Supply Chain & Logistics Technology: 8 reasons every shipper needs a TMS

As one of the more “mature” offerings within the supply chain management software space, transportation management systems (TMS) are best known for their routing, scheduling, routing, carrier selection, load tendering, and shipment consolidation capabilities. And while these solutions have been around for a while, a recent survey of Logistics Management readers shows that just 35 percent of shippers are using these systems as part of their overall supply chain management strategies.

On the upside, that same survey also found that 39 percent of companies planned to either purchase or upgrade their TMS during the coming year—a signal that could result in higher adoption rates in the future.

Chris Cunnane, senior analyst with ARC Advisory Group in Boston, says that his findings point to TMS adoption rates heading up to above 50 percent over the coming years, although there are still “a large number of businesses that are not reaping the benefits of TMS,” he says.

With the goal of helping logistics operations better understand the benefits that TMS brings to the table, three different industry analysts outline their top reasons that every shipper should be integrating these platforms into their overall supply chain management efforts.

TMS has a proven return on investment (ROI).According to Cunnane, an ARC survey on the ROI of TMS found that respondents indicated freight savings of approximately 6 percent with the use of a TMS application. Of these savings, nearly 60 percent of users indicated that less than 25 percent of the net savings were absorbed by the TMS. 
However, “many companies are using managed transportation services [MTS] providers instead,” says Cunnane. “And while both TMS and MTS performed roughly the same in terms of freight savings, TMS was less risky, meaning fewer TMS users achieved negative results versus MTS users.”

It helps shippers work better in the omni-channel environment.
Omni-channel fulfillment, the changing nature of the global economy, and the steady growth of e-commerce are all putting more strain on the typical supply chain. E-commerce, for example, has all but eliminated geographic barriers for many companies while also making them more “global” in nature.

Granted, there are logistical and regulatory issues that accompany global shipping, Cunnane explains, but e-commerce allows customers in nearly every part of the world to view and purchase merchandise, regardless of that merchandise’s physical location. “TMS reduces a number of these headaches of moving freight from origin to destination, by matching carriers and optimizing modes,” he says.

It’s available in the cloud.
Few would argue the fact that TMS was one of the first supply chain management solutions to move into—and stay in—the cloud. With their lower barriers to entry, lower upfront costs, and easier maintenance and upgrading, cloud-based applications have taken off across a number of different supply chain solutions and platforms.

Manu Gupta, TMS practice leader at management consulting firm Capgemini, says the fact that TMS is readily available in a cloud-based option makes it attractive for new users. “The cloud gives TMS users a competitive price, low overhead and maintenance costs, and reduced headaches,” says Gupta. “These features are pulling new companies in that may have previously thought a TMS was beyond their needs or too pricey.”

TMS can lessen the impact of driver shortages. The truck driver shortage remains a primary concern for third-party logistics providers and the shippers they serve, according to Capgemini’s 2016 3PL Study. In fact, the American Trucking Association estimates a driver shortage of 35,000 to 40,000 in 2015, and that number jumps to 240,000 in 2020.

“The driver shortage continues to become more grave for shippers,” says Gupta, who sees TMS as one way for shippers to get a better picture of driver availability and carrier capacity. “We’re going to start to see some pretty innovative strategies surfacing,” Gupta predicts, “and Excel spreadsheets and phone calls aren’t going to cut it. Shippers are going to need technology—specifically TMS—to help them make better decisions in this area.”

It can serve as a valuable data repository.Companies that are still using a mix of spreadsheets, phone calls, and e-mail to manage their transportation components could be costing themselves significant money on an annual basis.

According to Gupta, companies that haven’t made the move to automated transportation management should stop and ask themselves questions like: How much am I spending on shipping? What am I spending on each load? Are my customers receiving the product on time? Do I have the right levels of supply chain visibility?

“Shippers that aren’t using a TMS probably may not even have access to these numbers or the answers to these questions,” says Gupta. “Those shippers that do use TMS, however, have access to the dashboards, reports, and other measurements that enable good decision making and cost savings.”

TMS enables a more proactive approach to supply chain management.
Companies that rely on a mix of spreadsheets and manual interactions with their suppliers are more likely to run “reactive” transportation departments. In other words, key employees are more focused on putting out daily fires than they are on finding ways to work smarter, better, faster, and cheaper. Add a TMS to the equation, however, and the scenario shifts dramatically.

“There’s a contingent of companies out there that have small carrier bases and that aren’t necessarily concerned with the opportunities and the competitive nature of the transportation market, nor are they being proactive about seeking solutions that can give them the best cost options and performance levels across a variety of carriers,” says John Santagate, research director with IDC’s Manufacturing Insights.

By implementing a TMS, adds Santagate, the same shippers can streamline their transportation departments, connect their carriers to their 24/7, online networks, and improve the way they procure and manage freight.

It helps shippers enhance customer service levels.As Cunnane pointed out earlier, the typical shipper achieves a 6 percent ROI from its TMS investment. That’s a $60,000 savings on every $1 million spent on freight—no small potatoes there. In addition, Santagate says that TMS users experience “softer” benefits, such as enhanced customer service levels made possible by the improved visibility, speed, and automation that the TMS provides.

In an era where customers are demanding more and more, using a dashboard to pinpoint a shipment, access a specific delivery time, or offer up an alternative can be invaluable customer service tools. “Transportation is definitely an area that can be leveraged to achieve the levels of customer service that are being demanded right now,” says Santagate.

TMS is a valuable link in the digitally-connected supply chain. A good TMS not only allows shippers to manage their own costs and keep tabs on their internal metrics, but it also “hooks” carriers, customers, suppliers, and other business partners into the platform. For example, shippers can use a TMS to quickly see how specific carriers are performing in terms of on-time deliveries and customer service.

Using that information, companies can make better transportation decisions that, in turn, improve their own levels of customer service. By creating this digitally-connected supply chain, shippers can more effectively navigate in a world where mobility, cloud, the Internet of Things, and other innovations are in the driver’s seat.

“Companies must be able to digitally connect with their supply chains,” adds Santagate, “and TMS provides an angle for shippers small and large to capture the necessary data points, conduct analytics, and make improvements as they see fit. All of that is pretty hard to do with a spreadsheet-based system.”

Higher TMS adoption levels ahead
With our industry analysts making some pretty compelling arguments in favor of TMS, and with trends like omni-channel distribution and e-commerce pushing shippers to streamline and hone their transportation components, expect to see more companies using TMS in the future.

“I definitely think that companies will be looking not only at TMS, but also at solutions that provide a broader view of the supply chain,” Gupta predicts. “Shippers need to be able to look all the way up the chain to what’s happening at their suppliers’ factories, and that requires a broader-based technology solution that can look across the entire supply chain.”

Santagate says that TMS adoption will likely increase as vendors release even more affordable solutions that offer more flexible deployment options and enhanced capabilities into the marketplace.

“The levels of TMS adoption—which we also currently pinpoint at around 35 percent—are likely to improve,” says Santagate. “Up until recently, the solutions were geared more to the larger end of the market and there wasn’t an abundance of options targeting mid- to lower-market shippers. As more affordable solutions emerge, we’ll likely see more smaller companies testing TMS out.”