IT Perspectives 2007: Logistics IT Market Insight Survey

IL’s exclusive research polls IT providers to gauge their perspectives on logistics IT challenges, solutions, and opportunities. Their answers provide an in-depth look at the state of the logistics IT market.

What do typical business concerns such as managing inbound logistics, reducing transportation costs, collaborating with partners, and improving customer service have in common?

Besides vexing the business managers tasked with their resolution, they are all challenges that can be brought to bear with the right technology.

Today’s logistics technology solutions offer a range of options for improving the endless array of supply chain functions.

Looking to tame out-of-control transportation costs? Try a transportation management system (TMS). Struggling to comply with ever-changing global trade requirements? Lick that problem with global trade management solutions. Need to quell unreliable vendor invoices? Check out the latest vendor management systems. You get the picture.

But while the diversity of technology offerings is ultimately of great value, it can be difficult to sort through the crowded marketplace in order to choose the right providers to partner with.

Similarly, keeping up to date on the constantly morphing logistics technology field—blink and you’ve missed another merger—and how it impacts your technology decisions is challenging, to say the least.

To help you click your way through the logistics technology universe and better understand the newest solutions, delivery methods, and top players, Inbound Logistics offers two value-added information sources: the Logistics IT Market Insight Survey, and our annual Top 100 Logistics IT Providers list.

The Logistics IT Market Insight Survey provides in-depth coverage of the logistics technology market as reported by those who know it best: the technology providers themselves.

Inbound Logistics solicited input from IT providers to see how they are investing in and evolving their services to better meet user needs. Their answers offer valuable insights on current and up-and-coming logistics technology trends.

And, our annual Top 100 Logistics IT Providers listing serves as a resource for logistics managers looking to engage new technology vendors, as well as a benchmark to compare their current providers with other companies offering similar capabilities.

Companies ranging from Fortune 10 leaders to the leanest and meanest small businesses can use this integrated research as they look to source, implement, or upgrade a wide variety of technology solutions aimed at fostering internal efficiencies.

Common Elements

Because the logistics IT market is so diversified, providers in this space offer a large array of services, making a comparative analysis difficult.

The industry includes enterprise resource planning (ERP) giants such as SAP and Oracle, myriad WMS and TMS providers, as well as a large number of niche providers offering everything from asset-tracking services to inventory control, reverse logistics, yard management, and fleet telemetics solutions, among many others.

Above and beyond their differences, however, are the similarities between their customers’ expectations. We asked logistics IT providers what their users’ hot-button issues are for the coming year, and a few common themes emerge.

Consider these responses:

“Increased supply chain visibility throughout the enterprise—The message we get from customers is: Integrate or perish.” —BGI International

“Better visibility from ocean carriers in regard to the intermodal black hole.” —Horizon Services Group

“Shipment visibility more tightly integrated with internal systems and processes.” —CargoSmart

“The ability to truly have end-to-end visibility across all modes.” —LOG-NET

“One-stop transparent portal visibility into all modes and suppliers/vendors.” —Echo Global Logistics

Visibility, whether of the overall end-to-end supply chain or some specific niche, reigns supreme. The ability to monitor shipment information from point of origin to destination—whether the destination is a customer, vendor, internal warehouse/DC, or external 3PL or freight forwarder location—is an essential ingredient of the modern supply chain.

With the increase of offshore manufacturing and global sourcing, as well as an Internet-fueled global consumer market, shippers are likely to be sending or receiving goods throughout the world at all times of the day.

Manufacturers, in particular, have embraced global sourcing, which creates greater supply chain complexity. As a result, manufacturers are increasing their logistics IT investment.

Seventy-seven percent of IT companies responding to the 2007 Market Insight Survey count manufacturing companies as a growing part of their customer base, as compared to 66 percent in 2006.

To stay competitive, manufacturers are also renewing their push for leaner inventories and greater operating efficiency—all of which add additional layers of complexity to their business models, eventually leading to additional technology adoption.

Logistics IT companies are also serving transportation providers and 3PLs in increasing numbers—85 percent of IT providers serve the transportation industry this year, compared to 71 percent in 2006.

Two factors may explain the jump in the transportation vertical: first, the same globally-driven increase in business complexity that has companies using more logistics IT has also pushed many businesses to seek that technology from their carrier or 3PL rather than try to manage it in-house.

Logistics IT has become a competitive weapon for carriers and 3PLs, and many shippers are more than happy to partner with these providers to make technology decisions and offer IT solutions on their behalf.

Second, serving the transportation industry gives logistics IT providers a lucrative wholesale channel, and a way to quickly push their technology to market to a wide range of end users.

With globalization driving all these intricate shifts in supply chain technology, it is no surprise that 85 percent of IT providers responding to our Market Insight Survey offer either full or partial global logistics capabilities.

As the world continues to flatten, global logistics solutions grow increasingly robust. The need for global supply chain visibility has never been stronger.

Making the Connection

To provide the level of visibility shippers demand, many providers have moved beyond software programs and into mobile applications that track data when and where transactions occur.

Trucking transportation, in particular, has benefited from the onset of mobile devices and applications that keep drivers, customers, and vendors connected and up to date on shipment information.

Indeed, only 28 percent of providers responding to our Market Insight Survey do not offer wireless capabilities at this point.

“Open, wireless technology that integrates with existing operations is an essential solution for small to mid-size transportation companies looking to improve profitability and reduce overhead,” explains Stephan Karczag, vice president, Cheetah Software Systems, Westlake Village, Calif.

Similarly, only 35 percent of responding technology providers do not offer any type of RFID solution. Though it has not quite transformed the technology landscape as originally expected, RFID has proved to be a valuable tool for shippers—with the budgets or mandates to support implementation—providing in-transit shipment visibility in a variety of modes.

“Shippers are considering RFID and asset-management technology to address issues such as greater visibility to freight in transit, as well as security and system data accuracy,” says Orlando DeBruce, a spokesperson for Navis, a technology solutions provider based in Oakland, Calif.

RFID and mobile applications should continue to play a greater role in shippers’ technology arsenals; therefore, it is likely IT providers will continue to invest in and improve their offerings in this area.

In addition to globalization, the rise in popularity of the Software-as-a-Service (SaaS), or on-demand delivery model—where users, via the Internet, access solutions hosted by third-party vendors, and pay based on usage—is having a large impact on the logistics software marketplace.

On-demand applications are a winning solution for businesses seeking to optimize supply chain functions without being tied to the cost and timeline of implementing major, installed software systems.

Many shippers also elect to use SaaS solutions for specific capabilities—say, route optimization or load planning—that their ERP or other logistics IT systems don’t address.

“Across all segments, we have seen a move toward both an on-demand delivery model, and for systems that can adapt to changing requirements once they are implemented,” says Lorne Jones of Sterling Commerce, a software provider offering global collaboration and integration solutions.

The on-demand trend has been a few years in the making. This year, 80 percent of respondents offer some form of hosted technology solutions, about the same as in 2006.

The Price is Right

The rise in on-demand solutions has also helped to reduce the price of logistics IT systems, making them more affordable for many end users. The web is a less expensive way of doing business, and, as a result, IT providers can pass those savings on to buyers.

This is one likely cause in the reversal of one set of numbers from last year’s survey: the percentage of providers offering solutions priced between $50,000 and $250,000 jumped from 53 percent last year to 62 percent in 2007, while the percentage of providers charging $250,000 to $500,000 for solutions decreased from 30 percent in 2006 to 21 percent this year.

This shift is not all altruistic, however: offering on-demand solutions allows smaller IT providers to compete with previously impenetrable category leaders such as Oracle and SAP.

Developing back-end technology, then amortizing those development costs over thousands of relatively low-maintenance users, is an entirely different—and arguably more scalable—business model than that of companies providing more traditional high-cost, labor-intensive installed systems.

The appeal of on-demand solutions to small and mid-size companies has not gone unnoticed; many respondents to our Market Insight Survey have seen their customer mix shift over the last few years to include more SMB users.

While logistics IT providers previously targeted the deep pockets of large, Fortune 100-type companies, the sheer volume of SMBs—and their need to automate supply chain functions—provides a growing market for IT providers to tap.

“We are beginning to target SMBs in addition to large enterprises,” says Subhash Chowdary of logistics cost management solutions provider Aankhen. “We are introducing a hosted solution offering supply chain visibility for end-to-end ocean container cargo tracking—expertise that SMBs may not have access to.”

The emerging power of SMBs in the technology marketplace has supply chain execution solutions provider Navis changing its product mix as well.

“We have introduced new products to address SMBs along with our existing customer base. Quick-start implementation packages and simplified interfaces allow SMBs to reduce overall time to benefit from technology,” says DeBruce.

Other technology providers responding to our survey, including Log-Net, Accellos, and Echo Global Logistics, also list a focus on SMBs—or the 3PLs that serve SMBs—in their customer mix.

M&A Frenzy

Another trend greatly impacting the logistics technology marketplace is the seemingly endless stream of mergers and acquisitions that have occurred within the last few years.

Big-name tech mergers such as JDA/Manugistics and Oracle/PeopleSoft stole headlines, but IT providers across the board are embracing M&A as a potentially profitable method to increase their customer base and product/service offerings. This trend has been both a blessing and a curse for logistics IT users.

Having a technology provider with more capabilities is always a plus. Integrating services and technology platforms is a tricky and time-consuming process, however, and end users are often the ones who suffer through the snafus that come with provider integration.

Interestingly, tech providers responding to our Market Insight Survey were candidly open about both the benefits and drawbacks of the M&A frenzy.

Here are a few of the differing opinions we received:

“Increased M&A has stalled the advancement of leading-edge TMS technology by slowing the roll-out of new solutions and increasing the cost.” —ShipLogix

“The trend toward merging technology companies makes it crucial for technology users to be willing to learn and use different systems and be involved in transitions. Integration, ease of training, and scalability are increasingly important factors in technology decisions.” —McLeod Software

“Technology M&A action is causing customers to ask why the mergers are happening and what customer purposes are being served. As a result, buyer consciousness is raised, which is a great trend.” —BestTransport

“The recent acquisitions are limiting customer choice by the major software players and locking them in to long implementation processes.” —Sterling Commerce

“In the near term, M&A activity is bad for customers. Merging technology platforms is a daunting task, even for the world’s biggest providers. While the M&A trend may build customer rosters, it is creating unhappy customers at the same time.” —GT Nexus

With appetites for M&A not expected to diminish anytime soon, this debate should carry on ad nauseum. Technology users, for their part, will need to pay careful attention to the marketplace to see how their solutions are impacted.

That’s also sound advice for keeping abreast of technology’s impact on your entire supply chain.

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