October 2004 | Commentary | IT Matters

Software by Subscription: Pay for What You Need When You Need it

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Companies can achieve great efficiency gains by getting real-time visibility into their transportation activities, such as last-mile deliveries.

Peering real time into the delivery process to track delays, report exceptions, and measure performance can have a major impact on overall operations, and the bottom line. The challenge, however, lies with gathering data cost effectively and efficiently.

While stand-alone software solutions certainly provide the capability to collect and, in turn, utilize data, the issue with implementing them comes down to risk—both financial and operational. Software licenses and integration do not come cheap.

Software alone presents a huge financial commitment, with companies often spending $250,000 and more on logistics solutions. In addition, the actual deployment is such an exhaustive and complex process that companies spend as much—if not more—to integrate the software.

The challenges don't end there.

These software solutions require ongoing maintenance, and are often cumbersome and difficult to use. They can also require extensive training—an expensive proposition when you consider that in-house expertise is hard to come by, and even harder to hang on to.

These risks are a huge deterrent that have left smaller operations out in the cold. In fact, a good two-thirds of trucking companies still operate on manual, paper-based routing systems.

Fortunately, two trends are helping the cause and bringing last-mile visibility to a broader market: Internet connectivity costs are dropping dramatically, and functionality is increasing.

These trends open the door to a new business paradigm that leverages the power of Internet distribution to revolutionize supply chain visibility. These trends also explain the growth in market demand for logistics software offered as a service, on a subscription basis.

This new breed of logistics software enables both large and small enterprises to escape the risks associated with achieving supply chain visibility. Instead, they pay only for what they need, when they need it.

This software-as-a-service model is similar to the method embraced by businesses using ADP for payroll processing. Instead of owning the hardware and software required to process payroll, businesses pay a nominal fee for every check ADP writes.

In logistics, the same approach—an affordable subscription model used to provide logistics services on a pay-as-you-go basis—has resulted in rich functionality available on demand over the Internet.

The subscription model can be used to manage the entire delivery process, from the time an order is placed through to historical business analysis. This model also provides companies with the flexibility to pick and choose the services they need, and the ability to scale up or down in case of budget demands and/or seasonal needs.

For example, after a simple, Internet-based customer information file transfer, truck dispatchers can optimize, sequence, and modify their routes in real time. Their customers can be notified of scheduled or adjusted delivery times via e-mail, web site, phone, or instant message.

And information from the field can be captured on web-enabled devices such as cell phones, allowing dispatchers to track deliveries in real time as well as record important operational data they can use for customer service or historical business analysis.

The bottom line? Logistics software-as-a-service provides immediate advantages: risks are eliminated, start-up requirements are minimal, and costs can be quickly stripped out of the supply chain by providing real-time visibility into delivery activities.

In most cases businesses can save five percent on operating costs within two months through improved service and responsiveness, more efficient scheduling, and better contingency planning. With a continuous improvement path, this can easily reach 15 percent over time.

Logistics software-as-a-service is an inexpensive and viable means to what was once a very expensive and complex end.

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