Crude oil reached over $100 a barrel this week prompting further discussion about energy prices effect on the economy.   As I was driving into work on Thursday, I was listening to CNBC on the radio.  The Squawk Box crew interviewed T. Boone Pickens on his thoughts about rising oil prices and the need for alternative energy sources.  He was introduced to the theme song from the 1980s TV series – Dallas –a clever set up to the entertaining interview.  The discussion inspired me to revisit the topic of transportation management suites that I commented on in my last blog entry (http://blogs.gxs.com/keifers/2008/02/06/is-your-tms-implementation-costing-you-an-arm-and-a-leg/ ).   Many retailers and manufacturers are implementing TMS applications to optimize their increasingly complex global supply chains.  Rising energy costs are just one of the many drivers for these applications.  However, the ROI from these TMS deployments is often delayed or reduced due to challenges with carrier on-boarding and data quality.  I believe that the emerging SaaS (Software as a Service) model offers a number of advantages for transportation applications that can help to accelerate ROI.  But before we discuss the SaaS model for TMS, allow me to offer some background information to support my argument… 

Shared Vendor Communities 

As industries continue to consolidate through mergers and acquisitions there becomes a greater degree of sharing of common vendors among large buyers. Within a niche industry it is common for many large buyers to share common direct materials suppliers. The grocery sector offers a good example. Large food retailers such as Metro, Tesco, Carrefour, LianHua and Woolworths all source from a common set of global brands such as Kraft, Nestle, Unilever, Henkel, P&G and Coca-Cola.   

Vendor overlap is not limited to large suppliers.  Overlap exists even in niche product categories.  Consider locally grown organic vegetables or patio furniture manufactured offshore.  For these types of products there is usually a small community of vendors who supply all of the major retailers.   

Supplier overlap occurs more frequently with providers of indirect materials and services.  For example, many of the world’s largest manufacturers, whether they produce automotive, electronics, aerospace, furniture and apparel products, are likely to share a common set of financial institutions for their banking and insurance services (e.g. Citigroup, HSBC, Allianz, AXA).  Similarly, this same group of manufacturers will all source their logistics services from a small community of transportation providers.    

The Network Effect of SaaS 

The growing overlap of vendors amongst large buyers offers an opportunity for SaaS application models to offer a tremendous competitive advantage over traditional software.  The advantages stem from a concept called “the network effect.”   Here is how it works.   In the traditional software model, each buying organization must establish a separate connection to each individual trading partner in their value chain.  The result is a spaghetti-like maze of connections between buyers and suppliers.  As a result, the process of trading partner on-boarding often takes years due to the need to connect each community member one-by-one. 

By contrast, when a buyer subscribes to a supply chain application using the SaaS model, they gain immediate access to the existing community of trading partners already using the service.  As more buyers and more suppliers join the community significant economies of scale are generated.  On-boarding times can be significantly reduced using the SaaS model.  Suppose a large buyer decides to subscribe to a SaaS application.  Instead of on-boarding the entire supply chain community, only a subset of the trading partners will need to be ramped.  This is because many suppliers are already utilizing the application with another buyer.  Therefore only the net new vendors must be enrolled. 

SaaS for Transportation and Logistics Applications 

In the case of transportation and logistics applications, the SaaS model offers a compelling “network effect” to all participants.  Once a carrier connects to the hosted transportation management application they can exchange data with all the buyers on the system.  As the community of buyers (and carriers) continues to grow, the value for all participants begins to multiply.  Rather than connecting to each of the hundreds of transportation vendors utilized throughout the world, corporate buyers can connect to the SaaS vendor once.  As new relationships between carriers and customers are formed, technical integration efforts are minimized.  

The chart above illustrates how carrier on-boarding can be accelerated via a SaaS model.   

SaaS is an emerging model that can accelerate the ROI and lower the TCO of many B2B integration initiatives.  TMS is not the only supply chain application that can benefit from a SaaS approach.  In future posts, I will discuss other applications of SaaS such as Vendor Managed Inventory and Supply Chain Finance.  In the meantime, there is a wealth of information the GXS Insights portal (www.gxs.com/insights) about SaaS including a video with AMR analyst, John Fontanella.

Steve Keifer

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