How to Evaluate the Network Effects of Supply Chain Visibility Solutions

The term "network effect" refers to the impact and value a company's product or service delivers as more users come onboard and usage increases. Generally speaking, the greater the number of users and the higher the utilization, the more value every single user gets out of the network. The value of network effects can increase exponentially as various usage thresholds are crossed.

The term was coined in the 1970s, but the idea is generally accepted to date back to the growth of telephone networks—i.e., a single telephone, no matter how technologically advanced or well-designed, is a worthless brick without other telephone users you can call. The more phones/people on the network, the more valuable the telephone service.

Any number of well-known companies today have network effects at their core, from Facebook to eBay, Microsoft, Amazon and many more.

As a shipper, you should expect your visibility solution to deliver value in the form of network effects, too.

That’s where you have to be careful, because some visibility providers don’t want you to consider this critical piece of the puzzle. But there is a bigger picture you need to see and understand.

Start with the Shipper Network

As we meet with potential customers, often the first question they ask is, "How many carriers are on your network?" We get it—costs are going up, supply is constrained, OTIF demands are tightening and you're looking for a quick and seamless implementation that can start delivering value as soon as possible. You can and should expect all of that (and I'll come back to how to evaluate your visibility provider's carrier network in a moment). But if that's your starting point, you're skipping over the incredible value that can be derived from a large shipper network.

How so?

Shippers have a lot in common, and shippers within the same industry have even more in common. They may share many of the same customers and contract with many of the same carriers. Their business processes and workflows are similar, and in some cases practically identical. As a result, they are typically interested in similar product features, need the same kinds of alerts and notifications, and therefore request similar enhancements to product functionality. An enhancement recommended by one shipper produces great benefit across the entire network, for all the other shippers, on a platform with a strong shipper base.

There is also a subcategory of network effects sometimes referred to as "data network effects"—the more users and the more usage, the more potential there is to extract value from the data that is being generated and shared across the network. (By the way, you should expect your vendor to adhere to regulatory requirements and best practices in terms of anonymizing user data. We certainly do.)

Simply put, the more shippers (particularly within your industry) your visibility provider has in the network, and the greater the usage, the richer the data set for benchmarking, analysis and ultimately, insights to help you improve your KPIs. More shippers = more data = more potential value.

When evaluating a supply chain visibility solution, ask how many large shippers are directly contracted customers. And ask to speak to a few of them. If the number is low, or if the solution provider can’t connect you with supply chain leaders at large shippers who are using the software daily, you should question whether you’ll get any of these critical network effect benefits from the provider.

Yes, Carrier Networks Matter, Too—But Think Critically About The Numbers

There's no question that carrier networks are an indispensable part of the value of any given visibility solution. But you need to go beyond sheer numbers in order to accurately evaluate the potential for carrier networks to deliver value.

Visibility providers like to tout the number of carriers they’re “connected to”. But as a prospective customer – dig deeper. What do those providers really mean when they classify carriers as “part of” their networks? The answer matters a lot because it directly impacts how scalable those connections are. If a visibility provider has been used on a one-off basis to track with a specific carrier, there may be no scalable, repeatable elements of that connection that you, as a shipper, can leverage if you want to track with that carrier. To you, that connection is worthless.

So how do you know if the stated carrier connections can deliver value for you?

1)     Evaluate the carrier onboarding process. How does the visibility provider bring carriers onboard the platform? How does it manage the approval process to ensure carriers have agreed to share their data? And critically, how long does it take for the visibility provider to onboard your list of carriers? Which large shipper customers can speak about the onboarding process with that provider to verify any claims about the process?

2)     Consider connection types. There's technical vetting that needs to happen here. For example: is your visibility provider truly able to interface with asset-level telematics devices to pull real-time location and condition data? Or does the solution rely on cell phone triangulation, or even latent EDI? An ELD/GPS-native platform will deliver far more precise tracking and insight than a platform designed for cell phone ping tracking.

3)     Understand the API claims. How deep is the solution provider’s library of tracking-specific APIs? It’s one thing for a tracking provider to claim a broad collection of transportation APIs, but the only APIs that deliver value for predictive supply chain tracking are the ones that pertain to tracking. When it comes to predictive visibility, APIs related to other transportation functions don’t help you. You need a tracking provider with a deep collection of tracking-specific APIs. In addition, you need to know: how frequently are those APIs monitored and updated? (For my expanded take on how shippers can evaluate API connections, click here). 

Having a certain carrier on the network does not mean a vendor has a scalable integration model that enables you, as a shipper, to leverage that data from the start.

Bottom line, the network effects of visibility solutions can be substantial. But it's critical to inspect a potential provider's claims carefully. Here are my suggested questions:

• How many shipper customers are in your network, broken down by industry?
• How do you aggregate, operationalize and utilize data across your network to make your product stronger? What benchmarking tools do you offer, based on the data flowing through your platform?
• Does your solution provide pre-built dashboards and scorecards?
• What dashboards, metrics, or KPIs are delivered in the standard solution? (Ask for examples!)
• How do you handle new customer requirements?
• Do you make enhancements or new solutions built for one shipper available to all shippers across the network? If so, can you provide some examples?
• What is your data monitoring cadence for APIs, and how frequently do you push API updates?
• How does your analytics solution help shippers work with carriers to optimize performance?

Any other questions you would add to this list?

I welcome your thoughts and perspective.