Not all bad in 2009
That the global economic downturn has hit the international logistics industry particularly hard isn't really news to any American Shipper reader.
For information technology players, like everyone else, it's bad. But this time around is slightly different than the last.
The 'nuclear winter' that crushed IT spending across many industries from 2001 to 2003 was caused by the collapse of the technology bubble, during which many providers profited handsomely at the expense of their customers' capital expenditure budgets throughout the 1990s. Since that time technology has proven itself a suitable answer to a wide range of supply chain challenges.
Instead of casting more darkness over the industry, this column is dedicated to finding some light, optimism and hopefully opportunities in what has been characterized as a dismal year. If you look real close you'll find that many supply chain IT vendors are coping and some are even thriving in today's market.
Cost, Cost, Cost. In an environment where 'cash is king' high-investment, high-risk projects have lost momentum in favor of those with lower risk and lower cost.
'Decisions are slower but still coming in. Logistics costs are still considered an area where cost efficiencies are important, (and there is) no better way to achieve cost reduction than to automate cumbersome, labor intensive processes in logistics,' said Greg Aimi, research director at AMR Research.
But in this environment cost is measured in more than dollars and cents. Time is a critical component.
'We are not seeing a dramatic change in our customers in terms of what they are buying, but rather there is an increased need to sign up and roll out quickly,' said Nicole German, vice president of marketing and communications at Descartes Systems Group.
Time-to-value, the measure of time between the start of a project and the point where the customer begins to see a demonstrable return, has taken a front seat in customers' decision making evaluation. Logistics IT buyers are certainly on a short leash, being pressed by management to cut costs, deliver savings and improve service.
'Price has always been an important factor in a company's decision-making process, but it is even more important now,' said Andrew Bullen, president of supply chain software vendor IES. 'Transaction volumes are down, but at the same time we have many customers considering our supply chain products now since they know they have to find ways for the shippers to save money.'
SaaS Model. If you read the news or watch TV, you probably have a hard time believing opportunities for growth exist at all. But they do.
'While shipment volumes are lower, we are seeing organizations have a strong need for other applications that improve the productivity and performance of their operations that can be implemented quickly and deliver results in a short period of time.' German said.
To put this into context, Ontario-based Descartes is a software-as-a-service (SaaS) logistics technology provider, which draws transactional revenue from usage of its Global Logistics Network and monthly fees from systems, including transportation execution and global trade management, among others. Providers leveraging the SaaS model have claimed to be 'recession proof,' because their offerings are delivered to customers at a minimal risk and promise a short time to value. If there was ever a time to walk the proverbial walk, it's 2009.
'In some areas, we are seeing interest in transportation management, freight audit and settlement, mobile solutions, customer compliance in particular ISF 10+2, dock appointment scheduling, routing and more,' German said.
Novel Ideas. It's easy to confine logistics service providers (LSPs) and their technology needs to the traditional transportation execution systems, such as transportation management systems (TMS), warehouse management, yard management, and a few other true transportation functions.
In addition to servicing shippers, software giant SAP's transportation and logistics practice focuses on the needs of LSPs, with an eye to providing a range of business management tools, including accounting and financial management, human capital management and customer relationship management. With the acquisition of Business Objects in late 2007, SAP expanded its business intelligence systems offerings ' applications that allow users to efficiently mine their expansive data collections for valuable information to help make smarter and faster decisions.
'Business analytics and process integration across the global enterprise is what more and more prospects and clients are talking to us about ways to better understand their own business and integrate better with their customer,' explained Rod Strata, industry principal for transportation and logistics at SAP Asia Pte Ltd. 'There is also a focus to identify unprofitable customers and segments of business, because even companies that are downsizing need to understand where to downsize.'
Historically, LSPs have been criticized for their inability to weigh the value of a specific customer or target segment of customers, which often results in lackluster pricing discipline and generally poor financial results. Certainly many LSPs will find these offerings refreshing and a welcome improvement over the status quo.
A Light In Sight? The only thing we've learned for certain after the past 12 to 18 months is that no one really knows anything for certain. At best, we're only able to make educated guesses and often those guesses are grim.
IES's Bullen is a little more optimistic than most. 'We believe that there will be a significant turnaround in the second half of 2009. We're seeing this already with companies making aggressive plans for the future,' he said.
Whether the market turns for the better this year, or in 2010, or even 2011, the laws of economics dedicate that the market will eventually rebound. In the meantime, the industry can only watch while this difficult market shakes out the duds and propels the winners forward.