Transportation Management - What's Keeping You on the Sideline?
If you are a shipper not employing a transportation management system (TMS), then you will want to read on. There is overwhelming evidence (TMS) save companies anywhere between 3-35% of their transportation spend, as compared to manually managing freight.
Today's freight environment is much different. The days of beating up carriers for price concessions has come to an end and capacity shortages are on the way. The best option to address the issues is implementing a TMS solution. The system will efficiently rate, route, and mode optimize for the lowest cost and best service. Truckload to intermodal and multiple LTL consolidations to truckload is easily accomplished.
Even with all the wins TMS has made recently, there is still just about a third of shippers employing the technology.
Below is the top 6 reasons we believe is holding shippers back and why they are unfounded.
Size of Freight Budget.
Companies believe their shipping volumes are too low to produce a quick and meaningful ROI on their investment. While there is a floor to what will cost justify the implementation, it is not about the size of the transportation spend, but the number of freight transactions and operational cost improvements. A TMS also improves point of sale (POS) sell through; inbound vendor compliance; and eliminate retail charge-backs.
Fear of the Unknown.
Some shippers feel they do not know what they do not know, which is an understandable fear. However, education will overcome this fear.
There are numerous blogs written by industry experts that will help shippers quickly the basics, which will give them enough information on the topic to comfortably call in various TMS technology and 3PL managed TM providers. These providers are very well versed in solutions based selling techniques, which will help the shipper bring more clarity to the topic of TMS options and what it means for their company.
Through this process, the solution providers will also help assemble the cost justification, so there is no need to pay for a consultant to help in the process.
Upfront software and hardware cost, along with implementation time makes it cost prohibitive for a shipper to deploy a TMS unless they have deep corporate pockets is another reason shippers are sitting on the sideline.
The counterpoint on cost is TMS technology continues to get cheaper, while functionality increases. Yes, there are those six and seven figure solutions out there for the largest of shippers, but there are also tier one TMS solutions that fall under the pay-as-you-go cloud based technology model that make it very economical for a company to implement and obtain a rapid ROI on their investment. Third party logistics companies (3PL) have also taken a significant roll in outsourced TMS solutions that help bring the cost down and make it more variable for the shipper.
Outbound is where many TMS projects start, then the team begins to look at inbound, then it grows to a global solution. in other words, the elephant grows to a size that it becomes overwhelming.
The story here is start small, then expand the project once initial success is had. There is no need to take the entire bit of the elephant. It is more important to be effective first and efficient second.
Outsourcing v. Insourcing.
Answering this question can be the easier part of this process. When answering this question, however, don't answer it based on control versus not in control. Today's 3PL's bring more control for shippers than what many believe.
If the answer to outsourcing is yes outsourcing, then there are a few key questions to be asked to ensure the shipper finds the best 3PL solution for their needs.
The three key questions around outsourcing include: what will be outsourced; what type of provider will be the best fit; and what requirements does the TMS technology need to address.
Outsourcing does not necessarily have to be an all or nothing thing, meaning everything can be outsourced in the transportation process (people, process, technology and contracts) or the shipper can cherry pick what they want to outsource within the process.
Managed TM solutions can be found with small boutique, mid-tier and national 3PL companies. Each have their niche that play very well for the "right" shipper. As part of the 3PL question, the shipper needs to answer "how does the 3PL look at technology". Some 3PL's offering managed TM services see technology as the cornerstone of their solution, while others feel their cornerstone is their expertise in the industry and people that are involved in the program.
Shippers need to be aware of 3PL's that consider technology to be the keystone of their solution. The reason is once the shipper aligns with one of these 3PL's, then they are locked into that provider because the cost to separate is expensive and would require a whole new software implementation if they change their strategic direction.
The 3PL's that look at their expertise and people as the key to their programs utilize off the shelf tier one TMS technology, such as MercuryGate, JDA, TMW, Red Prairie, etc. When shippers go with a 3PL that takes this approach, they are aligning themselves up, in our opinion, with a more flexible strategic direction. In this situation, the shipper has the ability to change its strategic direction on how transportation is managed in their company. The shipper could decide at a later date to take the software in house or move it to another 3PL that utilizes the same TMS software.
Also, by going with a 3PL that does not consider TMS technology to be the cornerstone of their solution get a best of breed solution. The TMS system will be a tier 1 system that the software company constantly invests in and the 3PL will be all about their service to the shipper because that is really the only thing they are selling.
Awareness TMS is More than Freight.
While automating the process brings value, the bigger deal with TMS is the execution of the shipments lead to "big data" opportunities. The ability to know where raw and finished goods inventory is located throughout the supply chain; have KPI's on the transportation providers within their supply chain; and have cost and performance KPI's on each lane are tremendous data points that will move freight from a cost center to a competitive strategic advantage.
All the reasons that hold shippers back can slow up TMS, but awareness is the biggest issue. Awareness effects: ROI calculations; importance to the company's competitive advantage; and urgency.
Think about awareness as it relates to ROI. If the shipper only believes a TMS brings together operating efficiency through automation, then they are only looking at a 3%-5% savings. With very little in the savings column the ROI may take years for a return.
The impact of awareness and what it means to the company's competitive advantage is also a problem. To be cost competitive and deliver a higher level of service are key drivers to creating a competitive advantage for both internal and external customers.
Finally, let us look at awareness in the eyes of urgency. Simply put, if a shipper can have both a cost and service competitive advantage, then why sit on the sidelines. A company is either moving forward or they are falling behind.
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