Managed Services vs. Software-as-a-Service: Which Path is Right for You?

When it comes to how best to manage their transportation operations, many shippers often find themselves at a crossroads: should they implement a transportation management system, outsource everything to a logistics service provider, or take a hybrid approach? The right answer for one shipper might not be the best approach for another. So, how do you determine which path to take? What factors should you consider? If taking the managed services route, what attributes should you look for in a partner? Those were some of the questions I discussed with Chuck Papa, Senior Vice President of Sales at Transplace in a recent episode of Talking Logistics.

What is Managed Services?

Let’s start with a definition of “managed services.” That term gets used a lot of different ways and sometimes gets confused with traditional transportation outsourcing. According to Chuck the two terms aren’t that different at a high level. They both represent the recognition by companies that they need help in improving their transportation capabilities and they make the decision to outsource some or all of their logistics processes. He says the difference is more on a tactical level—whether to outsource all their transportation decision-making or to pick and choose what processes they want to outsource and which ones to keep in-house.

For example, Chuck says in their managed services approach, “Some companies may want to retain the carrier contracting process in-house, perhaps using us to help with the tactical annual bid process, leveraging our scale, resources and processes, while having us manage the transportation execution process. Additionally, some companies may want to tap us for logistics engineering while other companies have invested in that network and inventory analysis expertise in-house.”

The nature of the outsourcing relationship often changes over time, as well. Factors such as changing market conditions or changes in management can cause changes in strategy. Chuck cited a large customer who outsourced everything to Transplace, using their technology as well as their planning and execution services. After a couple of years, the customer had a leadership change and decided to continue using Transplace’s technology but brought day-to-day operations back in-house. Then a couple of years after that, another management change lead to the customer once again outsourcing planning and execution to Transplace. The managed services relationship provides that flexibility.

Software-as-a-Service: The Preferred Deployment Model for TMS

The outsourced model is quite different from a few years ago when in-house deployment of transportation management systems predominated. Now, Chuck says, “The software-as-a-service model is taking over for three reasons: first and foremost, it mitigates IT resources internally; second, from a financial perspective, it doesn’t require capital funding up front, moving the cost to an expense line on the balance sheet; and third, it assures you’ll be using the latest technology from an infrastructure perspective as well as having access to new functionality and capabilities without having to upgrade every three years or more.”

What determines which deployment model companies should use? Chuck says it comes down to what functions companies find strategic and the expertise they have in-house. But he also points out that for in-house deployments, companies must be prepared to invest in the resources over time. “During the first year of implementation companies invest in technology, process changes and training, resulting in significant benefits. But what we find is that in years two and three the benefits start to decline as the people who first implemented the system move on and companies don’t invest at the same level in training the new people brought in or in operationalizing the technology from a process management perspective. This ongoing investment is especially critical as your logistics environment inevitably changes over time.”

Another major benefit of a SaaS or managed services model versus in-house deployment is what Chuck calls the network effect. What is this, and how are companies collaborating using this approach? Also, how can a managed services relationship lead to innovation and continuous improvement over time? And what should companies look for to ensure a successful managed services relationship? You can get the answers to these questions and more by watching my conversation with Chuck. Then post a question or comment and keep the conversation going!