Article by Jonah McIntire from Clear Abacus; published on August 21st 2013
The TMS space is going through significant changes, some apparent and others below the surface. The biggest story in the industry press has been the shift to SaaS delivery models, which was non-existent ten years ago, accounts for 22% of the market today, and will be the absolute majority within ten years in the future.The rest of this article outlines three game-changers for the TMS market that you may not have heard of, but will be critical in the medium term.
On the Cloud… and parallelized
Changes to a base layer in the TMS technology stack open disruption possibilities in everything above it. Disruptions can be risks (security loopholes, for example) or the basis for new business models and process engineering. In the TMS space, one disruption from cloud computing is the potential to significantly improve planning or optimization because these features rely on heavy computation. In the cloud, heavy computation can often be parallelized, and even un-parallelizable tasks can be sent to a very powerful on-demand server for only the amount of time needed to complete it. By analogy this is like having a planning team of 100 people for only a few minutes, and then going back to one or two for the rest of the day: it represents an incredible potential.
Are today’s TMS vendors leveraging this aspect of cloud computing? No, they are not: most SaaS TMS solutions are little more than migrated components of on-premise TMS solutions. They leverage simplistic optimization algorithms because they were running on 8 or 12 CPU cores, the limit they expected from a physical server in a client’s data-center. In later generation TMS solutions, purpose-built for cloud computing, we should expect to see features leveraging the elastic nature of the virtualized hardware. For supply chain owners, these new approaches will easily and measurably out-plan the current generation TMS capabilities.
Consumer sensibilities for enterprise users
Enterprise software contrasts starkly with consumer software in terms of price, usability, implementation process, and community criteria for success. Consumer software is easy and cheap to try for 30 days, selected by the user, paid for by the user’s own money, selected in minutes, elegantly designed, self-training, increasingly gamified (i.e. based on innate human psychology), and transparently priced. Enterprise software is challenging to demonstrate, usually impossible to try prior to full commitment, long and costly to implement, purchased by IT departments rather than users, paid for by “budget” to which few feel personally accountable, cumbersome for users to learn, and with secretive and highly negotiable pricing. Can and should TMS solutions continue to behave as enterprise software? Probably not. First, the Silicon Valley entrepreneurship and venture capital machine has begun targeting enterprise software as the “next big thing”.
The TMS market has high margins, allows multiple winners to survive unlike many consumer categories, and the current vendors may be no match for Silicon Valley agility and engineering. Second, the dis-enfranchisement of end users is coming under heavy critique. The truth is that end users often can and should select their own software. As internal IT departments streamline due to the “out-clouding” of corporate datacenters, the changing org chart may enable greater end user voice in the technology buying process. Finally, consumer software has an overall higher reputation in part because it is simply better engineered for human use. Aspects like gamification and feasible 30-day trial periods reduce everyone’s risks (including the TMS vendor) and increase overall value creation. Consumer software discovered these concepts first because they iterated faster and because their market dynamics focused competition on product more than salesmanship. It is an unmitigated benefit for TMS vendors to adopt them.
Self-service for SMEs
The TMS market is roughly 1.3 billion USD per year in revenue and growing at 8 to 12% per year. But this may be myopic, in the same way that IBM founder Thomas Watson predicted there was a worldwide market of perhaps five computers. What he meant was that the world could support five computers at the price and delivery model he was using. At lower prices and better delivery models the market became very different. Similarly, today supply chain managers have to spend about 20 million USD per year on relevant transportation to cost justify buying a major TMS solution. Below this threshold are hundreds, perhaps thousands, or SMEs spending 5 to 15 million USD per year on transport and who want a TMS solution. Contrary to first impressions, it is probably not direct cost that is the critical barriers for SMEs who are looking for a TMS solution. Their budget may be lower, but more importantly their entire buying and usage paradigm is different.
They are less likely to have a dedicated IT team leading the buying, they have little or no bandwidth for a complex implementation of the software, and their entire team from IT to end-users will spend less share of their day on the TMS solution, because they are wearing more hats than their large-company cousins. SMEs approach a TMS purchase using the consumer-software model for tech acquisition: they expect to be able to price-shop online, sign-up and start a trial period, with no direct sales or consulting support, and for part-time end users to run the software as needed without customizations or in-person training. The “self-service” sales channel is non-existent in today’s TMS market. Nevertheless, its appearance seems almost assured, and the first successful offering may well grab-up vast unaccounted market share currently below the radar. Even for larger prospective buyers, the self-service channel allows end users to try a TMS solution safely before investing in complex customizations during a typical enterprise implementation.
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