The pressing need to cut costs and become more efficient is driving shippers to transportation management systems (TMS) in large numbers. According to ARC Advisory Group, the TMS market grew from $468 million in 1998 to $965 million in 2005.

TMS are solutions that facilitate the procurement of transportation services, the short-term planning and optimization of transportation activities, and the execution of a transportation plan, says Adrian Gonzalez, director of ARC's Logistics Executive Council. Today's systems address all modes of transportation, including ocean, air, rail, truck, parcel, and private fleet.

In addition to managing the physical flow of goods, TMS applications manage the flow of transportation-related information, documents, and payments. Most of them also include performance management and collaboration capabilities.

As financial and productivity pressures grow, more shippers will turn to these applications for help. But choosing a TMS is more complicated than it used to be: Not only has the vendor landscape changed dramatically, but the options for delivery of TMS capabilities have also changed.

As the TMS market has grown in size, shippers' options have multiplied. There's no single product in the TMS space that is ideal for every shipper, says Beth Enslow, vice president of enterprise research at Aberdeen Group. Enslow surveyed more than 400 companies in 2005 regarding their use of TMS programs. During those talks, she learned that TMS deals last year ranged in price from $50,000 to several million dollars, depending on the package, the vendor, and the scope of the implementation. In return, shippers are gaining efficiencies, cost savings, and better visibility of the transportation component of their logistics operations.

There are several types of TMS providers: Very large vendors that offer TMS as part of a bigger enterprise resource planning (ERP) product; stand-alone, or "best of breed," vendors that sell TMS solutions separately or as a module that can be integrated into a suite; providers of on-demand (or "pay as you go") transportation systems over the Internet; and carriers, third-party logistics companies (3PLs), and freight forwarders that offer customers the use of their TMS.

Traditionally, shippers have purchased TMS packages and integrated them with existing systems. But cost concerns and time constraints are making on-demand delivery of TMS increasingly popular. Some 40 percent of the shippers Enslow spoke with, in fact, said they were considering on-demand TMS offerings. "They see it as a way to get up and running more quickly," she explains. "It also eases the stress on internal IT departments, which are stretched right now and are supportive of on-demand [applications]."

With on-demand delivery, shippers no longer have to shell out six-figure sums for sophisticated TMS programs. "On-demand solutions are influencing the mindset and expectations of customers with regard to pricing and time-to-value," agrees Gonzalez. "While $1 million TMS deals are still possible, they are certainly the exception and relatively rare these days."

That trend is reflected in TMS vendors' revenue streams. Although license fees have remained flat for the last couple of years, revenues from subscriptions, transaction fees, and other recurring sources have experienced double-digit growth. Continued...

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