Home grown hassles?

Carriers that believe they have unique needs might have the resources and tenacity to develop their own in-house software system, but they should consider whether it’s worth the effort.

In 1981, when John Rawls developed the first software system for flatbed hauler Grayson-Mitchell Inc., he did so out of necessity. At that time, commercial software systems were designed only for expensive platforms such as IBM mainframes.

Using a cryptic code and one of the earliest PCs on the market, Radio Shack’s TRS-80, Rawls designed an affordable software system that has survived and grown with the 325-truck business – but not without major modifications along the way.

“You seem to never stop changing it,” says Rawls, vice president, chief operating officer and chief financial officer of the Emporia, Va.-based carrier. “You are always tweaking this here and that there to enhance it.”

Today, Grayson-Mitchell is one of a rapidly disappearing breed: fleet operations using proprietary software for key enterprise functions such as dispatch, billing and management reporting. Most fleets today use commercial software packages that are scalable and adaptable to nearly any type of platform or fleet operation in the market.

The sophistication of today’s commercial software packages has virtually eliminated the need for fleets to develop their own software or fret over keeping up with ever-evolving technology. And in an age when vendors offer user-friendly tools to customize software, are your business processes so unusual that you must develop your own software from scratch?

Building for a niche
One reason companies use commercial software is to eliminate the delays of developing applications they need right now, as well as applications they may not even know they need. On the other hand, some managers may determine that commercial packages – designed to appeal to a broad range of customers – do not fit the mold of what they need, particularly if their operations target a niche freight market.

Morgan Southern Inc. provides national intermodal drayage through 16 terminals located at major rail ramps across the United States, and it also operates a 48-state truckload fleet that it manages centrally from its Atlanta corporate office. A few years ago, when management evaluated commercial software packages, it concluded that most were developed primarily for over-the-road operations. “We never could find a system that worked on intermodal,” says Ben Kirkland, the company’s vice president of operations.

With intermodal drayage as its core business, the company’s information requirements include tracking sizes, numbers and letters of equipment and containers it picks up and drops at rail ramps. “In most road systems, you just put in your own trailer number,” Kirkland says. The company also has unique payroll requirements that management decided did not fit the scope of most off-the-shelf packages. “With most systems, you just pay mileage,” Kirkland says. “We pay percentage, mileage, zone and hourly pay schemes.”

Management of Morgan Southern, which operates 450 trucks, decided that instead of modifying an available package to fit its business processes, it would develop its own software package. The company got a head start when it acquired the assets of a smaller intermodal carrier that already had started developing a software system using Microsoft Access.

Morgan Southern’s three information technology staff members worked closely with upper management and a third-party firm to build the software on a platform that could support a large company. The software now uses a Web-based SQL platform and offers numerous features such as online shipment tracking for customers. “It is becoming a very strong robust system as we move forward,” Kirkland says.

More examples of a fleet developing a system from scratch are rare, says Lana Batts, a managing partner of fleet consulting firm Transport Capital Partners. But it is common today to find fleets that have commercial systems they have “jury-rigged” over the last 10 years to fit “unique” business processes, she says.

Instead of customizing applications to meet their needs, Batts – who also sits on the boards of technology vendors PeopleNet Communications and Transportation Costing Group – suggests carriers stop thinking their business is unique, and reduce costs and maximize returns from technology.

“What you say is ‘You’re doing it that way, and that becomes a unique process,’ ” says Batts. “But the fundamentals are not unique. When you look at the extra costs and human resources necessary to support unique applications, you have to ask ‘Why?’

“What business are they in?” she asks. “Why do they need 20 programmers?”

Outsourcing programmers
Even if a commercial system does not fit 100 percent of user requirements out of the box, carriers can avoid writing and supporting their own custom applications by working with vendors to update their next version or release with changes they see fit to include. That way, you have customized code for only a short period of time, says Mike Hufnagel, vice president of information technology for Maverick Transportation.

“There are some things that [vendors] choose not to put in their code, so we have to keep it as custom to our software,” Hufnagel says. “But we try to minimize that as much as possible.”

Instead of hiring programmers, Maverick – a 1,100-truck flatbed carrier in Little Rock, Ark. – has systems analysts whose duties include identifying and documenting needs from end users and then working with vendors to include any necessary changes or modifications in their next product releases. “Our philosophy is that if you have a programming staff, it tends to breed modifications,” Hufnagel says.

If a vendor chooses not to include a change made by Maverick in its product, the carrier then will turn to a third-party software developer to modify the product or create a new application. One reason for outsourcing the projects is that it gives management the true cost of the project to determine if the modification really is worth the cost, Hufnagel says.

Integration hassles
One of the major disadvantages of using proprietary software of any kind is the difficulty and expense of keeping up with the ever-increasing amount of integration with third-party applications.

“New technology is coming at you all the time,” says Tom McLeod, president of enterprise software provider McLeod Software. If you want to try out 10 units from a new mobile communications provider, or if it is time to upgrade your mileage server for a new version, such integration likely already has been done by commercial software providers, he says.

Most technology vendors approach the major enterprise software providers directly to develop interfaces and resolve any integration issues before they work with fleets. “What is going to happen over time is that unless you are the biggest of the biggest, you will be the last person someone approaches with new technology, and you are certainly going to be the last to get it,” Batts says.

Rawls believes that having a homegrown software system has limited Grayson-Mitchell’s choices for some third-party applications. Mileage software vendors especially are restrictive when it comes to allowing outside software developers – in this case, Rawls himself – to get inside their programs for integration. “I tell them ‘That’s your right,’ ” he says. “Most people do not want to.”

As a benefit to carriers, software developers can use their clout as “integrator” to offset expenses for customers that want to add new applications, such as mobile communications. “We tend to charge the third party for writing it and provide the interface at no cost to our customers,” says Ernie Betancourt, president of Innovative Computing Corp., which provides the Innovative Enterprise System (IES).

Commercial software providers also have a wide range of fleet customers that help provide strategic direction and planning for new technologies to be interfaced with the systems. On the other hand, custom or “in-house” software projects typically are done to address an existing need, not to integrate with systems at a later date.

Factoring in costs
The advantages of using commercial software systems seem apparent, but some fleets continue to stick with a homegrown software system because the amount of costs sunk in their technology “investments” is not apparent, Batts says. For example, a homegrown system may work fine today, but how many employees does it take to support it? And will it allow you to grow your business tomorrow without increasing your staff?

At Grayson-Mitchell, a five-person staff uses a Unix-based software system to manage billing, payroll and accounting for the $50 million company. One dispatcher and load coordinator together manage about 100 drivers and power units. Judging by these ratios, Rawls doubts he could get a payback from increased efficiency through a commercial software package.

But Rawls admits he doesn’t see a cost savings in using an in-house system. “If you count the time I spend doing it, it would be quite expensive,” Rawls says. “But upgrading software annually is expensive.”

On the other hand, having an application or software system developed internally may provide a cost benefit. Morgan Southern’s Kirkland says development costs were significant for his company’s new software system, but he forecasts the system will have less residual costs over time compared to commercial systems when licensing, maintenance and support costs are considered.

For small carriers, custom development might offer a competitive advantage from a cost standpoint. Four years ago, Erik and Ian Fenberg of Findlay, Ohio-based Hurricane Express pooled together their resources – an MBA, a law degree and software engineer Joe Courtney – to develop a Windows-based freight management system using C++.

Courtney is employed full-time elsewhere, but he is only a phone call away to make any programming changes necessary to keep the system current with the growing business, says Erik Fenberg, the carrier’s executive vice president.

“We’ve actually known Joe since we were kids, and Ian (the company’s president) and I were the co-best men in his wedding, so we definitely have an unfair advantage over other companies out there seeking to do what we have done,” says Erik Fenberg. “[Joe] literally works for pizza!”

At the time Hurricane Express implemented its new software system, it was a five-truck carrier and brokerage. Fenberg says that the company, which now operates 35 trucks, may not have all the software features that larger carriers have with commercial packages, but “we utilize every aspect of our program, every day. If we had bought something off the shelf, we very well could have paid for aspects of it that we would never use,” he says. “From the time a customer calls in a load, to the time that customer makes final payment, and to all phases in between, our system handles our freight.”

In most cases, however, custom development costs significantly more than pizza, and it hardly matters whether that work is internal or outsourced. But as technology increases in sophistication and commercial software becomes more competitive, the costs to support custom development only can rise.

“Once you make that decision to go in-house, you typically remain that way because there is no way to convert what you’ve got into a package,” Hufnagel says. We think it is a lot less expensive to stay with the package side of business than to customize to our own needs.”

Partner in business
One of the most cost-effective strategies for developing or customizing software applications is to work with a commercial enterprise software vendor. In some circumstances, a software vendor may be willing to discount the costs to develop a custom application.

One incentive for the vendor to offer a discount is if doing a custom application is the only condition for a fleet to consider buying the company’s core product. Another incentive is if the customization is general enough for the vendor to offer a new product to a broader market of current and prospective customers.

As a specialized flatbed heavy hauler, Keen Transport has a business process that is not common to most truckload and flatbed carriers. The 500-trailer company must obtain and manage permits from many different states: Because of this unique process, Keen Transport turned down initial bids from enterprise software provider TMW Systems to buy its core product, TMW Suite, since the package did not include a module or application specifically for managing permits.

After working with other carriers to develop a rudimentary permitting module, TMW Systems returned to Keen Transport with a demo version.

“It was not as robust as it needed to be,” says Betsy Keen, vice president of the New Kingstown, Pa.-based carrier. “But they offered to develop [a permit module] with us. They promised us input into it, and we would not have to pay as much for the entire program.” The project led to Keen Transport purchasing TMW Suite.

Brian Widdell, president of Profit Tools Inc., says his company can offer development pricing substantially less than if the customer were going out and having a feature custom built, if Profit Tools management intends the feature to become part of the mainstream product.

“It tends to be a win-win,” he says. “It is fairly infrequent that we get approached by carriers with an idea that would have no relevance to anyone else.”

But each carrier may have different ideas or thoughts for software developers on how they want a similar process to work, and software providers can get bogged down quickly with developing custom solutions that offer a quick stream of revenue.

“Maddocks Systems avoids these projects because our clients don’t benefit from one-off development projects that our company now needs to support,” says Neal Cranna, the company’s marketing manager. “Our focus is to create new products or enhancements based on the feedback from clients, and then make these available for use in our standard release.”

Most trucking companies have a small IT staff that is used to seeing only one way of doing things, and therefore often has tunnel vision when developing custom applications.

“We get to see trucking from all different angles,” says Tom McLeod, president of McLeod Software. “The product, over time, reflects the best practices in the industry. That is as big as any incentive to get onboard with a package developed by a central group.”

Hedging its development bets
The costs of researching, developing, testing and supporting an “in-house” enterprise software system add up quickly – as management at O&S Trucking can attest. In the early 1990s, the Springfield, Mo.-based company developed its own enterprise software system “out of necessity,” says Rick Johnson, chief operating officer.

The original version, which ran on a Unix mainframe, became increasingly expensive to maintain compared to newer Windows platforms. So in 1998 management decided to rewrite its software system for the 150-truck fleet, but O&S Trucking was not the only fleet they had in mind.

To recover its development costs, O&S Trucking offered its new Windows-based program, which could run on a server priced as low as $2,000, to other carriers. One of the early challenges was that some carriers were nervous about buying software from another trucking company, Johnson says. So management decided to spin off a separate business entity called Show-Me Software.

Soon after creating Show-Me Software, the programmers began developing a larger and more robust “Level 2” software for O&S Trucking that would be capable of running any trucking company in the nation up to 1,000 trucks and multiple operations, including brokerage and less-than-truckload.

“In 2005, we process 355 trucks off of that PC server, and the speed is faster than a mainframe,” Johnson says. The Level 2 version was developed, but not sold, until O&S Trucking merged Show-Me Software back into the corporation after O&S Trucking considered selling out to another software provider but decided against it.

“If they bought Show-Me Software, there goes our ability to develop our own software,” Johnson says. “We didn’t spend 15 years developing it to sell to someone else and then pay for our own program.”

Show-Me Software now operates as a separate internal company within O&S Trucking Inc. About 110 fleets use its Level 1 software, and about 8 fleets use the Level 2 platform, Johnson says. “We are the research and development arm for Show-Me software,” he says. “And we are the test environment.”

An advantage for bringing the software back “in house” is that the company can offer on-site training to new and prospective customers, Johnson says.

“We encourage customers to come here and see it in a live environment,” he says. “They can sit down with a fleet manager, billing or accounts payable clerks to see it in action with live, current data. The only cost of training is their travel expenses to our headquarters.”

The company has office space where its software customers can run their business until they are trained with the software. Customers that use the larger version get a seat on the product steering committee, and all customers get the benefit of getting new updates and changes for free.

“We don’t want to develop as specific to us,” Johnson says. As for the return on investment of developing their own software system in conjunction with other fleets, company management is not expecting to turn a profit. “We have a huge R&D expense, but our goal is to break even.”