While information technology has been a fixture in the business community for a number of years, as the years have passed, new innovations have appeared, and technological advances have been made, good technology has become even more critical. In some respects, it is a self-fulfilling prophecy in that the more information we have, the more there is to manage, and the more we need technology. In no industry is this more applicable than in transportation. Transportation costs totaled $907 billion in 2014. These costs as a percentage of a manufacturer or distributor’s revenue can be anywhere from 10 to 40 percent, depending on the value of their products and the modes of transportation utilized. Whatever the percentage, in any company it is a significant expense and one which can quickly get out of control if not managed properly.
With the rollercoaster ride of capacity constraints, erratic and unpredictable oil prices, and increasing rates, firms are becoming increasingly concerned, and there is a tremendous amount of pressure on logistics managers to monitor and manage expenses as closely as possible. Since the recession and its fallout, they have been expected to do more with less while, at the same time, maintain excellent levels of customer service. The latter has become increasingly difficult in today’s pressure for faster, often free, deliveries. The customers definitely have taken control of the supply chain. In order to protect their costs, service, and conditions in the marketplace, the smart managers have turned to transportation management systems as a method of measuring and managing.
Transportation management systems (TMS) are not new. They have been around since the 1980’s, but technology advances have made them much more effective. Broadly defined, a TMS is part of a group of systems that are used to manage a firm’s transportation function. It usually refers to a form of online or software system. Some firms have built their own TMS, and others are provided by the many vendors in the marketplace. There are a number of advantages to utilizing a TMS, but these will vary by individual firms. There are however, five basic areas where most companies will achieve some savings:
1. Contract management – a single repository for all contracts will prevent errors in carrier selection and freight payment.
2. Optimal Load and Route – Optimizing the carrier base and transportation plan.
3. Least Cost Mode/Carrier Selection – Selection of least cost transportation without compromising customer service.
4. Shipment Execution – Automation will breed accuracy.
5. Performance Improvements – The ability to accurately measure performance will foster improvements.
Almost all firms will realize some variation of these advantages through the use of a TMS. In the past, systems have been complex and expensive, and some still are; but there is a reasonably priced system out there for any sized company and any sized budget. They can be purchased outright, hosted by the vendor, and in some cases can be “on demand” or pay as you go. Most users will agree that a good system will have two main components – transportation planning and transportation execution, so be sure to make sure these are included.
Surprisingly, there are many firms that do not have a sophisticated transportation management system. They may survive like this for a while, but as the technological growth continues, they would be well served to explore the availability of a system that fits their needs.