Some call it the weakest link in the supply chain, while others see it as an opportunity to save money and work smarter, better, and faster. Either way you look at it, transportation management has come to the forefront for shippers that are looking for more efficiencies, and it has pulled the Transportation Management Systems (TMS) sector right along with it.

The proof is in the numbers. According to ARC Advisory Group, the TMS market grew to $989 million in 2005. Defined by ARC as including software solutions that facilitate procurement of transportation services; short-term planning and optimization of transportation activities, assets, and resources; and execution of transportation plans, the TMS market continues its growth streak. ARC expects annual sales to exceed $1.3 billion by 2010, representing a compound annual growth rate of 6.9 percent.

TMS work with one or more transportation modes, including ocean, air, rail, truckload, less-than-truckload (LTL), parcel, and private fleet. In addition to managing the physical flow of goods, they also manage the flow of transportation-related data, documents, and money, and include performance management and collaboration capabilities.

These and other features are catching the attention of CEOs and CFOs who thought of transportation as a “necessary evil” that didn’t require much in the way of technology, investment, or attention.

“Transportation management is moving out of the shadows and into a strategic role in driving supply chain excellence,” says Beth Enslow, vice president of enterprise research at Aberdeen Group. Accordingly, companies are re-evaluating their transportation management processes, organizational structures, and technologies, she adds.

According to Enslow, more than three-quarters of transportation executives surveyed by Aberdeen for its September 2006 Transportation Management Benchmark Report have been asked to recommend transportation-process improvements in the prior six months. Nearly two-thirds have recommended improving their companies’ transportation management technology.

Why are companies investing in TMS technology at an unprecedented rate? Robert Ferrari, program director for Manufacturing Insights’ Global Supply Chain Strategies Research, calls transportation “the Achilles heel of the entire global supply chain right now.” Pressure on shippers to engage in global trade, moreover, has increased their need for technology to support international transportation.

Adrian Gonzalez, director of ARC’s Logistics Executive Council, says that growth in TMS sales stems from the fact that transportation has become more difficult to manage, with smaller order sizes and shorter order-to-delivery cycles wreaking much of the havoc. Inventory-reduction initiatives are also pushing companies toward leaner, just-in-time operations. “As a result, transportation has to either be more efficient or much more expensive,” he observes.

The growing need to track fuel surcharges and accessorial fees is another attraction for potential TMS buyers. The leading parcel carriers, for example, slap shippers with dozens of surcharges, such as fees for residential delivery and address corrections. “These surcharges can increase shipping costs by at least 15 percent,” says Gonzalez, “but many companies have no systems in place to adequately capture, track, allocate, and analyze these costs.”

Proven results could also have something to do with it. Respondents to Aberdeen’s benchmarking survey who use a TMS have been able to reduce their total freight budgets over the past two years. During the same period, however, 82 percent of all respondents saw their freight costs either stagnate or rise by an average of 10 percent. Add in the fact that more vendors are offering cost-effective, pay-as-you-go products, and using a TMS becomes even more compelling.

As shippers’ needs have changed, so too have TMS offerings, and that is adding to their appeal. “In the software area, more vendors are offering Web-based applications and using the Internet to track freight movements, assist with the tendering of shipments, and fill out capacity,” Ferrari notes.

Most vendors already provide visibility and performance management capabilities that focus on orders, shipments, inventory, and assets, Gonzalez says. Many are now adding cost visibility (into spending on transportation and logistics) and spend management workflows (to better control spending) to their solutions, especially for global trade. These additions to the TMS lineup will help companies use detailed, actual cost information to drive efficiencies, he adds.

One area where improvement is sorely needed is in scheduled pickups and deliveries. In a 2005 survey, ARC found that nearly 45 percent of shippers were scheduling appointments via telephone, while another 10 percent were using fax or e-mail. The good news is that more than 18 percent were using Web portals to get the job done, indicating that adoption of online appointment scheduling is growing, he says.

Aberdeen’s Enslow has identified five important TMS product trends. Here are her picks for capabilities that are new or are increasing in popularity:

1. Advanced shipment visibility. In its September 2006 report, Transportation Management: TMS Innovations to Meet Today’s Fresh Priorities, Aberdeen reports that two-thirds of survey respondents want to improve how they manage domestic transportation. To get there, they’re focusing on advanced shipment visibility, including shipment status, alerts, and updates to estimated times of arrival based on actual events. TMS vendors are responding to that need, and they’re enhancing visibility to include even orders that have not been planned and executed through the TMS system.

2. Carrier collaboration. Vendors are helping shippers reduce their tender-turndown rates by as much as 40 percent. They’re doing it by creating technology that allows carriers to coordinate with one another and with their customers through capabilities like optimized dock-appointment scheduling.

3. Coordination of private fleets and for-hire motor carriers. Some vendors are helping shippers to better coordinate their usage of private fleets and common carriers. “The goal is to reduce costs or improve service levels by dynamically and optimally evaluating whether shipments should go by private or dedicated fleet versus a common carrier,” Enslow says.

4. On-demand TMS. Pay-as-you go, on-demand solutions will continue to grow in popularity as more shippers break out of the “purchase and install” mold and opt for Web-based, subscription software. Through the Web, shippers can access full suites of “software as a service” TMS that allow them to manage transportation without any large technology investments or lengthy installation and integration periods. According to Aberdeen, companies using on-demand solutions report faster, less disruptive implementations (typically under three months) and quicker ROI (typically less than a year) compared with traditional applications.

5. International transportation solutions. In 2004, few shippers were focused on this sector of the market, Enslow says. In 2006, by contrast, more than one-third of Aberdeen survey respondents were prioritizing international operations as an area where they could use technology to make improvements. Many are using TMS for contract procurement, booking, tracking, and settlement for ocean and air shipments. Others are relying on transportation-procurement tools to help them get lower rates and identify freight that best fits their networks and available capacity. Still others are using transportation optimization and execution technology. A few also rely on managed services, with the vendor’s staff performing transportation planning, execution, and settlement on their behalf.

The number of TMS users will increase in 2007 as more companies wake up to the fact that effective transportation management not only translates into less money and time, but it also helps streamline supply chains.

Gonzalez says the need for TMS is greater than it has ever been. As supply chains become more fragmented, he says, transportation serves as the “glue” that links multiple parties and business processes together. “There’s a stronger link today between a company’s overall financial performance and its ability to achieve operational excellence in transportation management,” he says.

Shippers clearly are coming to that realization, says Greg Aimi, director of supply chain research at AMR Research. From 2005 to 2006, the number of inquiries his firm received from shippers about TMS nearly doubled.

Aimi expects those numbers to continue rising. “We’ll see continued growth in TMS because there is no end in sight for the problems that transportation managers are facing today,” he says. “As companies continue to seek out solutions to those problems and shore up the inefficiencies in their transportation departments, the sector will continue to grow.”