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Jan. 19 , 2007 - Supply Chain Digest Newsletter
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Featured Report

JUST RELEASED: 2007 Warehouse Management RFP Template


Created by leading supply chain consultants, this WMS RFP template is the end result of intensive research with hundreds of logistics professionals.  Require all vendors to prove the value of their solutions BEFORE you make a buying decision.

Download this FREE RFP Template at:


First Thoughts by Dan Gilmore, Editor

Evaluating On-Demand TMS Costs

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.

Let us know your thoughts.


Dan Gilmore


Supply Chain 

Videocast Series

Building an ROI

for Reverse Logistics

The focus on "reverse logistics" has been building for several years.

In this excellent Videocast presentation, you'll learn how improving reverse logistics process can provide a high ROI, while enabling your company to meet regulations and contribute to sustainability strategies.

It's an outstanding, highly educational presentation.

More information and to register.

Stock Report


It was generally a good week for our supply chain and logistics stock index last week, with all but a few companies up for the week - the exception being a down week for SAP, based on a downbeat growth forecast for the company.

See stock report.


Didn't Get to Chicago? See our top hardware and software picks.




The EQ Factor: Navigating through the Emotions around LEAN Changes Part 3: LEAN Leadership

by Scott Barrella (MS CPIM), Supply Chain Manager, Nestle USA

How you manage the change is critical to both the project's success and your career, and its often more "EQ" than "IQ" that matters.

Jan. 19 , 2007

This Week’s Supply Chain News Bites – Only from SCDigest

Distribution Management: Apparel Retailer Urban Outfitters Gets Specific about Benefits of New WMS

Pharmaceutical Giant Genetech Announces Several Supply Chain Related Exec Appointments, While Autozone announces New Supply Chain Head

Supply Chain Management Not High on IT Priority List, Recent Survey Shows – Why?

Procurement News: Downside of Alternative Fuels Movement – Corn-based Products Rising Sharply in Cost

Department of Defense Criticized for Lack of Clear Improvement in Logistics, Supply Chain


Jan. 4 , 2007

Top 10 Supply Chain Trends of 2006

How do our picks compare to the trends you saw impacting supply chain in 2006?



Q. How many inventory turns per year does the food manufacturing industry achieve?

A. Click to find the answer below


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're still behind - be patient if your letter has not yet been published

First, our apologies for mispelling FKI Logistex in last week's review of the ProMat show in Chicago.

We received a number of letters commenting on our two part series on "Liing Supply Chains" and "Dynamic Supply Chain Alignment," coming from our review and commentary on the book "Living Supply Chains" by Dr. John Gattorna. Most were of the short and sweet variety (e.g. "This was really interesting.")

We publish a few below, including our feedback of the week from Dennis Drake of DHL, who says it sounds great in theory, but may be too hard to really implement. We also have a letter on our piece about "Made in America - or Made for me?"

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – On Dynamic Supply Chain Alignment


Sounds like a great idea.


But what would it take to support up to 4 different SCM support teams? Not only people, but could you imagine the IT system implications of trying to serve 4 different demand strategies? Lets say one segment strategy is build to stock, another is config to order in the factory, another is a postponement strategy configing at destination. Can you imagine an ERP system that could manage this type of variability? How about the product development cycle and teams required to design for this variability?

If living supply chains can address these issues, you've found the golden key.

Dennis Drake
VP, Solutions and Development



More on Dynamic Supply Chains:

Wow, this was great. I need to get the book too. I found myself highlighting the whole article.

If only more people would realize that Software might be cost money as oppose to saving some and that the money is in the people, it would be a better place.

Looking forward to part 2.

Mary (M-H) Cote

Supply Chain Planning Manager

Cavendish Farms

I agree this is interesting thinking. I saw one of Dr. Gattorna's presentations, and was very impressed.


Dave Tootill

ESCM Technology

On Made in USA

Great article!

It is disturbing to me when Companies look to off-shore how they tend to exaggerate the potential savings.  Many times there are other variables involved than the bottom line.  For example delivery, quality products, and relationships built with in land customers-suppliers.  All of these are key components!  When it all said and done and your parts are on a boat in the middle of the ocean and one will not see them for another 6 weeks, the picture gets clearer.  Additionally, many companies are having there customer services departments sent over sees.  It would be interesting to see how many customers they are losing due to frustration in trying to understand the person they are talking to?

José M. Pérez
Senior Fabrication Outsourcing Control Facilitator

S&C Electric Co.


Q. How many inventory turns per year does the food manufacturing industry achieve?

A. About 8.5, according to CFO magazine's annual working capital survey.

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