Should You Buy a Logistics and Supply Chain Software Solution or Build Your Own?
Any company that is serious about its supply chain will eventually need to upgrade its logistics data management software. Whether your current software is outdated – or your company has just outgrown it – it’s important to have technology that gives you the real-time information, flexibility, and control you need to optimize your supply chain. When that time comes, you’ll face an important decision: should your IT team build a custom supply chain solution, or should you buy a tailored solution from a logistics software provider? In this blog, I’m going to examine the most important factors that will determine your decision.
Why Companies Need New Supply Chain and Logistics Software
The most common reason companies decide they need new supply chain and logistics software is it has developed a new strategy that will provide a competitive advantage. Typically, the first step is leadership will talk with their IT group about deploying the strategy with their current software suite. IT then does a functional analysis of their current software suite to determine what gaps may exist. Then, IT provides the list of gaps that exist along with how long and how much it would cost for the IT group to solve the problem. The time required to bridge the gaps in the current solution with internal IT resources is usually what causes the company to begin the process of purchasing new software or upgrading their current software to the latest versions with the functionality they need.
The company now assembles a project team that creates a requirements list of the most pressing needs for a new supply chain and logistics solution ranked by importance. Then the project team is also tasked with communicating the need for change and obtaining buy-in from key stakeholders. An RFI or RFP is created and distributed to the leading companies that offer the software. Somewhere during the RFI/RFP process the IT group becomes one of the candidates that can offer a solution as well.
Internal Resources vs. External Solutions
The IT group promises that their internally developed solution will be exactly what the company needs. They’ll no longer have to worry about the software’s version falling out of date – or having to call a support line that can’t provide adequate support.
On the other side, the commercial software provider is telling the market that their solution can do everything. The internal IT group has heard this before and knows that the software provider is over-promising, and they will again live through five years of a “two-year” install. It’s unfortunate that the market has evolved into this all or nothing approach.
However, building in-house software in this industry is a very complex task with its own set of challenges. Not only do you have an incredible amount of variety – truckload invoice data, rating, and track & trace is very different than small parcel invoice data, rating, and track & trace – you have an incredible amount of volume and velocity with thousands of transactions being added every day.
Complex Challenges, Constant Change
Complicating matters further is that many logistics strategies are counter intuitive. Early in my career, I was always taught to strive for high-class in everything you do, but that’s not what you want when you’re shipping LTL freight! In reality, a low-class shipment is less expensive than a high-class shipment, so all those years of learning must be unlearned. This is just one example of the complex problems you must consider when buying or building a supply chain and logistics software solution.
Another factor to consider is that your software must be able to adapt to constant change. Many times, I see that the IT department successfully delivered version 1.0 of the solution, but it was the maintenance that ultimately made the solution obsolete. Over time, I’ve come to realize there are three sure things in life: death, taxes and carrier rate changes.
Data is King
To deal with these challenges, most companies realize that their supply chain and logistics management practices must be powered by clean, actionable data. Now that companies are looking for data to make decisions the same process is happening. Companies have purchased the best analytics software on the market, which is merely a reporting tool that shows them that they either have incomplete data, or incorrect data. So, in steps the IT department to save the day. IT builds a data lake that contains all the relevant data feeds and they integrate it together the exact way the company states they need it. Now the company is reporting on data that should be complete and accurate. What they find is that nothing has changed. Now IT is blamed for not building this right, and IT blames the user for not providing the right requirements and always changing their minds on what they need.
The Big Question: Build or Buy a Supply Chain Logistics Software Solution?
I would tell any supply chain executive that they should think about the long-term effect of building vs buying. When building, you can deliver a solution that is exactly what the company needs; it’s very tailored. However, this is ideal only if the company is in control of all facets of the solution. Once you introduce another company’s rules into the equation – a carrier’s rules for example – then you’ll need many years to build up the deep domain knowledge required to become an expert at maintaining the solution. Can you afford the time required to gain the experience needed to solve these maintenance issues quickly and effectively?
I suggest a third way, a hybrid strategy that breaks the solution into pieces:
- The functionality that is truly custom to the company (the companies unique business rules, etc.)
- The functionality that is industry specific (the basic blocking and tackling in the industry)
- The functionality that requires a high level of expertise (typically a more mature, third-party solution has gone through the required iterations to provide foundational support)
In my opinion this is the ideal combination. Buy the software that provides needs #2 and #3, while building the unique business rules and functionality that provides a company with the rapid deployment they need. Done correctly, this hybrid approach to supply chain and logistics software will deliver long-term value and allow you to implement the strategies that will improve your bottom line.