In today�s economy, businesses have dramatically scaled back expenditures. Successful projects will not only automate processes, they will also deliver a quick return on investment. That being the case, let�s take a look at how implementing a transportation management system (TMS) can substantially reduce your transportation costs.
Today�s leading transportation management systems go well beyond traditional shipping systems. They provide a method by which companies can analyze and take advantage of opportunities to reduce transportation costs. Some of the key areas of opportunity are the following.
Intelligent Carrier Selection
The ability to accurately determine carrier selection based on negotiated carrier rates, time in transit, customer-centric business rules, or any combination of the above, can result in savings of 10% to 15% of your total transportation costs. Carrier selection should be flexible enough to be implemented wherever required within your organization. This could be at the time of order entry, as part of a load planning/consolidation process, as a tool for customer service in order to quote freight costs or at the time of shipment. The end result should be that carrier selection is not based on a method of shipment but on a required delivery date. The TMS should then take over to determine the carrier and service level that will allow the shipment to arrive on the date required at the lowest cost.
For example, a customer calls to place an order that will ship tomorrow. The customer service representative (CSR) will ask when the customer would like the order delivered (or the customer is placing the order via the Web site). The customer elects to have it by next Tuesday, and the CSR notes that in the order. Once the order information is passed to the TMS for shipment, the TMS will select the most appropriate carrier and service level (based on cost) that will guarantee delivery on or before next Tuesday.
Or another example: A customer calls to place an order that will ship out of your distribution center in Columbus, Ohio. Order entry asks how the customer would like the order to be shipped. The customer replies, �Ship it Next Day Air.� The order entry person complies and flags this shipment as being required to ship Next Day Air. This flag is then passed on to shipping via either an interface to the shipping system or as a note on the pick ticket. In either case, the end result is that the shipment goes out the door as requested. Sounds good? Yes, until you realize that the order could have gone out via ground shipping and still arrived the next day because the customer is located in Louisville, Kentucky. If this were a 50-pound carton, knowing time in transit in advance would have saved you as much as 479% on the cost of the shipment! A TMS with the capability noted in the first example would have prevented this from happening.
Small Parcel vs. LTL
Shipments weighing as little as 120 pounds may be the least costly to send via an LTL carrier. The ability of a TMS to accurately choose between small parcel and LTL carriers plays a much more crucial role in carrier selection than many people believe. Any TMS that is considered should perform ratings based on a five-digit ZIP Code. Systems that rate based on only three digits can result in returned shipments, as many LTL carriers cover some, but not all, points within a three-digit ZIP area.
A robust TMS should also be able to look for consolidation opportunities within outbound orders. Merging multiple orders to take advantage of heavy weight, LTL rates or Ship With Other Goods (SWOG) opportunities can produce substantial savings. Make certain that any TMS you consider for this function can also perform deficit rating (automatically rounding up the weight to take advantage of weight break discounts, thereby saving you more money).
Proof of Delivery
Being able to monitor and audit carrier performance creates two opportunities for savings. First, it allows for auditing the carrier�s performance. This allows the user to determine what shipments were delivered outside the carrier�s guaranteed delivery window, and it electronically files for a refund with the carrier in question. Depending on the abilities of the Proof of Delivery (POD) application, you should also be able to ferret out Manifested Not Shipped (you manifested the carton, but for whatever reason, it never left your facility) and Picked Up and Lost shipments (the carrier picks up your package and loses it).
Additionally, a POD module may be able to audit the carrier�s electronic invoices to insure that you are not being incorrectly billed for shipments. Depending on the abilities of the POD application, you should also be able to determine other opportunities for savings. These would include address corrections, residential adjustments and other special services or special handling adjustments.
Customer Service Tools
The best customer is the one you never lose. In light of that, any TMS worth considering will include tools to allow increased visibility of information to both customer service and your customer. Proactively e-mailing your customer with shipment and tracking information when the order leaves your distribution center will dramatically reduce incoming calls to your customer service team. It also gets you a step up on competitors.
The ability to tell customers the method, cost and expected delivery date of their shipments at the time of order entry will again help to reduce follow-up calls to customer service. It will also set customer expectations about when to expect delivery. In other words, a customer won�t call the day after placing an order to see why it has not arrived if he was already made aware that the shipment won�t be there until next Tuesday.
Depending on your business model, customers may call wanting to know how much it will cost to ship �X� to them. They are really looking for a quote before they place the order. Today, that may mean a call to the shipping department to get a rate. A � complete TMS will allow for rating queries from multiple users based on your negotiated carrier rates. The selected rate could then be passed on to the customer or marked up to cover associated costs.
None of these items contribute hard dollar savings to your bottom line; however, they do allow you to proactively manage your customers and keep them up to date on the status of their orders and shipments. They also will drastically reduce the number and frequency of calls to your customer service department. No matter how it is measured, improving customer satisfaction while reducing the time associated with this process should play a large role in determining your return on investment.
Industry Expertise
No matter how complete a TMS may be, it is only as good as the organization that presents, documents and implements it. Be wary of any organization that wants to �demo� a system to you without first making at least one site visit. How can the company know how its system will address and eliminate your critical transportation issues without first dissecting exactly what those issues are? It can�t. This initial walk through is critical for both you and the TMS vendor. It gives you the ability to evaluate whether the vendor is knowledgeable about both the industry, its specific solution and how it might be applied to your application requirements. Secondly, it gives the vendor an opportunity to understand your business processes and determine whether its solution is a fit for your application.
Selecting the right vendor is as critical (or more so) than selecting the right TMS. It does no good for a TMS to have the ability to reduce your transportation costs if the vendor has no expertise in applying these capabilities to your situation. This is more important than ever with the proliferation of �manifest systems� as well as the expanding of TMS functionality into order entry, customer service, Web ordering, invoicing, etc. TMS vendors now must be able to not just look at your shipping operation but all other aspects of your business in order to see what opportunities exist to apply their solutions in a way that reduces costs and drives inefficiencies out of your current processes. This requires a level of industry knowledge, experience and expertise that many vendors do not have. A quality vendor will work with you to create a winning ROI for your project.
David Mallett is president of Agile, Inc. (, a leading provider of TMS, inventory control, and visibility and warehouse management applications. For more information, e-mail him at or call 216-226-5109.