SaaS is a Cost Effective IT Alternative

Aug. 6, 2009
Warehouse management systems (WMS) based on Software as a service (SaaS) IT systems are a cost effective alternative says TMSi's Ron Cain

While companies look for cost-effective ways to improve operations and productivity using limited resources and constrained capital budgets, the warehouse management system (WMS) market is becoming increasingly saturated with products and providers, according to Ron Cain, chairman and CEO, and Ofer Nativ, director of IT Product Development of TMSi Logistics. This abundance of solutions can work to the advantage of users, suggest the two systems executives because it is forcing providers to develop new and innovative ways to offer their services to attract and retain customers.

One approach many users are considering is software as a service (SaaS) systems. SaaS systems are generally targeted towards small- to medium-sized businesses with limited IT resources or who are looking to reduce the initial cost of implementing a WMS. Because SaaS costs are based on transactions they are often proportional to growth.

A conventional WMS can require a large investment in IT infrastructure, IT resources, and maintenance. Infrastructure costs are generally a one time cost, but IT and maintenance prove to be continuous fixed costs over the life of the WMS, say Cain and Nativ. In a SaaS model, the vendor owns and operates the application, and is responsible for software, hardware, maintenance, and upgrades. According to Forrester Research's Total Economic Impact (TEI) studies, in most cases, SaaS delivers better TEI and lower cost than an installed system.

A SaaS system is generally licensed from a provider based on the needs of an organization. If the WMS vendor charges by transaction, both companies gain when business improves and volume goes up. If business shrinks and volume goes down, the monthly fee will go down as well, resulting in lower costs for the business during slower periods.

SaaS systems are generally Web-based and provide full visibility of the activity recorded in warehouses. These applications have the benefit of allowing clients to access the system using a standard Web browser, eliminating the need for installation of software on every work station. Since SaaS supports access via the Internet, users can view their inventory and real-time warehouse transactions anytime, anywhere.

Cain and Nativ point out the traditional installed WMS model requires initial fees for licensing, maintenance and support, hardware (e.g. servers), and software (e.g. operating system and database licenses). Additional expenses include IT services such as patches, backup, disaster recovery, and troubleshooting.

In the case of SaaS, companies lease the use of the WMS. A user pays one ongoing maintenance and support fee which may be all inclusive.

For an organization that already owns a WMS, there are additional points to consider. First, in order to upgrade the system, the company may be required to acquire a new version of the software. The new system must then be installed on a test server where business scenarios can be tested and data conversions can be prepared to provide a successful transition from the old version to the new version.

Additionally, the risk of upgrading from an existing WMS, or implementing one for the first time, is greatly reduced, say Cain and Nativ, because there is significantly less burden on the IT department to oversee software installation and implementation since the vendor of the SaaS will manage it.

The major concern that many users have when relying on SaaS systems is vendor reliability. Because the client is depending on an outside firm to house their data, arrangements must be made to ensure that, in the event that the vendor goes out of business or another issue arises, critical data will be transferred back to the client.

“There seems to be a consensus emerging that SaaS thrives in a cost-conscious, capex-constrained economic environment, such as we're currently experiencing,” says Phil Wainewright, CEO of the strategic consulting firm Procullux Ventures.

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