Trade volumes may be down and financing harder to get, but providers of on-demand global trade and logistics software say they are enjoying a banner year.
“Last year, we were very concerned, but then we kept hitting our numbers,” said Nathan Pieri, senior vice president of marketing and product management at Management Dynamics, a trade management software provider in East Rutherford, N.J. “This is one of our best years.”
The global recession has been “a catalyst” for many global companies that had been sitting on the fence about whether to fully automate their supply chains, said Greg Johnsen, executive vice president of marketing at GT Nexus, the Oakland, Calif.-based online trade and logistics portal. In boardrooms across the world, “The crisis has given champions of technology the added ammunition for making their case that ‘we need supply chain technology to lower our costs.’ ”
As the fragile economy shows signs of coming out of its deep funk, those who have built supply chain efficiency through technology that manages global transportation and addresses complex regulatory requirements systems will be in much better position to capitalize than those who haven’t.
“The guys who ‘get it’ are generally trying to take advantage of the fact that those guys who don’t ‘get it’ are falling into problems,” said Arthur Mesher, CEO of logistics software provider Descartes Systems Group in Waterloo, Ontario. “The table stakes have never been greater. The speed you need to run on treadmills is faster and faster, and those who are not in shape will blow their hearts out.”
For Kevin Gavin, vice president of supply chain management at Midland Park, N.J.-based IES, the reason for continuing investment comes down to simple business philosophy. “Why are people willing to spend money with us in bad times? To gain market share,” he said.
When the global economy was humming, many companies rushed to expand their supply chains worldwide to take advantage of lower labor and production costs. Lurking behind those savings, however, were hidden dangers and costs many failed to understand.
“When there’s a differential of 10-to-1 (in costs), that’s easy money,” said Alex Thompson, vice president of market strategy at TradeBeam, which provides global trade management software. “But that left their global supply chains relatively inefficient compared with their domestic supply chains.”
Many companies soon realized they had to make their foreign supply chains a lot more efficient or pay a high price. “Global supply chains are about 50 percent as automated as domestic supply chains are, and that is catching up with people,” Pieri said. Companies can’t make up the difference by doing the same old manual, spreadsheet-based processes on a larger scale, and it’s hard to get money to add headcount. “So they must have technology,” he said.
Costs are a huge motivating factor for technology. When a company reduces its transportation expenditures by 10 or 15 percent, or reduces its inventory costs by 5 percent by using technology, those savings go right to the bottom line.
Most companies responded to the recession by focusing on the short-term operational savings, not longer-term strategic goals that can pay off in a big way, Johnsen said. “People asked, ‘What can I do right now?’ ” he said.
Software that focuses on transportation procurement and contract management is a prime example because it allows transportation managers to make cost comparisons that would be costlier and more time consuming with conventional spreadsheets. GT Nexus software enables shippers to request pricing on thousands of products from more than a dozen ocean carriers, and make decisions based on analyzing complex scenarios and trade-offs.
For example, a shipper can assess whether the extra cost of demanding delivery of a product one day earlier is worth the tradeoff of paying more for that service. Or whether the capacity commitment the shipper gets from a carrier is worth the extra price that involves.
Depending on their needs, more global companies than ever are using software to pursue such goals as eliminating bottlenecks and reducing inventory at ports, manufacturing sites and at warehouses; reducing their fines for holding carrier equipment too long; identifying opportunities to shift modes, such as from costlier air freight to ocean; using postponement strategies to divert inventory at international gateways; self-filing to reduce their costs of using brokers to make entries; using preferential trade agreements to lower (or eliminate) duties; and rebalancing their supply and fulfillment networks by determining tax-efficient sourcing and distribution strategies.
Vendors say the gap between global winners (who use technology well) and losers (who simply use it, if at all) is widening. “There was always profit, and there was always loss, but the difference between profit and loss now is bankruptcy, now that you can’t borrow money,” Mesher said.
It’s no accident, Johnsen added, that the companies lauded for their use of technology on this year’s AMR Research’s Supply Chain Top 25 list are among the most profitable global corporations, including Apple, Dell, Cisco, Procter & Gamble and Wal-Mart.
“All of those companies are doing well on the stock market,” he said.
The growing number of regulatory mandates — including Importer Security Filing (10+2), the Consumer Product Safety Improvement Act of 2008 and the expanded provisions of the Lacey Act — are “buoying investment” in supply chain technology, Thompson said. These initiatives require companies to produce more information and collaborate with a wide range of supply chain suppliers, no matter how poor their revenue streams.
In some cases, this forces companies to collect information earlier; and to find errors before they go downstream.
Because of the focus on minimizing risk, “on demand” software continues to gain market share from installed software. Companies don’t just want results fast, they want to get them with a lot less financial and delivery risk, said Johnsen, whose company provides software on demand.
“They don’t want the technology to sit on a shelf, and they don’t have a lot of capital to spend,” he said.
The attractiveness of on-demand software is that companies can outsource their logistics technology to experts, freeing them from their IT staffs. “Why are some companies so successful with technology but others are not getting success, even with technology?” Mesher asked. “It’s because some people think, ‘We have an IT shop,’ ” and they leave everything to IT. Mesher said IT departments are best focused on routine tasks, not supply chain.
Many leading on-demand software providers, including TradeBeam, GT Nexus and Management Dynamics, are privately owned and don’t report earnings. One of the few publicly traded firms is Descartes, which has reported steadily rising earnings over the past few years. Its share price has doubled to about $4.50, from a low of $2.04 last March. In the fiscal first quarter ended
April 30, Descartes’ net income doubled to $2.2 million from a year earlier on a 7 percent increase in revenue.
Although some vendors of licensed software have not enjoyed the same steady growth that on-demand providers say they are enjoying, share prices of such companies as Manhattan Associates, Oracle, i2 Technologies and JDA Software have all risen sharply over the past six months, at rates of between 30 percent (Manhattan), to 90 percent (i2), to about 120 percent (JDA).
Despite their optimism, software vendors acknowledge the market for advanced supply chain technology remains far from saturated. Johnsen said most companies still do their supply chain work themselves, “in a manual” way that is highly inefficient; using spreadsheets, phones and faxes. Teams of people still enter the data manually, update it continually, and send it by e-mail to their supply chain partners.
“It is all about mind share,” Johnsen said. In companies where supply chain management has little support at senior levels, automation initiatives “must compete against dozens of other initiatives within the company,” Johnsen said. “You have to move the whole organization to embrace it,” and that can take years to complete.
Contact Alan M. Field at email@example.com.