Who owns the technology that runs your transportation management system (TMS) and helps you stay competitive?
It’s a question that can easily slip off your checklist, much like questions about human resources described in the past blog post Are You Asking the Right People Questions? And just as personnel capabilities can have a profound impact on the effectiveness of a TMS, technology ownership issues can also influence system performance.
Here are two good reasons why.
First, a TMS provider that owns the core technology is directly accountable to every one of its customers for any system changes made. When a third-party supplier is inserted into the equation, this relationship generally becomes messier and less transparent. The outside partner has its own set of customers and incentives, making the management of the system less answerable to you. Without the influence on development that comes with a direct commercial relationship, the system will be tailored to the users that the new third-party brings to the table as well as the main provider’s customers, including you. Widening the gap between supplier and buyer can make the TMS less responsive to market changes. Feedback from buyers should be a key source of intelligence for any company – at TMC, we call this collaborative innovation – and this channel operates more efficiently when there is a clear, direct link between the supplier’s system development and the organizations that use its services.
Secondly, owner providers tend to be more agile than those that are beholden to external partners, and that translates into important competitive advantages for customers. For example, if a major upgrade is needed, service providers in full control of the technology can usually execute the change much faster that those that are encumbered by third-party contractual obligations such as licensing agreements that have to be renegotiated. Moreover, owners can accelerate the rate of development without worrying about how fast their partners can move.
That is all very well, you may argue, but which parts of a complex TMS solution are the most sensitive to these ownership issues? There are three critical elements you should watch out for.
The software. It is highly unlikely that a TMS service provider will choose to develop every single piece of software used in its solution. Some commodity capabilities like distance calculation, mapping or constraint-based mathematical engines require large investments and are typically tertiary to TMS platforms. However, the TMS provider should at least have full control over the system’s core software. Look for providers who control the vast majority of transportation management capabilities in their solution.
The support process. Support personnel should be directly accountable to the user. This is less likely when these services are outsourced. Intermediaries tend to have less emotional and financial skin in the game, especially when they work for a remote, third-party contractor.
The hosting infrastructure. Facilities such as data and disaster recovery centers, servers, and associated software and hardware, are the foundation on which your TMS solution rests. Providers need to have tight control over these foundational building blocks. This is important not only in terms of the integrity of the system, but also in a risk management context. The strategy for managing risk should be geared to the primary customer base; external customer pools may be in unrelated businesses that have very different needs in this area. Would any company want their data security or business continuity dependent on negotiations between third parties?
The extent to which the provider controls these three elements should be on your list of due diligence questions. And don’t overlook the increasingly important global dimension. Can the provider’s support staff in China triage a performance issue, and pass it to a programmer in another region for a final resolution, for instance? That level of technical dexterity is essential in a globalized business environment.
TMS solutions providers should not necessarily avoid third-party agreements. Indeed, the case for tapping into the know-how of outside suppliers has never been stronger given the growing complexity of the freight industry. In some situations entering into agreements with external partners is the optimum route to acquiring new core competencies and keeping the TMS up to date. But providers need to be aware of the implications for their customers when they dilute their level of ownership. They should avoid relinquishing control over core functionality. And users need to be clear on who owns the TMS technology that they have come to rely on.