In the last three years, transportation costs have gone up 23% and order-to-delivery cycle times have decreased by 31%, according to a GMA 2005 Logistics Survey. These trends and higher expectations from customers are placing increased pressure on companies to better manage their transportation operations. It is no wonder, then, that the Transportation Management Systems (TMS) market grew to nearly $990 million in 2005, according to a forecast by ARC Advisory Group, and more and more companies are looking to technology to help them minimize transportation costs and improve order-to-delivery cycle times for increased customer satisfaction. To understand this growing trend, lets look at the basics.
What Is a TMS?
A Transportation Management System manages the physical flow of goods through the procurement of transportation services, planning and optimization of transportation activities, execution of transportation plans and management of transportation-related information, documents and money. Typical functions of a TMS are carrier bidding and selection, load optimization, tendering, tracking, tracing, routing and scheduling. A simple way to start to unravel the complex TMS market and to find a solution that fits your organization is to consider three differentiating factors for TMS solutions:
» Transportation type Look for TMS vendors that specialize in the modes of transportation that your company uses, e.g. parcel, LTL, full-truckload.
» Technology and service deployment What type of deployment fits your business model? Remember, if youre shipping a high volume of parcels, an on-demand TMS might not be robust enough for your high intensity integration and connectivity requirements.
» Trade compliance What international compliance and documentation do you require? These regulations are getting more complex and are constantly changing. The penalties for violations are severe, so incorporating a solution that supports trade compliance into your workflow is paramount.
Transportation Type
Greg Aimi, TMS analyst at AMR Research, describes a TMS as using mathematical algorithms to calculate the lowest cost to move goods where they need to be, on time, using the available transportation modes. No one TMS covers all modes of transport (parcel, less-than-truckload, full truckload, own fleet, rail, ocean and air), and most are specialists in one or two modes.
Technology and Service Deployment
TMS solutions are available as a traditional software-installed deployment, an ASP/On-Demand (hosted) model, or a combination of an integrated TMS/WMS, TMS/ERP or TMS/
Carrier Services type. While solution functionality can be similar across deployment, most TMS vendors usually specialize in one deployment type.
Trade Compliance
TMS solutions provide the capability to manage the necessary documents and electronic filing required to move goods across borders as well as denied party screening and license determination to ascertain if a particular good can be shipped to the desired location. This feature is becoming increasingly important as more and more companies struggle to cope with the growing number of international shipments.
How Do Parcel
Shipments Fit into a TMS?
TMS solutions that deal with parcel shipments are also referred to as Enterprise Shipping Management Systems (ESM). The parcel industry has differing needs to other modes of transportation (truckload, rail, own fleet), and ESM solutions provide a unique set of functionality within the TMS market.
Parcel shippers do not manage the transportation network or physical movement of goods; this is handled by the complex distribution systems of the parcel carriers. Tendering functionality is not used due to pre-negotiated carrier rates based on specific billing cycles usually at least one year in length. Load sharing is also usually non-existent given the small size of shipments. There are some other unique characteristics of the parcel industry.
Compliance
An ESM system needs to comply with the complex parcel carriers requirements for labels, electronic manifests and rating
algorithms. This high level of complexity is a result of the large number of carrier services (early AM, deferred ground, etc.) in combination with many special services such as signature services, COD, hazardous materials, etc. This high number of
permutations and combinations is aggravated by the complexities of international origin shipping. Add the separate surcharges that can increase shipping costs by at least 15% (the three leading parcel carriers in the US have over 60 different surcharges), and you realize why traditional TMS vendors do not provide parcel shipping functionality, but rather partner with ESM vendors.
Customer Service
Parcel shipping requirements often dictate that a package must arrive at its destination within one to three days after the order is placed. Due to this short order-to-delivery cycle, customer service is critical. Therefore, solutions that provide enterprise access to shipment data-enabling customer service functions to deal with customer inquiries quickly - and solutions that offer multiple alerts to both the shipper and the customer (e.g. shipment notification, confirmation of delivery, alerts for late or lost packages) are crucial, particularly for industries where package contents are perishable, as in vaccines.
Interoperability
All TMS solutions need to integrate with existing ERP, WMS and internal systems, exchanging shipping information across the enterprise. The nature of parcel shipping puts particular emphasis on scalability and stability of this function due to the high volume of transactions that take place. Compare a single shipment of 1,000 packages being delivered to one customer to 1,000 packages delivered to multiple customers via UPS. The first requires a single bill of lading; the latter shipment requires 1,000 labels and tracking numbers. This parcel industry characteristic often dictates the type of deployment used for ESM. Whereas many traditional TMS vendors are moving to on-demand deployment, for the majority of medium and large parcel shippers, ESM solutions must be deployed on premise due to the high intensity integration and connectivity requirements. The parcel carriers have web-based APIs that can be used for hosted model support; however, this is only suitable for low-volume shippers (fewer than 50 packages per day). As network bandwidth and availability increase, more shippers will be able to take advantage of hosted ESM solutions.
After taking a look at the three Ts of a TMS, take into consideration your parcel shipments:
» Volume Different solutions cater to various volumes thresholds; the higher the volume, the more robust and scalable a solution. Also, higher volume shippers typically have more complex business rules such as zone skipping and consolidation, which are supported by only the top tier TMS/ESM providers.
» Carrier requirements How flexible do these need to be to address your customer requirements? Some solutions only provide core
» Business workflow and processes Look at your organizations workflow and make a list of what systems the TMS will need to integrate with. Do you require shipping quotes at order entry? Do you do wave planning? How do you handle tracking information? Choose a vendor with experience integrating ideally to your WMS/ERP system.
Finally, selecting a system that provides maximum flexibility is crucial. Beyond the constant carrier compliance and global trade regulation changes, customer demands are increasing pressure on all shippers. Faster delivery times, preferred carriers and routings as well as smaller delivery windows are all driving shippers to be more nimble and requiring them to ensure their
shipping systems become a critical part of making their customers experiences unique, thereby creating a competitive advantage.
Brian Hodgson is Vice President of Marketing at Kewill, a leading provider of enterprise parcel and LTL shipping management solutions. He can be contacted at brian.hodgson@kewill.com or at 508-357-6463.
