Upgrade time
Our exclusive survey of software users finds that many plan to trade in their current applications for more powerful versions.
It's an annual rite for many car owners: selling their current vehicles and trading up to an automobile with the latest and greatest gadgets and gizmos. Based on the results of our exclusive reader survey, it looks like a similar practice may now be taking hold among buyers of supply chain software.
Across the board, logistics and supply chain managers are opening up their wallets this year to upgrade and add features to existing applications or to buy new packages. That was a key finding in our third annual study of readers' software usage and buying plans.
The online survey drew 283 responses from readers of Logistics Management and our sister publication, Supply Chain Management Review. For the survey tabulations, however, the pool of respondents was limited to the 218 respondents who had bought software in the past or planned to do so this year. Sixty-nine percent of that sample—151 participants—indicated that they planned to purchase some type of supply chain application this year.
The final survey sample included logistics and supply chain managers from both large and small companies. At one end of the scale were the 34 percent of the respondents who work for companies with annual sales of less than $49 million. On the other end were the 28 percent who hailed from companies with annual sales exceeding $1 billion.
Respondents reflected a cross section of American industry. The largest group, with just 10 percent, worked in the electrical and electronic equipment industry. The second-largest segment, with 9 percent, was the food and beverage industry. The balance were scattered across a wide range of manufacturing, service, and retail businesses.
WMS Dominates Installations
As was the case in our two previous studies, warehouse management systems (WMS), which oversee warehouse operations, were the most commonly used applications. Fifty-two percent of participants in the 2005 survey said their companies had installed a WMS. Enterprise resource planning (ERP) applications came in second with 42 percent. That was no surprise, as many corporations use ERP systems to integrate manufacturing, finance, and other critical information systems.
Next in popularity were transportation management systems (TMS), used by 40 percent of the respondents to oversee their carriers. Another 25 percent had deployed supply chain planning (SCP) software to help them manage inventory. Software designed to handle the flow of imports and exports were used by 13 percent, while just 8 percent had installed a yard management system, which manages trailers and other equipment used at distribution centers. (See Figure 1.)
Of note, 10 percent of the respondents reported that they used "other" types of supply chain software. Asked to define those applications, respondents cited a host of products, including warehouse order picking, global trade management, order planning, denied-party screening, and relationship management applications, to name a few. None, however, received more than one response, except for warehouse order picking systems, which was cited by two polltakers.
Making A List
Shippers have been hit hard this past year by rising freight rates and fuel costs in all modes of transportation. No wonder, then, that transportation management systems were at the top of many respondents' shopping lists. Some 39 percent said they planned to buy a TMS in 2005.
Often shippers are choosing to work with their current TMS vendors to add new features. When asked their primary reason for purchasing a TMS, 26 percent of would-be buyers said they wanted to upgrade an existing package. The need to better control their transportation services appears to be on the minds of some buyers; 23 percent said they needed a system for routing and scheduling. The third most common reason for a new TMS, cited by 13 percent, was to manage carrier selection and load tendering.
The need to raise productivity appears to be stoking interest in warehouse management systems, the application that placed second on respondents' shopping lists. A little more than one-third (35 percent) of respondents planning to buy software this year said they would acquire a WMS.
When asked their primary reason for purchasing a new WMS, 32 percent of would-be buyers said it was to upgrade an existing package. Companies also want up-to-the-minute status of stock on hand in their warehouses, as 21 percent cited the need for "real-time control" as their primary reason for obtaining a new WMS.
Supply chain planning systems were also on the buying agenda for many companies. Some 26 percent of respondents said they intended to purchase SCP packages this year. Next in line for consideration were ERP systems, mentioned by 18 percent of respondents. Another 15 percent reported plans to buy import/export management software, while 10 percent said they were interested in yard management systems. (Multiple responses to this question were allowed, hence many readers said they planned to purchase more than one of those applications.)
Big Spenders
LM readers are planning to dig deep into the till to pay for new software, according to the survey results. All told, respondents said their companies planned to spend an average of about $600,000 on all types of supply chain software this year. That number reflects the fact that some respondents' companies plan on spending millions of dollars on enterprisewide applications.
That's a pretty hefty figure, but it makes sense when one considers that for the third consecutive year, respondents reported that their companies had increased their deployment of supply chain software. This time out, 55 percent of polltakers said they had increased their use of software. In addition, 49 percent said they had increased the number of software packages they were employing in their distribution operations. Most likely that indicates logistics managers are increasingly relying on software for assistance in implementing sophisticated supply chain strategies and complex tactics for reining in costs.
And there's more good news for software vendors: Thirty-nine percent of survey participants said they were seeking to work with more application providers than they did in the past. Another 41 percent said they were continuing to work with the same vendors as before.
If shippers are going to spend a lot, they're also going to demand a lot in return. Just under 40 percent said they expected a payback on their software purchases in less than a year. That's actually a bit more patient than respondents have been in the past: Last year, 47 percent wanted a payback in one year or less.
Some respondents, though, planned to drive an even harder bargain. Twelve percent said they wanted a return on their software investment in less than six months, while 27 percent expected a return in 6–12 months. Another—perhaps more realistic—27 percent were willing to wait more than 18 months for a payback on their purchases.
The Right Features
When it comes time to select a supply chain software package, some 64 percent of polltakers employ a formal process for rating software vendors and their wares. Given the cost of most packages, it's understandable that logistics managers would want to ensure that any such expenditure is money well spent.
Respondents placed a high degree of emphasis on selecting a package that can meet their specific job requirements. Almost half—48 percent—said their primary consideration when selecting software was getting the right features to meet the specific needs of their operations. Another 20 percent cited compatibility with their existing IT system as the most important factor when selecting a package.
Once that selection has been made, the majority of logistics managers count on the vendor to provide training. Some 88 percent of survey takers said they required their software vendors to provide instruction as part of any deal. A similar number (86 percent) said they expected vendors to adhere to an implementation schedule.
Surprisingly, if a purchased application must be tied into existing or legacy software systems, most companies take it upon themselves to perform that integration. More than one-third of the survey sample—35 percent—said they handled software integration in-house, while 27 percent looked to the software supplier for support in this area. Another 16 percent said they hired a systems integrator for the task, and 11 percent turned to a consulting firm for integration services. The rest said "other" or "not sure."
Ready and Willing
The survey results provide plenty of evidence that in a recovering economy, logistics and supply chain managers are ready and willing to boost their software spending. Many are responding to a more demanding business environment by replacing their existing applications with newer versions that have more features and capabilities.
As the demands of business evolve to require increasingly sophisticated supply chain and cost management strategies, software will evolve along with it—and shippers will buy those new products, provided they can meet their specific needs.
13-Jan-2006