Magazine Article | October 1, 2001

Shift Into High Gear With TMS

Source: Field Technologies Magazine

Are you optimizing the way your business sends products to your customers? The right TMS (transportation management system) could answer this question for you with a 15% to 40% saving in your overall shipping costs.

Integrated Solutions, October 2001

It always seems to be those little things that end up halting our enterprise's progress. In manufacturing it might be a specification change on a part that a machine operator overlooks, causing the parts to be reworked or scrapped and the final assembly to be delayed. In the medical profession, it could be a doctor's writing that causes the pharmacist to fill a prescription for Vicaden (addictive pain killer) rather than Viagra (think Bob Dole). All these oversights - whether they're wasting resources or putting people's lives at risk - are bad for business.

One area that many businesses often neglect - due to their nearsighted focus on increasing production and getting products out the door as quickly as possible - is how their products are getting to their customers. When was the last time your business evaluated this detail? Maybe you think it's a no brainer that when you make a certain quota of products, a truck pulls up to the dock and sends the goods on their merry way. But, if your enterprise isn't optimizing its transportation process, you could be spending 15% to 40% too much. Read on to find out how this could be and what you can do to avoid this pitfall.

The Choices That Drive Your TMS Decision
"Many people think transportation begins at the end of the dock," says Steve Smith, president of Pitney Bowes Distribution Solutions (Bloomington, MN). "But, in reality, it begins when your customer calls you on the phone or faxes you an order." It's these steps - these details - that can make or break you. Consider some of these choices that are made on a regular basis:

How do you receive your customer orders - by phone, fax, e-mail, snail mail?

How is this information sent to all the parties involved with the order? Are multiple copies of a paper document made and placed in various sort modules? Are e-mails distributed to multiple parties? Does one "controlled copy" make its way along the supply chain?

How is the final product coordinated with a carrier? Does your company hire its own drivers? Do you have one or two outside carriers you call on to pick up your products? Do you have a 3PL (third party logistics) company that handles this decision for you?

Have your products changed significantly in recent years? Has a recent e-commerce initiative made it necessary to ship individualized packages? Do you now have products that require special handling because of fragile or hazardous content?

Has your business technology been upgraded in recent years? Did you recently upgrade to an ERP (enterprise resource planning) system? Have you implemented any other enterprise solutions such as WMS (warehouse management system) or SCM (supply chain management) solutions?

"How long has it been since you've shopped for carriers?" asks Jimmy Benefield, managing principle for Tompkins Associates (Streamwood, IL). "Maybe your business has grown in the last few years and you qualify for discount pricing."

If the aforementioned questions apply to your enterprise, chances are good that you could benefit from a TMS solution. Before you get to the final TMS answer for your enterprise, there are some more questions that you'll need to be able to answer, which will reveal the uniqueness of your business, and therefore the uniqueness of your solution.

Step One: Perform A Business Analysis
"It all boils down to knowing the nature of your product and knowing the kind of commitment you need to make to your customers," says Smith. To best determine this criteria, there is a list of five questions that businesses should consider.

What is the technology environment that you are running in? An order system that runs on an AS/400 system is very different from one that operates in a Windows NT environment. This alone could affect your TMS decision.

What special handling needs does your product require? If products require special insurance - such as in the case of jewelry - or if they need to stay refrigerated, this significantly affects who your ideal carriers are...or will be.

Where are your customers? Whether you ship locally, nationally, or internationally determines which carriers handle your products, and your TMS solution has to be able to accommodate all necessary geographies.

What's the nature and timing of orders coming in? It may be most efficient to ship all east coast orders out by noon via FedEx, but orders coming in after that might be best sent next day air. The pre-planning stage is the best time to determine these logistics.

What changes is your business going through now or within the next five years? If your business plans to implement an ERP system in the near future or to expand its shipping geography, this will play a role in your TMS purchase decision.

"These questions and decisions all need to be evaluated very carefully," says Smith. "Realizing you've chosen the wrong enterprise solution isn't just a waste of capital, it's a big waste of time to go back and undo all the programming, interfacing, and integrating you did in the beginning."

Six Steps For Transportation Optimization
After the above questions have been fielded by an enterprise and just before it begins researching the various TMS vendors, it should have an established plan for facilitating the changes.

Establish a team. "The team should comprise at least one person from each department involved with the supply chain process," says Benefield. "At least one person from purchasing, one person from manufacturing, one person from the warehouse, and so on. Also, it's imperative that these representatives have the authority to give meaningful input and make decisions."

Collect baseline data for analysis. "This step involves interviewing top management and supervisors to thoroughly understand the supply chain process - from planning to execution," says Benefield. It's at this step that critical benchmarks are set that will later be used to match the business model to the right TMS. "This is important so that companies can specify their own rules and not be forced into changing their business practice to conform to the system's rules," says Cindi Perdue, director of product management at CAPS Logistics (Atlanta).

Establish leadership roundtable. This step is where the key stakeholders get involved and are able to give input to the core team. The goal of this roundtable is to get top management's buy-in to the solution. Without that type of support, it won't work. The best way to get that support is to keep them in the loop with the research the core team has been doing and to get their input on a regular basis.

Identify TMS options. Besides just considering which TMS vendors to research, the core team needs to determine what is the best way to implement this solution. "Outsourcing transportation planning to a third party may be the best option," says Mike Penney, director of transportation units at UPS Logistics (Baltimore). "When you consider that a planning TMS solution can cost upwards of $1 million and can distract companies from their core competencies, a 3PL makes a lot of sense."

"Another option to consider at this step is an ASP (application service provider)," says Perdue. "ASPs enable companies to rent the TMS software at a fraction of the cost of purchasing the software license." The main difference between an ASP and a 3PL is that the 3PL handles everything - the software, the products, and the packaging, whereas the ASP merely handles the software. How enterprises answer previous questions can determine which of these three options is most appropriate.

Perform cost benefits analysis. "At this step the core team needs to define what specific ROI it expects to gain by implementing a TMS solution," says Benefield. "What specific savings will be realized by choosing the best carrier every time? How will customers respond to packages being delivered quicker and better wrapped?"

Prioritize the TMS solutions. The final step involves comparing all TMS options and putting the candidates in order similar to what you might see in a Consumer Report List. From there, the team will want to call upon the top three choices and meet with these candidates face to face to best determine the best fit for its business.

When all is said and done, if companies follow these principles for implementing a TMS solution they should realize noticeable improvements in shipping and transportation costs. "There is money to be saved in transportation," says Benefield. "With such factors as how sophisticated a company's shipping requirements are and how tightly it runs its operation, it can save anywhere from 15% to 40% by using a TMS solution." With so much to be gained by analyzing the way you transport products to your customers, it makes sense to research this often overlooked detail, and to see beyond the loading dock. When you stop to think about it, there's a lot riding on it.

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