TMS: The Road to Success Has Changed

Dedham, Massachusetts; May 15, 2003: The Transportation Management Systems (TMS) market grew by almost 7 percent in 2002, a respectable accomplishment considering the weak economy and reduction in IT budgets. But although the future remains bright for this market, the road to success has changed and many vendors will have a difficult time getting back on track.

According to Adrian Gonzalez, Director of ARC’s Logistics Executive Council and author of the new study Transportation Management Systems Worldwide Outlook, “Long-term success will be defined by four factors: scope of solution (expanding beyond basic transportation functionality), net value (realized benefits minus total cost of ownership), financial stability of the solution provider, and having a global presence.”

ARC is forecasting a Cumulative Annual Growth Rate (CAGR) of 11.6 percent over the next five years, from $860 million in 2002 to over $1,489 million in 2007.

The End of Standalone TMS?

Can a standalone TMS vendor survive in the future when customers are demanding holistic solutions that incorporate order management, order fulfillment, and performance management capabilities? The future is uncertain for vendors that are unable to meet these expectations. “The competition will intensify as vendors with broader footprints, such as ERP and SCM vendors, as well as third party logistics providers (3PLs), place a stronger emphasis on this market,” adds Gonzalez. “For example, a vendor like Microsoft, with no TMS capability today but making inroads with its other enterprise offerings, can conceivably become a dominant player in the future if it becomes interested and develops a smart strategy.”

Outbound Out, Inbound In

While most companies are utilizing TMS to manage their outbound operations, a growing number are beginning to shift their focus to inbound. “The economic environment and competitive landscape are forcing companies to find new ways to reduce costs and improve productivity,” explains Gonzalez, “and taking greater control of your inbound processes is the low hanging fruit, especially for retailers that are trying to keep pace with Wal-Mart.” About 20 percent of the TMS revenues generated in 2002 were for implementations that focused on inbound operations.

Changing the Rules of Buying and Deploying Software A few years ago, TMS vendors were among the first to offer hosted solutions and recurring-revenue pricing models such as subscription fees. While this strategy has failed in other markets, it continues to succeed in the TMS arena. “Recurring revenues accounted for about 20 percent of the market in 2001,” Gonzalez states, “but in 2002, the percentage increased to over 22 percent.” The study also reveals that externally hosted solutions accounted for close to 30 percent of TMS revenues last year. “Companies are taking a net value perspective when considering IT investments, and in many cases a hosted solution coupled with a recurring pricing model is the best option.”

The study addresses these topics in greater detail and includes market shares by solution type, geographic region, customer tier, and vertical industry, plus forecasts and supplier profiles.

Additional information on this study can be found at: http://www.arcweb.com/research/ent/tms.asp

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