TMS Under the Microscope
Companies take a closer look at technology solutions to discover the secret of optimizing transportation operations.
As fuel prices climb and the economy slows, companies more than ever are examining transportation operations under a microscope. The goal of the experiment is determining how to optimize processes while aggressively managing costs.
Many companies invest in technology to facilitate and enable changes to their transportation management practices.
"Because transportation costs have become so significant, organizations have a greater need to optimize the overall network—from costs to visibility," observes Razat Gaurav, vice president of global logistics at logistics IT solutions provider i2 Technologies, based in Dallas, Texas.
Centralized transportation control enables companies to more effectively balance the tradeoffs among manufacturing, transportation, inventory, and supply chain labor.
Transportation management systems (TMS) facilitate efforts to optimize and manage transportation operations. They can be installed as resident software, or they can be Web-based and accessed on demand.
TMS software helps build loads; determine the shortest routes and best utilization of trucks; manage orders and transport tenders; track and trace shipments; control freight payment; and provide visibility.
TMS applications, however, vary in breadth and scope. Some handle only freight bill audit and payment. Others cover the entire closed-loop transportation process—from strategic sourcing, planning, and optimization to shipment visibility and payment and performance analysis.
"TMS enables companies to improve customer service," says Lorne Jones, wholesale logistics and distribution industry executive at Dublin, Ohio-based solutions provider Sterling Commerce. "Customers can track and trace their orders online, eliminating phone calls to the traffic department."
Put TMS under a microscope and you might discover the following benefits.
Automated billing: "Many transportation departments still manually key in trucking bills," notes Jones. "Then the company sends paper invoices to an auditor that provides results months later." But using three-month-old information makes managing the dynamics of a freight operation difficult.
TMS applications resolve this issue by computerizing freight activities and data collection/management, including carrier invoicing and payment.
"Many TMS solutions, such as Sterling's, load all freight tables and contracted rates," explains Jones. "Because the system is electronically connected to trucking companies, the carriers can send invoices through the TMS. They connect once to their customers, then send out all their transportation invoices."
The TMS vendor audits the bills and sends shippers information about freight payment, which also can be handled automatically and electronically. The shipper manages all this activity on a single application rather than connecting individually to hundreds of carriers.
"Eliminating the manual keying of stacks of bills allows truckers to get paid faster," Jones notes. "That improves carrier relations. "TMS helps shippers manage operations more efficiently," he continues. "They can track on-time performance, average cost per mile, cost per customer, and carrier performance."
An online, on-demand TMS has another benefit: it cuts ongoing system maintenance costs. "Shippers don't have to worry about data feeds, protocols, version changes, or customer upgrades," says Gaurav.
"The on-demand platform allows shippers to create unique work flows and user interfaces that are specific to their needs," he explains.
"In the past, shippers had to adapt all their processes to an off-the-shelf application. Now they can adopt best practices relevant to their business and operation, mode, and region, then leverage the agility of the on-demand business process platform. This makes it easier to customize.
"After all," Gaurav adds, "you don't want a one-off solution that is a nightmare to maintain."
Optimized operations: In addition to managing day-to-day transportation activities, TMS solutions offer network/service optimization capabilities. These models map current operations and explore the efficacy of other options, such as relocating distribution centers, switching from private fleet to for-hire carriage, or shifting modes.
"The biggest challenge of correctly running an optimization model is including the right constraints," says Gary Kowalski, chief operating officer, Menlo Worldwide Logistics, a third-party logistics provider based in San Mateo, Calif.
"For example, it's important to synch up with customers to make sure they identify all the constraints—packaging sizes, dock sizes, receiving information—that impact the ability to optimize.
"The model provides a baseline to use as business changes," he says. "It is not necessary to re-collect data for further analyses. New data can be viewed quickly, enabling fast decisions."
Improved visibility: Companies have expanded the focus of transportation planning and management from a stand-alone function to one that is integrated with larger enterprise resource planning (ERP) and warehouse management systems (WMS).
Robust communication capabilities enable TMS users to collaborate effectively with external trading partners and service providers. TMS can notify users if shipments are delayed for any reason, giving them time to reschedule warehouse labor and modify production schedules.
TMS software accelerates reaction time to supply chain events.
"Real-time event management is critical, especially for shipments moving just-in-time into an assembly plant," observes Kevin Bott, senior vice president and chief information officer, Ryder System Inc., a 3PL based in Miami, Fla. "If a shipment falls behind schedule, the shipper can act to remedy the problem by expediting freight or diverting shipments from another location."
Improved transportation event management and communication can save companies money in other areas, such as retailer chargebacks.
For example, Sheboygan, Wisc.-based Rockline Industries, North America's largest manufacturer of coffee filters and private label baby wipes, used a TMS solution to remedy a multi-million-dollar information disconnect with its retail customers.
Rockline ships product to large retailers, many of which have strict delivery terms. If the manufacturer misses a delivery date or fails to comply with the terms of its customer service contract, the retailer charges back for the violation.
By 2006, chargebacks (only a portion were delivery-related) were costing Rockline millions of dollars. The company was frustrated because it would ship product on time but still incur frequent penalties.
Its carrier would call the retailer to schedule a delivery appointment, but because the receiving clerk had no visibility into Rockline's contractual customer service commitments, he would schedule an appointment beyond the allowable delivery time.
Rockline would be penalized, even though the delay was not its fault, explains Matthew Connor, the company's director of logistics.
In 2004, Rockline implemented a commercial TMS and centralized transportation planning and execution. Two years later, it decided to apply the system's visibility and collaboration features to solve the chargeback issue.
Through an interface with Rockline's Order Management System (OMS), the software compares delivery dates with those specified in the customer's purchase order.
If the scheduled date is later than the required date, the system automatically transmits an email alert to Rockline's customer service team which, in turn, contacts the customer. The customer then decides whether to change the scheduled date to match the required date, or keep the later scheduled date. In either case, Rockline is not charged for a late delivery.
"Providing this level of connectivity between the TMS and the OMS saves hundreds of thousands of dollars a year," Connor reports. "The project paid for itself within a few months."
Reaping the Benefits
As Rockline's experience illustrates, transportation optimization in general and TMS in particular can produce significant cost savings, as well as improvements in customer service, business processes, and resource management.
TMS solutions enable companies to identify pressure points and problems such as carriers that are frequently late, or shipping lanes with capacity issues. The real-time information and intelligence these solutions generate give companies a chance to manage rather than react to supply chain events.
"Shippers who can get out in front of transportation management can fix problems and find new, innovative ways to manage the network of assets, inventory, and costs," says Kelly Killingsworth, senior director, product management, at Atlanta-based technology solutions provider Manhattan Associates.
"Companies that don't use TMS tools to manage transportation are at a disadvantage," Bott says. "If they ship using common carriers, they can optimize rates, routes, and trailer loading to save up to 30 percent. If they run a private fleet, computerized routing and scheduling can save up to 20 percent."
Rising costs and far-flung supply chains are driving companies to aggressively adopt TMS applications, which enable them to mitigate risk.
TMS tools are more flexible and easier to implement than ever, particularly with on-demand versions. Companies can immediately begin reaping the benefits of lower transportation costs, improved visibility, and greater responsiveness across their supply chains.
You don't need a microscope to see that's a formula for success and significant bottom-line impact.
Dial Corp. Cleans Up Transport Operations
Scottsdale, Ariz.-based The Dial Corporation, a Henkel Company, uses Sterling Commerce's TMS to manage 130,000 annual finished-goods shipments within North America. It operates four company-owned manufacturing sites, five full-line distribution centers, and more than 30 manufacturing facilities.
Dial uses three areas of Sterling's TMS functionality:
1. Shipment tendering and electronic routing guides.
2. Freight bill management, payment, and auditing.
3. Visibility, event management, and shipment track and trace.
Sterling's TMS provides the 100-year-old consumer products company with "complete visibility of final goods shipments," says Robert Shafer, Dial's manager of carrier alliances. "We manage transportation activities by exception, with minimal manual intervention."
Sterling's Web-based solution contains Dial's carrier contract information and shipment details. Using this centralized repository of information, the manufacturer tracks the performance of carriers and locations to gain an accurate and comprehensive view of corporate-wide shipping operations.
Because the TMS offers full visibility to in-transit inventory, Dial tracks two carrier measurements in real time: expired tenders and rejected tenders (those a carrier had previously accepted). When either situation occurs, the appropriate transportation manager receives an alert and contacts the carrier for an explanation.
The TMS makes carrier selection decisions based on Dial's business rules.
"If 10 carriers submit rates for a high-volume lane," Shafer explains, "we write business rules to sequence those carriers to meet our volume commitments—for example, one carrier gets 10 loads in a particular lane each day while another carrier gets five. Or we assign loads based on other parameters, such as volume percentages and rates."
This rules-based load assignment system enables Dial to meet capacity commitments with carriers. "We know we are holding up our end of the agreement," Shafer notes.
Dial uses the TMS to track carrier performance and monitor service to customers.
"Prior to using the TMS, some carriers would send an EDI 214 shipment status date," Shafer recalls. "But most carriers were not EDI-capable at the time. Some would fax the information and we would enter it into our system. Many carriers just didn't report that information. It's difficult to gather conclusions based on two-thirds of the data. You don't know what you're missing."
Dial's customer service group also has full visibility into delivery performance. If a problem arises—a missed delivery appointment, for example—the system automatically transmits an alert to the customer service and/or transportation department.
"We have the opportunity to improve on-time delivery performance," Shafer reports. "In many cases, the buyers' delivery expectation is not reflected in the available delivery appointments at the customer distribution center. The buyer may request delivery on Wednesday, but the distribution center shows the first available appointment is Friday. We can alert the buyer to that situation."
Similarly, if the carrier estimates an arrival time that is either after the delivery appointment or after the customer-requested delivery time, Dial receives an alert and notifies the customer.
Dial's Supply Network Planning group also relies on the information collected by the TMS application.
"This group is responsible for manufacturing scheduling and finished goods inventory deployment," Shafer explains. "It can see stock transport orders from manufacturing plants to distribution centers. If the group receives an out-of-tolerance alert, it can shift stock to fill the need."
Sterling audits carrier invoices, verifies them against contracted rates and charges, and sends Dial pre-audited, pre-approved electronic invoices that require no additional audit or post audit.
In the past, about 60 percent of Dial's total volume was managed by carriers that were not EDI-capable. The company received paper invoices for about 78,000 shipments.
"A team of six clerks paid freight invoices," Shafer says. "We reduced that to two people who spend their time fielding phone calls rather than entering data. We redeployed the other people to areas such as load tendering."
Some of Dial's distribution centers average more than 100 truckloads a day. Securing that capacity required one or two people. Today, the TMS handles the process with no human intervention, freeing staff for more value-adding tasks.
Within one year of using the Sterling TMS, Dial's savings paid for the system for several years to come. "The return was immediate," Shafer notes.
By automating processes and reducing carrier rates, Dial has realized savings of 12 to 15 percent in high-volume lanes.
Dial's experience illustrates how much a company can clean up by deploying TMS technology across the supply chain.