8th Annual Software Survey: Spending remains flat

The results of our 8th Annual Software User Survey are in, and the results reflect what most of us would expect during the current economy. Spending is down or flat across most supply chain software categories; purchase expectations for the year are lower than they were for 2009; and a growing number of shippers are turning to hosted solutions in lieu of purchase-and-install options.

Logistics Management (LM) has been tracking software user trends for the last seven years in order to get an inside look at the current supply chain software market and to help identify which technologies shippers are more prone to adopt. Specific areas of evaluation include types of software currently in use; which software they’re planning to purchase; the level of annual software expenditures; what stage respondents say they find themselves in the buying process; and the reasons shippers are considering turning to supply chain software, to name a few.

This year’s survey of LM readers was conducted in February, and only included those professionals who are involved in specifying and evaluating logistics and supply chain software solutions for their companies. For 2010, 346 qualified respondents were received and tabulated.

The first question, and perhaps the most telling of the questions we ask, is one that was on every software vendor’s mind in the early stages of 2010: Does your company use or plan to purchase or upgrade supply chain software in the next 12 months? According to the survey, 88 percent of respondents are currently using supply chain software, while 75 percent say they plan to buy or upgrade this year—up from 73 percent and 64 percent, respectfully, in 2009.

From here, the survey pinpointed variations in buying habits among the different supply chain software options, although the two biggest components of the market, warehouse management systems (WMS) and transportation management systems (TMS), garnered similar results. Twenty-seven percent of respondents say they plan to buy or upgrade their WMS this year—down from 31 percent the prior year—in an effort to gain real-time control and improve inventory deployment.

The same percentage of shippers (27 percent) say they want to buy or upgrade their TMS, down from 29 percent in 2009. From their TMS shippers are looking for routing and scheduling capabilities, better carrier selection and load tendering, and shipment consolidation.

Adrian Gonzalez, director of ARC Advisory’s Logistics Executive Council, is surprised at the lowered interest in TMS—a software category that roughly one-third of shippers are currently using. “I would have thought more than 27 percent would be upgrading this year,” says Gonzalez, who points to the fast potential payback as the biggest selling point for TMS. “Part of that, however, could just be the effect that the economy is having on budgets right now.”

Around the horn

According to the survey, interest in enterprise resource planning (ERP) systems has waned, from 18 percent in 2009 to 17 percent this year, based on the number of shippers that plan to buy or upgrade. Of those who are buying ERPs, 52 percent say they’ll include a WMS module while 27 percent say their systems will come equipped with a TMS module.

Surprisingly, interest in global trade management (GTM) software has remained pretty much level year over year, even with the new Customs compliance challenges that now face shippers. In 2010, for example, 14 percent say they’re ready to buy or upgrade, compared to 13 percent in 2009. Adoption rates for GTM remain low: just 10 percent of shippers are currently using such systems, down from 15 percent in 2009.

“I’m surprised by those numbers because last year our studies showed that GTM would be up quite a bit [this year] over other software options,” says Greg Aimi, research director of supply chain for AMR Research. “But this survey paints a different picture.”

Belinda Griffin, executive program manager for Capgemini, says she’s seen lower interest in GTM due to its niche status, and the fact that most shippers are maintaining a conservative purchasing stance and seeking the biggest bang for their buck. “GTM is not as encompassing as some other supply chain software options, and is still seen as a niche area,” says Griffin.

The fact that 3PLs and other third parties offer outsourced GTM capabilities could also be having an impact on the sector’s growth. “If someone else can deal with the GTM without the shipper having to buy the actual solution, then all the better,” says Griffin. “There are precious few dollars to go around right now, and shippers would probably rather spend them on a solution that encompasses a bigger part of the supply chain.”

Another niche supply chain sector that is seeing activity right now is yard management systems (YMS). Overall usage of such systems has dropped (from 14 percent in 2009 to 12 percent this year), but 13 percent of respondents says they’re planning to buy or upgrade their systems this year compared to 10 percent in 2009.

Also gaining ground are Software as a Service (SaaS) supply chain options—a trend that started in the TMS space, but is now radiating out into other sectors. According to the study, 35 percent of shippers are considering SaaS-based supply chain solutions, while 18 percent are already using them.

“SaaS is hot right now; everyone wants to talk about it,” says Griffin. She sees the option as particularly useful for small to midsize shippers that lack the monetary and IT resources to handle a full, on-site installation. “Larger shippers are intrigued by SaaS, especially when they learn how easy these systems are to implement and maintain,” she adds. “When they really dig down into the business case, however, it’s still not there for those larger companies.”

Gonzalez says that ARC’s own studies show that subscription-based TMS revenues and transaction fees grew by double digits in 2009 compared to 2008, when those revenues contracted. These revenues are expected to expand even further in 2010. He says low startup costs (compared to purchase-and-install options), ease of use, and speed of implementation remain the prominent drivers within the SaaS market. “It’s getting harder and harder for shippers to ignore these advantages,” says Gonzalez.

Who’s providing what and how well?

Our survey also delved into which features shippers are looking for, the vendor selection process, as well as the level of shipper satisfaction once they’re up and running with those vendors.

When using supply chain software, shippers ranked the right features for operations, configurability, compatibility with existing systems, and service/support as the most important criteria. Most shippers (49 percent) say that their usage of supply chain software has remained the same over the past two years, while 47 percent said it’s increased.

The results also reveal that the current economic climate has changed shippers’ approach to supply chain management software on several fronts. More are scrutinizing their investments and moving cautiously (46 percent versus 41 percent in 2009), yet only 21 percent are freezing investments (compared to 34 percent last year). Twenty percent are moving forward with new software investment (compared to 16 percent in 2009) and 16 percent are upgrading versus buying new (versus 15 percent in 2009).

The actual number of vendors on any shipper’s docket at one time is also changing. Thirty percent of respondents say they’re using more software vendors than two years ago—compared to 28 percent in 2009—perhaps signaling a diminishing interest in vendor consolidation. The number of software packages in use has remained somewhat steady, with 36 percent of responding shippers increasing that number (versus 37 percent in 2009) and 56 percent staying the same (compared to 53 percent in 2009).

Griffin says she’s confused by shipper feedback regarding the number of software vendors and packages in use. “Quite a few shippers I talk to are looking to simplify their software footprint and standardize processes,” says Griffin. “It’s interesting to see how this survey doesn’t reflect those intentions.”

Exactly how shippers get their new software up and running, and the ROI expectations associated with those implementations, hasn’t changed much in the last two years. A good chunk off responding companies (36 percent) continue to rely on in-house expertise to handle software implementations, compared to 37 percent in 2009. Thirty-one percent turn to their software suppliers, up from 27 percent in 2009.

Once those systems are in place, payback expectations remain fairly constant. Thirteen percent of shippers expect payback in less than six months; 31 percent anticipate ROI within 6 months to 12 months; and 34 percent within 12 months to 18 months, according to the survey. “Those expectations are realistic,” says Gonzalez, “and consistent with what we see in the marketplace right now.”

what does the future hold?

The 2010 survey continues to reflect a bleak economic picture that, according to shipper respondents, isn’t on track for any significant improvement over the next six months. But all the news isn’t negative.

The total number of shippers who intend to buy or upgrade supply chain planning software is actually up, from 23 percent in 2009 to 27 percent in 2010. From those purchases, shippers are looking for better inventory visibility, improved demand planning, enhanced order management, and better collaboration with vendors/suppliers.

However, actual expenditures for supply chain software will be down significantly in 2010 compared to 2009. When asked how much their companies will spend on supply chain software for their operations including license, integration and training over the next 12 months, 50 percent (compared to 45 percent last year) of respondents said less than $100,000, and 26 percent (compared to 30 percent last year) said $100,000 to $499,999.

The average amount that shippers plan to spend this year is $583,800, compared to $750,280 in 2009 and $706,450 in 2008. Blame the economic conditions for the conservative stance, says Gonzalez, but also factor in the growing interest in lower cost SaaS options and in those solutions that solve one specific problem.

“Companies are beginning to realize that they don’t have to address an entire process with an all-encompassing software package,” states Gonzalez. “Instead, they can invest smaller amounts in more targeted areas, and then allocate those cost savings to future projects.”