as economy slows, TMS vendors get creative

It's tougher to peddle just about anything these days. Even transportation management systems, tools that long ago proved their value in the marketplace, are not slam-dunk sells anymore.

A late December study by ARC Advisory Group noted that the stellar growth in TMS demand could slow down in 2009 and beyond, as cash-strapped companies delay IT investments during the economic downturn.

As a result, "TMS vendors could see longer sales cycles in 2009, at least during the first half of the year," says Adrian Gonzalez, director of ARC's logistics executive council and author of the study.

Gonzalez adds, however, that it's also possible that TMS vendors will benefit from tough times as top executives that have long viewed transportation as a cost center seek to slash millions of dollars from their shipping budgets through more efficient operations. "It is unclear at the moment which path customers will take" in 2009, he says.

Any retrenchment in TMS investment should be kept in perspective, Gonzalez says. The TMS market, which hit $1.2 billion in sales at the end of 2007, should post compounded growth of 7.6 percent a year through 2012, according to ARC. "There are plenty of TMS sales opportunities available in the market for all vendors to benefit," Gonzalez says.

A no-risk proposition
In a vote of confidence in their products, and in an effort to increase market awareness, some vendors are putting their money where their TMS tools are. LeanLogistics Inc., based in Zeeland,Mich., is offering its procurement services, which leverage the company's TMS tools to compare and identify the most costeffective routings for domestic truck, parcel, and intermodal services, at no risk to the user. Lean has said that if its services cannot reduce a customer's transport spend by at least 3 percent in 2009, Lean will not charge for the services.

According to Lean, customers in 2008 saved an average of 11.7 percent using its procurement services. For customers that annually spend $50 million on transportation—the average Lean customer spends between $50 million and $70 million each year—the savings in 2008 would approach $6 million.

Chris Timmer, Lean's vice president, sales and marketing, says the offer sends a message that "now is not the time not to invest in systems that will make you more efficient, more competitive, and better positioned for an economic recovery."

Greg Johnsen, co-founder and vice president of marketing at GT Nexus, which offers TMS services primarily to the international market, says his company has launched low-cost TMS programs over the past two years to demonstrate the software's value. Like Lean, GT Nexus offers its TMS software as a Web-enabled service that companies essentially rent from IT providers on an as-needed basis rather than buying applications they'll have to install, manage, and maintain themselves.

The Lean and GT Nexus offerings are what's known as "on demand" or "software as a service" tools, which are touted as less expensive and quicker and easier to implement than so-called installed software. For example, Johnsen says that, on average, the cost of buying, managing, and updating custom-installed software is more than four times that of running a similar application in an on-demand environment. Johnsen adds GT Nexus can get big companies up and running in eight to 10 weeks. The company will not accept any customers that cannot see the value in its tools once they are demonstrated, Johnsen says.