People connect with us every day on our managed transportation services to ask various questions about how the solution can help them. While the questions vary, the one question on everyone's list is how much it costs to bring a managed TM solution to their organization.
With as important as this question, is we will address it with as much detail as possible. As you read through this article, please keep in mind there are several variables that drive pricing.
To begin to answer the question, we need to outline all the services provided within a managed transportation service (MTS) program. The reason for doing so is managed transportation can be many things to many people because managed TM (MTS) can be all-encompassing or the services can be selected on an a la carte basis.
The below chart outlines the full suite of MTS where the five functions are described in detail. The entire process is firmly planted on the bedrock of connectivity, reporting, visibility, BI and KPI's that drive strategic direction on continuous improvement.
Keep in mind that pricing is based on the entire program of services, and if only select services are needed within your organization, the cost will be less.
For the most productive conversation, there are key areas a buyer of an MTS needs to think through before reaching out to the various logistics service providers (LSP's), which are listed below:
Each one of the points listed above has an impact on pricing and timeline to implementation. As you will find as you read, MTS solutions have a number of options, and this one is no different. In relation to the timeline and cost spectrum, a buyer can either go all in or slow up the integration costs to allow for savings to catch up to investment if the buyer is looking to self-fund the project as much as possible.
With the price drivers outlined, let us take a dive into the pricing itself.
Pricing is typically broken down into one-time implementation costs and on-going operations costs.
One-Time Implementation Cost for Shipment File:
The one-time implementation costs include: file integration, general system set-up, training and possibly travel.
Assuming a managed TM buyer wants to go with some type of electronic connectivity option, the connection between itself and the LSP's TMS begins with an order file that will be passed from the shipper to the LSP. The components of the order file are:
There is always the option for a buyer of MTS to utilize the LSP's web portals to enter their order shipment information directly into the TMS or send emails to the LSP to input themselves. We see this as an option for only for smaller shippers to keep the initial start-up costs down, although if the buyer is asking the LSP to enter the data the transactional cost will increase to cover the additional labor.
File Integration: One-Time Cost
There are three ways to accomplish the OMS file exchange. Each impacts pricing and real-time updates.
The connectivity option a shipper chooses is typically based on the volume of shipments, complexity and the level of real-time visibility the shipper wants within their own system.
A word of warning for shippers on the integration costs is we have seen where the costs have been as high as $250,000 for a simple one order file interchange.
There are two reasons for this excessive cost:
In addition to the one-time file OMS interchange costs, there can also be one-time freight carrier interchanged costs also for tender and acceptance, along with tracking information.
The decision of how many carrier electronic exchanges will be determined by the LSP and MTS buyer. The reason for both to be a part of the decision is because the complexity and / or real-time updates required will be a part of the service level agreement (SLA) and monthly ongoing cost. Assume the cost of each carrier EDI / XML connection will be between $2,000 to $5,000 per carrier.
General Set-Up, Training & Travel: One-Time Cost
Outside of the file interchange costs, a buyer of managed transportation services will typically see set-up charges and travel expenses (if required) within the pricing proposal.
There are several standard functionality, reports, user set-ups that are already included in a managed TM program. Various LSP's have variations on how they look at this cost, so on the low end expect $5,000 and the top end may approach $25,000. Again, complexity of the program will drive this cost. Many of the small to medium size shippers incur $5,000, so do not let this number scare you away from the solution. Travel would be invoiced as a pass through.
A note to add under the section of one-time costs is they are typically charged on an hourly basis, which can be as low as $100 an hour to as high as $185 an hour. Sometimes these costs cover the full range between $100 and $185 and are charged out based on the level of skill required to perform the task. The whole point here is to plan well and vet the work fully before jumping in on the actual program efforts.
Operational Management Cost: Monthly
The method by which various managed freight services companies differ, but essentially there are two components of this cost: a minimum charge and variable cost charge.
Some LSP's will charge their managed transportation services via a fixed management fee per month based off a range of shipments processed during said month.
The long and short of it all is a shipper can expect the all-in monthly management fee cost (inclusive of the minimum charge) to fall in the range of $15 to $25 a shipment for a full managed transportation services solution. As mentioned earlier, the cost will be decreased, if a shipper decides to ala carte the services required for their operation.
The last point on the management fee front is the LSP providers know where it makes sense to be for the program. Do not let them complicate it with multiple tiers on multiple items. This smoke and mirror method make it difficult to manage and understand the monthly billings. It also leaves quite a bit of room for interpretation where some LSP's add in additional variable costs.
The biggest area to consider and ponder is the strategy and direction of how to best manage the freight carriers and spend within a managed transportation program.
The methodologies include:
The strategy that is determined for the freight carrier costs is negotiable. Be aware that there could be some conflict of interests with lesser options, so make sure there are checks and balances set in place if the majority of the spend is a lift on the LSP's costs. Also, make sure the LSP you are considering truly has a vast carrier pool that they can bring to the table.
There are differences in pricing and the services included within the pricing, so make sure you understand what you are buying. As an example, some managed TM providers price differently based on how they tender, track and recover shipments that have issues. There is a huge difference in the service KPI's in the different models and can be in an LSP's pricing schedule.
The long and short of it all is we typically see the cost of manage transportation services solution to price out as follows for a mid-size shipper moving 800 to 1,000 loads a month:
While we discussed cost of managed transportation services throughout this article it is important to not forget the savings an MTS strategy brings in freight spend, human capital, system capital and improved service, while allowing the shipper to focus its energy and money on what drives its competitive advantage.
The savings brought through these services will more than pay for the costs and then some. Value, ROI and reasons to consider a managed TM program are discussed in Reasons Why Shippers Select Managed Transportation Services.
Another article to consider reading to help you along your buying journey is from Inbound Logistics magazine entitled "Is Transportation Management Your Core Competency" dives deeper into the managed transportation services walking through the decision making process and selecting the right partner.
And for more on complete look at freight management service solutions we recommend the following comprehensive articles:
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