Over the past couple of years, shippers have shown increased interest in using Transportation Management Systems (TMS) software to control logistics costs and find carriers. To find out what new directions shippers can expect in the TMS market, Logistics Management turned to two thought leaders on software developments: Adrian Gonzalez of ARC Advisory Group and Dr. Chris Caplice of the Massachusetts Institute of Technology (MIT).

Gonzalez serves as the director of the Logistics Executive Council at ARC, a Dedham, Mass., technology analysis and assessment firm. He has done extensive research on TMS software and is regarded as a leading authority on supply chain applications. He holds a B.S. in materials science and engineering from Cornell University and a graduate certificate in supply chain management from Northeastern University.

Dr. Caplice runs MIT's Masters of Engineering in Logistics program. Prior to joining MIT, he held senior management positions in supply chain consulting, product development, and professional services at several companies, including Chainalytics LLC, Logistics.com, SABRE, and PTCG. He holds bachelor's and master's degrees in civil engineering and received a Ph.D. from MIT in transportation and logistics systems.

Executive Editor James A. Cooke recently asked Gonzalez and Caplice for their insights regarding TMS trends and developments.

LM: Are many companies buying TMS packages today, and if so, why?

Gonzalez: TMS has been a solution that has remained in the spotlight since early 2000. Companies are still under pressure to reduce transportation costs. The whole transportation function in light of capacity restraints, in light of the delays at the ports, in light of globalization, has become more critical. Relying on manual processing is no longer an option for succeeding in this type of environment.

Caplice: I agree. Sales are up. Interest is certainly up, mainly in a lot of the execution systems. Capacity is tight right now. There are not too many places anymore to find extra capacity, and that's driving the need for TMS.

LM: Have sales of TMS packages increased in the age of Web hosting and ASPs (application service providers)? In other words, how are people taking their TMS applications these days?

Gonzalez: In some ways, the ASP term is outdated. There are a lot of negative connotations to that term dating back to the earliest form of that model, when there were a lot of failures.

The hot term today is "on demand," fueled by the likes of Salesforce.com in the CRM (customer relationship management) arena, as well as IBM promoting that label. Certainly you're seeing continued traction of that model in deploying that solution outside the four walls and implementing different pricing structures, where you pay as you get the value. Some network-based TMS vendors are going after that model. Even those in the traditional model are thinking along those lines.

Caplice: It depends on what the package does. If it has a heavy optimization component to it, then it's still the traditional method—you buy the software and you host it yourself.

If it's more of a visibility, workflow-process system, it makes more sense to go with an on-demand model, where you have Web visibility. But again, there's still a break point on size of company, because large companies are going to buy and host it themselves as they can do it more efficiently.

LM: What type of payback can a logistics manager expect from a TMS?

Gonzalez: It all depends on how manual and inefficient you are to begin with. It also depends on what you're targeting. If you look at it from a life-cycle perspective, there are savings opportunities in the procurement arena. And there again, it depends on how fragmented your carrier base is. In general, you can expect anywhere between low single-digit to high single-digit savings, assuming you have a somewhat manual and somewhat fragmented transportation environment.

Caplice: If you put in a TMS for visibility, it's tough to measure what the savings are because the savings might show up in lower safety-stock levels. But that might be lower safety stock at your customer's location. Depending on your relationship, you might never see that. If it's an optimization system, there are usually hard dollars you can measure. But there are three main factors that affect what your improvements are going to be. The first is, how decentralized are your current operations? If you bring in a system to bring processes together, you see a lot of savings on standardization of processes.

The second is, how manual is the current process? Because you're currently missing a lot of opportunities.

And finally, how "siloed" are each of the activities? If you introduce a TMS and at the same time you're bringing inbound and outbound transportation together, you get a huge savings. It's not because of the TMS, but because of synergies in your operating processes. Continued...

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