Why Buy a TMS?

Sept. 8, 2009
Today's transportation management systems are designed to overcome barriers to adoption, and a 4PL can help.

Transportation management systems (TMS) have been around since the 1990s, but today, according to most analysts, their market penetration is only about 35%. This shows that there still is a large opportunity for most manufacturers and distributors to obtain value from TMS implementations, but it also demonstrates that the software industry has had only limited success in selling and implementing these systems.

This is despite the fact that there are many well-documented case studies showing that transportation management systems have a strong ROI in terms of freight savings, process streamlining and automation, and improved logistics execution.

Some companies can get transportation management systems to work, and have achieved competitive advantage, but many have either not tried, or tried and failed. Why aren't more companies successful with these systems? And given this, what kinds of logistics systems will we see in the future?

First, let's talk about why the current generation of TMS has not achieved a strong market penetration:

IT Priorities

Let's face it: Logistics is often not a high priority when it comes to IT investment in most companies. Typically, the IT dollars are directed towards the primary ERP backbone, or toward other projects that are considered "core," such as CRM, or customer-facing B2B e-commerce sites. Year after year, transportation and logistics projects fall just below the line when it comes to funding IT projects.

Difficult to Implement

Transportation management systems are thought to be tough to implement. This perception is at least partially true. It's not uncommon to find companies that have a TMS but have only partially implemented it; they only use a portion of the functionality, or the system has been implemented for only a subset of their business units. These companies found that the "juice was no longer worth the squeeze": The effort to get the system implemented across the company just wasn't worth it, and they stopped short.

Not Global or Multimodal

Many TMS implementations are regional and focused on over-the-road transportation, typically truck. So while most of the major TMS vendors can point to customers in Europe (or, in some cases, Asia), in reality there are very few companies that have achieved a consistent process globally, across all modes. Most of the major TMS vendors built their systems with North American trucking requirements in mind. These systems aren't well-suited to handling a global mix of carriers and 3PLs. Today, customers are hesitant to implement such a locally focused system -- they are more and more striving for a consistent global process, whenever possible.

Cost to Operate

It can be relatively costly to operate a TMS. Master data for rates and routes needs to be kept up to date. Configuration settings need to be tweaked to ensure that the system is working well, consistently. And interfaces to the ERP system and to carriers and 3PLs need to be monitored and maintained. Support issues that come up need to be fixed promptly, or shipments don't move. All of this costs money and requires an expertise that isn't easily found, and that is far from the core competence that most companies want to maintain in-house.

What Companies Want in a TMS

So, to be clear, TMSs work. But the fact is the penetration rate is low -- for some very good reasons -- and many of the implementations have disappointed. So what does the market want, and what will future logistics systems bring? Today's transportation management systems offer solutions that can help companies overcome the barriers to adoption mentioned above.

The theme in many of the above points is that implementing a TMS is something that would provide value to many manufacturers and distributors, but the companies don't consider investments in logistics technology to be a priority. Implementing and operating a TMS on a global, multimodal basis is extremely challenging, and requires a significant investment -- not just in technology, but in people and time. Successfully implementing and operating a TMS requires that a company build a great deal of expertise that it probably doesn't have now. So, today, companies are looking for solutions that:

  • Don't require companies to add new staff and skill sets. Systems must facilitate the outsourcing of tasks such as master data management and IT systems operations, and of the shipment planning and execution tasks themselves. Most companies are realizing that these tasks are not core competencies. Going with a hosted system can help, although hosted systems still require that the company manage many of these tasks -- master data management for rates and routes, and the shipment planning and execution tasks. A logistics provider that considers these tasks to be core competencies can handle ever more of this work.
  • Offer true global, multimodal capability. Many shippers are investing in global ERP backbones, and are looking to implement consistent processes globally. It doesn't make much sense for them to then stitch together a patchwork of local logistics solutions involving various systems, carriers and 3PLs. What they need is a single globally oriented system, with integration interfaces that support multiple modes of transportation worldwide.
  • Provide Web-based access to value-added tools. Once a global TMS has been implemented, even with the outsourcing of many of the associated non-core tasks, shippers still want Web-based visibility to shipments, the ability to query their rates on-line, metrics dashboards and the ability to collaborate on the logistics process with their logistics providers, over the Web.
  • Offer a data warehouse containing all global logistics data. Today, very few companies can easily access even basic logistics information, such as how much they spend on logistics, by mode and region. One of the most valuable attributes of a successful global TMS implementation is that it can provide answers to questions such as this, quickly and easily, and point out opportunities for cost savings and improved logistics execution.
Systems with these characteristics are best-managed by a fourth-party logistics provider (4PL) -- an asset-light logistics provider that allows a company to outsource most of their logistics functions. The 4PL accomplishes this by providing expertise and technology, bringing these to bear to manage freight carriers, third-party logistics providers, freight forwarders, customs brokers and warehouse providers.

The concept of a 4PL has been around for several years (the term was coined to indicate a logistics provider that managed a group of 3PLs). What's new, though, is that supply chain technology has finally reached the point where global 4PLs that actually can accomplish points 1 through 4 (above) are emerging. Collaborative, Web-based transportation systems, the Internet and message-based integration approaches are allowing leading 4PLs to outsource their clients' logistics functions, while providing more functionality and information than those clients ever had before.

A strong 4PL also provides its clients with access to a wider network of logistics providers, reducing logistics expenditures on carriers and warehousing. Going forward, relatively new technologies such as business process management engines and business rule management systems are emerging, allowing 4PLs to further tailor business processes to each client's needs. This allows the 4PL to scalably create custom solutions for each client, allowing each client to gain a competitive advantage, while allowing the client to leverage the best practice solutions that are common to all clients.

While there will always be companies that decide to manage logistics functions in house, and that are willing to invest in the technology to do so, the majority of companies to date have opted to not invest in logistics technology. In the coming years, many of those companies that have shied away from transportation management systems, and even companies that have implemented a TMS less than successfully, will turn to 4PLs for their logistics technology, in order to get the benefits of a TMS while avoiding much of the investment and aggravation a TMS requires.

Michael Sadowski is CIO of Danbury, Conn.-based Odyssey Logistics & Technology Corp., a global logistics service provider for chemical and process manufacturers.

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