Transportation Management Systems: Pulling It Together
Transportation management systems attract companies with the promise of bringing structure and efficiency to polarized processes. But it's crucial to weigh the positives and negatives before pulling the product from a wealth of choices.
Imagine you're a global consumer products manufacturer with no strategic view of procurement or collaboration among your various facilities. Paul Rizzo, logistics director for PepsiAmericas, Schaumburg, Ill., didn't have to visualize this scenario; he lived it.
"We were doing business in a decentralized, disjointed fashion," he recalls. "We could spend $20 million in freight costs within a 200-mile radius, for instance, with four or five different plants each making transportation decisions in a vacuum."
Reaching the breaking point, Rizzo decided the company needed a transportation management system (TMS) to bring structure and efficiency to logistics planning.
"At that point, the most sophisticated transportation management we had was somebody capturing data on an Excel spreadsheet," he says. "It was an easy jump to move forward from that environment."
TMS tools strive to achieve their goal of transportation optimization by automating virtually every key element of a company's shipping infrastructure—strategic and operational planning, network design, transportation execution and monitoring, invoicing, billing, and settlement.
But while TMS products are finding favor among a growing number of companies, spanning all sizes and industries, the technology isn't necessarily the "slam dunk" most vendors promise.
Before deciding on a specific product, potential adopters need to consider an array of critical issues, including cost, product type (licensed or hosted software), deployment and operational issues and, most importantly, the product's return on investment (ROI) potential, says Greg Aimi, a TMS software industry analyst for AMR Research, Boston.
The Pepsi Challenge
As the world's second-largest Pepsi Cola bottler, with $3.3 billion in annual revenue and operations in nine countries, PepsiAmericas needed software that could maximize the potential of its transportation resources, and provide both operational efficiency and management flexibility. Rizzo found the solution to his transportation management needs in a TMS offered by LeanLogistics, Holland, Mich.
As he began planning the software's eventual deployment, Rizzo knew he faced a formidable task. The product would have to bring order to a transportation infrastructure that bordered on the edge of chaos.
"There was no rhyme or reason to our transportation operations," Rizzo recalls. "Our trucks passed each other on the road; we used a huge number of different modes and different local strategies; we operated private fleets; we ran dedicated fleets; and we maintained third-party logistics relationships."
The LeanLogistics On-Demand TMS system helps Rizzo and PepsiAmericas by providing daily planning, execution, and settlement capabilities, in addition to periodic strategic planning functions. The features are integrated, and workflow is managed by business rules set by PepsiAmericas managers.
"The TMS provides strategic orientation for purchasing, bid management, carrier communication, and other logistics functions," says Rizzo.
The TMS deployment began in June 2002 with a pilot test in a limited number of plants. After about five months, the software was gradually rolled out across the company. After one year, the company achieved 100- percent integration.
Having LeanLogistics host the software, rather than purchasing it, helped PepsiAmericas experience a smooth, stress-free deployment, and placed the burden of hardware and software testing on the provider. "Our total installation expense was about 80 hours of IT time," says Rizzo.
In the years ahead, the hosted model will also relieve PepsiAmericas of many routine system management tasks and costs, while ensuring the company continual, automatic software updates.
While Rizzo selected his TMS vendor quickly and informally—he was acquainted with a LeanLogistics executive from a previous position—most companies adopting TMS follow a systemized vendor-selection process.
Such was the case with Phoenix-based Bar-S Foods, a meat processor that markets cold cuts and other meat products nationwide.
"We began the TMS selection process by clearly identifying our objectives, and developing a list of requirements," says Ramesh Ramaswamy, a Bar-S senior operations analyst and the company's TMS project manager. Among the company's requirements were automating the transportation planning, execution, settlement, reporting, and benchmarking processes.
Once its objectives were clearly identified, Bar-S was ready to begin considering individual TMS vendors.
"We started with 20 vendors and put them through an exhaustive selection process," says Ramaswamy. "We did RFPs, requested software demos from all the vendors, and solicited and checked multiple customer references."
Bar-S ultimately narrowed the list of contenders down to one—Nistevo, based in Eden Prairie, Minn.
"Nistevo was the TMS provider that satisfied most of our requirements," says Ramaswamy. "It has a strong customer base in our industry vertical."
The TMS deployment, which included building a link to Bar-S's JD Edwards financial software, took approximately three months.
One benefit of Bar-S's TMS solution is enhanced load building. Like many companies, Bar-S faces the challenge of multiple orders moving to multiple locations via multiple carriers. The TMS analyzes the company's transportation requirements and designs the least expensive and most efficient schedules.
"The system automatically builds and routes loads in the optimal way," says Ramaswamy. Managers who don't like a particular schedule generated by the TMS, however, can override the software and insert new instructions.
For Bar-S carriers, the TMS allows easier billing and faster payment. It also saves Bar-S money by slashing the amount of paperwork it must handle. A simple web portal allows even small carriers to bill electronically.
"Carriers can log on and bill us immediately after delivery," says Ramaswamy. "We no longer accept manual bills."
Real-time online delivery tracking is another important benefit the TMS offers. "Nistevo's TMS has a tracking functionality that practically ensures on-time deliveries," says Brent Byrd, Bar-S distribution director. "It sets off an alert if a truck will be late, so we can inform our customers before they call us."
Besides helping to ensure timely deliveries, the TMS network communications infrastructure gives users greater insight into current, future, and past orders, eliminating the possibility of missed phone calls, lost faxes, and other error-prone manual processes.
"All the functions are smooth and visible to all supply chain parties involved," says Byrd. "We're all on the same page now."
The Road to ROI
The bottom line benefit of any TMS is the cost savings the technology can generate. Paul Rizzo estimates its TMS helped PepsiAmericas slash transportation costs by approximately 20 percent over three years.
"I won't say we saved that money because we implemented a TMS," he notes, "but I will say that the TMS made it a lot easier to do."
Bar-S deployed its TMS in March 2006, so it's too early to predict any concrete dollar-value ROI. But Ramaswamy has already seen tangible improvements in the company's transportation operations.
"We have seen real improvements in load building, routing, invoicing, and efficient communication among trading partners," he notes.
One key to deploying a critical, complex technology such as TMS is to approach the project in stages. "Set flexible goals," suggests Ramaswamy. "Divide the project into multiple phases and have a clear schedule for what you will implement and when."
TMS adopters also need to realize that deployment is only the first stage in an ongoing process. "Deployment of a TMS is just putting the basic infrastructure in place," says Ramaswamy. "After that, you'll always find additional areas for improvement."