Magazine Article | February 1, 2003

Uncover Cost Savings With Transportation Management

Source: Field Technologies Magazine

You've trimmed costs out of every other business process; now it's time to look at how efficient your transportation management system (TMS) can be.

Integrated Solutions, February 2003

Remember when you were earning your MIS (management information systems), computer sciences, or whatever technology-specific degree you worked your butt off for in college? During all of those classes, did anyone ever mention the most important line in your future job description? You know, the phrase that reads something like "all other duties as assigned"? Probably not.

One of those "duties" IT folks are finding thrown onto their plates recently is transportation management system (TMS) technology. Of course, this is the type of technology that normally interests logistics managers or shipping departments. So why should you get involved? Because, as Peter Hallsworth, VP of transportation solutions at logistics software vendor Irista (New Berlin, WI), said, "In the next few years, TMSs will become more integrated with other supply chain/logistics processes such as warehouse management systems [WMSs]."

How Much Are Your Transportation Costs?
On average, transportation costs range between 3% and 7% of a company's total sales. Those numbers have gone up in recent years as companies have been forced to use more expensive modes of transportation (e.g. LTL [less than truckload] rather than TL [truckload] shipments) to meet customer demand for decreased minimum order quantities and delivery times.

As an IT director or CIO, you're probably unfamiliar with the intricacies of your company's transportation management process. Don't worry, you're not alone. After all, a lot of businesses view transportation management as a paper-based process used and understood by only a handful of employees in the shipping department. But, transportation management involves more than just the shipping department - employees responsible for inbound, outbound, and intra-company logistics flows can affect transportation costs. The goal is to synchronize these activities to improve operating efficiencies and reduce inventory levels and the related carrying/handling costs. In other words, get rid of the paper and create a standard set of rules everyone understands and adheres to.

"TMSs represent a broad area of solutions, from transportation planning to the shipment of express envelopes from the desktop," explained Stephen Smith, president of Pitney Bowes Distribution Solutions. "Too many companies have recently spent most of their time and resources on complex planning solutions that make sense conceptually, but once installed, are not compatible with how the order fulfillment process actually works."

Save 20% On Current Expenses
The typical TMS offers a payback of one year or less. Hallsworth explained that it is not unusual to find businesses saving nearly 20% off their current transportation-related costs by automating carrier selection, load consolidation, and freight audits. "Many companies address transportation management by using the shipping functionality within an ERP [enterprise resource planning] system or WMS," he said. But TMSs offer much more than a shipping module. Most of today's TMSs not only help you design the best modes and routes for your shipments, they help manage and improve product visibility. Some other common benefits of TMS software include:

  • improving inbound freight control
  • carrier supply management
  • outbound shipment control
  • multiple shipment consolidation
  • load shipment accumulation.

"In addition to the operational benefits and savings offered by a TMS solution, companies want control over expedited shipments originating from the desktops throughout their offices," commented Smith. "More than $10 billion is spent domestically each year on such shipments with a projected waste exceeding 10%."

The TMS Market Is Growing/Changing
While any size and type of company can probably benefit from a TMS, the manufacturing vertical has been the biggest advocate of this technology (approximately 40% of TMS users). More specifically, food and beverage, retail, publishing, and automotive companies are all common TMS users. And the technology is continuing to catch on. According to ARC Advisory Group (Dedham, MA), companies spent $804 million on TMSs in 2001. ARC forecasts the market to grow to $1.7 billion by 2006, representing a compound annual growth rate (CAGR) of 16.4%.

"The marketplace for TMSs has been changing over the last five years," Hallsworth stated. "There are many more systems implemented, but they tend to be either execution-oriented [e.g. shipping] or planning-based. I believe the marketplace is open for an integrated execution/planning system, especially if provided with a fully integrated WMS environment." With regard to the subset of TMS solutions that automate the shipment execution process and carrier compliance for TL, LTL, and small package carriers, Smith expects solutions that are:

  • Web-based
  • designed for the enterprise
  • deployable internationally (i.e. shipments originating in multiple countries around the world).

"Release cycles, including carrier-mandated changes, will be shorter, thereby providing new functionality at a quicker pace," he said. "The distinction between outbound and inbound will disappear as solutions will manage packages and enable visibility from the time the package is created to the time it reaches its final destination."

Sure, a TMS may be another project to add to your already overburdened in box. But, how many of those other projects can drive (no pun intended) costs out of your supply chain while offering a quick payback?