TMS: By popular demand
On-demand TMS has proven to be an economical, yet robust solution to transportation management issues. Now on-demand’s popularity is growing as systems become more sophisticated, moving it well beyond the light planning and optimization features on which it was founded.
By Bridget McCrea, Contributing Editor -- Logistics Management, 9/1/2007
Today’s shippers can be a pretty demanding bunch, expecting technology to help them tackle everything from high fuel costs to poor supply chain visibility to late deliveries—and everything in between. Many companies are now turning away from the traditional software package, where solutions are purchased, licensed, and installed, and getting on board an on-demand structure that gets firms up and running in a flash, tying them into their carrier networks to gain a clearer view of their transportation operations.
The on-demand concept has grown in popularity over the last few years as shippers have come to realize that a combination of vendor software and the Internet can create an affordable, user-friendly transportation management system (TMS). Offered by a wide range of vendors, the systems are generally Web-based and rely on a “pay-as-you-go” pricing model that’s designed to meet the needs of companies across all industries and all sizes.
On-demand TMS allows shippers and their trading partners access to the same system; which in turn links carriers, 3PLs, and internal departments (such as finance and accounting) via a password-protected interface. The concept is becoming increasingly attractive for shippers looking to save time and money through improved transportation management, says Adrian Gonzalez, director of Dedham, Mass.-based ARC’s Logistics Executive Council.
Sophistication Evolves
In a recent survey of TMS vendors, Gonzalez found that over 59 percent of respondents saw subscription/transaction fees (such as those associated with the pay-as-you-go on-demand TMS model) as their fastest-growing revenue generators over the next five years (See Figure 1). Having tracked the on-demand sector since it was in its infancy just a few years ago, Gonzalez says the systems have become more sophisticated, moving way beyond the “light planning and optimization features” on which they were founded.
“Vendors aren’t shy about highlighting the sophisticated planning and optimization capabilities that their systems are providing shippers of all sizes,” says Gonzalez, who points to ACE Hardware’s use of on-demand as a prime example of a how a large corporation tapped into the trend as a way to successfully improve inventory turns, reduce lead-times and variability in its supply chain.
“On-demand is definitely here to stay for TMS,” says Ian Hobkirk, senior analyst for warehousing and transportation for Aberdeen Group in Boston. Still, he says the perception that on-demand isn’t robust enough to take on the tough transportation problems keeps some potential users from experiencing its benefits.
“I know two companies specifically that have large outbound transportation networks (up to half-a-billion-dollars in annual spend) that don’t realize how easy it is to get on board rapidly with an on-demand TMS,” says Hobkirk. “They still view TMS implementation as a big, lengthy project that will tie up a lot of their IT resources. That’s the biggest barrier to adoption in the market right now.”
For those companies that do their due diligence and explore how the solutions work, says Hobkirk, the concept becomes a “no brainer” in terms of functionality. “Once you are ready to roll and pull the trigger,” says Hobkirk, “you can achieve a very fast ROI in a number of TMS areas.” Speed of implementation aside, Hobkirk says key benefits that shippers can expect from the on-demand model include quick and easy collaboration with carriers, particularly for those companies that choose vendors with preexisting networks of carriers on board.
On-demand users also experience reduced internal IT demands, since there’s no software to license, install, and integrate. The upfront costs are low, says Hobkirk, with some vendors now allowing shippers to “test out” their systems before buying. “The on-demand model also allows companies to stay current,” Hobkirk says. “As the software is upgraded, the process on the shipper side is practically seamless.”
Finely Tailored
Greg Kehrli, domestic logistics manager for Remington Arms Co., Inc., in Madison, N.C., knows just how seamless the on-demand TMS approach can be. With one 300,000 square foot warehouse and a worldwide transportation network that relies on parcel, LTL, truckload, full container and less-than-container loads to distribute its sporting firearms and ammunition, Remington Arms was an early believer in the on-demand approach, having implemented its first system from HighJump nine years ago.
“We were one of the first companies to get onboard with it,” says Kehrli, who adds that the firm was particularly impressed with the system’s flexibility and the way it could be tailored to the company’s needs. “We can use our TMS as a tool, rather than having to customize our data to the needs of the system.”
Kehrli’s favorite on-demand TMS features include the ability to conduct trailer pulls through the system, which does historical searches by carrier to determine capacity limitations. He also likes the fact that the system doesn’t require a specific carrier tariff in order to be used, and can instead be customized to any rates. Key benefits both nine years ago and today include “immediate cost savings,” according to Kehrli, who says planning and scheduling lead times were cut significantly due to the system’s ability to process data quickly.
“That allowed us to take better advantage of capacity when we got into tight equipment situations at different seasons of the year,” says Kehrli, “and also helped us make better use of our truckload planning and increase our average truckload weights through multi-stop plans.”
A Hollywood Ending
Up until June 2006, transportation management was a largely manual exercise for Cherry Hill, N.J.-based Pinnacle Foods, owners of such brands as Vlasic, Duncan Hines, and Hungry Man. That was until Greg Bostick was brought in to bring the firm’s 10 distribution centers and 30 manufacturing points in sync with its outsourced transportation component, which comprises about $124 million annually.
Already familiar with the install-and-purchase TMS option from previous logistics positions, Bostick says he steered the company to the on-demand option from LeanLogistics for its lower cost and ease of installation. “I know how expensive and time consuming a traditional TMS can be,” says Bostick, vice president of transportation, who also likes the fact that the on-demand version can be accessed online by him and his team, the firm’s carrier-partners, and the DC managers. “Cost was the first driver, and visibility the second.”
Integration was fairly simple, says Bostick, and took about a month to complete. Once up and running, the TMS began paying off almost instantly as the company began tendering and tracking more freight with less manpower. Going from cash payments to an automated system of vendor payment created more efficiencies, and approximately $100,000 in savings. More significantly, the fact that the company controls its own transportation function in-house saves it about $1.2 million a year, according to Bostick.
“When I got here everything was outsourced, and my goal was to straighten that out. We wound up being able to do it for half the cost, and streamline it significantly in the process,” says Bostick, who advises shippers to expect a short “transition period” as the company moves from a manual or purchase-and-install TMS system to the on-demand option.
“Don’t think you’re just going to flip a switch and make it happen,” says Bostick, who points to Pinnacle’s previous payable system as a challenging area during that transition period. “When we started passing payments from accrual file to actual payment file, some gaps appeared that weren’t apparent before. We had to work out those bugs before going forward.”
Supporting Cast
With no end in sight for the on-demand TMS trend, Gonzalez says shippers wishing to transition to the system from a purchase-and-install management system should look at where they want to be in five years, and find a vendor and system that can help get them there. Examine the features and functionalities, he suggests, but also understand that as the on-demand sector continues to evolve and the solutions themselves become more homogenous, the human factor remains an important component.
“Shippers should look beyond the features and functions to the people who are developing and supporting them,” says Gonzalez. “Ultimately, you want someone who has expertise and understanding of transportation compilations in your industry, and who can offer services that allow you to get the full value from the solution on an ongoing basis.”
Hobkirk advises logistics managers to seek out on-demand TMS vendors that already have a network of carriers onboard with their systems. “That’s going to make the initial rollout easier,” he says, noting that even if your carriers aren’t in the system, the process of adding them will be easier if a network is already in place. As on-demand TMS moves well beyond the early-adopter phase, Gonzalez expects more companies to consider it as a viable transportation management option.
“A lot of companies are putting it on the table right now,” he says. “Whether they ultimately decide to go that route remains to be seen.”
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