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Focus: Supply Chain Trends/Issues

Feature Article from Our Supply Chain Trends and Issues Subject Area - See All

From SCDigest's On-Target E-Magazine

June 8 , 2011

Supply Chain News: Key Pros and of On-Demand Supply Chain Software

On-Demand is Hot, with Many Potential Benefits, but May not be Right for All Scenarios

SCDigest Editorial Staff

There are a variety of terms used to describe supply chain software that is not installed within a corporation, but rather accessed from remote servers, including the terms hosted, on-demand, software-as-a-service (SaaS), cloud-based, etc.

Most experts do attach some specific meaning to these different terms (see Cloud versus SaaS for Supply Chain Software and the Ability of Applications to Scale).

SCDigest Says:

The logical direction of the on--demand trend � and what is already starting to happen � is that prospective software users can try the software with comparatively little effort and perhaps no expense before buying.

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For this article, we are just going to refer to this class of applications as being "on-demand," and note that there clearly is a major trend overall in supply chain software being delivered using this model, which usually means a subscription or transactional pricing model in addition to remote host delivery.

What are the advantages of the on-demand mode? The most common are described below.

Lower capital requirements: This is a key element of the traditional pitch for on-demand solutions. By going to an on-demand model, companies can generally avoid up-front capital requirements and funding requests, and pay for the software as an on-going expense.

Faster implementation: There is generally less overall set-up time for some applications, and in some cases, like for transportation management, companies can often leverage the hosted solution’s existing integrations (say with carriers) to take time out of the implementation. One note: be careful not to compare apples and oranges in terms of implementation time and expense.

Faster “time-to-value”: Given a more rapid implementation, the time-to-value and positive cash flow returns should be more rapid than a traditionally deployed application - increasingly important considerations in today’s business climate.

Strategic flexibility: In theory, it may be easier to “unplug” an on-demand solution and move to something else down the road than is true with a traditionally deployed solution.

Reduced internal IT resource requirements: No installed application software or hardware to manage over time.

Overcome objections to best-of-breed software: Some companies are finding that they are able to overcome the objections or rules against implementing software that doesn’t come from the company’s ERP provider if they use an on-demand model. In fact, some shippers have done this almost as “skunk works” projects outside the formal IT process for TMS implementations.

Fit for true “on-demand” usage: While most supply chain software applications are used continuously, there are some applications or scenarios where only occasional use is required. Examples might include carrier bid optimization, supply chain network design, and pick face slotting optimization. Users can truly access these solutions when they need them – on-demand – and pay just for that.

“Try before you buy”: In the end, this may wind up being the biggest benefit of all. Clearly, the logical direction of this trend – and what is already starting to happen – is that prospective software users can try the software with comparatively little effort and perhaps no expense – before they make a commitment. This will dramatically change the experience, dynamics and risk profile of acquiring supply chain software capabilities.

(Supply Chain Trends Story Continued Below)

CATEGORY SPONSOR: SOFTEON

Lower total cost of ownership (TCO): This is certainly the case on-demand vendors will make, and for the reasons described above, it often may be true; but in other cases, it may not be. The key is to do a detailed, multi-year cost of ownership comparison.

Staying current with technology: In general, with on-demand solutions, especially those using multi-tenancy, the software will periodically be automatically upgraded with enhancements to functionality. This should serve to keep users on at least a pretty current platform, whereas, given the pain associated with upgrading many traditionally deployed applications, it is easy to bypass upgrade opportunities. This often results in the software falling behind the state of the art over time, sometimes badly so.

This is a powerful list of benefits that seem to be largely in sync with the way customers are thinking about technology.

Understanding the Potential Downsides

While the on-demand model has many benefits, as described above, that doesn’t mean it is a clear decision for a given company to go down this path – at least today, before the tide really starts to turn in a few years in favor of on-demand (meaning non-on-demand solutions will be tough to find).

But, users should consider the following:

Functionality may not be as robust: Many of the early on-demand vendors across application areas did not have as robust of solutions as the traditional vendors did. This is often true even of the traditional vendors themselves as they try to transition existing solutions to on-demand. Make sure you know what you are getting in terms of functionality.

Does one size fit all?: In general, and certainly in the multi-tenant model, the only “tailoring” that usually can be done is through system configuration, not changes to the actual code. While many companies are perfectly happy to avoid having any modifications, there are times when mods may add a lot of value or enable innovation or competitive advantage.

Total cost of ownership?: Both the on-demand vendors and the traditionally deployed providers often claim lower total cost of ownership. In the end, it is really just a straightforward financial calculation, but one in which it is critical to make sure all the appropriate factors are considered. Some argue that the paying of subscription/ transaction fees for years will add up to a lot more than an upfront license. It might, but that depends on many factors, especially the on-going maintenance costs that go along with that upfront license, and the on-going internal support costs.

As we have noted before, the keys to making the right decision for any individual company is to make sure the real drivers and goals of the project are well-defined, to be very clear about assumptions, and to do a detailed cost of ownership exercise to fully understand projected costs.

What would you add to our list of pros and cons of on-demand software? Let us know your thoughts at the Feedback button below.

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