Rarely does something come along that genuinely lives up to the hype, but Software-as-a-Service (SaaS) applications may be one of the exceptions. And, while it’s taken some time to catch on, indications are that it’s likely to take off this year.

Indeed, the tough global economy has indirectly helped to promote the benefits of on-demand service offerings to companies pressured to cut back IT budgets and staff while simultaneously charged with improving their supply chain flexibility and sustainability.

“The industry was really ready for something like SaaS,” sums up Mark Woodward, CEO of E2Open, a leading provider of on-demand, multi-enterprise solutions for global demand and supply networks.

One of the most compelling reasons that SaaS has attracted so much attention in the current business climate is in the area of cost savings. “Five years ago, most companies tried to implement what I call ‘enterprise-class solutions’ that were entirely overrated. There were a lot of failed implementations and companies invested tens of millions of dollars in a solution that they spent years trying to deploy, and in the end they had to piece together solutions from multiple vendors because they couldn’t get exactly what they wanted.”

Not only does SaaS give companies all the functionality they need, says Woodward, “You also get one vendor, a service provider, who takes care of all the integration, all the expense associated with hardware, the IT infrastructure, and 24/7 support. In addition, you can also ramp it up much faster. We can deliver a fully functioning, live application in as little as 9 to 12 weeks; compare that to a classic on-premise application that might require 18 to 24 months to even learn.”

The 'ah-ha' moment

One logistics executive who’s quick to share his enthusiasm about SaaS is Rick Franklin, corporate director of operations for Honda Komyo, a wholly owned subsidiary of Japan’s Honda Limited and a third-party logistics provider to American Honda.

Less than a year ago, Franklin was running an AS-400 platform “and all the things that go along with it, like a major WMS.” But, a change in the company’s business strategy prompted him to begin shopping for a different system that was better suited to the company’s new direction.

“We talked with a bunch of the big guys, but what kept coming up for us was, ‘Well, they’re okay systems, but they still require a lot of development and they have a fixed cost associated with them. And, we’ve got to buy the support, the servers, the maintenance, and any time we need to add customers or make changes it will require more development.’” The clincher, says Franklin, was that, “It was well over $100,000 by the time it was said and done.”

The ‘ah-ha’ moment for Franklin came shortly thereafter when he was at a conference in Atlanta. He happened by a booth whose banner read: Web-based WMS. “And I said, ‘What are they talking about?’” he recalls. “I started chatting with the guy in the booth, who turned out to be Jim Burleigh, CEO of SmartTurn, an on-demand service provider for WMS. “After about two minutes, I turned to my business partner and said, ‘This is it. This is what we’ve been looking for.’”

The cost savings with SaaS is dramatic, says Franklin. “That’s the beauty of it [SaaS], the cost, because you get rid of all the hardware, the software, and the development. And, the response from SmartTurn has been nothing short of outstanding. They’re a great team to work with.”

Not only has the implementation of an on-demand service exceeded Franklin’s expectations, he’s quick to point out the advantages when talking with potential Honda Komyo customers. “We’re able to tell them that the costs associated with a typical IT system infrastructure aren’t there. We definitely feel that we can be more competitive. Then, when we tell them that they can see their inventory in real time from their Blackberry or their PC at home, they just go, ‘Wow!’”

Picking up speed

When you take a close look at SaaS, you really wonder why it hasn’t taken off faster, says E2Open’s Woodward. “I think it comes down to evolution of technology. For example, we just signed up a very large OEM as a new customer and we were the very first SaaS application they had ever acquired and yet they’re a very large multi-billion dollar company.”

 Another reason that SaaS my have initially gotten off to a slow start in the marketplace was that people often times viewed it as a short-term alternative, explains Woodward. “The thinking was, ‘I’ll use a SaaS application to solve this problem for the next two years. Then, once my ERP provider gets up to speed, I’ll switch over.’ People didn’t understand that SaaS could be a long-term solution,” he says. However, that’s beginning to change now, which is driving the quicker adoption of on-demand applications. “Companies are recognizing that SaaS is a very viable solution that is also a long-term strategic decision.”

This growing awareness of the benefits of SaaS are reflected in E2Open’s business. “We don’t lose customers,” states Woodward matter-of-factly. “Last year, we had 100 percent retention with our customer base. And, this year we’re projecting our business to grow in excess of 30 percent,”—an impressive forecast given that analysts predict the supply chain management/ERP sector as a whole will decline 6 percent this year.

At the same time, Woodward has begun seeing a more accepting attitude among companies who are new to SaaS or are at least open to exploring it. “Some of the issues that we’ve had to confront really came down to the CIO. For instance, the CIO would often say, ‘My job is to provide solutions to business problems.’ In other words, they believed they had to go build something. But, I think the more future-thinking CIOs understand that what we offer is really just another tool in their tool belt. Ultimately, the server doesn’t have to be in their data center. And, that’s one of the biggest things I’ve seen change in the past year, because before, every company that we went to sell to wanted the contractual right to take the physical server that sits in our data center and move it to theirs if they thought they wanted to. Today, it’s an issue that doesn’t even come up anymore.” To further emphasize how much things have changed, Woodward says that it used to be that companies wanted to visit E2Open’s data center, “You know, actually set foot in it,” he laughs. “But, that’s happening less and less. I think in the past year we’ve maybe done two data center tours.”

The icing on the cake: it's green too

By its very nature, SaaS is also exceedingly green—the icing on the cake for companies who are looking at ways to support their sustainability initiatives. Moreover, SaaS makes it easier to track and measure a company’s carbon footprint.

“When you think about it, especially in the high-tech sector, a lot of companies are moving from asset-heavy to asset-light. It’s low-touch and no-touch. Companies aren’t manufacturing anything anymore and consequently there’s a lot more logistics involved. Therefore, the need to track the true cost of logistics is even more profound. In addition, we’re going to see [cap-and-trade] legislation come around soon. Meanwhile, customers are wanting, demanding, green technologies. Before long, companies like General Electric are going to tell all their PC vendors, ‘I’m not going to buy a single piece of equipment unless it has a green sticker on it than can show me the carbon footprint.’ How can you even begin to track all of that? Well, we have the ability to do that today. We’re pretty excited that we already have the infrastructure in place that can collect all the information necessary to perform a carbon analysis on any product that’s manufactured by a customer of ours.”

The increasing awareness, and more importantly, value, of sustainable supply chains was outlined in a recent report, “Achieving Sustainable Supply Chains: Lessons from Global 500 Enterprises,” authored by M. R. Rangaswami and Ram Nidumolu, PhD.

According to the report, “Being sustainable is being profitable. Recognizing that a corporate footprint includes that of the supply chain is critical to a sustainable strategy that can deliver profitability.” Being sustainable is being profitable. Recognizing that a corporate footprint includes that of the supply chain is critical to a sustainable strategy that can deliver profitability.

In fact, more companies are wiling to consider SaaS than ever before. A World Trade poll last month found that while only 25 percent of companies are currently using SaaS, the overwhelming majority were “undecided, but exploring the possibility.” And, it appears that 2009 is gearing up to be a banner year. Wt

Sidebar: What the Best-in-Class are Doing with SaaS...

A recent study by Aberdeen Group (“The Secret SaaS: On-Demand Supply Chain Management,” December 2008) identified the “required actions” that Best-in-Class companies are taking with regards to SaaS. They include:

Develop a SaaS roadmap based on long-term ROI rather than short-term TCO (Total Cost of Ownership). Where is your company now and where do you expect it to be in six months? One year? Two years? Five years? Establish a roadmap for module implementations, upfront and ongoing costs, supplier/customer requirements (a plan for working with trading partners), and expected returns over time (short-term returns versus long-term returns should be different).

Turn IT and finance organizations into supporters. Companies need to ensure that all parties agree on the chosen implementation path. Different from gaining consensus is the need to have a voice from these organizations driving awareness and enthusiasm for the project. Solution champions should bring other supporters at the operational level.

Understand vendor toolkits and define Application Programming Interface (API). How do you want the data to be presented and what do you need to do with the data? SaaS functionality is a key consideration in adoption. Knowing API needs prior to vendor selection helps to ensure the solution purchased is the solution appropriate for your organization.

Understand partner collaboration requirements. Look at ways by which the company can expand collaboration with trading partners without adding significant costs of on-boarding, training, and maintaining these partners.