Largely ignored by the C-Suite, logistics software finds new path

Largely ignored by the C-Suite, logistics software finds new path

Logistics software.

A funny thing has happened in the last few years even as the role of chief supply chain officer hasn’t become quite so ubiquitous: on-demand, subscription-based software providers have begun to partner more than ever, creating networks of logistics capabilities that often mimic those promised by the broader single suites. Photo credit: Shutterstock.com.

Supply chain analysts for the last decade have predicted the rise of the chief supply chain officer, or CSCO, and with it the ability to invest in broad global logistics software suites championed by those C-level leaders.

But a funny thing has happened in the last few years even as the role of CSCO hasn’t become quite so ubiquitous: on-demand, subscription-based software providers have begun to partner more than ever, creating networks of logistics capabilities that often mimic those promised by the broader single suites.

This development in effect has negated the need for global shippers to confine major software buying decisions to a C-level role because the adoption of a browser-based, pay-as-you-go piece of software gives those shippers access to a wealth of tools beyond the platform in which they have invested.

The expansiveness of these software networks puts into sharper focus how shippers have struggled persistently to adopt the technology necessary to better control freight costs and manage inventory, as highlighted by recent earnings calls in which shippers have bemoaned the volatile costs of freight and inability to manage excess inventory.

Shippers have long been told to think of investment in logistics software as a strategic decision, one that touches multiple parts of an enterprise and one that can mitigate costs or even drive them down.

Yet, buying decisions on logistics software still largely remain the province of what is often referred to as “the business,” meaning those directly responsible for the freight transportation or logistics function at their company, a range of former shippers, software providers, and third-party logistics executives told JOC.com.

The role of CSCO

Although some software providers have begun to target higher echelons of decision-makers within the shippers they sell to, a fundamental issue remains; many movers of freight lack a role that oversees the supply chain as a whole, such as a CSCO. For instance, fewer than a quarter of manufacturers have such a role in their organization, according to 2016 research by supply chain software provider GT Nexus.

“The [CSCO] role has been talked about for years, the idea that someone would take responsibility for this across an organization,” said Eric Lindberg, a longtime logistics sales executive who’s worked for MIQ Logistics, Livingston International, and, more recently, two logistics technology startups. “Some organizations, a few, have made that leap. But the reason it hasn’t happened more is that the CEO, the CFO, the COO, and the VP of operations don’t want to give that up. There are fiefdoms in the kingdom.”

Others see software buying decisions as cross-functional, but never strategic enough to rise to the level of needing sign-off from an executive, such as a chief operating officer or chief financial officer.

“It really depends on the size of the investment and if it’s cross-department or an individual department,” said Reade Kidd, a former logistics executive with The Home Depot who now leads E*DRAY, a container flow optimization software provider. “The more focused it is on one department, the less involvement across various groups (and probably less expensive). For example, a companywide inventory management platform or another solution that costs millions to implement and execute would likely involve a broad group, including procurement, IT, finance/CFO, and supply chain, with likely signoff by the CEO. Something smaller like customs software or something more local to one group, much lower in spending and just facing one group would just involve your department and direct finance support to put the business case together for approval.”

This runs counter to analysts’ presumption that the sales targets of logistics software eventually would move from the logistics department, with functionality tied directly to those standalone processes, to a cross-functional team involving members from different departments that would stand to benefit from a tech investment, to an enterprise business case.

A logistics operations job

Several software providers told JOC.com that decisions on logistics software still largely reside with logistics operations leaders and are generally not being driven by those higher up the food chain — unless the purchase of the supply chain software is seen as tied to some larger enterprise initiative, such as better customer fulfillment or if the company sees logistics as more of a finance function.

“In our world, it’s rarely a [CSCO] calling the shots,” one said.

One theory for this buying decision stasis lies in the transformational shift in how logistics software is delivered (from on-premise to cloud), paid for (from licensed to subscription), and its coverage (from enterprise resource planning [ERP] systems to transportation, warehousing, and global trade management systems).

But although it still may largely be up to logistics professionals to bear the heaviest load in convincing their enterprises to invest in software, another development is making the software they buy more expansive than it might seem; software providers, especially those building cloud-based, browser-accessible solutions that focus on the network effect of the internet, are more amenable than ever to partner with complementary solutions providers.

In other words, the nature of software today, with lower upfront costs and less disruption to existing processes, means it’s easier for a logistics team to tap into a rich consortium of systems without direct involvement from the C-level because software providers themselves are more likely to partner with one another.

“Consumer preference is driving the TMS [transportation management systems] market to rapidly evolve from offering complex solutions with long integration timelines to cheaper, easier-to-implement offerings with broader capacity networks,” said Jett McCandless, CEO of logistics software provider project44, which works with a number of those TMS providers to integrate rate, transit time, and visibility data into their platform through application programming interfaces (APIs).

These two dynamics are related. The ability for a shipper to buy a piece of logistics software that doesn’t take a lot of upfront investment, yet still yields benefits across multiple parts of an organization, might change the way buying decisions are made.

Lindberg noted that APIs are at the heart of this enhanced ability to partner with one another.

Technology tentacles

Partnerships among software providers are nothing new, but the model is changing. Supply chain technology went through a long transition phase, from the 1990s, where monolithic, licensed ERP solutions drove business decisions and drained resources from other needs, to a post-dot-com, hybrid era when companies gradually migrated to on-demand, browser-based tools. Now, the mandate for most shippers is to invest in nimble, adaptable technology that’s designed to link as many internal offices and external partners as possible. In this setting, the ability for a company to use a system and also plug into a network of complementary solutions is the priority.

Consider the supply chain software networks that have emerged in the last decade. Instead of ERP-led ecosystems, where the “partners” are generally third-party implementation providers or exclusive niche software providers, now they are TMS-led ecosystems that pull in a variety of substantial and non-exclusive tools.

In other words, the emphasis is on the network — not just a network of carriers and logistics providers, but a network of other solutions.

The driving force behind this change is that shippers want the advantages of a single system but also the functionality of multiple systems. Shippers often don’t have the resources to manage multiple niche systems, and instead want a single view via a backbone system into which everything else interfaces. In one sense, shippers’ needs have changed little from the days of the ERP ecosystem, but the architecture of modern systems has changed the way those tools are delivered to the shipper, and the way that shipper procures the backbone system.

“The way we’re constructing a new ecosystem for logistics, it means you have different buckets of value,” Lindberg said.

For instance, an investment in an Internet of Things solution might provide value to logistics (better tracking), legal (cargo security), and risk management (chain of custody), among others.

“If it’s $50 of value per shipment, that’s maybe not enough,” Lindberg said. “But if there are seven buckets, each getting a certain amount of value, that becomes a lot.”

A shift in focus

It also signifies a shift from looking at the value of such software as inward-focused to more outward.

“Traditional ERP software is very corporate- and inward-focused — so your HR, asset management, material management,” Brittany Brown, a GT Nexus sales executive, said in a May podcast on software buying decisions. “But when you look at supply chain software that looks organization outward, how you procure that is different. You want to be thinking about how your folks are using software, your vendors, and LSPs [logistics service providers] and how they interact with your software.”

Logistics software buying decisions are largely governed by the way an organization handles procurement, Brown said. Some will leave it to centralized procurement teams, while others will entrust the decisions to the “business,” meaning the logistics or broader supply chain department within the organization.

“The business knows how to get products from point A to point B, from purchasing to logistics to transportation to customer service to planning,” she said. “If you have a business focus, that’s almost a more ad hoc, less defined way of purchasing software. Procurement is well-oiled, or robotic in a sense. They have a rigid way of procuring anything, in this case software, so that’s very good from a process point of view, but some of the nuance that the business understands can get lost.”

But the buying decision isn’t about the upfront costs alone. “Owning the software will come from multiple places, depending on the model of the software they’re looking to get,” Brown said. “With SaaS, it’s a subscription, and that’s owned by the business, but when you’re talking about implementing that software, that’s typically IT that will own that.”

Lindberg said the business case driver is often different from the one managing the budget. “The person who sees the light holds the decision, but who writes the check?” he said. “The actual budget comes from a C-level position, like a COO. It’s very rare that there’s a buy big enough to change the entire ecosystem that comes from a branch.”

A measurement of success

Then there’s how different departments within an organization measure success. “Procurement will look at what is successful differently than the business, differently than IT, and differently from finance,” Brown said.

“They have different agendas, and what really complicates things is sometimes they’re competing,” she said. “Maybe the software needs to meet customer service goals, and that means it’s a little more expensive, and you know who loses in that situation? Procurement. IT might be looking at what is going to take the most man-hours and that might be different than the solution that the business is looking to procure.”

The ability for backbone systems to be adaptable also extends to integrating more easily with systems that a shipper has built internally.

“Thanks to innovations in software architecture and user interfaces, software vendors today are providing users with easy-to-use tools to build their own extensions and functionality,” logistics consultant Adrian Gonzalez wrote in a February blog.

He was pointing to how the evergreen build-versus-buy dilemma has morphed into a build-and-buy decision for some companies, based on the ease with which those proprietary systems can be integrated with the larger network.

Indeed, it is typical when attending a major TMS provider’s user conference to see a bank of partner software providers that integrate directly with the mothership. And those partners are likely to be at multiple TMS user conferences, highlighting the non-exclusive nature of those partnerships today.

This approach helps niche providers gain prominence as well. Whereas before, a partnership between two logistics software providers might see the larger of the two white label the product of the smaller company, now the smaller company’s tool would be integrated into the network of third party applications provided by the larger company. That helps the smaller tools from a branding perspective, but it also helps the larger provider sell its product as the conduit to a larger ecosystem of interesting tools.

And that’s perhaps why buying decisions aren’t necessarily moving up the food chain en masse at major shippers.

There are, however, categories of shippers where the buying decisions are driven at the CFO level. “All trade is financed,” said Matt Tillman, CEO and founder of global TMS software company Haven, which sells primarily to commodities shippers, food shippers, and metals traders, companies whose products are low-margin and that gain significantly by reducing the cost of logistics management per shipment. “Everyone is paying finance or insurance, and at any one of these firms, the CFO would always pay $100 more in transportation costs if it lowered the amount of inventory they needed to finance or reduced the number of days they needed to finance a trade. We’re working almost exclusively with CFOs.”

But those examples are more the exception than the norm at present. Even Haven, a relatively young startup, has joined the partnership game, having tied up a deal with procurement and spend management software provider Jaggaer in mid-2017.

The question going forward is whether there’s momentum among major retailers and manufacturers to use this networked approach to logistics software, and whether they are ready to fully utilize all the extensions available.

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.