Supply Chain Technology: TMS: Still Growing
Tough economic times haven’t stopped shippers from investing in new or upgrading their existing Transportation Management Systems (TMS). And that trend makes perfect sense because the technology has long been known as a tool to increase supply chain visibility and cut redundant costs. Here’s what the analysts are saying and users are doing to help feed that growth.
By Bridget McCrea, Contributing Editor -- Logistics Management, 2/1/2009
Times might be tight for shippers, but that hasn’t stopped many of them from investing in new or upgrading their existing Transportation Management Systems (TMS). And that trend makes perfect sense because the technology has long been known as a tool that can make companies work smarter, better, and faster in the best of times—and in the worst of times. Analysts agree that the TMS option fits well in that equation with its ability to eradicate repetition, increase supply chain visibility, and cut redundant costs.
According to ARC Advisory Group of Boston, the TMS market exceeded the research firm’s growth projections for 2007 by growing nearly 10 percent to $1.2 billion. The market continued to grow in the first half of 2008, with over two-thirds of the vendors surveyed reporting increased sales and larger pipelines compared to the first half of 2007.
According to Adrian Gonzalez, director of ARC’s Logistics Executive Council and author of the new study “Transportation Management Systems Worldwide Outlook,” 2007 was a banner year for almost all TMS vendors. And while the study revealed a few changes in market share rankings among the vendors, Gonzalez says “the reality is that most vendors continue to grow their revenues and client bases. In short, there are plenty of TMS sales opportunities available in the market.
Fertilizing the Market
ARC is forecasting the TMS market to exceed $1.6 billion by 2012, representing a compounded annual growth rate (CAGR) of 7.4 percent, although Gonzalez points out that several factors could limit the market’s growth potential in 2009 and beyond. The crisis facing the financial markets, coupled with slowing economic growth, for example, is “by far the biggest threat facing the TMS market in the coming year,” he adds.
On one hand, Gonzalez says, companies often look for ways to reduce costs during weak economic times as a way to boost net income and earnings per share. Transportation is a natural target because most C-level executives still view it as a “cost center” and a “low-hanging fruit” opportunity to add hundreds of thousands of dollars, or even millions of dollars, to the bottom line. “From this perspective, the economic environment could benefit the TMS market,” says Gonzalez.
But on the other hand, companies also have a tendency to delay IT investments during tough economic times, so it’s “highly probable that TMS vendors could see longer sales cycles in 2009, at least during the first half of the year,” says Gonzalez. Key market drivers include an ongoing need for improved supply chain visibility, cost reductions and better productivity, along with the still-looming threat of higher fuel costs—despite the fact that fuel dropped significantly during the third quarter of 2008.
Another key TMS market driver is the fact that some logistics managers are still poring over spreadsheets and using the phone to schedule carriers. “Those activities incur high labor costs,” says Gonzalez, who expects vendors to use that argument as part of their sales pitches in 2009. “If vendors are going to put an IT solution out there this year, it had better be able to cut costs for the buyer.”
The fact that on-demand TMS solutions have gained significant ground over the last few years is also helping to drive the overall market. (Search “catching fire on logisticsmgmt.com.) The opportunity to use this model—and avoid the upfront costs and lengthy software integration process associated with the purchase-and-install option—is especially attractive for companies looking to get up and running quickly and affordably.
Greg Aimi, director at AMR Research in Boston, says the TMS market is also being propelled by the fact that more companies are doing business globally, and therefore cannot get away with using spreadsheets and telephones to manage their logistics operations. “There’s a need for visibility and planning capabilities to handle not just national moves,” says Aimi, “but also international moves.”
The fact that fuel prices aren’t expected to stay low for long is another driving factor for TMS sales, says Aimi. “The CFO’s office has been alerted to the potential for higher fuel costs,” says Aimi, “which in turn has translated into a continued emphasis on optimization and control of transportation activities.”
As shippers strive to cut costs, optimize their supply chains, and gain improved visibility over their transportation activities, expect to see the TMS market grow, be it via purchase-and-install or on-demand options. Here are is a shipper that made the investment and is now reaping the rewards of its automated systems.
Contech Champions the Cause
When Rick Gaynor joined Contech Construction Products, Inc., of West Chester, Ohio, in 2004, he immediately set out to bring the firm’s transportation operations into the new millennium.
“Everything was being handled manually,” says Gaynor, vice president of logistics. Already familiar with TMS from past positions, Gaynor started shopping around immediately. He selected Sterling Commerce’s on-demand TMS solution in late 2005.
Gaynor, who is responsible for over $50 million in transportation spend (both inbound and outbound), headed up the implementation process for the company, which manufactures bridges, storm water erosion control products, and related goods for customers within a 500-mile radius. Relying on a combination of 3PL, company trucks, and outside carriers, the firm uses mainly flatbed trucks to haul its large products.
It took 30 days for Contech’s TMS to get up and running, according to Gaynor, who calls the process “extremely easy” with no snags or hang-ups to report. Benefits were immediately obvious, he adds, and came in the form of improved visibility for the firm’s freight staff. The company also gained access to various freight-tendering methods, including contract (a set contract over a specific period of time with one carrier) and auction (gives various carriers the chance to bid on the opportunity).
According to Gaynor, having a state-of-the-art TMS in place also helps Contech accurately and quickly audit its freight bills to ensure reliability. The system also serves as a repository for all transportation-related data that Gaynor and his team can review at any time and use to make the best possible decisions.
Finally, the system has helped the company save about 9 percent in “real” transportation costs, according to Gaynor, who after implementing a TMS at multiple firms, sees the systems as a critical technology investment for all shippers. “Even if you have $20 million in transportation spend annually, you really should be thinking about a TMS.”
More Growth To Come?
Going forward, Gonzalez says companies are likely to take one of two approaches to weathering the economic downturn: freeze all spending until things get better, or realize that now is a good opportunity to invest in technology—otherwise known as the “Warren Buffet approach”—and gain an edge on competitors before conditions improve.
“It’s already been proven that TMS investments can lead to cost reductions while helping companies strengthen their positions in the marketplace,” says Gonzalez. “Whether companies act on this in 2009 is still up in the air.”
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Hi, I want to know some supplier of TMS.
Rafael Pombo - 2009-5-3 17:13:00 EST
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