Competition Increasing, with Record 13 Vendors Included in the Analysis; Do We Need More Network Connectivity for Carriers Across All Modes
Almost everyone in the supply chain community is familiar with the Gartner Magic Quadrants (MQ), short hand for the detailed vendor analyses that the analysts there do regularly across virtually every area of technology, including supply chain.
A few months ago, Gartner released its 2011 Magic Quadrant for Transportation Management Systems (TMS), an effort led by Gartner analyst Dwight Klappich, a research exercise that take several months of intense effort to complete.
These reports are called Magic Quadrants because in the end they wind up positioning vendors in a given technology area in a 2 x 2 matrix, with one dimension being “ability to execute,” and the other being “completeness of vision,” with each dimension in effect being divided into high/low categories. This results in four areas or quadrants into which a given vendor can be placed (Vision Hi or Low, Execution Hi or Low).
SCDigest editor Dan Gilmore recently had the chance to discuss the 2011 TMS MQ with Gartner’s Klappich, which we transcribe below.
Gilmore: Having wrapped up this latest TMS MQ, what are some of the key takeaways from this year’s report?
Klappich: We looked this year at about 13 TMS vendors, the most ever, and it’s clear the TMS market right now is very strong in terms of corporate adoption. After a slight dip in 2009, down about 3%, we saw a rebound in 2010 and beyond, and we expect growth rates of about 10% for the next five years.
A very important finding this year is that while very large shippers, typically those with a $100 million or more in annual fright spend, were the bulk of the TMS market throughout its history, we now see much more adoption by small and medium size shippers, companies spending as little as $10-25 million on freight annually.
There are a couple of reasons for this. First, new delivery models such as software-as-as-service or cloud are making these kinds of TMS applications a lot more affordable.
The second takeaway is just more competition among TMS providers. We’re up to 13 vendors covered in the Magic Quadrant, and that gives companies just a lot more options.
The breadth of today’s TMS applications is changing. In the past large shippers have really focused on the optimization aspects of TMS given the number of shipments they had to optimize across.
But with the on-going expansion of TMS scope, smaller shippers can benefit from using a system that starts at transportation sourcing and goes through planning and execution and freight audit and pay. That allows them to get benefits in multiple areas that provides a broader foundation for ROI and ways to pay for the system.
The second takeaway is just more competition among TMS providers. We’re up to 13 vendors covered in the Magic Quadrant, and that gives companies just a lot more options. Even though this is a mature market, that by no means indicates that innovation has stopped in the space. We continue to see TMS vendors adding new capabilities.
Gilmore: Sounds like there is a lot of new TMS action in tier 2 and 3 shippers – are you seeing much replacement action among larger shippers?
Klappich: Not much among the companies that have implemented TMS recently. The vast majority of TMS customers we are talking to are net new implementations, companies that never had a real TMS solution or maybe had just a point system in one area. This is really their first go-round in terms of a more holistic TMS.
Gilmore: In terms of new TMS capabilities recently, are there any things that stand out? Where are TMS providers investing in terms of functionality?
Klappich: One of the main areas is in terms of transportation sourcing capabilities, because that’s where you lock in your costs. It’s great to have strong optimization capabilities to consolidate loads and pick the least cost carrier, but a lot of total cost is locked in at the front end.
(Transportation Management Article Continued Below) TMS vendors are adding a richer, more flexible sourcing capabilities to support the annual bid process, to make it easier to do if nothing else but also adding logic to the bid process to drive better results. ‘Second, we’ve called this “multi-modal” TMS for several years, but the reality is that it was really focused on trucking – full truckload and less-than-truckload. Now, a lot of the new TMS focus has been on expanding the modal support, such as adding fleet capabilities for companies that have
private or dedicated fleets. Parcel is being more strongly supported too, as a lot of companies that were bricks and mortar are now using parcel and therefore are looking for multi-carrier parcel capabilities.
Improved international and intermodal capabilities – this is also key area of focus, in part because even smaller shippers are looking for this now.
So as I said, even though the TMS category is mature, the vendors continue to add pretty notable capabilities.
Gilmore: What else should be know?
Klappich: An issue that became more clear this year is that we see a growing battle looming between embedded networks and independent networks. By this we mean the trading partner network that is needed to support the end-to-end transportation process. TMS by definition is a multi-enterprise process that involves at least a shipper and carrier and can include other parties like suppliers forwarders, 3PL or customers. Today there is no ubiquitous network that covers all carriers, across all modes, that TMS users can plug into, and this remains one of the more time consuming and difficult implementation steps if all the trading partners need to be connected as part of the project.
For well over a decade people have been talking about creation of a ubiquitous freight network, analogous to what exists in the travel industry where hotels, airlines and rental car companies can be accessed simultaneously to book travel reservations, but this has yet to materialize.
We now see two competing paths emerging what we call embedded network or independent networks. Today if a shipper buys a TMS they can either buy a system where the vendor has no prebuilt connections but has tools to help customers connect to its carrier partners or it can look at a SaaS TMS that has some carriers already connected on its SaaS platform. While the latter sounds the most appealing – and indeed if the shippers carrier are already connected there are advantages – but today no vendor SaaS or on-premise has a complete network across modes. The largest pure SaaS TMS has about 10,000 carriers on its network but the vast majority of these are over the road carriers and it offers limited or no support for other modes.
The other trend we see emerging are vendors in partnership with large TMS and software vendors, notably Oracle and SAP, starting to build independent carrier capabilities that could eventually be connected to any TMS.
This is nascent, but being supported by the large vendors who have established customers that could help drive and accelerate adoption and network growth. In the
SaaS scenario today you have pretty strong networks, in at least one mode, but often not industry leading functionality.
In the other you have industry leading functionality but weak networks or the customer has to build their own network. Customers are left with having to compromise on one or the other. Because of this we believe the two models will continue to evolve in parallel but longer term we believe that users would favor the independent network approach, assuming that multiple networks emerge, so that they could pick the best TMS and the best network.
What’s your reaction to Klappich’s comments on the TMS market today? Do you agree we need a more universal connectivity model for carriers across all modes? Let us know your thoughts at the Feedback area below.