Why vendor financial models matter for route planning viability

Most distribution companies keep their route planning solution for 15 – 20 years before replacing it. Today, more so than ever before, within that timeframe businesses, industries, economies and technologies undergo significant change. Distribution business models need to ensure they change in step, which in turn means their route planning solutions need to evolve and grow in the same direction.  

However, the financial models of many route planning vendors are not designed to foster that seamless evolution, innovation and growth over time. Instead, many solutions become operational liabilities because of changes brought upon by vendor financial models that disrupt product innovation. Gary Taylor VP Fleet Solution in EMEA at Descartes, outlines three vendor financial models that can be high risk for long-term evolution and growth of their route planning solutions. 

Private equity owned vendors

Private equity firms have two guiding principles that significantly and negatively impact the evolution and growth of the once-successful route planning solutions they acquired. First, they need to make the route planning business more profitable to pay themselves and service any debt they may have used to finance the purchase. Second, they need to get the business in a financial position to sell the company at a profit to generate a return for their investors – typically within a five to seven-year timeframe.  

With the clock ticking, private equity firms focus first on cutting costs: all non-revenue generating roles such as development and support are subject to extreme scrutiny. Combined with the consequential “brain drain” that occurs as leading employees become disillusioned with the cost reduction focus means product innovation and attention to customer issues begin to diminish. Over time, what was an industry leading solution becomes an “also ran” as the product does not keep pace with new capabilities required by customers or industries, leverage the latest technological advances or highly evolving cyber security requirements.  

Key questions to ask to ascertain future product and support direction of a PE owned route planning solution: 

• What future product plans does the business have for the product and support organisations? Are they growing or shrinking in headcount? 
• What similar or complementary companies does the PE firm own and what are their plans for integration? 
• How many years has the PE firm held the route planning vendor and when does it anticipate selling that company? 

Conclusion 

Route planning solutions are foundational to any logistical fleet operation and the company’s success.

This is why it is so important to understand the financial model of the route planning solution vendor and the role that outside funding resources play in the growth, innovation and evolution of the company and its products. This can tell you much about your existing route planning solution vendor, its time to replace them, and whether a potential new vendor will have the wherewithal to meet your needs today and in the future.  

Talk to an industry expert today.