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State of TMS 2016: ROI is in the cloud

TMS users achieve an average freight savings of 7.5 percent thanks to increased usage of preferred carriers, better procurement negotiations, and use of lower-cost mode selections. Now the cloud is making it easier than ever for midsized businesses to reap the benefits.

Tasked with managing a shipper’s routing, scheduling, carrier selection, load tendering, and shipment consolidation capabilities, transportation management systems (TMS) are increasingly seen as one of the most important tools in the ever-changing, omni-channel distribution environment.

With carrier capacity an ongoing issue, an epic driver shortage looming, and customers expecting their goods to arrive within Amazon-esque timeframes, a TMS platform that automates the transportation component can literally be worth its weight in gold once fully optimized.

However, while TMS solutions have been around for a while, a recent survey of Logistics Management readers reveals that just 35 percent of logistics operations are currently using these systems as part of their overall supply chain management strategies. But the good news is that with a growing number of TMS options being offered up in the cloud, use of TMS is on the rise for midsized businesses across all industries.

Chris Cunnane, senior analyst with ARC Advisory Group, says that the proven return on investment (ROI) is one of the system’s key selling points. According to recent ARC research, TMS users achieve an average freight savings of 7.5 percent thanks to increased usage of preferred carriers, better procurement negotiations, and use of lower-cost mode selections.

Lower barriers to entry—made possible by the many different cloud-based solutions on the market today—are also helping to drive the adoption rate of TMS. “Historically, if a company did not have over $20 million in freight spend, purchasing a TMS was out of the question,” says Cunnane, who adds that even the shipper with just $1 million in freight spend can now afford a TMS. “The emergence of SaaS solutions, and less sophisticated on-premise applications, has reduced that number significantly.”

And with omni-channel commerce basically eliminating geographic barriers for many companies, Cunnane says that TMS can help reduce a number of headaches associated with moving freight from origin to destination by matching carriers and optimizing modes. “With more complicated transportation activities, omni-channel is a huge growth area for TMS use,” says Cunnane, who sees the proliferation of “better solutions” as yet another driver of TMS growth.  

“The TMS product set continues to improve with new forms of optimization, mobility enhancements, improved usability, and better analytics,” says Cunnane. “I see all of these as continued growth drivers for TMS in 2016.”

Ripe for the picking
Traditionally, TMS appealed mostly to larger shippers that had $100 million or more in annual freight spend. By investing in an on-premise transportation management system, these companies were able to more effectively manage freight movement across their vast supply chains.

Fast-forward to 2016 and TMS has become a focal point for companies with much smaller annual freight expenditures. This has opened the floodgates for companies like Oracle, JDA, SAP, and Manhattan—all of which traditionally catered to larger users.

“The mid-market is ripe for a lot of competition,” says Dwight Klappich, research vice president for Gartner. He says that a shipper that’s spending $20 million annually on freight and moving about 20 loads per day, for example, now has the option of subscribing to a SaaS-based TMS that can optimize its loads, plan routes, and connect it with preferred carriers.

“With the TMS market as a whole seeing 20 percent to 25 percent penetration, and with most of those current users falling into the ‘large shipper’ category by freight volume, there’s a lot of open market out there right now for vendors,” says Klappich. And if there’s one thing that’s making it easier for vendors to reach and serve smaller customers, it’s the cloud.

“TMS has made a full-on switch to the cloud,” says Klappich. “Where five or six years ago cloud was an ‘option’ for many shippers, it’s now a preference for them.” And while vendors like SAP and Manhattan have kept their focus on traditional, on-premise TMS selections, Klappich says that even that could change in the near future. “They’re behind some of the other players at this point,” says Klappich, “but even they’re moving in the direction of the cloud.”

Functional and affordable TMS
Donald Derewecki, senior consultant at supply chain consultancy St. Onge Company, has worked with a full spectrum of shippers—from the organizations that are still using spreadsheets and phone calls to manage transportation to those who have full-blown, on-premise TMS.

He recently worked with a company that fell into the latter category, having managed its transportation component using spreadsheets and a proprietary software system for years. After observing, documenting, and flow-charting all of the firm’s process requirements, Derewecki and the company decided that a TMS was in order.

“Today, the company is successfully running a TMS,” says Derewecki. From the system, the company is now able to use GPS technology to accurately locate its own vehicles while they’re on the road, monitor freight movement, negotiate with carriers, consolidate shipments, and use the platform’s advanced functionalities. He expects more shippers to make this move in 2016 as TMS becomes more functional, affordable, and easier to use.

“Software implementations used to be a monumental task, but that’s changed dramatically in recent years,” says Derewecki, who has been in the industry since 1978. “As the functionality has improved, the ease of use and affordability has improved exponentially.”

With omni-channel gaining ground and putting more pressure on shippers in all industries in terms of on-time and accurate performance, Derewecki expects TMS adoption to continue and possibly even increase in 2016. “Customers want accurate and timely information,” he says. “When you can use a handheld device to get delivery information, or enter certain parameters such as best times to deliver the goods, you gain an edge over your competitors.” 

Road ahead
With opportunities opening up within the small- to midsized shipper sector, and with TMS functionalities continuing to expand every year, expect to see more companies adopting these systems in an effort to improve overall transportation management and customer service.

And with cloud options becoming the “norm” for TMS users, Cunnane sees even more opportunity ahead for vendors that want to go beyond the “low hanging fruit” and reach a broader swath of potential users.

“With the likes of SAP and Oracle both moving their solutions over to the cloud, I think it shows the direction the market is heading,” says Cunnane. “On-premise installs will continue to decline as cloud solutions take over. Over the next 5 years to 10 years, the on-premise portion of the market will become a very small piece, with only a few specific industries looking to remain with physical implementations.”

Calling the small to midsized market (SMB) “very interesting,” Cunnane says that from a pure-play TMS standpoint, the SMB market is still lagging behind the mid-market and enterprise markets. However, he notes that there’s an emerging solution set that sits somewhere in between managed transportation services (MTS) and TMS.

By definition, MTS is a service that’s typically offered by third-party logistics (3PL) providers, which use technology to help their customers reduce empty miles, manage shipments, fulfill back hauls, and reduce freight spend.

“We would not define these hybrid systems as TMS, as they do not include optimization capabilities,” says Cunnane. “They also are not MTS, as they do not actually offer many services. However, what these solutions do offer is a great fit for the SMB market—namely in the way of transportation execution. It’s a market that will be very interesting to watch in 2016 and beyond.”

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January 2016
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