Over the last decade, industry analysts have heard about the e-commerce−enabling software company called SPS Commerce time and time again, but we’ve never had the chance to meet its staff. Most often than not, the company would be cited by its direct competitors, such as Sterling Commerce, GXS, or Inovis. The chance to meet the company’s staff presented itself at the National Retail Federation’s (NRF’s) BIG Retail Show 2011 and at the Microsoft Convergence 2011.
SPS Commerce is a provider of on-demand supply chain management (SCM) solutions that provide integration, collaboration, connectivity, visibility, and data analytics to nearly 40,000 customers worldwide. The vendor delivers its solutions over the Internet using a Software-as-a-Service (SaaS) model to improve the way suppliers, retailers, distributors, and other supply chain participants manage and fulfill orders.
SPS Commerce was originally incorporated as St. Paul Software, Inc., a Minnesota-based corporation, in early 1987. In mid-2001, the company reincorporated in Delaware under its current name, SPS Commerce, Inc. At that time, SPS Commerce divested all of its legacy on-premise software business and has since focused solely on hosted, on-demand services. SPS Commerce went public on April 21, 2010, on NASDAQ under the “SPSC” ticker symbol.
The company’s main headquarters is in Minneapolis, Minnesota, with additional offices throughout North America. In addition, the company has offices internationally in China (Beijing and Hong Kong), Ireland, and United Kingdom (London). Currently, SPS Commerce has approximately 350 employees. In addition to its direct sales force focus on retailers or their suppliers, SPS Commerce is expanding its relationships with channel partners, such as system integrators (SIs), independent software vendors (ISVs), value-added resellers (VARs), and software manufacturers.
What Is the Problem Here?
The retail supply chain network involves thousands of retailers around the world supplied with goods from tens of thousands of their suppliers. Additional participants in this market include distributors, domestic and overseas third-party logistics (3PL) providers, carriers, expeditors, freight forwarders, consolidators, manufacturers, fulfillment and warehousing providers, and sourcing companies. Management of this multi-node supply chain network involves communicating data related to the exchange of goods among these trading partners.
At every stage of the retail supply chain there are inefficient, labor-intensive processes between trading partners with significant documentation requirements, such as the counting, sorting, and verification of goods before shipment, during transit, and upon delivery. Astute SCM solutions must address the needs of the trading partners for integration, collaboration, connectivity, visibility, and data analytics to improve the speed, accuracy, and efficiency with which goods are ordered and supplied.
In addition, retailers impose specific workflow rules and data standards on their trading partners for electronically communicating supply chain information. These so-called “rule books” include specific business processes for suppliers in exchanging data and documentation requirements, such as invoices, purchase orders (POs), and advance shipping notices (ASNs). Rule books can be hundreds of pages thick, and retailers frequently have multiple rule books, say, for international requirements or specific fulfillment models.
Needless to say, suppliers (e.g., Welch’s or Razor) working with multiple mighty retailers need to accommodate different rule books for each retailer (e.g., Walgreens, Walmart, Safeway, etc.). These rule books are not standardized among leading retailers and also vary based on a retailer’s size, industry, and technological capabilities.
The responsibility for creating “information maps,” which are integration connections between the retailer and supplier that comply with the retailer’s rule books, resides primarily with the supplier. The consequence for noncompliance can be the retailer’s refusal to deliver goods, costly fines, and ultimately a termination of the supplier’s relationship with the retailer. The complexity of retailers’ requirements and consequences for noncompliance create growing demand for specialized SCM solutions.
Suboptimal Traditional SCM Solutions
Traditional SCM solutions range from nonautomated paper- or fax-based solutions to electronic solutions implemented using licensed on-premise software. On-premise software provides connectivity between only one organization and its trading partners, and typically requires significant time and technical expertise to configure, deploy, and to maintain inboxes and outboxes. These software providers primarily link retailers and suppliers through the hard-coded Electronic Data Interchange (EDI) protocol, which enables the structured electronic transmission of data between organizations. Because of setup and maintenance costs, technical complexity, and increasing number of requirements from retailers, the traditional software model is not well suited for many “technologically challenged” suppliers, particularly those that are of a small or medium size.
Traditional on-premise software companies focused on supply chain integration management include Sterling Commerce (a subsidiary of IBM), GXS Corporation, Extol International, and Seeburger. These companies offer a “do-it-yourself” approach in which customers purchase, install, and manage specialized software, hardware, and value-added networks (VANs) for their supply chain integration needs. This approach requires customers to also invest in staff to operate and maintain the software in-house.
In addition, management service providers (MSPs) focused on the SCM integration market include Sterling Commerce and GXS. These companies combine traditional on-premise software, hardware, and VANs with professional information technology (IT) services to manage these resources. Like traditional on-premise software companies, MSPs use a single-tenant hosting approach.
SaaS Solutions to the Retail Ecosystem’s Rescue
Conversely, a SaaS model is well suited for providing SCM integration solutions. Traditional on-premise software companies use a single-tenant approach in which information maps to multiple retailers are built for and used by one particular supplier, compared with multi-tenant SaaS solutions, which allow multiple customers to share information maps with one retailer. On-demand solutions are able to not only continue utilizing standard connectivity protocols, such as EDI, but also support other protocols, such as Extensible Markup Language (XML), as retailers require.
These on-demand solutions connect suppliers and retailers more efficiently than traditional on-premise software solutions by leveraging the integrations created for a single supplier across all participating suppliers. SaaS solutions also allow an organization to connect across the supply chain ecosystem, addressing increased retailer demands, globalization, and increased complexity affecting the supply chain. In addition, on-demand solutions can integrate SCM applications with organizations’ existing enterprise resource planning (ERP) back-office systems.
The pervasiveness of the Internet, along with steep declines in the pricing of computing technology and network bandwidth, has enabled companies to adopt on-demand applications at an increasing rate. As familiarity and acceptance of on-demand solutions continues to accelerate, companies, both large and small, will likely continue to turn to on-demand delivery methods similar to those of SPS Commerce for their supply chain integration needs, as opposed to traditional, rigid, on-premise software deployment.
SPS operates one of the retail industry's largest trading partner integration centers, SPSCommerce.net, a hosted software suite that enables suppliers, retailers, distributors, and other retail supply chain parties to manage and fulfill orders. SPSCommerce.net includes an extensive and up-to-date repository of EDI transaction maps and point-of-sale (POS) data from 1,500 leading retailers, grocers, and distributors, ensuring greater reliability, faster implementations, extensive supply chain visibility, and deep insight for customers. Based on a multi-tenant on-demand model, SPSCommerce.net delivers functionality, integration, and reliability with less cost and risk than traditional on-premise software.
In addition, SPS Commerce’s cloud computing services eliminate the need for in-house software, maintenance, and staff, allowing customers to stay focused on their business. Implementing and maintaining SCM integration software is resource-intensive and not a core competency for most businesses. SPSCommerce.net uses prebuilt integrations to eliminate the need for on-premise software and support staff, which enables its retail supplier customers to shorten supply cycle times, optimize inventory levels, reduce costs, and satisfy retailer requirements.
More than 38,000 customers across more than 40 countries have used the platform to enhance their trading relationships. As explained earlier, SPSCommerce.net fundamentally changes how organizations use electronic communications to manage their supply chains by replacing the collection of traditional, custom-built, point-to-point integrations with a “hub-and-spoke” model. In this model, a single integration to the SPSCommerce.net hub allows an organization to connect seamlessly to the entire SPSCommerce.net network of trading partners.
SPSCommerce.net combines integrations that comply with the numerous aforementioned integration rule books for retailers, grocers, and distributors, with whom SPS and its customers have done business. By maintaining current integrations with retailers, SPSCommerce.net obviates the need for suppliers to stay current with the rule book changes required by retailers.
Analytics Atop Integration
As the communication (and thus data gathering) hub for trading partners, SPS Commerce is also able to provide increased visibility and data analytics capabilities for retailers and suppliers across their supply chains, which are difficult to gain from traditional, point-to-point integration solution silos. Integrating retailers and suppliers is a first step in addressing the complexities in the retail supply chain ecosystem. But as the number and geographic dispersion of trading partners have grown, so too has the volume of data produced by the supply chain.
As a result, trading partners want a solution to effectively consolidate, distill, and channel information to supply chain managers and decision makers, who can use the information to drive efficiency, revenue growth, and profitability. The abundance of data produced by these processes, including data for fulfillment, sales, and inventory, is often inaccessible to trading partners for analysis in an on-premise software development. The data and related analytics are essential for optimizing the inventory and fulfillment process, and will likely continue to drive demand for SaaS SCM integration solutions.
In 2009, SPS introduced its Trading Partner Intelligence solution, which consists of data analytics applications and allows its customers to improve their visibility across, and analysis of, their supply chains. Retailers can hereby improve their visibility into supplier performance and their understanding of product sell-through. Available for both retailers and suppliers, SPS Commerce’s Trading Partner Intelligence services help trading partners streamline order fulfillment processes, reduce inventory levels, increases sales, and improve collaboration.
This actionable information is deducted from a wealth of EDI data and is delivered via a series of modules that focus on answering specific business questions via prebuilt, interactive dashboards and reports. Examples include the following:
- Trading Partner Intelligence for Retailers service includes Vendor Scorecard and Order Visibility modules that help retailers increase sales and profit by measuring and scorecarding suppliers' performance. This helps establish a culture of accountability with suppliers while enabling internal teams to proactively identify potential issues.
- Trading Partner Intelligence for Suppliers features a POS analysis module that enables suppliers to analyze their products’ performance across all retailers to identify sales trends, anticipate orders, and assist in business and inventory plans. POS data from more than 120 retailers is available for analysis. See the list of supported retailers.
Other SPSCommerce.net Components
Through its multi-tenant SaaS architecture, SPS Commerce’s platform provides ancillary support services that deliver a comprehensive set of SCM services to suppliers and retailers. In addition to the aforementioned Trading Partner Intelligence, SPSCommerce.net offers the following software solutions and services:
Trading Partner Integration: Enables organizations to comply with customers’ trading requirements and exchange information electronically. This solution replaces or augments an organization’s existing trading partner electronic communication infrastructure, enabling suppliers to comply with retailers’ rule books and allowing for the electronic exchange of information among numerous trading partners through various protocols. The following three types of EDI services are available based on the company’s business needs, such as its transaction volume and the number of user locations:
- Integrated EDI is suited for high-volume manufacturers, whereby this integrated EDI service eliminates data entry by sending data directly into and out of the manufacturer’s accounting, ERP, packing and shipping, and/or warehouse systems.
- WebForms EDI is suited for lower transaction volumes, as it allows companies to send and receive documents using online templates. These forms minimize keystrokes by automatically filling in information and checking for errors before documents are sent to customers.
- Paper Conversion is suited for very low−volume businesses without a personal computer (PC), whereby SPS converts documents from paper to electronic file formats.
Trading Partner Enablement: Comprises various trading partner community development programs that help organizations, typically large retailers, implement new integrations with trading partners to drive automation and electronic communication across their supply chains. SPS offers a variety of multi-tier enablement program options, including the following:
- Tier 1 vendor enablement makes it easy for larger vendors to quickly test their existing EDI/XML or catalog service with back-end systems.
- Tier 2 & 3 vendor enablement extends the retailer’s existing integration platform to small and midsized enterprises.
- Multiple order management models extends the retailer’s existing integration platform across multiple order management models, including Ship to Store, Ship to Consumer, Ship to Distribution Center, Vendor Managed Inventory (VMI), and Private Label.
- Deeper integration expands EDI integration by enabling vendors to support additional EDI or XML documents, or fulfillment models.
- Ad-hoc enablement allows on-boarding of new suppliers to the retailer’s organization on an individual basis.
Trading Partner Applications: Comprises a variety of applications that complement SPS’ core supply chain services. These applications help organizations address specific requirements or business processes, such as e-commerce fulfillment or ASN creation. These peripheral solutions help trading partners process information to streamline picking and packaging processes. Examples of these solutions include the following:
- Scan & Pack: A value-added option for SPS Commerce's WebForms and Integrated EDI services, the Scan & Pack module simplifies the process of creating and sending ASNs while reducing errors.
- Label Service: Designed to help an organization satisfy its customers’ requirements for GS1-128 barcode labels, branded packing slips, gift messaging, returns, and more. This service is delivered using an on-demand model, and requires no specialized hardware, software, or staffing.
- Carrier Portal Service: Gives suppliers the ability to easily comply with customers' drop-ship requirements by providing an on-demand solution for printing branded packing slips, return documentation, and marketing materials. Suppliers can also use the service to book their shipments.
- Trading Partner Supplies: A one-stop shop for all the equipment and materials needed for a successful retail fulfillment process, including printers, scanners, label stock, and other products.
SPS Commerce’s on-demand platform treats all customers as logically separate tenants in central applications and databases. Because SPS does not manage thousands of distinct applications with their own business logic and database schemes, it believes that it can scale its business faster than traditional software vendors, even those that have modified their products to be accessible over the Internet. Architecturally, SPS’ base service is a multi-tiered environment that separates each layer of the application into the following distinct software components:
- Base Transformation & Workflow: The layer that converts data from one format into another (i.e., various flavors and standards of EDI, XML, Flat File, etc.) and manages the processes and steps of conversion and routing. The foundation primarily leverages Oracle’s Business Process Execution Language (BPEL) technology.
- Trading Partner Layer: The layer that maps each unique transaction map to the unique specifications of each hub. (e.g., This is the layer where the map for Walmart’s PO is developed and managed separately from the Target’s PO.) This layer also provides the maps for generating labels per the unique requirements of each hub (i.e., UCC-128 labels, consumer home shipment labels, etc.).
- Transport Layer: The layer that ensures the information is moved from one trading partner to another in a secure, trackable manner. This could be a VAN, Applicability Statement 2 (AS2), or File Transfer Protocol (FTP) connection between two companies. SPS uses a number of VANs and utilizes Oracle’s BPEL technology for AS2.
- Application Integration Layer: The layer that imports, validates, and exports data from SPS’ data center to a specific business application. SPS Commerce provides a documented application programming interface (API) to enable this layer to be developed or customized to each customer’s specific application. The API hides the complexities of the other layers of the application so that the Application Bridge can be developed using an integration tool and by a developer who is not familiar with EDI. SPS offers out-of-the-box adapters for some applications; recommends partners for certain applications; and some customers use the API to develop the bridge code themselves.
- Role-based Security Layer: The layer that manages privileges available to each user account configured in SPS’ data center. This layer can be managed directly by the customer to provide managed access to their accounts either from a Web Form or a Web-based API. This feature is often used to distribute limited functionality to specific individuals (both within and outside of the company) or a functional organization. Privileges can be managed by trading partner, transaction, read/write, etc.
- Application Monitoring and Maintenance Layer: The layer that monitors for data flow and data processing, and provides SPS’ data center staff and customers visibility into the performance of SPS’ data center and their particular instance of an application. The layer is also where diagnostics tools for debugging and correcting problems is performed. This layer leverages both Oracle’s BPEL and Business Activity Monitoring (BAM) technology.
- Infrastructure: The hardware is primarily Oracle Sun servers running on Linux OS. The database platform is Oracle Enterprise Edition 10G with Real Application Clusters (RAC). The storage is Hitachi storage area networks (SANs), and the networking infrastructure is Cisco.
- Facilities Layer: SPS Commerce outsources the facilities of both of its data centers to two world-class hosting facilities. The vendor hosts production and backup servers in two third-party data centers located in Minneapolis and Saint Paul, Minnesota. SPS Commerce operates all of the aforementioned hardware on which its applications run in the data centers.
- Staffing Layer: The “layer” of people that supports the application, develops maps, maintains applications, fixes things when they break, gathers EDI specifications, and works with hubs on behalf of supplier customers; maintains relationships and ensures SPS’ service is in sync with the changing specifications of more than 1,300 hubs implemented in the data center; takes calls from hubs when they have questions from the supplier, among other concerns.
SPS Commerce has monitoring software that continually checks its platform and key underlying components at regular intervals for availability and performance, ensuring the platform is available and providing adequate response. The vendor also has a technology operations team that provides system provisioning, management, maintenance, monitoring, and backup. To facilitate high availability, SPS operates a multi-tiered system configuration with load-balanced web server pools, replicated database servers, and fault-tolerant storage devices. Databases leverage third-party features for near real-time replication across sites.
SPS Commerce Customers
SPS Commerce has approximately 13,000 regular revenue customers (as of 3/31/2011) and more than 38,000 total customers in more than 40 countries. Regular customers are those with contracts to pay SPS monthly fees, and they represent about 80 percent of SPS’ total revenue. SPS has also generated revenue by providing SCM solutions to 26,000 organizations with different payment modes.
The primary source of SPS Commerce’s revenue is from small to midsized suppliers in the consumer packaged goods (CPG) industry. The vendor also generates revenue from other members of the retail supply chain ecosystem, including 3PL providers, carriers, sourcing companies, systems integrators, resellers, software companies, and financial institutions. SPS is focused on solving problems in the retail supply chain and has been highly successful selling its services to CPG manufacturers with annual revenues up to $75 million (USD) (many of these are Microsoft Dynamics ERP users, explaining SPS Commerce’s presence at Convergence 2011, although the company has no official alliances with Microsoft Dynamics). No one customer represented more than two percent of the company’s annual revenue over the last few years.
In 2010, revenue from regular customers (subscription revenue from all of the SPSCommerce.net services) grew 22 percent from the year ended Dec. 31, 2009. Revenue for the full year ended December 31, 2010, was $44.6 million (USD) compared with $37.7 million (USD) for the full year ended December 31, 2009, reflecting an 18 percent growth in revenue. The fiscal quarter ended March 31, 2011, represented the company’s 41st consecutive quarter of increased revenues.
The “Network Effect” of SPSCommerce.net
As one of the largest on-demand SCM solutions providers, SPS Commerce enables trading partner relationships among its retailer, supplier, and order fulfillment customers, leading to new customer acquisition opportunities. Once connected to the SPS platform, SPS customers often require integrations to new organizations, representing an expansion of the platform and new sources of revenue for the vendor.
The value of the platform increases as more trading partners are connected to the platform. The addition of each new customer to SPS’ platform allows for the new customer to communicate with SPS’ existing customers, and in turn allows SPS’ existing customers to route orders to the new customer. This “network effect” of adding another customer to the platform creates a significant opportunity for existing customers to realize incremental sales by working with the hub’s new trading partners, and vice versa.
This increased volume of activity among SPS Commerce’s network participants enables the vendor to earn additional revenue from these participants in the following ways:
- Trading Partner Enablement. When a retailer decides to change the workflow or protocol by which it interacts with its suppliers, the retailer may engage SPS to work with its supplier base to communicate and test the change in procedure. Performing these programs on behalf of retailers often generates supplier sales leads for SPS Commerce.
- Referrals from Trading Partners. SPS Commerce also receives sales leads from customers of SPSCommerce.net seeking to communicate electronically with their trading partners. For example, a supplier may refer to SPS its 3PL provider or manufacturer, which is not in the network.
As a relatively recent example, BodyGlide, a special balm manufacturer, reportedly selected SPS Commerce because 80 percent of trading partners had been already implemented at SPSCommerce.net. Soon after, SPS Commerce was able to add two new trade partners of BodyGlide to the network: the Eastern Mountain Sports (EMS) retailer and the Kamino International Logistics 3PL provider. Needless to say, SPS Commerce’s increasing product coverage rendered the product more competitive, and Kamino and EMS directed their leads to SPSCommerce.net, which resulted with six new customers for SPS Commerce.
In addition to the customer acquisition sources identified above, SPS Commerce markets its solutions through channel partners. For example, it has contractual relationships with an unnamed leading global logistics provider and NetSuite, through whom SPS gains additional sales. In the case of the leading global logistics provider, SPS private labels its applications, which in turn are sold as this company’s branded services. This company sells SPS’ applications through their sales force at no cost to SPS Commerce.
SPS Commerce’s Chief Strategist Sheds More Light
What follows is an in-depth, enlightening, and candid conversation that we had with Jim Frome, executive vice president and chief strategy officer at SPS Commerce. Since joining SPS Commerce in 2000, Mr. Frome has expanded and secured the company's leadership position in Web-based EDI. Mr. Frome has been named a "Pro to Know" by the Supply & Demand Chain Executive magazine; he has written numerous white papers including “Trading Partner Integration Centers – The SaaS Model for EDI;” and he is a frequent speaker at customer and industry events.
TEC: Can you please elaborate on any particular capabilities that SPS (and no one else) provides (that solve what pain points)?
JF: SPS Commerce’s vision is that outsourcing is not only a viable alternative to in-house managed business to business (B2B) software applications, but also often a preferred approach for noncore competency projects. In particular, a multi-tenant, hosting environment with highly leveraged reusable components is particularly attractive as an outsourcing option due to the premium customers place on reliability and ease of deployment for inter-company, electronic communications. SPS Commerce has coined the term “Trading Partner Integration Center” to describe solutions in our category.
We also believe that many B2B integration projects have been impractical to solve with on-premise, and/or single-tenant models. For example, in areas such as the supply chain, where trading partners are dispersed across long distances, often across the globe—and in many cases are collaborating on fulfilling an order on behalf of another company—it has not been economically feasible for each partner in the supply chain to built out mapping to each trading partner with an on-premise software application and keep things all synchronized. The power of the SaaS model, where everyone can share prebuilt mappings and easily access a common system managed by role-based security, is that many B2B projects became practical to implement for the first time.
SPS feels that many mature, popular, and even commodity applications such as EDI, Labeling, Cataloging, Electronic Ordering, Shipping, and Packing, which help manufacturers and distributors manage the flow of electronic information, are ripe for SaaS delivery versus traditional, on-premise, packaged software. Lastly, we believe the SaaS model is one of those shifts in technology that can be very disruptive to its predecessor solutions. In the case of B2B integration, the SaaS or Trading Partner Integration model is very powerful in verticals where there are many trading partners with defined integration specifications. Specifically, solutions that are designed to provide coverage with predefined mappings to thousands of companies hold the promise of obsolescing the old software or even single-tenant outsourcing solutions in a very short time period. Once a map that has been built for a solution and that can be reused by any company in that industry gains critical mass, why would anyone want to build a map again?
The market leading SaaS solution has the ability to become the standard for integration in these verticals. We believe that SaaS is and will continue to find favor with large audiences including the following:
- First-time Buyers. The choice is to either develop an in-house capability around a packaged software application or outsource the infrastructure, implementation, and ongoing application management. The latter is an extremely attractive option—it’s easier to get started with a multi-tenant, hosted service like SPSCommerce.net, with predictable expenses.
- Software Displacement. Given the choice of continuing to invest internal IT resources and management attention on a noncore business function versus outsourcing that function to a reliable, trusted third-party service provider, more and more companies are pulling the plug on their internal software applications and transitioning that business function to a proven, multi-tenant, hosted service provider that can integrate with their business applications.
Over time, adoption of SaaS B2B integration will migrate upstream from small business, to midsized businesses, and eventually to large business. SaaS providers will also find success rolling out related “add-on” services to the core integration platform to their install base of customers. Therefore, just like salesforce.com revitalized sales force automation (SFA) and customer relationship management (CRM), we believe there is a similar market opportunity for a SaaS provider to capture a significant customer base and revenue stream in EDI and related electronic exchange applications.
TEC: What is your competitive landscape, and why do you win/lose to these competitors?
JF: We can break down our competitive landscape into the following categories:
Software Provider Competition. For the most part, SPS does not face head-to-head competition with software providers. However, early in the sales cycle, we often position ourselves as a viable outsourcing alternative to software—for clients already using the incumbent solution or those considering a new purchase of software. The challenge here is getting the prospect to “do something.” In this situation, we get the prospect to answer the following four key questions:
- Is the function (usually EDI) a strategic core competency of your business? If the prospect answers “No,” then we proceed to questions 2, 3, and 4.
- Will a third party do a better job of implementing and managing this application than you will?
- Can you integrate more partners—particularly 3PLs, sourcing companies, freight forwarders, etc.—around the globe via a SaaS model than a B2B software model (and solve many problems that were impractical to solve with your current solution)?
- Does the total cost of ownership (TCO) calculation make financial sense?
If the prospect answers “No” to question 1 and “Yes” to either question 2, 3, or 4, then it is open to outsourcing. And from there, we usually end up competing head to head against another outsourcing competitor.
Outsourcing Competition (SaaS). For the most part, SPS’ competition here is from many small companies with little or no market presence or momentum. We are able to differentiate ourselves via our market leadership position and viability by highlighting our large customer base, quickly growing revenues, large company size, expanding geographical reach, intense media coverage, among other proof points. We differentiate ourselves by highlighting the number of prebuilt integration points we have with retailers and grocers—including each of their unique fulfillment models—and increasingly the number of integration points we have with 3PLs, sourcing companies, etc.
We highlight the number of prebuilt integrations we have with accounting and shipping and packing systems. Or, more importantly, the number of successful implementations we have had with a particular application the prospect already uses. We highlight our comprehensive suite of services, including B2B integration as well as Item Synchronization, On-Line Ordering, and Reporting Capability.
Outsourcing Competition (non-SaaS). For the most part, our competition here is from larger software companies that blend hosting, consulting, financing, and packaging around their software offerings—in many cases, the term “managed service” is most often used. This type of competition often appears as a defensive move by existing software providers when they discover SPS Commerce is engaged in a sales cycle within their install base that could result in their offering becoming a legacy solution. The strategy we use here is to highlight the differences of a SaaS approach versus a managed-service approach. In particular, we do the following:
- We differentiate ourselves by touting our multi-tenant, hosting approach as a superior way to achieve the level of reliability—through reuse—the prospect is looking for. We highlight the comprehensive coverage of SPS’ outsourcing solution. We are unique in not only our hardware, software, and mappings, but also our personnel, who perform everything the staff of an EDI department would typically do—including monitoring the application from end to end and managing all joint diagnostics and problem resolution with trading partners on the customer’s behalf.
- We highlight how our SaaS product is able to not only quickly integrate with their retail and grocery customers, but also quickly be deployed to all parties that also fulfill orders to those customers (3PLs, sourcing companies, factories, etc.).
- We leverage our large customer base that is actually using our outsourcing solution. Our competition here often has thousands of customers as well; however, the majority of them are using their software packages in a conventional manner.
TEC: What is your strategy toward social (Web 2.0 and Enterprise 2.0) tools and roles-based user experience, and their deployment for your target customers?
JF: E2.0 is still a bit of an amorphous classification, but we do see a rising trend in the retail supply chain for more collaboration between all members. The sharing of collaborative data, such as POS and order performance information, to drive conversations and shared decision making is a significant retail trend. This includes additional system integration, but also much more interaction at a personal level.
One large area of E2.0 interest is our Trading Partner Directory, which is modeled after popular social networking sites. SPS Commerce’s Trading Partner Directory is a searchable directory that includes trading partner contact information, business capabilities, and products. Suppliers can use the directory to promote their capabilities to retailers. Retailers can engage potential vendors in online sourcing conversations and exchange marketing information to streamline buying decisions. The Trading Partner Directory can also be used by 3PLs, carriers, and other trading partners to market themselves to potential supply chain partners.
TEC: What were the major highlights and messages from your recent user conference (or a similar event)?
JF: After a tumultuous couple of years in retail, where many retailers and their suppliers were forced to make significant adjustments to their staffing, supply chains, and overall business strategies, we believe we have reached a point of acceptance of a new “normal.” This has led to looking for ways to maximize efficiencies, expanding via nontraditional channels, and continuing focus on reducing costs. As a result, we expect the retail supply chain to be focused on e-commerce, with increased collaboration, transportation spend management, and flexible operations.
TEC: What is the breadwinning product and door opener for SPS Commerce? What else is selling well?
JF: Frankly, what opens the door for SPS and drives companies to subscribe to our services is our overall expertise on the retail supply chain. Oftentimes this will manifest itself in the use of our integration services (EDI), which highlights our multi-tenant hosting model where the hardware, software, and prebuilt integration is shared among customers. And, we also provide the staffing to implement, monitor, support, and maintain each customer’s application on its behalf.
TEC: What is your message to companies where B2B integration and/or supplier performance analysis is not the top pain? In other words, how do you compete with broader SCM and/or ERP suite providers (that offer event management, optimization, etc.)?
JF: If they are not interested in retail supply chain integration, then we don’t have a solution to fit their needs. We never compete with ERP, warehouse management system (WMS), or other supply chain back-end systems because we are a complementary system. While those various systems have the capability to do retail B2B integration, it is neither their core competency, nor a turnkey solution. We are more likely to partner with one of those applications to become its EDI solution for its retail/manufacturing customers.
TEC: EDI seems to be doing fine after several decades and many predictions of its demise (as discussed in TEC’s previous article entitled EDI versus. XML--Working in Tandem Rather Than Competing?). Why do you think that is that the case?
JF: Simply put, it works and there has not been another option that has been attractive enough to warrant the switch costs and risks associated with making a change. One way to think of an EDI specification (Target’s 850, Walmart’s 856, etc.) is with a documented API into those retailer’s systems. To redo an API is a major undertaking under any circumstance, but when you include the effort needed to get thousands of other companies to make a coordinated change, then it becomes a very prohibitive proposal.
TEC: What technology might replace EDI, and what trends are you seeing in the market (e.g., Internet EDI, B2B exchanges, social media, etc.)?
JF: There probably isn’t a technology that will “replace” EDI, but there will be a continued evolution of how organizations conduct their supply chain operations. For example, AS2 is simply exchanging EDI via the Internet, instead of over a private VAN. Hosted, Web-based EDI solutions still produce and accept EDI documents, but only through an alternative platform. Even XML, in its various flavors, isn’t a replacement for the business processes that “EDI” often encompasses, but simply an alternative file format for the exchange of the same information. From our perspective, the retail supply chain is increasing its use of B2Bi technologies, including EDI, at an ever-increasing rate.