There is a whole ecosystem surrounding the logistics software market. Part of the reason some logistics software companies thrive and others fail is that some of them do a better job of tapping into this ecosystem and leveraging it to create advantages for themselves in innovation, marketing, and sales.
Here are the key classes of players that impact this market:
- Of course, the logistics software companies themselves are key players. The barriers to entry are relatively low in the software industry. If you want to build an oil refinery, for example, you would need a billion dollars. In contrast, alums from the old McHugh Freeman, which eventually became RedPraire, branched out to form the Warehouse Management Systems (WMS) market. These new companies were typically formed with investments of less than $50,000. Similarly, i2 Technologies (now JDA Software) alums are largely responsible for building the Supply Chain Planning (SCP) market.
- Other software companies. Many customers eventually prefer to work with software companies that offer a larger suite of integrated products. This gives them a lower total cost of ownership (TCO). Suite solution providers also tend to be larger software companies with more financial viability. For several years, ERP companies that offered WMS, TMS, and other supply chain solutions grew as a result. However, some of these software companies grew by acquisition, which weakened their TCO argument. There is now a growing trend toward logistics software vendors offering a supply chain platform. There is also growing recognition that ERP itself provides somewhat limited value. Higher levels of value come from end-to-end supply chain solutions. Even the supply chain team at Oracle, an enterprise behemoth, makes this argument.
- There is also a second class of software companies that are important – the tools providers. Companies like Microsoft, IBM, and Oracle provide database, middleware, business intelligence and other types of software tools. Advances in these tools can lead to advances in logistics software. Ten years ago there was a lot of focus on what operating systems to support. Today, the focus is more on better utilizing analytic, middleware, and Service Oriented Architecture tools.
- Offshore IT companies. These firms can help a logistics software company’s R&D spend go further. They are often hired to help with software maintenance and even software development. The process of managing software development, however, can be complex and requires careful coordination. As a result, software vendors tend to keep development projects that are more complex and have a higher value-add in-house. Some of these IT services firm have active implementation practices for the largest ERP and logistics suite software providers.
- Universities. Advances in operations research tend to eventually get reflected in SCP software. In some cases, certain professors have become thought leaders in areas like third party logistics, supply chain best practices, and supply chain globalization. It is important for logistics software companies to stay abreast of what is happening in the academic community. In a few cases, professors have also formed supply chain software firms, more often in the planning segment of the market.
- Analyst firms. Analyst firms provide market research and intelligence, influence the buying decisions of potential customers, and are an additional source of information on how the SCM market is likely to change.
- The Trade Press. They are key players in helping to get the marketing message out.
- Consulting firms. The large consulting firms – IBM, Accenture, etc. – are key players in helping companies reengineer their end- to-end supply chain processes, influencing buying decisions, and then implementing the solutions. The big consulting houses tend to specialize in SAP and Oracle implementations.
- Smaller boutique consulting houses, in turn, have built practices in implementing best-of-breed solutions from Manhattan Associates, RedPrairie, and HighJump Software. There are also boutique consulting firms that specialize in material handling design and implementation, supply chain network design, and operational excellence consulting.
- Venture Capital (VC) firms. VC firms can help fund the marketing, sales, and globalization efforts of small innovative software companies. Some VC firms specialize in buying distressed logistics software companies at bargain prices and then living off the maintenance revenues.
Technological and organizational innovation are interdependent. Successful logistics software firms have organization structures that allow them to collaborate successfully with many or all of the different influencers in the market. In general, the larger logistics software companies have the economies of scale that allow them to tap this ecosystem more fully.
(Note: All of the software vendors mentioned in this piece are ARC clients)