TMS or 3PL: Which Suits Your Business Best?

Q: How does implementing a transportation management system (TMS) compare to engaging a third-party logistics (3PL) service provider?

A: A TMS provider’s core business is offering software solutions that solve customer transportation requirements. Companies that implement TMS solutions are looking for certain capabilities: maintaining relationships with carriers; improving supply chain management and effectiveness; streamlining operations; adding efficiency and reliability; and accessing more accurate and up-to-date information to enhance strategic decision-making. In most cases, shippers rely on their internal transportation and technology professionals to manage TMS operations within their company.

3PLs provide outsourced logistics services to shippers. They may also provide value-added services, such as warehouse management and dedicated dispatch resources.

Q: How can a TMS compete with the services provided by 3PLs?

A: TMS solutions providers develop differentiators to effectively compete in the market: a proprietary process, unique product, specific set of employee skills, or close relationship with customers and a track record of always delivering high-quality merchandise on time and on budget.

TMS solutions take advantage of competitive differentiators when providing enhanced technology to improve supply chain execution. Shippers maintain the direct relationship with their customers and carriers, and valuable knowledge built over time stays with the company. The TMS technology is an enabler that can leverage all these factors, and still deliver improvement in bottom-line results.

3PL providers offer a proven alternative to TMS solutions. They bring transportation-specific experience and provide additional services, such as warehousing and distribution management, which complement transportation functions. 3PLs that own transportation assets and maintain strong relationships with carriers can assure shippers that their products can be delivered at any time.

Q: Why would someone choose to implement a TMS over partnering with a 3PL?

A: The following questions can help shippers decide to implement a TMS instead of outsourcing to a 3PL:

  • Is maintaining the shipping function and ensuring successful delivery a core competency?
  • Are the relationships developed with carriers strategically important to the business? If these relationships have helped maintain high service levels, is there a risk of losing that advantage with a change?
  • What are the key decision criteria in making a change? Better efficiency? Cost reduction? Availability of value-added services? Scalability across the supply chain?

As the shipper formulates important decision criteria, the choice for a TMS becomes clear. If maintaining control over distribution through the supply chain, maintaining relationships with carriers, improving processes with best practices, and having tight control over data and information is important to the shipper, then employing a TMS would be best.

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