The attractions of "renting" software from an application service provider on a pay as-you-go basis are obvious: No license fees, no installation costs, no hardware or software to update and maintain. But be careful: ASPs aren't right for every app.
Buying software services from logistics technology vendors used to be a little like letting the vendor tap right into a vein in your financial system. First you pumped out huge sums of cash for a software license. Then you allowed your balance to be periodically drained for upgrade payments. All the while, you kept your fingers crossed, hoping the vendor would stay in business.
But over the last few years, that model has drastically changed. Most logistics software companies have adapted in two different, often complementary, ways. Customers today typically have the option to pay on a transactional basis for using software, making smaller quarterly or monthly payments in lieu of an upfront fee. Alternatively, they have the choice of "renting" software that's "hosted" by the vendor, which means the actual computer servers that process customers' information reside either with the vendor or with a third-party computer server company. Often the two go together, in what's generally termed an "application service provider" (ASP) deal. Descartes started the trend of going over to a hosted model in 1998; others, like Manugistics, RedPrairie and Elogex, quickly followed suit.
Their pitch for a hosted model went something like this: Why buy and house the cow when you can get milk by the quart? Getting out of the cow-keeping business appealed to a number of clients—particularly small and medium-sized companies with little in the way of IT support—and several of them signed on. But that doesn't mean the entire industry is headed in this direction. The reality is that outsourcing software processing in this way doesn't suit everyone or every function. Talking with users, vendors and analysts, it becomes clear that there's a wide range of demands out there … and a broad spread of choices as well.
Pay as you go
Harry Drajpuch, for one, has chosen to house the cow, but pay for milk as he needs it. As executive vice president and general manager of shared warehousing and order management and delivery solutions at USCO, Drajpuch has had plenty of experience buying and using logistics management software—not all of it good.
Eight years ago, he paid a huge license fee to a vendor that "wound up not being good for us," he says. Then, more recently, he tried a software company that worked on an ASP basis and ran into problems with obtaining access to the externally held software. "Downtime was an issue. No matter how well it runs, when it goes down it seems to follow Murphy's Law," says Drajpuch. "You're really at the mercy of the provider in terms of support. We had outages that were longer than we'd like—some lasting well beyond eight hours. That's unacceptable in today's environment."
Finally, he concluded that the ASP model was not for USCO. "We like to have the hardware located on site. We feel we have better control if we have the hardware and software in-house."
Two years ago, Drajpuch tossed out the old model and adopted GC3 transportation management software from G-Log that stays inside the firewall but is paid for on a transactional basis (although there was also an upfront cost for setting the system up). "What transactional pricing does is ensure that G-Log stays in the game with us. They have a vested interest in our growth," says Drajpuch. "They will continue to keep the software fresh. So the transactional model provides for a very powerful marriage."
Love at first bite
Alan Green, on the other hand, is happy to have someone else look after the cow and get the milk delivered. Green, who is director of transportation at PGT Industries, a Nokomis, Fla., company that makes storm windows, uses an entirely hosted system of routing and scheduling software from The Descartes Systems Group to help streamline deliveries of the company's products, which top 900 a day. Since adopting Descartes' Roadshow software in 1994, Green has driven down transportation costs to 3.0 percent of sales, compared to a national average of 5.5 percent.
Green reports that he experienced the full advantage of a hosted service when he decided to change the way he communicates with his truck drivers to a wireless system. "When we decided to go wireless, we contacted Nextel (a wireless service provider) and got them together with Descartes to give us a complete package of wireless technology," says Green. "Now, Nextel provides the connectivity that goes through the Roadshow base.We decided to go this route because we wanted to have one provider. If we have a problem with something going down, we don't have to worry about who to call: the software people or the telephone people."
Green says his information technology department was initially nervous about allowing the software to go outside the company's firewall. "Once we overcame that concern, we were fine. We sat down with the Descartes people and they explained how secure their system was; after that, it was not an issue." Gaps in service like those experienced by Drajpuch have not been a problem either. "We've never had a failure in nine years," Green says. "We've had a very good experience and saved lots of money."
Great walls of fire
The shift to hosted software has not been driven by customer demand alone. John Fontanella, senior analyst at AMR Research in Boston, says software vendors, too, are eager to move over to the hosted model because they can maintain and upgrade software from a central point rather than having to send an engineer out to each customer every time there's a problem or change. It also gives the vendors a constant, reliable stream of revenue, decreasing their dependence on the less predictable license fee payments.
"From a maintenance and support point of view, it's much better for the vendor," says Fontanella, who specializes in logistics technology issues. "For the user, it depends on the application area and how critical it is to the company. For instance, I would never take finance and put it on an ASP basis. There are also a lot of planning functions that should stay behind the firewall, such as advance planning and scheduling, manufacturing and so on." Fontanella says the functions best suited to the ASP model are the ones whose success depends on communicating to the outside world. "So the greatest growth in adoption has been in transportation, as opposed to warehousing, which is more transactionally intense and doesn't have the communications requirements."
However, even with transportation management, there are still security concerns about hosted service. Fontanella compares it to the difference between running personal computers and having a mainf rame network—there are more chances that data will end up somewhere it's not supposed to be. "There's a lot of resistance from IT departments, because you're taking power out of their hands and they're worried about security," says Fontanella. "If something goes wrong—a service failure or security breach—you know it's going to end up in the IT department's lap eventually."
Fears like these have hampered adoption of ASP-based software services. Still, Michael Dominy, a logistics technology analyst with The Yankee Group in Boston, s ays the last 18 months have seen an upswing in shippers' paying for hosted software by the drink.
Dominy admits that service failures are a worry with the ASP way of doing business. "One concern for a company is if the system goes down, I can't run my business.So there is some degree of risk," Dominy says. "But the real benefit is that if you're working with a vendor on an ASP basis and it's not performing, you can easily get rid of it—you don't have the license and big cash outlay up front."
Partly in response to customer concerns, Descartes recently announced it was going to partner with Microsoft to offer a service that is essentially the same as its existing service, but the software ends up being effectively within the customer's firewall and control. Art Mesher, Descartes' executive vice president of corporate strategy, explains that the company is beta-testing a new system called the Logistics Network Operating System with a handful of customers. "We've built our new network so that the customer's data actually sits behind the firewalls," Mesher says. Descartes promises to release more details later this year.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.
Krish Nathan is the Americas CEO for SDI Element Logic, a provider of turnkey automation solutions and sortation systems. Nathan joined SDI Industries in 2000 and honed his project management and engineering expertise in developing and delivering complex material handling solutions. In 2014, he was appointed CEO, and in 2022, he led the search for a strategic partner that could expand SDI’s capabilities. This culminated in the acquisition of SDI by Element Logic, with SDI becoming the Americas branch of the company.
A native of the U.K., Nathan received his bachelor’s degree in manufacturing engineering from Coventry University and has studied executive leadership at Cranfield University.
Q: How would you describe the current state of the supply chain industry?
A: We see the supply chain industry as very dynamic and exciting, both from a growth perspective and from an innovation perspective. The pandemic hangover is still impacting decisions to nearshore, and that has resulted in a spike in business for us in both the USA and Mexico. Adding new technology to our portfolio has been a significant contributor to our continued expansion.
Q: Distributors were making huge tech investments during the pandemic simply to keep up with soaring consumer demand. How have things changed since then?
A: The consumer demand for e-commerce certainly appears to have cooled since the pandemic high, but our clients continue to see steady growth. Growth, combined with low unemployment and high labor costs, continues to make automation a good investment for many companies.
Q: Robotics are still in high demand for material handling applications. What are some of the benefits of these systems?
A: As an organization, we are investing heavily in software that will allow Element Logic to offer solutions for robotic picking that are hardware-agnostic. We have had success deploying unit picking for order fulfillment solutions and unit placing of items onto tray-based sorters.
From a benefit point of view, we’ve seen the consistency of a given operation improve. For example, the placement accuracy of a product onto a tray is far higher from a robotic arm than from a person. In order fulfillment applications, two of the biggest benefits are reliability and hours of operation. The robots don't call in sick, and they are happy to work 22 hours a day!
Q: SDI Element Logic offers a wide range of automated solutions, including automated storage and sortation equipment. What criteria should distributors use to determine what type of system is right for them?
A: There are a significant number of factors to consider when thinking about automation. In my experience, automation pays for itself in three key ways: It saves space, it increases the efficiency of labor, and it improves accuracy. So evaluating which of these will be [most] beneficial and quantifying the associated savings will lead to a “right sized” investment in technology.
Another important factor to consider is product mix. With a small SKU (stock-keeping unit) base, often automation doesn’t make sense. And with a huge SKU base, there will be products that don’t lend themselves to automation.
With any significant investment, you need to partner with an organization that has deep experience with the technologies that are being considered and … in-depth knowledge of the process that is being automated.
Q: How can a goods-to-person system reduce the amount of labor needed to fill orders?
A: In most order picking operations, there is a considerable amount of walking between pick faces to find the SKUs associated with a given order or set of orders. Goods-to-person eliminates the walking and allows the operator to just pick. I have seen studies that [show] that 75% of the time [required] to assemble an order in a manual picking environment is walking or “non-picking” time. So eliminating walking will reduce the amount of labor needed.
The goods-to-person approach also fits perfectly with robotic picking, so even the actual picking aspect of order assembly can be automated in some instances. For these reasons, [automation offers] a significant opportunity to reduce the labor needed to fulfill a customer order.
Q: If you could pick one thing a company should do to improve its distribution center operations, what would it be?
A: Evaluate. Evaluate the opportunities for improving by considering automation. In my experience, the challenge most companies have is recognizing that automation is an alternative. The barrier to entry is far lower than most people think!
Toyota Material Handling and its nationwide network of dealers showcased their commitment to improving their local communities during the company’s annual “Lift the Community Day.” Since 2021, Toyota associates have participated in an annual day-long philanthropic event held near Toyota’s Columbus, Indiana, headquarters. This year, the initiative expanded to include participation from Toyota’s dealers, increasing the impact on communities throughout the U.S. A total of 324 Toyota associates completed 2,300 hours of community service during this year’s event.
The PMMI Foundation, the charitable arm of PMMI, The Association for Packaging and Processing Technologies, awarded nearly $200,000 in scholarships to students pursuing careers in the packaging and processing industry. Each year, the PMMI Foundation provides academic scholarships to students studying packaging, food processing, and engineering to underscore its commitment to the future of the packaging and processing industry.
Truck leasing and fleet management services provider Fleet Advantage hosted its “Kids Around the Corner Foundation” back-to-school backpack drive in July. During the event, company associates assembled 200 backpacks filled with essential school supplies for high school-age students. The backpacks were then delivered to Henderson Behavioral Health’s Youth & Family Services location in Tamarac, Florida.
For the past seven years, third-party logistics service specialist ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.