Rob Gibney, UK Country Manager of Imtech ICT Logistics Software, looks at what's behind the increasing popularity of SaaS (Software as a Service) solutions for logistics and warehouse management systems.
Software as a Service (SaaS) is shaping up to have a significant impact on supply chain management. In fact supply chain applications are one of the fastest growing markets for SaaS having seen a compound annual growth rate of 20% over the last five years and accounted for $850 million of a total $9billion SaaS market in 2009. With the market for SaaS predicted to double between now and 2014, supply chain solutions provided in this way are set to grow significantly faster than traditional software and services.
Moving towards SaaS
There are a number of reasons why the market is now moving more towards SaaS over traditional packaged hardware/software for WMS (warehouse management System) or TMS (Transport Management System) solutions. For a start, as companies begin again to invest in supply chain IT after the recession they are keeping in mind that volatility is now something to continually factor into decisions. This means they are looking for agile solutions, which is a key attribute of SaaS.
The pay as you go model offered by SaaS removes the upfront hardware and software costs of traditional models, so SaaS implementation becomes an operational expense rather than a capital investment. Companies avoid being locked into the 3-5 year payback periods typical for conventional software, which can become a serious issue as business circumstances change. Because SaaS costs are related to the level of usage, they can be scaled according to business climate, for example, during a downturn a company may only require 25 users next year but if there's an upturn they may need 50.
Reduced capital investment and increased agility make SaaS particularly advantageous for the 3PL sector where contracts are won, lost, extended or reduced on a regular basis, and the length of those contracts is getting shorter.
Other SaaS advantages to consider are the flexibility of access it offers through Internet-connected PCs or PDAs to provide remote connection to the supply chain. There's a much-reduced need for training with SaaS systems because they are designed to be as intuitive to use as the web page of an online consumer service provider, such as Amazon. This is particularly beneficial in supply chain networks encouraging collaboration. SaaS also provides a centralised platform for a network's data system to enable greater collaboration. Furthermore, upgrades are automated and the SaaS vendor can more easily support the service while the user's IT department is free to concentrate on other areas. This means users gain the functionality without the headache of support because the service provider will take care of the integration as well as all the expense associated with hardware and the IT infrastructure.
Accessibility is a significant benefit of SaaS for SMEs, which can gain the sophisticated supply chain they need to remain competitive. In addition to the lower start point, they avoid paying for redundant functionality by paying only for the parts of the solution they need and because they can stop using it whenever they want, the software comes without a large financial risk.
While SMEs are certainly able to benefit from SaaS, large operators also are looking for on-demand applications such as WMS, particularly for their lower volume warehouses.
And SaaS systems can be up and running quickly. In terms of the sales process, traditionally this would see a customer producing a statement that would involve themselves and possibly a consultant. The software vendor will then write a lengthy and detailed proposal. It's a costly process and requires a series of demonstrations and workshops on site, because of the size of investment, to ensure it is right for the customer and then there will be a long implementation time. With the SaaS model, however, a lot of the work is predefined allowing customers to sign up as a single user and be operational straight away, with remote assistance from a help desk. Companies can also pay for training on site, if required.
Imtech's LBASE for example has its Logic Interpreter operating with the SaaS system, which allows users to tailor work processes to meet the requirements of their customers. But it is not bespoking it in a traditional sense because all of the Logic Interpreter processes are part of the data within the system, so this doesn't change the programming, it just changes the data and the data controls how the system behaves. So when the latest version of the system is issued the user gains the new features and all of their investment gets carried forward.
Once you take into account infrastructure, maintenance, support and implementation costs, SaaS will offer a lower total cost of ownership for supply chain systems.
Companies are also seeing the advantages SaaS can offer for their customers. For example, this includes providing access to data in a controlled way for their customers to place shipments and despatch orders and then follow them up.
Operators working on low margins gain affordable access to systems and can leverage the power of the network - advantages that will see stronger growth in SaaS versions of WMS, over traditional versions of these systems.
When selecting a SaaS provider it is important to scrutinise the contractual arrangements regarding ownership of data. It is vital that data confidentiality, integrity and availability are maintained wherever the data is hosted or accessed. You need to have an agreement with the supplier that your data is readily available in a suitable format that can be used by a new supplier, should you wish to switch suppliers and migrate your data. Also consider what rights, if any, the vendor has to such data.
With SaaS's ability to rapidly scale up and down the level of usage ensure that all relevant metrics and limits are clearly agreed.
You should also ask if the SaaS provider is a professional hosting service or is simply providing hosting as part of their development into this sector because a software house will not be able to provide the same level of service as a professional host. For example, to host its SaaS LBASE system Imtech ICT Logistics Software uses fellow Imtech Group company and professional host, Imtech ICT.
It is also important to consider where the host is located in terms of data protection. For full peace of mind, it is strongly recommended that UK companies use an EU host because any changes to legislation, such as the Data Protection Act, will be taken into account.