operator and European Vice-President of an American container operator. He now focuses, as an independent consultant, on helping companies improve their business-to-business relationships by the application of Internet-based technology.
Information
Your Institute is launching an exciting new Technology Faculty Supply Chain Integration Technology Forum to be chaired by Denis O’Sullivan. It will cover topics such as:
- Future of SC technology
- Collaboration and visibility
- Extended supply chain
- Order management
- International/global
- Software as a service/on-demand
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- Web developments
- Telephone technology
- Mobile solutions and SMS
- Supply chain and the environment
- Customer information management
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For more information, see
www.ciltuk.org.uk
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