Learn More About Transportation Management Systems (TMS)
What are Transportation Management Systems?
Transportation management systems (TMS) are powerful logistics solutions that help companies plan, optimize, and improve their ingoing and outgoing shipping processes. Transportation management systems work by showing users the most optimal method for transporting their goods by displaying the cost, available carriers, and the most efficient shipment method. All of this is done digitally within the software which saves logistics companies countless hours of manual work.
An example of how companies can streamline their processes using a TMS might look something like this: Without a TMS, logistics companies need to manually call a freight broker, negotiate a freight cost, and then spend time working out the ingoing and outgoing shipment process. This can take hours to finalize a deal, and oftentimes, logistics companies may not even close the deal on obtaining the freight since it is too expensive, or not the optimal solution. With a TMS on the other hand, logistics companies allow customers to access their software and quickly identify if a truckload is readily available, and for what price. This allows those customers to see what’s available and quickly load freight onto an available truckload. This can dramatically cut down on the amount of time it takes to make shipments.
What Does TMS Stand For?
TMS stands for transportation management systems. This acronym is used to shorten the lengthy term. Some vendors may also call it transportation management software or transportation management solution since a TMS is a software application.
What Types of Transportation Management Systems Exist?
TMS suites
TMS suites are a consolidation of multiple products into a single platform that can be customized based on the needs of the customer. Large companies can benefit from using the various products provided by the same vendor, which are usually better integrated. SMBs can also benefit from using TMS suites by using only the components they need. This type of software is not a good option for small businesses, because it provides advanced features that can be too complex and expensive for small companies.
Point solutions
Point solutions focus on one or a few specific transportation activities, such as delivery or fleet management. These products need to be integrated with other transportation software when customers require advanced features.
Extended TMS
Extended TMS includes features that are not delivered by traditional transportation management software products, such as order management, purchasing or procurement, contract management, or financial settlements.
What are the Common Features of Transportation Management Systems?
The following are some core features within transportation management software:
Carrier management: Carrier management helps planners choose between TMS providers, like UPS, DHL, Schneider, Penske, Maersk, and so on. Planners choose carriers based on the type of service they provide, their geographical coverage, and the price. TMS also helps planners evaluate the quality of the services offered by carriers, which is another important criterion for selection.
Shipment planning: Shipment planning enables transportation managers to schedule shipments depending on inventory availability, the type of transportation, and estimated delivery dates. This module usually includes yard management features to assign trucking to docks for loading and unloading.
Route scheduling: Route scheduling helps dispatchers streamline the distribution routes for deliveries by combining locations based on the distance between them and the type of transportation required. For instance, rail transportation can cover vast geographical regions, while road deliveries are preferable in urban areas.
GPS tracking: GPS tracking uses GIS technology to monitor vehicles and drivers when they’re on the road. This requires the installation of tracking devices on trucks, while drivers can use mobile phones or tablets to share their location and itinerary with dispatchers or customers.
Fleet management: Fleet management helps companies manage their vehicles used for transportation. This type of software is used for maintenance, monitoring fuel management, and fleet optimization. It usually does not include functionality to schedule and track deliveries, nor features to manage third-party logistics service providers.
What are the Benefits of Transportation Management Systems?
Transportation management systems offer plenty of benefits for logistics companies, their workers, and their customers. Below are some of the most useful benefits:
Transportation optimization: Users can optimize transportation activities by allocating human and material resources to operations such as loading, unloading, or driving. Another way to optimize transportation activities is to combine shipments or to define optimal delivery routing to cover as many locations as possible and cut down on transit time
Transportation cost management: Reduce transportation costs by avoiding transportation errors, such as shipping the wrong products or delivering items to the wrong customers. Scheduling trucks and drivers can also reduce fuel consumption and the time spent on the road by employees, which translates into lower operational costs.
Compliance: Compliance with regulations for transportation is particularly important for heavily regulated industries such as food and beverage or chemical. Companies from these industries require special conditions and equipment for transportation like refrigerated trucking. It is also critical for companies to ensure that hazardous materials like explosives and poisonous gases aren’t endangering employees or the public.
Customer experience: Users can streamline customer satisfaction by delivering the right products to the right customers at the right time. This is particularly important for large companies with thousands of customers and a large variety of products that need to be delivered.
Who Uses Transportation Management Systems?
TMS software is mainly used by industrial workers for different aspects of their shipping operations.
Logistics managers: Logistics managers use transportation management software to identify the transportation needs of the company and find the best ways to deliver goods to customers efficiently. Transportation managers are responsible for finding the most efficient and cost-effective delivery methods such as air, rail, road, or ocean.
Dispatchers: Planners and supervisors schedule shipping operations such as loading and unloading of trucks, choosing the most efficient delivery routes, assigning drivers to routes, and monitoring shipments in transit from origin to destination. Their goal is to cut down transit time
Drivers: Drivers use limited features, often delivered as mobile apps, to understand what needs to be shipped, where, and how. Drivers also use this type of software to report incidents and any events that may impact their work.
Warehouse and inventory managers: Warehouse and inventory managers use TMS software to plan inventory movements in one or multiple locations. This ensures that goods are ready to be loaded and shipped as scheduled by transportation dispatchers.
Software Related to Transportation Management Systems
Related solutions that can be used together with transportation management systems include:
Supply chain suites: Supply chain suites usually include transportation management features, which can be delivered as standalone products or as a module of the suite. Since not all supply chain suites provide advanced transportation management functionality, they integrate with TMS software, either through partnerships or by using APIs.
Warehouse management software: Warehouse management systems track the physical locations of the goods in inventory. This type of software makes it easy for companies to find the products that need to be shipped to each customer.
Inventory control software: Inventory control manages the availability of the products owned by a company to determine how many items can be delivered. When companies have a lower inventory than the quantity ordered by customers, they need to either manufacture or buy the difference to fulfill demand.
Shipping software: Shipping focuses exclusively on what happens between the moment when products are shipped and their arrival at the destination. Shipping software helps companies create and manage shipping documents, such as bills of lading or packing lists, and track the status of all shipments.
Yard management software: Yard management optimizes the physical locations used to load and unload trucks (also known as docks). This type of software is used to schedule trucks based on arrival date, size, or type of goods delivered.
Fleet management software: Fleet management ensures that fleets of vehicles are adequately maintained to optimize their use and avoid accidents. Fleet management includes maintenance operations, as well as repairs and equipment upgrades.
Route planning software: Route planning software focuses exclusively on finding the best delivery route and assigning them to trucks and drivers. This type of software is mostly used by SMB delivery companies that do not have large fleets of vehicles and do not ship large quantities of products from multiple locations.
Challenges with Transportation Management Systems
TMS solutions can come with their own set of challenges.
Functionality: Not all transportation management software products are created equally. As mentioned above, TMS suites provide advanced features that cover most transportation operations, while point solutions only focus on specific functionality, such as route planning. Buyers looking for software to manage transportation need to carefully consider and compare all options to find the best choice for their unique needs.
Integration: Integration with supply chain management suites or products is essential to exchange information with other departments such as warehousing, sales, and operations planning or inventory management. In addition, integration with accounting and enterprise resource planning (ERP) systems is necessary to ensure sales and purchasing transactions are accurately reflected from an accounting perspective.
Which Companies Should Buy Transportation Management Systems?
Transportation management systems can be utilized by any company that needs to ship and move goods regularly. Below are some of the most common types of businesses that would find it beneficial to implement a TMS into their tech stack.
E-commerce companies: E-commerce companies can greatly benefit from using a TMS. A TMS allows e-commerce companies to find available shipping in minutes while also displaying the most cost-effective options. In today’s day and age, consumers want the ability to get their items shipped almost on demand, or with one/two-day shipping options. Having a TMS can allow e-commerce companies to serve customers better by providing faster shipping options.
Distributors: Distributors are intermediaries between manufacturers and retailers. These are businesses that generally buy from manufacturers and then deliver those products to retailers, or sometimes directly to consumers. Since distribution companies generally have massive warehouses to hold and control inventory, they can greatly benefit from TMS for shipment planning. This allows distributors to optimize inventory, plan outgoing shipments, and analyze shipment efficiency.
How to Buy Transportation Management Systems
Requirements Gathering (RFI/RFP) for Transportation Management Systems
Requirements gathering for transportation management systems is critical to ensure that the business is implementing a product that meets all of their needs. To do so, businesses must evaluate their critical needs. Some critical needs as it relates to a TMS might include cutting shipping costs, improving overall customer service, consolidation of truckloads, and using data to improve logistics.
Compare Transportation Management Systems
Create a long list
Long lists are created by eliminating software options that do not provide critical functionality. To make a long list for TMS, a buyer should look at the following functionalities and determine which products provide the functionality they need.
- Booking and tracking of shipments
- Carrier management and carrier rating evaluation
- Features to communicate with shippers and customers
- Supply chain visibility and shipment tracking features
- Data analytics on the efficiency of shipments
- Integration with ERPs and other supply chain software
- Route optimization and yard management features
- A transportation network of carriers that offer a variety of shipping modes (air, freight, parcel, and intermodal)
Create a short list
Once the buyer has narrowed down their list, it’s important to get even more specific requirements. For example, a buyer may be looking for a TMS that integrates with a specific ERP. Additionally, learning how to utilize a TMS may not be very intuitive so it may be important to narrow it down to vendors that have great implementation support or additional resources to help learn the software. Finally, there may be some additional preferable key features within a TMS like robust order management or strong reporting and billing capabilities.
Conduct demos
Demos are one of the most important stages in the buying journey. This allows a buyer to sit through an actual product demo and see if the product matches all of the requirements. To make sure the demo runs smoothly, users must ensure that the vendor has all of the requirements beforehand so they can showcase their features properly.
Selection of Transportation Management Systems
Choose a selection team
The selection team for a TMS should include administration, drivers, operations and logistics employees, managers, partners, and relevant associates.
Negotiation
Negotiating the price of a TMS is a critical step in the purchasing process. A few things a buyer may want to consider when negotiating are if maintenance fees can be waived, ongoing support can be provided for lower costs, and also if free integrations or add-ons can be installed.
Final decision
After the negotiation stage is conducted, decision making requires buy-in from everyone on the selection team. It’s important to ensure that all requirements are met and the final decision is supported by everyone involved.
What Do Transportation Management Systems Cost?
The pricing of a transportation management system depends on how it’s deployed. Generally, transportation management systems come in two different types of offerings. This is either a SaaS offering or an on-premises offering.
On-premises solutions: A perpetual license is often a one-time payment for an on-premises solution. This type of solution is becoming less common across most software vendors as subscription models are taking over, however for some businesses an on-premises solution may make sense. These solutions generally do not require an internet connection. Additionally, a user with an on-premises solution controls all of the data within. This includes confidential employee information and other sensitive data. Another important advantage may include more product customization. If a TMS is a one-time purchase a buyer generally ensures that the product is set up to meet their needs and can be tailored as such. This is generally less common among cloud products.
The price for an on-premises solution can range anywhere from $25,000-$100,000 as well as an annual maintenance fee for the vendor to upkeep the system. This is a major upfront cost but can be beneficial to some vendors who want to have full control over the system
Software as a service (SaaS) and cloud solutions: Cloud products often operate under a SaaS model and are run over the internet (in the cloud). These are generally sold as a subscription and require a recurring payment, most often as monthly or yearly payments.
A SaaS TMS is usually priced based on the number of monthly shipment transactions. This can range from $1 to $4 per freight load booked in the system.
Return on Investment (ROI)
Below is the breakdown of the estimated time to ROI for a TMS according to review data on G2 as of June 17th, 2021:
- 49% of buyers see an ROI in 6 months or less
- 16% of buyers see an ROI in 7-12 months
- 16 % of buyers see an ROI in 13-24 months
- 4% of buyers see an ROI from 24-36 months
- 1% of buyers see an ROI in 48+ months
- 11% of buyers haven’t realized a full payback yet
Implementation of Transportation Management Systems
How are Transport Management Systems Implemented?
The implementation of a TMS will entirely depend on the level of customization one needs. A TMS can come with a variety of additions, integrations, and service fees. This is because every shipper is looking for something that compliments their offering. With all of these customizations, implementing a TMS can take months to finally get up and running.
On the other hand, there are plenty of transportation management systems that work in the cloud (hosted on the internet by the vendor) and the only thing a company would need to do is connect their secure servers through the internet and begin using them. This process could only take a few days.
It will be important to create a strategic business plan before implementing a TMS. This can help buyers calculate the potential return on investment, create a course of action, and discuss with their stakeholders the long-term benefits of the system. Before implementing it’s important to establish goals and objectives of what success will look like three to six months down the road. A project manager should be tasked to track and check in with users consistently throughout the first six months of implementation to ensure that users are getting the most out of the system.
Transportation Management Systems Trends
Platforms: Platforms are combining software and services into one single platform. Businesses can use TMS platforms to manage operations and to find logistics service providers for various activities, such as customs brokerage or third-party warehousing. This allows companies to manage their operations and find global trade partners using the same platform.
Automation: Autonomous trucks and delivery robots are still in the experimental phase but may soon disrupt the transportation industry by providing completely automated delivery. This technology hasn’t been approved for commercial use, but it is expected to disrupt the transportation industry in the next decade. When this happens, monitoring drivers will become less important, and maintaining the trucks will be critical because of their high value.
The gig economy: Uberisation of transportation refers to the trend to use individual drivers as partners for deliveries. An example is Amazon Flex, which allows people to use their cars to make deliveries for Amazon. Tracking independent drivers may prove to be an important challenge because their vehicles aren’t used exclusively for deliveries.
Internet of things (IoT): IoT allows transportation companies to connect vehicles, sensors, and mobile devices through a global transportation network. IoT is still in its early stages, but it is expected to enable logistics providers to better monitor drivers and fuel consumption, improve vehicle maintenance by identifying issues before they occur, and better plan routes and delivery schedules.
