The power and promise of Web-based procurement tools
Web-based spend management solutions can help companies achieve double-digit savings, but software can't do the job alone. To get the best results, companies must balance individuals' expertise with technology.
In 2009, when I wrote the white paper Riding the Crest of a New Wave: How the Original SaaS Companies Have Gained the Upper Hand, it became clear to me that a paradigm shift in vendor solutions had already been well under way as far back as 2000. The basis for this assertion was my discovery of a 2001 Software & Information Industry Association (SIIA) white paper called Strategic Backgrounder: Software as a Service.
In my own paper, I referenced SIIA's report, including its statement that "packaged desktop and enterprise applications will soon be swept away by the tide of Web-based, outsourced products and services"—a development, I wrote, that established the core principles or elements of the software-as-a-service (SaaS), or on-demand, model.
While there are various pricing structures, the SaaS model is different from traditional software licensing agreements, in that a customer only pays a transaction fee based upon actual usage, as opposed to having to make a large capital investment upfront. From an implementation standpoint, SaaS solutions can be operational within a matter of weeks, if not days. This is a major advantage over something like an enterprise-type solution, which can take up to several years to implement.
The SIIA paper concluded that the emergence of the new model would remove the responsibility for installation, maintenance, and upgrades (and the associated heavy costs) from overburdened management information systems (MIS) staff. As a result, the paper predicted, "packaged software as a separate entity will cease to exist."
Although the SIIA report stressed at the time of its publication that due to "technical and business issues" such drastic predictions had not yet come to pass, it nonetheless had sent up the first flare warning that a very significant change was about to happen.
This third-party confirmation of the SaaS trend is significant because it challenged (and still challenges) the mainstream pundits who question the viability of these new platforms. While some have begun to change their views, there are many who consider SaaS-based spend management solutions (the subject of this article) to be "nothing more than Madison Avenue buzz terminology designed to shoot some Botox into a segment of the spend management market" and think that references to the type of market shift identified by SIIA are somehow "misleading."1
This is an important point, as anyone (myself included) who takes the position that spend management solutions are capable of delivering double-digit savings—subject, of course, to an individual organization's purchasing practices, both past and present—would have to prove that the prerequisite technological breakthrough is in fact real. If, as the above-referenced pundits maintain, the new spend management solutions are nothing more than vacuous marketing "sizzle," then the prospects for savings, let alone sustained savings, become highly questionable, and the discussion would have to shift from one of leveraging new technologies to one of discovering why existing platforms have consistently failed to produce the expected results.
Not by technology alone
One of the key positions championed by the naysayers regarding SaaS-based spend management solutions is that obtaining true spend intelligence is solely dependent upon the expertise of individuals to gather, synthesize, and analyze the data, and then produce meaningful insight and results. If this is in fact the case, then why are these same "experts" hard-pressed to explain why the great majority of technology-based e-procurement initiatives fail to achieve the expected savings?
There is no shortage of articles and reports pointing to a high failure rate for spend management initiatives that are based on the traditional, enterprise resource planning (ERP)-centric licensing model. The actual rate of failure is subject to debate; some observers place it at more than 50 percent while many others say it is as high as 90 percent. The reason for the discrepancies is that most e-procurement undertakings are part of larger ERP-based implementations. This makes it difficult to narrow the analysis to a supply chain management (SCM)-only problem. That said, reports from research organizations such as the META Group (now part of Gartner), which in 2001 estimated that 70 percent of SCM technology projects had failed, to the more recent 2007 Toolbox.com article, which reported that 90 percent of such projects "fail to deliver any ROI (return on investment)," are nonetheless disconcerting.
Given that abysmal track record, it should come as no surprise that many people consider the low-cost, pay-per-use SaaS models to be the solutions of the future—or that many companies are already adopting them. The fact that some ERP vendors have abandoned their traditional business model in favor of offering an on-demand solution testifies to the monumental shift to SaaS that is now under way.
Of course the impact and effectiveness of any technological breakthrough are to a certain degree dependent upon the proper application of data to make informed decisions. Yet without the new technology, no amount of internal expertise would have produced the double-digit savings some companies that use these solutions have achieved. This is because with traditional spend management applications, the mere extraction of the required data proved to be a laborious exercise that failed to produce meaningful intelligence on a timely basis. Put another way, SaaS-based spend-intelligence solutions make meaningful data readily accessible to anyone and everyone associated with the purchasing function—not just the individuals who have the level of expertise required for data extraction and analysis with traditional software applications.
That said, it is important to note that I am not suggesting that technology, no matter how advanced, will in and of itself lead to savings without the active involvement of knowledgeable and engaged purchasing personnel. Instead, it is the combination of the timely access to spend intelligence afforded by new Web-based platforms and the ability of individual purchasing professionals to properly apply that information that drives savings.
This, as it turns out, is the linchpin—the critical factor that makes possible the transformational cost savings that have eluded so many organizations that rely on traditional ERP-based applications in their spend management quest. To illustrate my point, let's consider the case of an organization that achieved double-digit savings over a multiyear period.
The Department of National Defence (DND) in Canada struggled with poor service-level agreement performance and escalating costs associated with the procurement of indirect materials.
With the introduction to the purchasing process of a Web-based, pay-as-you-go solution, frontline buyers were able to leverage both key historical value indicators (past delivery performance and product quality) and real-time value indicators (such as current product costs and factors affecting price) to select the right vendor 98.2 percent of the time.
A particularly telling example of the impact of real-time value indicators (information that previously was not available to the DND) involves the relationship between product cost and the time of day a product was ordered. Trend analysis using the new software demonstrated that a particular maintenance and repair part that was sourced at 9:30 a.m. might cost C$130. If the same product was sourced at 3:30 p.m., it was not uncommon for the cost to rise to as much as C$1,000.
Because this data was available to buyers as part of the purchasing process (as opposed to becoming available through an adjunct, after-the-fact reporting function) the DND used this information to its advantage when making purchasing decisions, and thus realized significant gains. These included:
An almost immediate improvement in next-day delivery performance, from 53 percent to 97 percent of all orders arriving at the appointed destination within 24 hours;
A year-over-year cost-of-goods savings of 23 percent for seven consecutive years; and
A reduction in headcount over the first 18 months, from 23 buyers to three buyers.
An interesting point: despite the impressive results in the areas of delivery performance and cost reduction, it is the third point of savings that has garnered the greatest attention. In light of the DND's recent announcement that the agency would be cutting 2,300 positions from its present workforce, one can understand why.
Situational circumstances driven by external factors (such as a struggling economy) notwithstanding, it would be erroneous to assume that a reduction in headcount is a primary savings component, because technology **italic{empowers} an engaged workforce, as opposed to replacing or reducing it. This is not to say that there are no instances in which a reduction would be warranted, as demonstrated by the DND example. However, to blindly believe that automation alone will enable an organization to reduce its workforce, and do so in a window of time that is commensurate with immediate financial concerns, is pure folly.
In the DND's case, reducing headcount was a by-product of increased efficiency that had been achieved not just through automation but also through a solid understanding of the logistical elements needed to meet a service-level agreement's demanding requirements. It was only after the SaaS solution had been successfully implemented and had begun producing the expected results over a 12-month period that the organization could strategically consider eliminating personnel, and then act upon that plan.
Achieve the right balance
When organizations put workforce reduction at the top of the savings list, it negatively skews their focus, creating an over-reliance on technology that, as previously discussed, rarely delivers the expected savings.
In this context, it is the sustainable savings that are directly and predominantly linked to cost-of-goods reductions that should be the primary focus of any initiative—not the one-time benefits like reduced headcount.
So what is the key takeaway relative to SaaS, or Web-based, procurement tools?
Because Web-based spend management solutions are better able to address market volatility, and thus ensure that organizations achieve the best value when acquiring materials and supplies, they are the effective means by which double-digit savings can be realized.
However, the key to realizing said savings are and always will be based on ascertaining and achieving the all-important balance between purchasing personnel's capabilities and those of emerging Web-based technology.
With that money, qualified ports intend to buy over 1,500 units of cargo handling equipment, 1,000 drayage trucks, 10 locomotives, and 20 vessels, as well as shore power systems, battery-electric and hydrogen vehicle charging and fueling infrastructure, and solar power generation.
For example, funds going to the Port of Los Angeles include a $412 million grant to support its goal of achieving 100% zero-emission (ZE) terminal operations by 2030. And following the award, the Port and its private sector partners will match the EPA grant with an additional $236 million, bringing the total new investment in ZE programs at the Port of Los Angeles to $644 million. According to the Port of Los Angeles, the combined new funding will go toward purchasing nearly 425 pieces of battery electric, human-operated ZE cargo-handling equipment, installing 300 new ZE charging ports and other related infrastructure, and deploying 250 ZE drayage trucks. The grant will also provide for $50 million for a community-led ZE grant program, workforce development, and related engagement activities.
And the Port of Oakland received $322 million through the grant, which will generate a total of nearly $500 million when combined with port and local partner contributions. Altogether, that total will be the largest-ever amount of federal funding for a Bay Area program aimed at cutting emissions from seaport cargo operations. The grant will finance 663 pieces of zero-emissions equipment which includes 475 drayage trucks and 188 pieces of cargo handling equipment.
Likewise, the Port of Virginia said its $380 million in new funding will help to reach its goal of eliminating all greenhouse gas emissions by 2040. The grant money will be used to buy and install electric assets and equipment while retiring legacy equipment powered by engines that burn gasoline or diesel fuel.
According to AAPA, those awards will demonstrate to Congress that the Clean Ports Program should become permanent with annual appropriations. Otherwise, they would soon cease to be funded as backing from the Inflation Reduction Act (IRA) comes to a close, AAPA said. “From the earliest stages of legislative development in Congress, America’s ports have been ecstatic about and committed to the vision of implementing a novel grant program for the port industry that will complement and strengthen existing plans to diversify how we power our ports,” Cary Davis, AAPA’s president and CEO, said in a release. “These grant funding awards will usher in a cleaner and more resilient future for our ports and national transportation system. We thank our champions in Congress and the Biden-Harris Administration for committing to us and we look forward to working closely with our Federal Government partners to get these funds quickly deployed and put to work.”
The majority of American consumers (86%) plan to reduce their holiday shopping budgets this year, with nearly half (47%) expecting to cut spending by more than 50% compared to last year, according to consumer research from Relex Solutions.
The forecast runs against some other studies that predict the upcoming holiday shopping season will be stronger than last year, with higher sales and earlier shopping than 2023.
But Finland-based Relex says its conclusion is based on the shorter holiday shopping period of 27 days in 2024 (five days shorter than 2023), combined with economic volatility and supply chain disruptions. The research includes survey responses from 1,000 U.S. consumers in October 2024.
According to Relex, those results reveal a complex landscape where price sensitivity and decreased brand loyalty are reshaping traditional retail dynamics. That means retailers and manufacturers must carefully balance promotional strategies with profitability while maintaining product availability, since consumers are actively seeking better value and may switch between brands more readily.
"Retailers are facing a highly challenging season, with consumers prioritizing value more than ever. To succeed, retailers must not only offer attractive promotions but also ensure those deals don’t erode their margins. At the same time, manufacturers need to optimize their operations and collaborate with retailers to deliver value without sacrificing profitability," Madhav Durbha, Relex’ group vice president of CPG and Manufacturing, said in a release. The company says it provides a supply chain and retail planning platform that optimizes demand, merchandising, supply chain, operations, and production planning.
"This holiday season represents a critical juncture for the retail industry," Durbha added. "With reduced brand loyalty and a shorter shopping window, there’s no room for error. Retailers and manufacturers need to work together closely, leveraging AI-powered tools to anticipate demand, manage inventory, and run effective promotions," Durbha said.
In additional findings, the survey found:
Brand loyalty is eroding: About 45% of consumers say they're less likely to remain loyal to brands without meaningful discounts, while 41% will switch brands if faced with both poor deals and out-of-stock products.
Digital channels dominate deal-seeking behavior: Store and brand apps (60%) and email promotions (60%) are the primary channels for finding deals, while only 32% of consumers primarily search for deals in physical stores.
Supply chain concerns remain significant: Nearly 85% of shoppers express concern about potential disruptions, with electronics (60%) and clothing/accessories (57%) being the categories of highest concern.
Age significantly impacts shopping behavior: Consumers from age 45-60 show the highest economic sensitivity, with 60% cutting budgets by more than 50%, while shoppers aged 18-29 prioritize product availability over price.
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The East and Gulf Coast Port strike as well as an increase in imports from offshore e-commerce retailers helped to boost demand for airfreight in the second half of 2024.
Like much of the transportation industry, the pace of change in the air cargo sector remains uncharacteristically high. Disruptions in other freight markets and emerging business models have added new demand for airfreight. The result for shippers has been more variability in rates, capacity availability, and service offerings than we saw last year.
Airfreight capacity levels have risen to historical highs this year in large part due to a growth in air passenger travel, which has opened up more belly-hold capacity for freight. As Boeing reports in its 2024 Commercial Market Outlook, air passenger demand has recovered from the pandemic and has returned to the long-term growth trend that Boeing had projected 20 years ago in 2004.
While airfreight rates have dropped significantly from a high in 2021, they are still volatile.
Freightos Air Freight Index, https://www.freightos.com/freightos-air-index/
Several trends are impacting the balance of supply and demand. One of the obvious benefits of air cargo service is its speed and reliability relative to ocean service. With the levels of disruption seen in the ocean market—drought, port strikes, and war being only a few—the case for airfreight has been made stronger. As shippers seek predictability for their operations and their customers, the demand for airfreight has risen.
Another large tailwind driving air cargo market is the continued success of offshore e-commerce platforms like Shein and Temu. Their model focuses on fulfilling orders in markets like the United States and Europe directly from East Asia, negating the need for holding inventory in destination countries. This model has large cost and cash benefits but depends on faster delivery of consumers’ orders than ocean shipping can provide, leaving air service as the only realistic option.
The subsequent growth in demand on lanes from China to the United States has resulted in higher rates and tighter capacity availability. Shippers have also reported difficulties in securing capacity on niche lanes because carriers have been pulling capacity from these lanes and using it to serve more lucrative opportunities on e-commerce lanes.
While disruptions in other modes and new sources of demand have served as tailwinds for the airfreight market, there are other factors that are working to dampen demand. One of the major headwinds for the air industry is a renewed focus on cost containment on the part of shippers. When demand for goods spiked during the pandemic, many shippers turned to airfreight to fulfill orders and keep products stocked. Four years later, many shippers still have more reliance on air services than they would prefer. As a result, they are looking to rebalance or reoptimize their air and ocean allocations, pushing service-sensitive cargo to air while moving less sensitive cargo back to ocean.
Given these countervailing trends in the market, it’s not surprising that rates are volatile. The Freightos Air Index (see chart above) shows a significant decline in rates from a high of $5.16 in 2021. Since mid-2023, rates have ranged between $2.20/kg to $2.80/kg. While shippers are happy to be well below pandemic rates, 30% month-to-month variations make financial projections difficult.
Stability on the horizon?
With major shifts underway in routes, demand, capacity, and rates, there’s never a dull moment for users of air services. Looking ahead, however, one can begin to see a more stable future.
Systemic capacity growth driven by passenger volumes can be expected to continue. On certain lanes, like Asia to the United States, growth in e-commerce volume will continue to drive capacity challenges and higher rates—at least as long as existing laws allow offshore platforms to enjoy tax and duty benefits that subsidize their business model. For the rest of the world, however, we can expect to see capacity growth outpace demand growth and a continued reduction in rates.
Route churn can be expected to continue as air carriers respond more quickly to passenger and cargo demand shifts. We expect to see carriers’ analytics capabilities continue to improve, and yield and margin gains to follow.
Additionally, we expect that carriers and freight forwarders will invest in technology tools that can enhance collaboration and improve efficiencies. These efforts will give them a stronger position to handle inevitable future disruptions.
On the shipper side, we expect to see more companies lock in longer contracts as a way to mitigate the effects of rate volatility. This shift is already beginning to occur. In the fourth quarter of 2023, 45% of new contracts were for longer than six months, up from 27% in 2022. Additionally, shippers should look to technologies such as market monitoring and digital compliance tools to help them can keep on top of market trends and opportunities. These steps can help companies navigate and thrive in the highly dynamic airfreight marketplace.
Buoyed by a return to consistent decreases in fuel prices, business conditions in the trucking sector improved slightly in August but remain negative overall, according to a measure from transportation analysis group FTR.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.