Transportation Management System (TMS): Functionality, Benefits & Implementation Guide
Often, companies start their quest in optimizing their logistics and supply chain management strategy by implementing a transportation management system (TMS) to improve their company’s cost and service structure for freight movements, while also bringing full transparency to all inbound and outbound product moves for its supply chain stakeholders.
The TMS functionality, configuration, implementation and cost have significantly improved to the buyer’s favor in recent years making it a viable supply chain management solution for just about every company. Prior to the advent of software-as-a-service (SaaS) cloud TMS, the TMS was only an option for the largest shippers in the industry because acquisition, implementation and ownership costs were prohibitively high.
Because the software-as-a-service cloud TMS software has allowed shippers of every size access a TMS for their business, the TMS market has had explosive growth with the expectation of the TMS market increasing continuing and expected to be 4 times larger between now and 2025 by reaching $4.9 billion in sales.
SaaS TMS systems have reduced the barriers to entry with lower upfront costs, easier maintenance, access to multiple upgrades of best practices and an overall simplification of IT infrastructure requirements. But with free markets always looking for business growth opportunities, the growth potential has brought more TMS solutions to market making it very difficult to decide which provider is the best solution.
Adding to the difficulty of the decision process is how the new TMS will be implemented and integrated within current company dynamics to build a supply chain solution that will bring a competitive advantage.
The supply chain idea, as it relates to a TMS, is a new thought because the technology has risen to a level of more than a system to optimize freight cost and service KPI’s.
With all the TMS options and ideas to sift through, we felt it made sense to cover the topic more comprehensively to help buyers in their journey by addressing the following topics:
- TMS Functionality
- The Benefits of a Transportation Management System
- Keys to a Successful TMS Implementation
A transportation management system has 10 functional components for shippers and logistics companies utilizing a TMS:
- Carrier Management
- Procurement Management
- Route & Load Optimization
- Freight Execution Platform
- Visibility, Reporting & Analytics
- Supply Chain Communication Platform
- Logistics and Supply Chain Data Repository
- Freight Settlement for Audit & Pay
- Invoicing Functionality
- Business Intelligence (BI)
All 10 components are integrated together within a TMS platform to tie in various company stakeholders, which we have listed below along with a short description on what the TMS does for them:
- Optimize, plan & execute inbound & outbound product moves, along with analyzing cost and performance of freight provider partners.
- Visibility to the inbound material required for manufacturing schedule.
- Visibility to inbound material required to fill orders.
- Procurement / Purchasing
- Vendor management and performance reporting.
- Freight audit, pay, invoice, calculate accruals and analyze cost performance.
- Track customer orders and report on performance.
- Customer Service
- Track and address orders for customers.
- Schedule, manage and report their inbound shipments to their customer.
- Direct access to order and shipment information.
While all the above are benefits that each supply chain stakeholder obtains from a top tier TMS, let’s go through the specific benefits in more detail.
Benefits from a TMS
For those companies trying to evaluate the need for a TMS, let’s walk through each TMS benefit a company can expect after implementation.
Reduced Freight Costs
A TMS helps companies rate and route their shipments quickly to ensure their freight is moved at the least cost and best service.
The TMS houses all the shipper’s freight contracts and first looks for consolidation and multi-stop opportunities, then for the freight that does not fall into these categories are routed via the optimal mode and best price to meet service requirements.
Simplify Operational Execution
TMS users will find savings by doing more with less with the transportation management software providing an efficient platform to execute, manage and analyze their logistics and supply chain tactics and strategies.
Not every shipper utilizes every freight every mode, but it’s important to know the best TMS software packages operate in all modes.
The TMS does the heavy lifting in the category of reducing freight costs with the process of freight optimization happening in a concise period. The TMS can evaluate thousands of alternatives within seconds for least cost, best service routing that is then moved to a plan the operations team can execute seamlessly.
The TMS does the heavy lifting to optimize a shipper’s freight, and it does the same with executing the plan.
The TMS automates the tender process by auto tendering the freight out to the carriers through what is known as a waterfall tender process. In this process, the least cost contracted carrier is tendered the freight first. If they do not accept the load, the tendering process continues to go down the line from least cost to most expensive until the freight is accepted by all carriers required in the load plan.
Eliminating the manual tendering processes is a significant source of savings.
A TMS is an efficient tool to automate carrier data through the following:
- Streamline the carrier onboarding process.
- Manage contract rates, accessorial and fuel charges, terms, certifications, transit maps, etc.
- Manage carrier risk by automating the process of monitoring a carrier’s credentials through external databases, like RMIS. Within the RMIS system, carriers are continuously monitored for their ability to operate legally. The system also facilitates the contract process to ensure the terms between the motor carrier and shipper are established quickly and easily. In many cases, a similar contract is already on file and can be used for quick execution.
- Connect to various freight load boards efficiently to easily access the freight spot market for capacity when contract carriers cannot meet service requirements.
TMS Opens Up Freight Capacity Options
Motor carriers and logistics service providers (LSP’s) are electronically connected within a TMS.
Companies can quickly access their contracted rate carriers and capacity because of the electronic connection, thus identifying capacity issues quickly that can be rolled over into the freight spot market when the contractual carriers cannot service the lane.
This is a critical and valuable tool because with the United States having over 700,000 for-hire motor carriers and roughly to 18,000 logistics service providers and brokers the days of utilizing an Excel spreadsheet or Access database have long given way to today’s TMS options to tap into the load boards seamlessly. Larger shippers can have an internal load board for their contracted carriers that they can bid on or use the “buy it now” functionality to quickly accept a load for the shipper at the best market price.
To sum it up, a TMS quickly addresses the capacity challenges by tapping into various channels to address market driven demands that come from a global economy in flux, a demanding retail customer base and growth of e-commerce.
TMS Brings a Data-Rich Repository of all Supply Chain Moves
Companies that are still using a mix of spreadsheets, phone calls, and email to manage their logistics and supply chain are costing themselves significant money on an annual basis. The reason is there is no way to compile the great amount of details and perform big data analysis to move their strategic direction forward.
Data is power, and a TMS has this area covered in spades. A TMS holds an “unlimited” amount of data with the references required to perform the deep dive analytics required to turn a supply chain from a cost center to a strategic advantage.
The TMS users can perform advanced analytics, while also disseminating the simplest or most complex reports and analysis in easy to read automated emails or customized web portals and visual dashboard set-up by user.
Often times, we see TMS users dump their cumbersome external databases in favor of operating all reporting and analysis through their transportation management system.
To strengthen the analysis and benchmark performance, a shipper can integrate their TMS with a third-party repository of billions of dollars of freight spend to compare and contrast their performance on specific lanes against that of its shipping competitors.
One just needs to understand a TMS is more than reporting and analytics. The technology and applications within the TMS collect, integrate and present business intelligence to support data-driven decision. Through the compilation of tremendous amounts of data being collected throughout the day, the embedded BI analytics gives users a quick and easy understanding of measured situations.
The power and cost of the embedded BI cannot be underestimated and often does not require a company to buy a standalone BI system integration because of the capabilities and power the TMS brings with it.
TMS Brings Transparency to Logistics and Supply Chain Transactions
Companies that rely on a mix of spreadsheets and databases with their suppliers and customers find themselves in reactive mode. Team members are more focused on putting out daily fires than finding ways to work smarter, better, faster, and cheaper. Adding a TMS into the equation shifts this scenario dramatically.
Thousands of shipments can be easily be seen and managed using the TMS as a communication platform for the multitude of internal and external stakeholders, while also helping companies manage rising freight rates, complex motor carrier rate schedules, capacity supply and demand challenges and diverse freight network delivery networks.
Simplified automated reporting for all stakeholders keeps everyone ahead of the curve by working by exception versus by the next fire.
Depending on the size of the files and its timeliness drives whether reports would be sent to users via email, ftp, EDI or XML. The previously listed factors also determine whether it is best to set up web portal reports or assemble standard reporting or ad hoc reporting tools to analyze past, review current state or assemble future modeling.
Improves Service Levels
A top tier TMS user experience enhances customer service levels because of the improved visibility, speed and automation that comes through the TMS solution platform.
In an era where customers are demanding more and more, while companies are demanding lower operational costs, using a dashboard to pinpoint a shipment, access a specific delivery time, or offer up an alternative are invaluable service tools when utilized in a proactive manner.
TMS Connects Supply Chain Stakeholders Digitally
An often overlooked aspect of a top tier TMS is its function as a communication platform. One would think this would not be overlooked considering the reporting and visibility discussion, but it is worth calling out the TMS as a communication platform specifically. The system ties into all the key aspects of a company’s internal and external supply chain stakeholders to make well informed daily tactical decisions and long-term strategic decisions.
A good TMS not only allows shippers to manage their own costs and keep tabs on their internal metrics, but it also “hooks” carriers, customers, suppliers and other business partners into the platform for them to do the same for themselves.
By using the information that is housed in a single platform allows companies to make better supply chain decisions that, in turn, improve their own levels of customer service.
The digitally-connected supply chain gives shippers a more effective tool to navigate the mobility, cloud, internet of things (IOT) world we need to operate within to drive innovations others only dream about.
Freight audit & pay on thousands of transactions is a daunting task that is cumbersome, paperwork driven and an opportunity to throw tremendous amounts of resources into the mix with less than optimal results.
A TMS is a game changer in this area. A strong TMS makes the entire freight audit and pay process a breeze with OCR (optical character recognition) technology identifying the shipment reference and invoice amount on the carrier’s invoice, then matching it with the contracted rates in the TMS. The audit process can be performed in 15 to 20 seconds and without stacks of paperwork and continuous email follow-up on internal and external issues.
When the invoice and rate information does not match, all the correspondence to correct the situation is handled within an exception queue to easily manage the user through the process.
Quick Return on Investment (ROI)
A fairly recent ARC survey found the return on investment (ROI) of TMS was approximately 8 percent. Savings came via more efficient logistics network design, load consolidation, multi-stop route optimization, improved procurement process and freight audit and pay, along with improved operational efficiency.
Our experience would indicate the savings / ROI is significantly larger when a company views the opportunity of utilizing the TMS as a supply chain tool versus a freight management tool.
Yes, all the savings come through a supply chain tool, but think of increased sales, improved manufacturing times, improved order-to-cash cycle, less safety stock, simplification of IT through a single platform, etc., etc. etc.
Not to be redundant, but the whole mindset moves the supply chain from a cost center to a competitive advantage when all aspects are considered within a TMS implementation.
Maximize RFP opportunities through integrated rate tools by simplifying the data collection and analysis through actual data versus averages-of-averages, meaning many times the amount of data is too large for spreadsheets to handle so buyers have to use averages or a smaller pool of data that does not capture everything to perform the best RFP.
Utilizing real information within a sophisticated database to perform analytics optimizes results. Add in third-party freight intelligence to bring in market data to benchmark and negotiate freight rates positions the procurement team in a place of strength versus taking a guess at what rates should be or making the freight budget a “solve to equation” to meet profit requirements for the company.
As you have found in reading this article is operating a TMS brings a competitive differentiator to companies that look outside the box. In other words, the transportation management system (TMS) should really be named supply chain management system (SCMS) across virtually every industry, both for the way it can streamline transport operations and for the crucial data analytics and intel it can provide a business.
Before tying everything up, let’s walk through the key ingredients for a successful TMS implementation.
Again, keep in mind that a TMS can be a tool for supply chain management and intelligence when properly scoped on the front end of the selection process.
Keys to a Successful TMS Implementation
A successful TMS implementation begins before a solution is selected.
A buyer of a TMS needs to have the list of business drivers that will drive the assembly of requirements document and it needs the approval of the key stakeholders in supply chain and IT before heading down the path of selection.
The buyer then needs to assemble a requirements document that has a weighting to each of the line items listed. This will then take the guesswork on what is the best system versus what feels like the best or what sales person made the fancier presentation.
Once the requirements document and set priorities have been set, it’s important to get the right people involved in the review and selection process. Sure, you received sign-off on what key stakeholders thought was important, but they need to be a part of the evaluation process.
As part of the TMS requirements document, it is important to include the current and expected future-state process flows on paper, so the TMS software vendors understand the scripted workflow demonstration objectives. Do not be afraid to break the model.
Through the selection process find out and understand the TMS vendor’s standard flows and investigate your to-be design to see whether you can match their design. If one can match the intent of the software design it will limit costly customized coding, which will also make maintenance and future upgrade cycles simple.
When going through this phase, know the design is a best of breed hybrid design the software vendor has incorporated in its TMS offering.
Now that you have narrowed down the TMS software selection down, you’ll need to bring operations, manufacturing, warehousing, distribution, procurement, IT, sales, customer service and finance all need to be a part of the decision to go through demo’s and meet the TMS implementation and support teams.
This cross-functional team should remain in place as the TMS steering committee to ensure a sounding board when cross team functionality questions arise in the process.
As for the TMS software implementation team goes, understand most TMS software vendors have gone to the idea that they want to stay software focused and have the implementation team come from their approved IT TMS technology services companies list.
Once the steering committee has agreed upon the TMS. Appoint one person to be the project lead and another that will become the TMS super user. The project lead seems apparent, while the super user may not. The super user will become a critical resource throughout implementation and will continue to hold that title after go-live.
The super-user is often difficult to identify, train and retain, but it is a critical position to help maintain, train, test and be the overall sounding board for new requirements and integration.
Outline of TMS Implementation Lessons Learned
- Ensure that TMS Vendor clearly understands your current operations before designing future state, hence the suggestion to outline both current and future state earlier in the process. There are times that a vendor will step away if they do not feel they will be able to address either or both effectively with their team or TMS solution.
- Do not design for 100% of the process. Standardize and manage exceptions with SOPs, so there is little to no need for custom coding within the TMS.
- Do not underestimate the level of the business process resource involvement throughout the implementation, go-live and steady state after fully implemented. Please note this is not an IT role, but a super user role from within the logistics and supply chain team.
- Whatever you do, do not shortcut master data cleanup. This is the one time to clean up the sins of the past and the spaghetti bowl of band aids that have been built into the current system.
- Routing Guides
- Customer Specifications
- Vendor Specification
- Product specs that include weights, cubes, pallets, etc.
- Last, but not least do not shortcut testing efforts. All key components need to work coming out of the gate on the first day. Develop new business process test scripts to follow the transactions all the way from A to Z. The test has to work continuous, not up to a point, then put the patch in to move to the next point, etc, etc. etc. If the process broke down, then once the patch is put in the test needs to start from the beginning.
- As part of the testing include user acceptance testing and train the employees to the new process. One of the worst things to occur in a new system software implementation is for your users to fight the technology and not understanding it will only make it worse.
- Consider a phased implementation approach. This is not always the best for an organization, but can be a great option when properly outlined and executed.
- The one problem is some users may feel this is an opportunity to not learn the new and keep going back to the old ways.
- Before the system is turned on, make sure your TMS is doing everything as planned to optimize your processes to deliver the results and value you and the steering committee set out to accomplish.
- This comment falls under you only get one first impression, so you and the steering committee want to make sure it is good.
Final TMS Comments
Today’s transportation leaders are the logistics and supply chain experts within their company, so think of your TMS capability requirements to be more than just a freight engine but an opportunity to build a competitive advantage for your organization.
Be selective in all steps of the selection and implementation process. Make sure you have the best TMS fit for your company and you align with people that fit your business culture for both the TMS software and TMS integrator.
Have a post-implementation review to drive additional and ongoing value from your transportation management system. Our recommendation is to have 4 set intervals in the first year, then a yearly review.
This will help ensure the transportation management software applications are not under-implemented, leaving users performing manual workarounds, having limited productivity gains and flat out missing the mark on the steering committee goals. A gap analysis done regularly will ensure these and other symptoms of an “under” implemented TMS are not part of your supply chain organization and the full ROI is realized.
The gap analysis will help capture the inevitable changes that occur within a company’s logistics and supply chain process that needs to be addressed through either system design or process change.
An option many shippers choose after going through the TMS review find opting for a managed transportation services (MTS) model with a logistics service provider. While this is not a fit for every organization, we’d suggest not passing it by without some thought. While some may be skeptical of an LSP, a quick read through How Much Does Managed Transportation Services Cost? A Comprehensive Pricing Guide will help bring some of the ideas into scope.
Also, for an even deeper dive into TMS software and market, we have a comprehensive article entitled "The Complete Guide to TMS Freight Software: Market, Capabilities and Solutions for Shippers". The chapters include:
- INTRODUCTION TO TRANSPORTATION MANAGEMENT SOFTWARE (TMS)
- THE KEY BENEFITS OF A TMS
- TOP TRENDS TO WATCH FOR IN TRANSPORTATION MANAGEMENT SYSTEM SOLUTIONS
- TOP TRANSPORTATION MANAGEMENT SYSTEMS & FUNCTIONALITY
- COST OF TRANSPORTATION MANAGEMENT SYSTEMS
- IMPLEMENTATION OF TMS
- DIFFERENCE IN TMS AND MANAGED TRANSPORTATION SERVICES
The last piece is if you find yourself looking at alternatives for a TMS, managed transportation service solution or a TMS systems integrator, we’d love to be a part of the conversation. As a reseller and integrator for the MercuryGate TMS software, we can help in any of the three categories.