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SaaS Week

Krissi Danielson

SPS Commerce on Benefits of SaaS for EDI

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Minneapolis, Minn.-based SPS Commerce specializes in offering SaaS based EDI to global companies. Earlier this month, the company announced upgrades to its online EDI platform, and recently it announced that it now leverages Oracle's Software as a Service platform for its EDI services. SPS Commerce's Chief Strategy Office Jim Frome recently joined me to discuss the benefits of using SaaS for global EDI.

Why is SaaS a good idea for the customers that SPS Commerce targets?

We target the retail, grocery, CPG (consumer packaged good) market; the companies that we work with are retailers, grocers, and the companies whose products show up on the shelves of those firms. For years companies have been doing integration in that space as part of the ordering and fulfillment process. Information is exchanged and all parties can keep track of where the orders are. It used to be that all the organizations doing that went out bought piece of software and implemented those applications using the in-house staff. What we did, and what other firms in our category that do it as a SaaS delivery model do, is that we looked at the situation and found in this particular vertical that the retailers and grocers have developed a standard set of rule books or specifications and business processes that they request or require all of their suppliers to follow. For example, Target has a standard way to deliver forecasts, purchase orders, and point of sale data to their suppliers and request shipping status information.

In the software world, vendor A would build out integration to follow Target's guidelines and specifications, and Vendor B would do exact the same thing. All these companies were basically replicating the same work over and over again within their four walls. Once someone has built the target, why would anyone build that again? Why not just host that and make it available via a Web browser or API?

The payoff of using SaaS is that one, you're able to do the same thing you could do in software model. You have the same functionality avail; you don't take step backward. And over time, you get a more reliable service. If 100 or 1000 companies are using the same map over and over again, over time it's going to be more battle tested and more reliable. Three, you'll be able to implement faster because all the mapping is already done. You have prebuilt mapping for all of these rulebooks; if you're not first one that needs it, you can take advantage of something that already exists. This means we're able to solve problems that were very different to solve in the software model.

What leads companies to look into SaaS for this functionality?

This is where the globalization comes in; this is based on retail and not so much on the grocery side. Most products are sourced overseas, manufactured overseas, and some inventory is even managed overseas. As it is brought onto North American soil, there are a lot of touch points on that supply chain. Integration capability needs to be distributed to all of those locations. That's a lot easier to do in an on-demand model. There are also some economies of scale that allow us to deliver this functionality at a nice price point. If we have 1000 customers using the target mappings, we can distribute costs across 1000 companies. If you do in house, you're only able to share the costs across just yourself. In this vertical, suppliers are champions of outsourcing. They outsource sourcing of factors, outsource manufacturing of products to Asia and China, outsource management of inventory, picking and packing of orders, carrier selections to what's commonly referred to as third-party logistics provider, outsource import/export to a consolidator, freight forwarder... They look to outsource first already, and although most view integration as a critical business application, most don't view as core competency.

When we say SaaS, we're not just talking about hardware and software but the operations and staffing model associated with the application as well.

Can you describe a typical customer?

Typically the small supplier is a firm that has gotten to point that they're doing business with a few key retailers and grocers but have been asked for the first time to integrate into supply chain systems. That is a company who is basically shopping for the first time for this capability. They have two choices; they can buy a software license and can buy or find consultant or person on staff to implement or run this, or they can buy as a turnkey service from a company that does this for a living.

The other type of company would be sort of a mid-range supplier, like a firm that might have $100 million in revenue up to maybe a billion and who has been doing this type of integration but is taking a look at the SaaS models that have emerged. They then say hey, looks like I have a reasonable way now to outsource this functionality, and make the conscious decision to shut down those internal operations and outsource to a SaaS business. In this case, they are not just replacing what they already have, but also using us to solve some of the globalization challenges that they never got around to in the software model because of logistics challenges.

I would say it's typical that a supplier in the retail supply chain that does a couple, three maybe five hundred million dollars has outsourced almost every task associated with fulfilling those orders to North American retail customers. Target may send a purchase order, for example, to that supplier as being the supplier of record, but the sourcing company needs that P.O. data to instruct the factory what to make, produce, or ship. The firm managing internal inventory may need that information to replenish North American facilities; the consolidator or freight forwarder that's loading the container needs that info, or maybe even the Q.A. firm that insures the products are defect-free and don't have bad chemicals and things like that in them. For example, to determine the proper sample size, they need to know what total size is to get proper sample size. All parties need data in that original purchase order.

For those CPG firms, those are a lot of people they need to keep on the same page in terms of what's going on and allowing them to play their role on their behalf to their customer. Being able to say, look, as long as your people have an Internet browser, they can sign on and perform this functionality. If they want to integrate to systems, as long as they can follow a straightforward API, they can take data in and out of systems as well. Compared to the software model where each location may physically need a version or copy of that supplier's B2B integration or EDI environment, that's just hard to do. When it's managed on a server with role-based security, the ability to get on through a user interface or exchange data through an API, the implementation challenge is reduced.

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