December 2006 | Commentary | Supply Chain Technology

TMS Soothes Transportation Woes

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Thanks to increased global trade and visibility demands, TMS applications are enjoying widespread popularity. Transportation management may never be the same.

With all the negatives swirling around the transportation industry these days—high fuel prices, tight capacity, and the driver shortage, to mention a few—it is hard to imagine any company sustaining, let alone decreasing its freight budget.

But that is exactly what certain "best-in-class" companies have done over the last two years, according to The 2006 Transportation Management Benchmark Report from Boston-based technology research firm Aberdeen Group.

What's the secret sauce that allows these companies to keep freight costs under control while 70 percent of respondents saw costs increase? The answer lies largely in technology.

Best-in-class shippers are more likely to use commercial transportation management systems (TMS), share transportation data both internally and with customers, have visibility to transportation costs, and share tactical capacity forecasts with carriers, according to Aberdeen's survey of 173 manufacturers, retailers, and distributors.

The best-in-class companies list online information sharing, connectivity, and collaboration as the most important actions for achieving transportation management success.

"These findings are not surprising," says Monica Wooden, CEO of MercuryGate, a technology service provider with locations in Cary, N.C., and Tampa, Fla. "We constantly hear from companies seeking information about TMS. Shippers realize the necessity of technology solutions that meet intermodal and international freight needs."

Uncertain About the Future

What may be surprising, however, is the lack of faith these companies have in their existing technology. Nine out of 10 companies are concerned that their current transportation technology will not meet future needs, the Aberdeen study finds.

In addition, 63 percent of participants report a desire to improve their transportation management technology.

"Because of increased global sourcing, transportation has become a more important component of the supply chain so companies are showing renewed interest in TMS applications," says Rick Jordon director, global logistics solutions group, ICG Commerce, a procurement services provider based in King of Prussia, Pa.

"As a result, companies are looking closely at how to rein in transportation costs, gain visibility, and execute on the information from their TMS to improve processes."

Increasing awareness of the cost and service impact of transportation on overall supply chain performance is what most motivates companies to take a closer look at transportation management, say 83 percent of study respondents.

This trend of examining and reorganizing transportation strategies to deal with increased challenges and global competition has helped demand for TMS applications to flourish.

The TMS market grew to $989 million in 2005, and will hit $1.3 billion by 2010, shows research from ARC Advisory Group, Dedham, Mass.

Technology Ramps Up

Improvements in TMS technology are also driving the increased demand. Migration from the old client/server model to the more flexible service-oriented architecture means TMS applications can now "continually run optimization as transportation orders trickle in throughout the day, rather than having to wait for the complete system to run through its cycle," says Jordon.

The availability of on-demand TMS solutions—where users access applications hosted by a third-party provider via the Internet, and pay based on usage—has also helped add TMS to logistics professionals' technology wish lists.

"Because they do not come with licensing, database, or server fees, on-demand TMS solutions allow companies to get up and running quickly without a seven-figure capital expenditure," explains Tom Sanderson, CEO of Transplace, a technology and logistics service provider with headquarters in Plano, Texas.

Lastly, modern TMS applications boast far-reaching functionality that was missing in previous-generation TMS solutions. "TMS users can now expect robust execution, end-to-end visibility, dock door scheduling, yard management, inventory replenishment, and inventory strategies," notes Jordon.

But technology bells and whistles aside, companies would not continue embracing TMS solutions if they were not producing quantifiable results. Of the numerous benefits shippers hope to reap from TMS applications, cost savings reign supreme.

Pepsi-Cola bottler PepsiAmericas, for example, slashed its transportation costs by approximately 20 percent over three years after implementing a TMS (see Pulling IT Together, April 2006). The system also helped it bring structure and efficiency to logistics planning, says Paul Rizzo, the company's logistics director.

TMS-induced cost reductions come from a number of areas. Improved supply chain network design—planning which modes to use and when, and whether or not to utilize private or dedicated fleets, for example—is one area.

Increased execution capabilities, such as making sure your primary tender goes to the right carrier; overflow freight is handled by the most cost-effective carrier; and tapping into your private network to haul freight for other companies on backhaul miles, is another, explains Sanderson.

Service and Visibility Gains

TMS applications have also proven their worth helping shippers reap service improvements—such as on-time pickup and delivery performance gains—and better visibility of supply chain events.As with all logistics technologies today, visibility is a key reason many shippers invest in TMS.

"The need for visibility systems is undeniable today. Longer supply chains and longer lead times make it more important than ever to know where goods are, and to make sure your supply chain partners have visibility to an appropriate amount of information," says Sanderson.

Interestingly, while new technology and the need to better manage transportation networks have spurred TMS growth, the growth itself is coming from a new segment of the industry.

Manufacturers, retailers, and other shippers have traditionally been the key users of TMS applications, but third-party logistics providers (3PLs) now have the fastest-growing adoption rates, according to ARC's study. TMS sales to 3PLs grew 11 percent in 2005, far outpacing sales growth to manufacturers and retailers.

What's behind this shift? One reason is that 3PLs are realizing how crucial TMS technology is to their customers.

Most Important Technology?

"There isn't any technology more important to a 3PL today than TMS," says Sanderson. "Manufacturers and retailers, on the other hand, are buying applications with their company's limited IT and capital resources. The request for TMS technology goes head to head with requests for an ERP system, and warehouse management, inventory optimization, and other systems."

3PLs' growing use of TMS technology may also be a by-product of the larger overall trend of increased logistics outsourcing. In greater numbers, shippers are deciding to focus on core competencies and outsource logistics functions to experts, so why should technology be any different? Let my 3PL research, price, and dissect vendors' transportation technology capabilities while I focus on my day-to-day job, is the thinking.

In addition, 3PLs can help shippers determine in detail what their technology needs are, as well as how to increase the potential ROI from a TMS application, explains Jordon.

"3PLs can also split the cost of technology over many clients versus shippers that buy directly from a technology provider," he adds.

Regardless of whether they opt for a commercial TMS through a 3PL or implement a system on their own, it is clear that shippers are actively pursuing new technology to help effectively manage transportation.

With global shipping bound to get still more complicated, that is a good sign.

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