Mention software delivered via the "software as a service" (SaaS) model to someone working in distribution, and they'll probably assume you're talking about transportation management systems (TMS). In the last couple of years, SaaS TMS offerings—which essentially allow users to "rent" software used to manage carriers and control freight expenses—have gained a great deal of traction with logistics departments. But now the SaaS concept is starting to spread to warehousing applications, and that trend could rock distribution.

The attraction of the SaaS, or "on demand," business model is no mystery. It offers businesses a number of advantages over the traditional practice of purchasing software licenses. For starters, companies can avoid a huge upfront capital outlay; instead, they simply pay monthly or pertransaction fees to the vendor.

Deployment is quick and easy as well. All that a user needs to gain access to an on-demand application is a Web browser. And unlike a traditional licensed-software installation, which can take months, SaaS software deployments typically can be completed in a matter of weeks or even days. Yet another advantage is that SaaS deployments require no systems integration, which means the software costs considerably less to roll out than traditional applications.

On top of that, the software vendor usually maintains the application on the server end, a big selling point for small or medium-sized customers that lack in-house IT resources. And vendors usually provide updates as part of the service. That too represents a significant advantage over licensed applications, where the customer must buy and install upgrades in order to obtain the newest features. Fees to keep software current have been a sore spot for users as well as a steady source of revenue for vendors.

Taken together, these cost advantages have made SaaS applications a compelling alternative to buying software licenses. And that's why so many companies have embraced this approach when it comes to TMS deployment. Not only is it affordable for smaller players, but many report that they've received a quick payback on their modest investment from savings achieved through freight optimization.

After changing the face of the TMS market, it appears that the SaaS delivery model is about to do the same for the other main type of supply chain execution software—the warehouse management system (WMS). In recent years, a number of software vendors have introduced Web-hosted versions of warehousing software.

Vendors include 7Hills Business Solutions, a Hyderabad, India-based company whose North American headquarters are in Pittsburgh. 7Hills offers a hosted solution called eBizNet-WMS as part of its eBizNet-SC software suite.

Another is SmartTurn of San Francisco, which offers an on-demand WMS that users can implement in anywhere from two to 30 days. One of SmartTurn's customers, a first-time WMS user, reportedly is saving $10,000 to $15,000 a month through use of the software. That customer, a third-party logistics service provider called Argent Associates, attributes the savings to higher inventory turns, more accurate shipping and receiving, and more efficient tracking.

Across the Atlantic, Synergy Logistics based in Loughborough, England, has taken SaaS WMS a step further with its SnapOnDemand solution for the British market. What's interesting about this offering is that the fixed monthly "rental" fee includes the cost of bar-code scanning and radio-frequency equipment, which the company provides. Gavin Clark, the commercial manager for Synergy Logistics, says the monthly fee also includes setup, configuration, and training.

Although it's doubtful that a hosted solution can support a high-volume or highly automated warehouse operation, vendors have clearly begun making inroads into the market with ondemand warehouse management systems. If the industry's experience with TMS provides any guide, the SaaS delivery model should revolutionize the marketplace by making WMS accessible to small and medium-sized companies for which the software would otherwise be out of reach. Watch for on-demand WMS to gain a huge share of the WMS market in the coming year, even in a slumping economy.