My colleague Adrian Gonzalez and I are both fans of network-centric, software-as-a-service (SaaS) transportation management systems (TMS). We see advantages in terms of on-boarding carriers and other trading partners, data quality management, and the potential for benchmarking (see “More Questions About Software-as-a-Service“). But as I think more about Duncan Watts’ “Too Complex to Exist” article (which I highlighted in “‘Power Curves’ and Supply Chain Risk Management“), I see a potential downside to SaaS that I had not thought about before.
The recent financial meltdown and power outages that blacked out large parts of the Northeast in 2003 both represent “a dramatic and unpredictable cascade of events” caused by “systemic risk.” As Watts writes in his article, “Much like the power grid, the financial system is a series of complex, interlocking contingencies. And in such a system, the biggest risk of all-that the system as a whole might fail-is not related in any simple way to the risk profiles of its individual parts. Like a downed tree, the failure of one part of the system can trigger an unpredictable cascade that can propagate throughout the entire system.”
Watts also notes that there is “a general trend toward building ever larger and more complex networks. In recent years, hundreds of millions of people have rushed to join online social networks, while billions more rely on e-mail and cell phones to stay connected to friends and coworkers all day, every day. Technologists wax lyrical about ‘Metcalfe’s Law,’ which posits that a network’s ‘value’ increases in proportion to the square of the number of people or devices in it.”
Once large networks are built and entrenched, it’s difficult for other providers to “break in” to the market with a competing product/service. Thus, if network-centric TMS becomes the dominant model in the marketplace, it is likely that we will have only a few suppliers, with enough critical mass, providing these solutions.
Watts goes on to say, “In all the excitement, however, we tend to overlook a fact that should be obvious – that once everything is connected, problems can spread as easily as solutions, sometimes more so. Thanks to globally connected transportation systems, epidemics of disease like SARS, avian influenza, and swine flu can spread farther and faster than ever before. Thanks to the Internet, e-mail viruses, nasty rumors, and embarrassing truths can spread to colleagues, loved ones, or even around the world before remedial action can be taken to stop them. And thanks to globally connected financial markets, a drop in real-estate prices in California can hurt the retirement benefits of civil servants in the UK.”
So, here is the problem I had not thought about before: if network-centric, SaaS TMS becomes the dominant model, and we have just two or three big vendors providing these solutions, what happens if one of these networks goes down? If a traditional TMS solution fails, it is just one company and its customers that are affected. If a large networked TMS solution goes down, the impact could be much, much broader. Will supply chain risk management programs at some point in the future need to encompass contingency planning in this area?