Outsourcing non-core competencies has been a long-standing business strategy, but for many shippers the decision to outsource freight activities brings on a number of anxieties starting with the perception of losing of control of what the C-Suite often believes should be a core internal competency.
While some shippers may be anxious over the decision to outsource freight activities, the larger market is not and the practice is far more common than others think. Today's logistics technology and business processes within the managed transportation space makes outsourcing seamless to the shipper and its customer base, while providing significant value in price, capacity, market knowledge and overall supply chain performance.
Just recently we published an article entitled The Best Managed Transportation Companies (And How to Choose) to help people through the process of selecting a managed TM services provider, but if you are not to that point yet this article may be for you to help in deciding whether managed transportation services is for you.
Benefits of Managed Transportation
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Access Capacity
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Full Supply Chain Visibility
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Unified Communication Platform for All Stakeholders
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Cost Savings
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ROI Improvement
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Improved Service KPIs
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Offload Non-Core Business Processes
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Risk Management
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Technology
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Operational Control
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Reporting & Analysis
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Freight Audit & Pay
Below is a listing of functions shippers can consider outsourcing within their logistics activities:
- Managed Transportation Services
- Logistics Technology
- Rate & Routing Services
- Cargo Claims Management
- Freight Audit & Pay
- Parcel Shipment Management
- Dedicated Fleet Services
Managed Transportation Services is the all-encompassing solution covering the below functions for a shipper, but as the list above indicates shippers can ala carte the service menu.
Reasons to Choose Managed Transportation Services
Access to Capacity
LSP's participate in the freight & logistics market every day. As a result, LSP's have their finger on the pulse making them efficient at finding capacity at the best price. Shippers simply cannot get to the level of an LSP on their own economically.-
- Resource Network. LSP's leverage technology, industry relationships and shipment volumes to get lower prices for their clients. With their buying leverage, they often have the ability to negotiate down the cost of accessorials. When evaluating an LSP, ask how many carriers and total spend they active and under contract. Shippers need not listen to the hocus pocus of how many carriers an LSP works with and needs to hear the actual number of carriers active and under contract.
- Adding to the importance of the total carriers under contract is the visibility the LSP has to the providers they have moving in and out of various origin and destination points. By helping these carriers optimize their network they save for the clients they work with under a their managed transportation program.
- Also, the more volume in the LSP's network the more market data they have to utilize and leverage to reduce their managed transportation clients freight costs.
- The one caveat to this point is technology and the transparency of today's freight information. Some LSP's have tapped into resources that allows them to access market and contract rates for any origin and destination pair, which better positions their clients for better spend management.
- Resource Network. LSP's leverage technology, industry relationships and shipment volumes to get lower prices for their clients. With their buying leverage, they often have the ability to negotiate down the cost of accessorials. When evaluating an LSP, ask how many carriers and total spend they active and under contract. Shippers need not listen to the hocus pocus of how many carriers an LSP works with and needs to hear the actual number of carriers active and under contract.
Cost Structure Savings
LSP's are able to balance their work for multiple shippers across its resource base, which brings a variable cost structure to their managed transportation clients. The variable cost is not only on labor, but is also applicable to technology. Keep in mind shippers have a stair step cost structure on labor and the capital. On the capital side, the best technology can become prohibitive on a one-to-one scale a shipper operates within, which is another point for bringing a managed transportation solution to your company.-
- Save Time and Money. Technology, processes and industry expertise delivered through an LSP bring efficiencies and access to data that is unmatched.
- Continual Rate & Route Optimization through Technology, Reporting and Total Network Optimization across Entire Customer Base. As we say here at InTek, we are only as good as our last shipments. As a result of this mentality, LSP's are constantly combing the market for a better solution to add value to its clients.
Offload Non-Core Business Processes
Utilizing an LSP to manage a shipper's supply chain frees up the shipper's resources, so the business can focus on what provides its competitive advantage to the market.
Risk Management
Moving the freight activities to an LSP transfers the shipper's liability and cargo risk involved in handling its freight. Keep in mind, this transfer of responsibility depends on how the carrier agreements are set up in the program.-
- Another important factor under this bullet point is LSP's have systems in place to continually check the legality of the trucking to ensure the carriers moving a shipper's freight is legal and insured. provider, protecting your organization from penalties and fines.
Technology
A managed TMS solution brings in operational efficiencies, but also an incredible amount of data for full visibility into the daily execution of the business and big data visibility for analytics to improve the long-term goals within its supply chain strategy.-
- The insight and analysis that can be gleaned from a top tier TMS system is a game changer to any organization. The control tower functionality within a managed transportation solution gives the LSP the technology to easily identify consolidation, round trip and other optimization opportunities on rates and routing. The TMS platform also makes day-to-day and strategic analytics a breeze.
Operational Control
The control tower functionality gives full transparency into daily freight movements for all internal and external stakeholders. LSPs brand their systems to match the clients they service, so the shipper's customers are not aware that they are using an outside platform.
Reporting & Analysis
The amount of data that comes as a result of a TMS implementation is incredible.-
- No longer will shippers fly blind and have fewer cards to position themselves with a winning hand over the carriers they negotiate with to gain the most capacity and the least cost.
- While logistics is a competitive advantage, as everyone has witnessed through Amazon, logistics teams often take the back seat to their internal IT team priorities. This is no longer the case when a shipper moves under a managed transportation service solution because the LSP will perform the ITS service function as required. Examples include specialized reports, data pulls, analysis, re-configure the system for a customer, customized automatic emails, etc.
ROI on Managed Transportation Services
Every business decision requires a business case to push the agenda forward. To help with case, below are typical savings percentages that come from a managed TMS solution:
Planning & Optimization
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3% - 12% savings opportunity
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Analyzing shipments, rates and constraints
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Optimal mode / carrier / rate / route
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Execution & Advanced Visibility
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2% - 5% savings opportunity
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Automated execution tasks and workflows
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Rate / capacity / routing guide / carrier performance management
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Settlement
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2% - 5% savings opportunity
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Self-billing, freight audit and pay
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Procurement
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3% - 10% savings opportunity
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Secure / maintain durable rates / capacities
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Reduce broker dependencies
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While not required, this is a good time to point out that a managed transportation service solution can be applied to both inbound and outbound freight programs. The best ROI is obtained through combining the two freight flows together to optimize round trip utilization of carrier equipment within a shipper's supply chain.
When to Bring a Managed Transportation Service Strategy to a Business
The last question that often comes to mind is when does it make the most sense to bring a managed TMS solution to your company. Listed below are some of the reasons we have found to be the case with clients InTek Freight & Logistics has worked with:
- Service KPIs Suffering
- New Technology Required
- Increasing Logistics Costs, whether Internal or the Price of Freight Itself
- Project or Seasonal Volume Spikes that Cannot be Managed Internally
- Continuous Growth that Becomes Harder and Harder to Support Internally
- Business Model Changes
- Geographical Changes
- Business Matures
- Change in Key Personnel
- Launching a New Service or Product within the Business
- What to Manage Inbound Freight for Cost and Process Flow Reasons
Final Thoughts on Managed Transportation Services
As was stated in the very first line of this blog, the perception of losing either the last touchpoint with the customer or the first touch point of the inbound product flow shippers have can be apprehensive. We are here to say that these are perfectly natural reactions to hearing the words outsourcing, but as the above content indicates there are numerous positive results that come with the decision.
Another good read on the topic of managed TM is entitled How Much Does Managed Transportation Services Cost - A Comprehensive Pricing Guide. This article answers the most common question we receive every day on managed TM, which is how much will the solution cost. We walk the reader through all the costs associated with MTS from one-time start-up fees to monthly management fees. No stop is left unturned as we share what drives the costs and how to get the best value for your money.
The above content was intended to get the conversation started. For more on RFP management and managed transportation services, please sign-up for our weekly blogs and visit the InTek Freight and Logistics website.
