Transportation Management Systems rising in importance

The role and importance of Transportation Management Systems (TMS) has been elevated, according to a report from Adrian Gonzalez, Director, Logistics Executive Council, ARC Advisory Group.

Gonzalez says this becomes especially true as companies adopt lean manufacturing, make-to-order, and other business models that depend on reliable, efficient, and cost-effective transportation operations.

"Because corporate objectives are ultimately linked to operational performance, TMS is also a key enabler of Real-time Performance Management (RPM), hence the rising interest in these solutions among C-Level executives and the continued growth of the market despite the weak economy," Gonzalez says.

Gonzalez believes that ompetition is no longer between companies but rather between supply chains. He says companies have moved away from being vertically integrated, choosing instead to outsource processes like manufacturing and logistics to third parties.

"Today, success depends on multiple parties working well together, which creates unique challenges in terms of aligning strategies and performance metrics, as well as integrating processes and information systems. Companies are no longer masters of their own destiny. They’re dependent on their suppliers, service providers, customers, and other parties that together enable their end-to-end business processes."

He adds that these networks become more dispersed, the role of logistics becomes even more important. He points to the comments of Michael Eskew, Chairman and CEO of United Parcel Service, summarized it best at last year’s Council of Logistics Management (CLM) Annual Conference: "We’re seeing a dynamic shift in the relationship between business plans and logistics, a shift from the perception of our industry as a back-end process to a front-end strategy that informs and supports the entire business plan. Your supply chain strategy, in effect, becomes your business plan.”

The TMS landscape has changed significantly in recent years, Gonzalez says. The emergence of Web-based technologies and user interfaces, along with improvements in software architectures and algorithms, has resolved many of the shortcomings associated with older solutions.

Investment decisions are driven by return on investment (ROI) and time-to-benefit (TTB), especially in today’s economic environment. Hence, TMS providers have modularized their offerings and made them highly-configurable so that companies can implement a TMS in multiple stages based on their immediate needs and budgetary constraints.

Also, companies now have a choice of deployment options. Historically, obtaining approval for large capital spending has been a challenge for many logistics organizations, along with receiving the appropriate level of IT support to implement and maintain a software solution. In addition, companies are no longer willing to invest millions of dollars upfront on software technology. They want to pay as the value is realized.

"These factors are fueling the demand for hosted TMS solutions and alternative pricing models such as subscription fees," Gonzalez says.

But determining the best deployment model is dependent on several factors.

"A good starting point is to calculate the total cost of ownership (TCO) for the different deployment options because it forces you to consider many important elements, such as overhead costs and the expense of implementing upgrades," he advises. "For many companies, especially those with multiple locations or limited IT resources, a hosted solution is a good option with regards to cost, implementation time, and time-to-benefit. Companies can go live in as little as 90 days and achieve payback in six months or less. In fact, some companies are using the savings realized in the first phase to fund the implementation of additional modules."

Real-time Performance Management (RPM) is a new frontier in achieving operational excellence.

Linking corporate objectives to logistics operations creates a mechanism for real-time process improvement. It also elevates the role and importance of logistics within the corporation and captures the attention of C-Level executives, the ultimate decision makers regarding expenditures and strategic direction.

TMS is a critical component of RPM because it automates business processes, which reduces labor costs, enhances productivity, and improves service levels, Gonzalez explains. It provides information about freight costs, on-time delivery, and other metrics that have a direct impact on corporate performance; and it monitors real-time events and activities, thereby allowing companies to react quickly and efficiently to exceptions.

" In light of its role in enabling RPM, it’s not surprising that companies continue to invest in TMS despite the weak economy," he comments.

ARC Recommendations for TMS Implementation
 Define the business processes that you want to enable. These processes will ultimately dictate the functionality you require from a TMS.
 Automate by investing in a transportation management system. You will not succeed in today’s highly dynamic and complex business environment if you continue to rely on manual processes.
 Make sure the solution is configurable, scalable, and facilitates collaboration. Web-based solutions based on newer architectures are generally better equipped to meet these requirements. The provider’s product roadmap and vision must align with your ongoing needs.
 Determine total cost of ownership of different deployment options. For many companies, especially those with multiple facilities, the hosted model is a cost-efficient approach.
 Consider domain expertise and financial stability of your provider. View the provider as a strategic partner. Interview people at the provider from different functional areas, as well as existing clients.