Despite the modest recent cessation of transportation pressures, interest in transportation management systems remains high.
We covered TMS in detail in the inaugural issue of The SCDigest Letter, our new hard copy publication, focused in this first issue on Transportation Management Systems (Next issue – network planning and optimization – subscribe here). If you didn’t receive a copy in the mail, you can find a pdf version, as well as a slew of TMS related resources, at the December SCDigest Letter web page. If you are at all interested in TMS, you will find a wealth of resources there.
Included on that page is an excel-based calculator developed by Supply Chain Digest to help you think about the costs of on-demand TMS versus a traditional license model. It is similar to a tool we released in 2006 to help companies compare the total cost of ownership for warehouse management systems.
I’ve spoken with many companies that have been looking at TMS over the past year. In almost every case, an on-demand alternative was being considered.
There are a variety of pros and cons to the on-demand model. We’ve discussed some of them on these pages with Stephen Craig of CP Consulting, who along with partner Erik Markeset will be joining SCDigest as a regular contributor on transportation issues when we launch a totally revamped (and really cool) web site in a couple of weeks.
I have been thinking a lot about the on-demand model of late. To be honest, my perception has been that over some reasonable horizon, on-demand was more expensive, and I still think that’s true. But I am considering a few things in some new ways.
One thing that one company said to me recently – which I thought was worth pondering – is that the initial cost (and that then by definition the multi-year cost) of a traditional approach is highly dependent on your ability to negotiate the price. The price you end up paying for the license obviously drives the initial cost, and also the annual maintenance fees. The subscription/transaction pricing of the on-demand model tends to be more open/clear from the start – though there is always room for negotiation.
I also don’t think I have adequately considered in the past “time to value.” There is an increasing emphasis on gaining faster payback from supply chain initiatives generally, even at the price of a lower long term return. You also have to factor in, as our spreadsheet does, the impact of (perhaps) a faster time-to-value in looking at TCO or total ROI.
That said, the more rapid implementation that we tend to see from hosted TMS solutions in part makes sense, in part befuddles me. It makes sense because (in some but not all cases) the on-demand solutions are simpler. They also bring in many cases carrier connectivity as part of the deal, which often reduces implementation time.
But there also seems to be a tendency to “dumb down” on-demand projects. Just meaning, they tend to be less ambitious in their goals as part of an effort at “transportation transformation,” so there is just less work to do internally.
This fact often leads consultants to be less than enthusiastic about on-demand alternatives – there is generally less work for them for this kind of project. This is something to keep in mind.
The fact that nearly all traditional TMS vendors offer on-demand alternatives is indicative of the interest in this model. That said, traditional deployments are clearly still in the majority.
There are a few things to consider when discussing on-demand alternatives. Those include:
- How exactly is the pricing unit (e.g. a shipment) defined? For example, are three shipments on a multi-stop truckload three transactions or one? (in fairness to the vendors, if it’s just one transaction they are in effect penalized for helping reduce costs).
- How is replanning handled? Is it another “transaction”? In general, it should be a transaction only when it moves to “tendered” status or something.
- In a subscription model (i.e., a more set monthly fee, rather than just per transaction) can you get “roll over minutes” that allow you to manage seasonality more favorably?
- Regardless of transaction or subscription basis, how will usage above the target be priced? Be aware that in general, you’ll pay some threshold fee even if you are well under the targeted transaction number.
If it was me, I would look at both alternatives, and make sure I understand the costs along the lines of our suggested model. The analysis should of course be driven by capabilities that match your true business needs, but factored as well by TCO and time-to value. The great news for buyers is there are a lot of alternatives of both styles available right now.
I’d welcome your thoughts on this whole area.
Do you think the on-demand model is more cost effective than traditional pricing models – or not? What is driving the clear interest in on-demand. Did you review our spreadsheet – how can it be improved? Let us know your thoughts.