Macro Trends Affecting the Transportation Management System Market

Transcription

1 Macro Trends Affecting the Transportation Management System Market Published: 19 March 2018 ID: G Analyst(s): Bart De Muynck As the TMS market continues to grow, different factors that determine an end user's TMS selection process will grow in influence. Supply chain leaders should use this research to understand these factors so they can decide how to rate them in future TMS evaluations. Key Findings Transportation management system (TMS) users rate functionality as a top priority in new system selection, but as supply chain management (SCM) applications mature, other factors like visibility, agility or cost of ownership take on more importance. The TMS market has changed from offering expensive, hard-to-implement solutions to much cheaper, easier-to-implement solutions with broader networks. Issues such as increasing rates and tighter capacity in the transportation industry are forcing companies to invest more into new technologies for either first-time TMS buyers or replacement buyers. Recommendations Supply chain leaders evaluating a TMS for supply chain and operations technologies: Evaluate the dynamics affecting your assessment of a new TMS by identifying the influence and specific importance to your business of the factors laid out in this research. Evaluate all factors during the TMS selection, not just functionality and cost. Usability and ease of implementation have especially grown in importance, and can be key differentiators between vendor solutions. Assess the ROI of a solution and the capabilities it will bring to the business today and in the future, knowing the transportation industry will continue to be more cost- and capacitychallenged, and customers will become even more demanding.

2 Table of Contents Analysis...2 Gartner's Viewpoint of the TMS Market... 3 Global Go-to-Market...4 Small and Midsize Business TMSs...4 Deployment Model... 5 Transportation Network Complexity... 5 Importance of Visibility... 6 Supply Chain Execution Convergence... 6 Critical Role of Analytics and Business Intelligence...7 User Experience... 7 Implementation...7 Cost of Ownership...8 Freight Marketplaces... 8 Blockchain Technology... 8 Gartner Recommended Reading... 9 List of Figures Figure 1. Key Drivers for a New TMS... 3 Figure 2. The Five Different Levels of TMS Complexity... 5 Analysis Multimodal domestic transportation management systems (TMSs) are used by shippers (such as manufacturers, retailers, distributors and wholesalers) as well as non-asset-based third-party logistics (3PL) organizations. The primary emphasis of a multimodal TMS is to support for-hire transportation management operations. This is where users employ a variety of shipping modes, including over the road, private/dedicated fleet, small package, rail and intermodal. Global companies and companies that import products from different regions also use air and ocean as main transport modes these can also be covered by some, but not all, of the multimodal domestic TMS vendors. When asked what the end-user companies were most looking for when evaluating TMS technology, respondents placed a high premium on visibility. 1 The top three reasons cited for selecting TMS technology were visibility, operational efficiencies and business process improvement. Surprisingly, cost management only came in at fourth place, and many companies still fail to identify carrier collaboration or revenue growth as a major area of opportunity provided by a TMS (see Figure 1). Page 2 of 11 Gartner, Inc. G

3 Figure 1. Key Drivers for a New TMS Source: Gartner (March 2018) When reviewing individual vendors, companies are still looking at functionality, performance and scalability, and vendor experience as the main selection criteria. Surprisingly, ROI only comes in at fourth place while, further down the list, service and support, user experience (UX), and implementation expertise factor strongly in selecting a particular solution. Some of these criteria can fluctuate, depending on the size and complexity of the end-user company's transportation operation. For example, a smaller, simpler organization will give larger preference to a simpler, but easier-to-implement and train, solution with a lower total cost of ownership (TCO). A larger, complex organization might give preference to more experienced solutions with more advanced capabilities, and deal with higher TCO and complexity of implementation. Often, these higher costs and complexities are offset by higher operational needs as well as productivity. Gartner's Viewpoint of the TMS Market The leading TMS vendors (those that qualify for the TMS Magic Quadrant) all support the core elements of a TMS. Functionality is just one of the many criteria on which end users evaluate the vendor. There are, however, additional considerations that influence the selection criteria of TMS providers. Some of these considerations have evolved in the past year. Gartner, Inc. G Page 3 of 11

4 Global Go-to-Market The Magic Quadrant is an analysis of global TMS solutions. One key inclusion criterion is vendors demonstrating that at least 10% of their revenue is generated outside their home regions. This is because international market expansion is a growing consideration in the TMS marketplace. We see two compelling trends in globalization. First, many of the larger, more mature shippers are forming international and even global transportation functions in their companies. This creates a need for a TMS that can provide capabilities on an international scale. Second, Gartner finds that TMS demand is growing internationally, especially in the emerging geography of Asia. With close to 50% of future growth in the TMS market coming from regions outside the Americas, TMS vendors are expanding their international focus. Several vendors have expanded their ability to enable widespread regional and global product rollouts supported by globally available customer service. This capability ranked high on a vendor's Ability to Execute. Consequently, vendor support for global go-to-market is a distinguishing characteristic that affects the positioning of some vendors in the 2018 "Magic Quadrant for Transportation Management Systems." With this growing trend, Gartner still observes a large percentage of companies selecting different TMS vendors for different needs per region. For example, the U.S. might need a complex solution, and a leading Magic Quadrant vendor's product might be the right fit and the cost justified. But Europe might have far less complex requirements needing a simpler, execution-focused TMS (or transportation execution system [TES]) that has a much lower price tag. Small and Midsize Business TMSs Gartner continues to see two emerging growth markets for TMS. First, we noticed continued international growth in Asia (especially China) and Europe in Second, we see continued growth of TMS in smaller organizations with less complex transportation management needs. Historically, we have seen vendors that focus on the large, very complex shippers and 3PL providers, and vendors that focus on the smaller, less complex shippers and 3PL providers. Both the established and the newer vendors have adjusted their strategies to focus on the ability to serve both small and larger customers. Oracle is a great example of a company that used to mainly focus on large shippers, but, through its public cloud offering, has been able to grow substantially in the midsize shipper segment. On the other hand, Kuebix is a vendor that was mainly focused on the small and midsize end of the market, but has now landed several large shippers due to the continuous expansion of its TMS capabilities. Small and midsize businesses (SMBs) have specific needs wherein functionality is not always the top priority, and the cost and speed of implementation play a larger role. This SMB market is growing at a very fast pace (Gartner currently estimates 25% year over year). See "Midmarket Context: 'Magic Quadrant for Transportation Management Systems,'" which continues Gartner's focus on the SMB TMS market. Page 4 of 11 Gartner, Inc. G

5 Deployment Model Almost all vendors have public cloud offerings, and there are still differences between single-tenant and multitenant offerings. In their requirements, Gartner clients communicate that they have a preference for public cloud solutions, largely due to the lower cost and shorter implementation timelines. We see a bias for dedicated cloud (and, in some cases, on-premises) only when the customer expects to need heavy customization, or in cases of security concerns (for example, U.S. Department of Defense) or internet issues (certain regions in Asia or Australia). Accordingly, the deployment model continues to play a strong role in our Completeness of Vision section. Now that the majority of TMS vendors have a public cloud strategy, it factors more into the Ability to Execute section as we consider the vendor's ability to deliver cloud TMS and the speed of implementation it brings. Transportation Network Complexity Historically, Gartner has placed high importance on a vendor's ability to support medium-complex to highly complex transportation environments (Levels 3 and 4). This continues to be important for some companies; however, Gartner finds that many companies do not need the most advanced functionality. Most companies looking to invest in a TMS fall into Level 2 and Level 3 TMS complexity, as defined by Gartner (see Figure 2). Figure 2. The Five Different Levels of TMS Complexity Source: Gartner (March 2018) As the adoption of TMSs increases, we see more companies (especially SMBs) that need a simpler solution. In many cases, the importance of functionality is reduced and somewhat commoditized, Gartner, Inc. G Page 5 of 11

6 and cost and speed of implementation are at the forefront of the customer's decision making. Consequently, while we continue to assess vendors' ability to support complex transportation operations, we also consider how well a vendor can support less demanding operations. This can result in vendors having similar positions on the Magic Quadrant, but for different reasons. Importance of Visibility According to Gartner's 2017 User Wants and Needs study, 2 supply chain visibility remains the No. 1 supply chain initiative. The 2018 TMS Magic Quadrant customer reference survey 1 also confirms the importance of visibility, placing it as the No. 1 key motivation for investment in a TMS. In transportation, visibility plays a role on two fronts. Global visibility for international transportation has become even more important, as well as domestic real-time road transportation visibility. Customers have increasing demands regarding real-time visibility of their orders. Importantly, a lack of visibility often creates internal and external warehousing and transportation inefficiencies, and an increase in transportation costs (for example, carrier waiting times, customer fines). Telematics and mobile technology in transportation provide the needed source and real-time aspect of data that could be shared with other supply chain partners to address the need for visibility. TMS customers are looking for their vendors to provide this capability as part of the TMS as solutions such as TRANSPOREON Group and Transwide do. An increasing number of North American and (as of late) European companies invest in real-time visibility platforms that are used either standalone or in partnership with the TMS. Vendors such as 10-4 Systems, FourKites, GateHouse Logistics, MacroPoint, project44, Shippeo and Sixfold (see "Supply Chain Brief: Real-Time Visibility Platforms Provide Transportation Leaders With Advanced Capabilities") are growing their customer bases and carrier networks while increasing their capabilities as demand for these visibility solutions continues to increase. Supply Chain Execution Convergence Supply chain execution (SCE) convergence refers to the need for supply chain organizations to better orchestrate and synchronize execution processes across functional execution domains. More precisely, leading supply chain organizations want to orchestrate end-to-end processes (such as order to cash) that span traditional functional boundaries, including warehousing, transportation, manufacturing or global trade management. According to Gartner research and interactions with end users, an increasing percentage of clients are looking for a common platform across areas such as transportation, warehousing, yard management and order management. Because SCE convergence plays such a prominent role in enhancing logistics performance and further promoting logistics maturity (see "Apply the Five-Stage Maturity Model to Drive Logistics Excellence Within the Supply Chain"), we continue to make it a central factor in the TMS Magic Quadrant. Given the effect SCE convergence is having on the SCE application landscape, we have made it an important component within the Completeness of Vision dimension of the Magic Quadrant. Hence, it affects the positioning of some TMS vendors. While a vendor's SCE convergence strategy impacts its position in the Magic Quadrant, that strategy might have little relevance for companies that are narrowly focusing on transportation alone. Page 6 of 11 Gartner, Inc. G

7 Key issues distinguishing vendors on the right side of the Magic Quadrant (Leaders, Visionaries) from those on the left side (Challengers, Niche Players) are the vendor's strategy and its ability to support SCE convergence. Oracle, SAP, JDA and Manhattan Associates continue to display the most compelling SCE convergence visions and capabilities beyond core TMS. Critical Role of Analytics and Business Intelligence End users are putting increased importance on the roles of analytics and business intelligence (BI) in TMS solutions, especially companies in an omnichannel environment. Analytics and BI are critically important to an effective omnichannel initiative. They add value to understanding customer requirements, predict the propensity toward specific behavior and optimize inventory. Better analytics lead to optimization in decision making, and ultimately helping to increase performance, reduce costs, improve customer service and create higher profitability. Customers are looking for capabilities around predictive analysis such as simulation techniques and "what if" scenarios that help evaluation and trade-offs between different strategies and tactics. Gartner has noticed real advancements in this area by most of the leading vendors, as well as some key capabilities provided by the TMS partners (such as the real-time visibility vendors). User Experience For several years, Gartner has heard from customers that logistics applications, including TMSs, have trailed other application areas in terms of enhancements to the user interface (UI) and application support for more advanced and flexible workflows. In the 2018 "Magic Quadrant for Transportation Management Systems," Gartner has observed vendors' continued focus on improving both the UI and UX. Some examples of vendors with strong UI and UX are Cloud Logistics, Kuebix and MercuryGate. As more SMBs adopt TMS solutions, it is important that these solutions are easy to use and do not require lots of training. Both the UI and UX improvements have had and continue to have important impacts on companies from a change management perspective, and they allow easy adoption of the TMS solution. Given customer interest, this area has received more consideration in the evaluation of offerings. Implementation The implementation of a TMS solution used to be a long and complex project. Shippers' and 3PL providers' expectations regarding such implementations have changed dramatically, especially with the advent of multitenant cloud TMS options. Customers now require these solutions to be implemented in a much shorter time frame (weeks instead of months), at a much lower cost, and to provide a much faster ROI. As vendors continue to mature their products and cloud deployment offerings, they have continued to "templatize" their solution implementations, dramatically decreasing the completion timelines. Over the past year, Gartner has witnessed even more implementations that were accomplished in much shorter time frames (often six to eight weeks). Traditionally, these would have taken six months or more. Besides lower subscription and license costs for TMSs than in the past, these faster implementations have also lowered implementation costs, dramatically changing the ROI makeup of these systems and leading to wider adoption. Gartner, Inc. G Page 7 of 11

8 Cost of Ownership In Gartner's User Wants and Needs study, TCO continues to be rated as one of the top four evaluation criteria for customers considering new SCM applications. 2 As mentioned in the previous section, the cost of TMSs has continued to decrease, thanks to lower subscription fees, lower infrastructure costs and lower implementation costs. On the other hand, productivity is generated at a faster pace since implementations take less time. Hence, the ROI for a TMS has improved significantly across the TMS user base (see "How to Calculate the ROI for a Transportation Management System Project"). While TCO and ROI are top considerations, and there have been improvements made on both fronts, it isn't always easy to measure true ROI. Only a few TMS vendors have active programs to help the customer benchmark the transportation data. This benchmarking ensures achievement of the desired ROI, or provides key insights to drive higher use of the solution and, in turn, higher ROI. Managed TMS vendors that, in many cases, have at least part of their revenue stemming from a profit-sharing model are best positioned to assist customers on this topic. Many TMS vendors continue to focus on mechanisms to accelerate time to value, in some cases dramatically reducing implementation time, effort and cost. Freight Marketplaces In the past few years, Gartner has observed many freight marketplaces coming into the transportation industry. These marketplaces tended to operate as stand-alone alternatives for shippers seeking available capacity. In the past year, several trends have increased the growth potential for these solutions: tighter capacity in the truckload space, increased transportation rates, and continued pressure in the market due to the electronic logging device (ELD) mandate and the driver shortage. Gartner has also noticed a partnering of these freight marketplaces with the TMS vendors. Uber Freight is one of the marketplaces that has created partnerships with several of the leading TMSs. Convoy, FreightRover and Loadsmart have done the same. Expect these partnerships to continue to grow as shippers want more possible sources for capacity, and as these freight marketplaces are positioning themselves more as digital brokers and even digital carriers. Blockchain Technology The technology infrastructure of blockchain technology, better known as the distributed ledger that supports the bitcoin digital currency, is a shared, immutable ledger for recording the history of transactions. The distributed ledger is an authoritative record in a decentralized environment where parties do not have faith in each other, and where there is no trusted central authority, server or data center (see "The 2018 Top 8 Supply Chain Technology Trends You Can't Ignore"). Blockchain promises much in the era of digital business. Today, most use cases are developing in the financial industry, but blockchain could have a major impact on supply chain in transportation once developmental hurdles are cleared. Some of the areas that could impact the TMS space are rate/bid negotiation (smart contracts), reduction of errors (no more paper-based documentation), visibility/traceability/monitoring, proof of delivery and increased efficiency around freight payment. Page 8 of 11 Gartner, Inc. G

9 As of the writing of this research, none of the TMS vendors had blockchain offerings (related to their TMS offerings), but many of the leading vendors are looking into the possibilities as customers continue to ask about the potential of blockchain. Gartner Recommended Reading Some documents may not be available as part of your current Gartner subscription. "Magic Quadrant for Transportation Management Systems" "How to Select the TMS, Provider and Solution Best Suited for Your Strategic Capabilities" "Critical Issues to Consider When Evaluating Transportation Management Systems" "How to Calculate the ROI for a Transportation Management System Project" "Toolkit: RFP Template for Transportation Management Systems" "Toolkit: Build a Solid TMS Business Case to Gain Approval" "Market Guide for the Transportation Management System Integrator Market" "Market Guide for Vehicle Routing and Scheduling" "How Markets and Vendors Are Evaluated in Gartner Magic Quadrants" Evidence 1 Findings from 97 vendor client references, carried out as part of Gartner's 2018 "Magic Quadrant for Transportation Management Systems." A survey based on TMS reference checks was conducted as part of data gathering efforts to help Gartner build on our existing knowledge of the selected vendors in this market. As part of the process, all 13 selected vendors were asked to submit a minimum of six references that had not been provided previously and represented TMS implementations. The vendors provided reference contact information, which we used to invite the references to complete a 20- to 30-minute survey. A total of 97 references completed the survey from December 2017 through January Vendor reference data is different from primary research and is not a representative knowledge base of the TMS market. The 97 references do not represent customers in the overall TMS market in an exhaustive manner. Rather, they represent select customers that the participating vendors chose to share with Gartner, and elected to participate as reference checks. 2 Data from Gartner's 2017 Supply Chain Management User Wants and Needs study was collected from November through December Gartner conducted the study to examine how supply chain organizations are responding to today's business challenges. The sample was obtained through Gartner's partnership with Supply Chain Digest and The Chartered Institute of Logistics and Transport (CILT). The 473 respondents who completed the web-based survey were qualified Gartner, Inc. G Page 9 of 11

10 according to industry as well as personal involvement in decisions regarding SCM processes, strategy and supporting technology. Page 10 of 11 Gartner, Inc. G

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