Understanding Transportation Management Systems

Posted by Marian

Ecommerce has been booming for the past few years, but it has experienced a spike, especially with the COVID-19 pandemic. As the transportation industry becomes more sophisticated, logistics service providers are starting to realize the importance of modernizing their entire supply chain operations.

It’s only by keeping up with the latest technology trends that they will thrive and gain a competitive advantage. Some of the biggest questions facing today’s logistics teams revolve around how transportation technology can help them solve the many challenges associated with e-commerce.

Achieve Better Positioning with TMS

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For logistics and supply chains to be effective and successful, they need to have several things working in their favor. They need a well-trained workforce, optimized transport processes, a favorable market, and innovative technology. Finding the right software can be a huge catalyst that drives significant operational improvements and streamlines entire workflows.

One such piece of technology is transportation management software (TMS). With a TMS platform, companies can better position themselves to achieve their critical strategic and business goals such as:

  • Better management and control over logistics operations
  • Decrease in freight costs Freight Cost
  • Improve performance
  • Provide better customer service
  • Heighten supply chain visibility

What Are Transportation Management Systems?

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Transportation Management Systems or TMS refers to a subset of a company’s more extensive supply chain management software. It handles all transportation-related operations and sits between enterprise resource planning (ERP) and warehouse management systems (WMS). Transportation management systems deal with both outbound and inbound freight and offer users suggestions on how to best plan their routes.

To simplify, TMS provides third-party logistics carriers and shippers with the possibility of moving freight more effectively and reliably while reducing costs and time required. This software supports all transportation modes, including national and international air, ocean, over-the-road, and intermodal freight. It also covers full truckload, LTL freight, expedited shipping, and others.

Advantages of Using Transportation Management Systems

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There are too many moving parts involved in shipping for companies to be adequately supported by spreadsheets, phone calls, and emails in today’s digital business environment. Over the past decade, TMS solutions have evolved beyond being mere freight management platforms and have gone on to become fully connected fleet management systems that are easily accessible to companies of all shapes and sizes.

Out of all supply chain technologies currently available, transportation management solutions provide freight brokers and other logistics companies with the most benefits. One of the most potent reasons companies often consider implementing a TMS is to lower freight spend.

These cost savings can be achieved based on a series of core features such as process enforcement, optimization, reporting, and analytics. Compared to more traditional forms of managed transportation, TMS software solutions will enable better customer service, improve operations, and help with more informed business decisions. Below are some of the main benefits that transportation management solutions have to offer.

Freight Optimization

Keeping all of your shipments and their different modes of transport organized can prove to be a challenge. Details can be forgotten and slip through the cracks, leading to miscommunication and potentially costly delays or other challenging circumstances. Logistics teams using TMS software can keep all of this data organized, helping them avoid mistakes. It will also help teams consolidate their orders, optimize their route scheduling, and improve their planning.

Freight Bidding

Carriers and freight forwarders can also use a TMS platform to bid on shipments. This makes the entire process much simpler and less time-consuming. It’s also possible to use the system to automate the freight distribution process. This method considers several variables, including total cost, award ranks, and lane percent allocation, while simplifying the entire communication process with all carrier partners.

Efficient Auditing

A TMS will give companies the ability to audit their entire shipping process throughout the order-to-cash cycle. By having a physical trail of all functions, users can go back to locate the origin of any errors that may have occurred along the way. This will tie back to how easily issues with freight bills and accessorial charges can be quickly resolved by the audit trail found in the TMS database.

Full Reporting and Analytics

For companies to provide optimal service, they need a lot of intelligence to make informed decisions. Gathering this information and analyzing it by hand can be pretty labor-intensive and is prone to mistakes and human error. When automated, however, this process will provide third-party logistics providers and other TMS users better and more accurate insights at only a fraction of the cost.

Companies will also help increase their supply chain visibility with more intelligence, showing which carriers have more customer complaints. 3PLs can use this data to rank their carriers, improve customer service, and further optimize their logistics processes.

Improved Order-to-Cash Cycle

A TMS will eliminate most, if not all, components that go from the moment a product is ordered until it is delivered to the end-user. Put, transportation management software will directly impact your order-to-cash cycle, allowing you to quickly identify which steps in the process may need to be corrected or improved. 

Yard Management

With top TMS software, you can also optimize your dock configuration, helping to minimize congestion. It also provides you with improved visibility on all shipping vessels while your route information and scorecards will be automatically updated.

Tracking Shipments

TMS software will track shipments from tender to delivery. While traditionally, TMS platforms are used to manage outbound freight, it’s also an excellent tool for managing inbound freight. It’s not uncommon for inbound freight to go overlooked and undervalued. But when it’s incorporated into the overarching logistics strategy, it will provide a full view of the supply chain, giving the company more opportunities to save on freight costs. This increased visibility will help with dock management and customer service by providing clients with complete transparency.

Manage Carrier Pricing

Another useful functionality for TMS systems is that they allow you to store all contract carrier pricing information. With this feature, you can also optimize your shipments based on costs and better visibility into your carrier payment processing. Not only will you be able to customize your payment options, but you will also be able to approve or reject shippers’ accessories without having to wait for their invoice.

Real-Time Benchmarking Capability

An effective TMS software platform will allow freight brokers and logistics managers to compare different freight companies against each other in terms of overall service, on-time deliveries, contract terms, and other attributes. This benchmarking capability will allow you to leverage better carrier rates and determine which carriers are the most proficient. It will also tell you what these companies can change about themselves to gain a competitive advantage.

Inventory Reduction

Being able to forecast your inventory can be incredibly beneficial for warehouse management. A TMS will allow you more time to plan your list since it will show you where your outbound and inbound freight are at all times. This will keep the entire supply chain process more streamlined and organized, preventing you from over-stockpiling or having to build a safety stock, just in case.  

What are the KPIs that You Can Track with TMS?

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Aside from streamlining the day-to-day processes,  a TMS platform will also allow companies to track specific metrics to know how well these processes are working. Some of these key performance indicators will include the following:

  • Loading and Unloading Times – Often, this element is overlooked but is very important in the logistics process. Though seemingly inconspicuous, these KPIs can add up over time, resulting in dead-time or having to reroute shipments.
  • Delays – People hate delays, and we hate them too, but it can be unavoidable, especially with the current freight congestion. Traffic delays, random inspections, or various paperwork issues can all work to reduce the per-mile yield and increase transit time.
  • Shipment Yields – Every shipment’s yield can be broken down and examined for delays and extra costs. A lower yield per mile could indicate issues with fuel consumption.
  • Productivity – This metric refers to how easily and efficiently a shipment is transported. If this KPI is low, companies can experience additional costs, delays, and more.
  • Fuel Efficiency – Tracking and optimizing your fuel consumption will allow you to remain in compliance with governmental environment initiatives, help reduce overall freight costs, and build a more sustainable supply chain.
  • Maintenance – Being meticulous with maintenance metrics will help you avoid any unforeseen downtimes and indicate if your fleet may need replacing. 
  • Damages – By examining when, where, and why damages or accidents occur, companies can identify the causes and minimize them.

Cost of Ownership

When discussing the total costs associated with a transportation management system, we need to include the initial investment, the implementation costs, the ongoing licensing, and the ongoing support costs. It’s important to know that cloud-based TMS solutions have driven down the costs of these four categories. Businesses are looking to implement a TMS system that views the total cost of ownership as a significant deciding factor should be looking at cloud-based TMS systems more closely.

When it comes down to the initial investment, ongoing licensing, and support costs, these vary depending on each TMS vendor and its product. The key, however, is to understand these costs based on what’s included in the price. In most cases, buyers can choose from different components that will best suit their needs and requirements.

Implementation Costs

Unlike other costs, the implementation costs are more or less the same regardless of the TMS solution and are based on several factors. These will include the following:

  • Total number of carriers
  • Total number of customers
  • Total number of internal and external users
  • Total number of integration points for both internal and external systems

Free vs. Paid TMS Software

Some vendors or third-party logistics providers will offer their TMS solutions for free. While there isn’t such thing as a “free” anything, there are some pros and cons to this option. On the one hand, free software is typically used to get people accustomed to the new TMS platform. In other cases, it could be given away in exchange for contact information about their target audience – in this case, your organization.

In both these situations, the functionalities are not as comprehensive as their “paid” version. That said, this free version of a TMS system can still be helpful in several cases, such as a small company that doesn’t need multiple user accounts or in cases where companies do not process too many loads. Likewise, these versions may be adequate for those who don’t need to access information from other services or don’t require reporting tools like load boards, credit card processing services, carrier qualifying services, and mileage makers.

In other cases, you may still have access to a free TMS system that features all the functionalities you require to grow. In this scenario, we’re talking about managed transportation services.

In-House vs. Managed Transportation Services

You have the options of buying and implementing an in-house TMS system, installing a free one, or outsourcing your freight activities to a third-party logistics provider that already has the TMS technology. Opting for managed transportation services (MTS) will give you access to their TMS software package and their other logistics and supply chain services.

Third-party logistics providers (3PLs) are organizations that specialize in handling their clients’ shipping functions. This will include everything within a distribution network, going from the retailers or manufacturers all the way to the end-user. Transportation, warehousing, stock management, shipping audits, customs brokerage, delivery monitoring, etc., are all examples of services provided by a professional 3PL.

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Outsourcing may not work for everyone, but organizations that use it can see tremendous value added to their organization. Utilizing a 3PL will also provide you with their experience, resource network, technology, and more. In addition, the implementation will usually be faster, as will realizing the ROI since the 3PL will already know the ins and outs of their system.

Zip Logistics can help manage all of your logistics needs. We provide the latest transportation technology platform with real-time tracking and transparency, so you’ll be in the loop of things without the burden of having to manage every single moving lever of your business.

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