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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However, even this analogy is no longer valid;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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