because of the economics, according to Klappich. A traditional TMS software license might go for $250,000. An
annual subscription for an SaaS TMS, by contrast, averages
about $50,000. And the gap is likely to widen. Some on-demand vendors, such as MercuryGate, have been aggressive in cutting their prices to gain business, Klappich adds.
The shift to the on-demand model, with its lower up-front pricing, has changed the earnings picture for vendors.
Compared with sales of traditional software licenses, the
on-demand model is a lower-margin business. So even
though unit “sales” of on-demand TMS have risen, vendors
aren’t earning as much profit per customer as they do selling licenses. “The number of net new customers was up in
2009 and will be up in 2010, but it does not mean that vendor revenues will be up,” Klappich says.
As for where new customers will likely come from,
demand for transportation management systems remains
particularly strong in North America, Klappich says, and to
some extent, in Europe as well. For the moment, though,
overseas sales have been limited because many of the applications used in the United States can’t support global transportation movements. That’s left the field wide open to big
players like Oracle, JDA, i2, and Manhattan Associates that
can offer multimodal, multiple language, and multicurren-cy capabilities.
Although the subscription pricing model has been a big
draw for shippers, it doesn’t wholly account for the recent
upswing in the use of transportation management software. Another part of the explanation lies in the software’s
expanded capabilities. In the past, Klappich notes, TMS
applications focused mainly on shipment planning—that
is, their primary selling point was their ability to identify
opportunities to, say, combine several less-than-truckload
(LTL) movements into a single truckload. For large shippers, the money saved through combining loads easily justified the system’s cost. But the software held little appeal
for smaller operations that didn’t ship enough freight to
create opportunities for consolidation.
Today’s transportation management systems, however,
can do much more than simply identify consolidation
opportunities. For example, many applications also offer
electronic load tendering capabilities, freight analytics, visibility of movements, and freight-bill audit and payment
(which helps avoid duplicate payments to carriers).
Klappich says in many cases, a small shipper can justify the
expense of a TMS on the basis of the freight-bill audit and
payment capabilities alone.
Analyst Adrian Gonzalez of ARC says the software’s procurement capabilities have also proved popular with shippers. Because the software is designed to facilitate electronic communication with carriers, transportation management systems make it easy for users to gather quotes from
a number of different service providers. Gonzalez reports
that using a TMS to solicit bids can cut a shipper’s transportation expenditures anywhere from 10 to 30 percent.
Gonzalez adds that another draw is the software’s ability
to optimize inbound transportation. “If a manufacturer
controls inbound, it can use a TMS to optimize inbound
loads and convert inbound LTL [shipments] into multi-stop truck loads,” he says.
The analyst says shippers also like the software’s appointment scheduling functionality, which can facilitate and
expedite the receiving process. “By having inbound shipments in the TMS, manufacturers have greater visibility to
what parts and materials are in transit and when they’ll
arrive, which can help with manufacturing plans and labor
planning at receiving,” says Gonzalez. “Combining inbound
and outbound spend gives manufacturers more leverage to
negotiate lower rates with carriers.”
Wide-open market
Although he believes uncertainty about the future will continue to propel TMS sales, Klappich acknowledges that low
market penetration will also play a role. He notes that TMS
applications have only reached 20 percent of the potential
market. (By comparison, warehouse management systems
have achieved 70 percent market penetration.) “There’s still
a lot of opportunity for growth here because of first-time
buyers,” he says.
