TMS to the rescue

Transportation management systems are poised to breathe new life into order delivery efficiencies and surgically remove costs, too.

Staff -- Modern Materials Handling, 10/1/2000

The basics of delivering goods from point A to point B haven't changed much over time. You still have to gather the shipment then find someone to pick it up and make the delivery.

But in an increasingly virtual economy, where B2B and B2C customers alike may place orders without actually speaking to their supplier, getting the order to the customer when it's promised-and at a price that still allows you to turn a profit-has never been more important. Unfortunately, the shipping departments of many companies today operate more like a MASH unit than a big city operating room when it comes to managing the shipment and transportation process.

That's where transportation management systems (TMS) fit into the picture.

At the shipping department level, this software evaluates carrier options, costs, and services while managing all shipment documentation. Its post-shipment processing capabilities include order tracking, confirmation of delivery, and auditing of the delivery for payment processing. A TMS can also build routing and scheduling scenarios to maximize use of a fleet of delivery vehicles.

A company implementing its first TMS can expect to save from 10% to 40% on their transportation dollars. Given that transportation may account for up to 60% of materials handling related costs, it is no wonder that TMS is moving higher on the list of must-have execution software applications.

This is further driven by the fact that the delivery man is often the only real contact some customers have with certain companies they buy from. And these customers are deciding that customer service, response time, and delivery are becoming the competitive differentiators between one company (and its supply chain) and the next.

As if that's not enough, the complex nature of business today greatly compounds the challenge of getting it right. Thanks to partnerships, alliances, and outsourcing, bringing the different pieces of an order together in one delivery is, well, a logistical nightmare.

This is where the higher level capabilities of TMS come into play. Beyond the stand-alone shipping department, some packages support transportation operations in large, complex shipping environments. These systems interface with an enterprise resource planning (ERP) system to support the transportation of inbound materials delivery, outbound customer order deliveries, and interplant materials movement. At the highest level, the software provides decision-support for tactical and strategic supply chain management of transportation activities.

With this much pressure on the shipment and delivery process, transportation software is anything but static. In fact, here are six trends currently changing TMS and how it is used.

The increase in shipments is clearly changing the order transportation arena. To cope, TMS capabilities are being enhanced to allow users to schedule pickups and print the documentation required by carriers.

Carrier selection functions allow a user to compare rates and services. "By comparing services and carrier commitment times, you can often use ground over second day air and still meet your customer's requirements," explains Marc Herman, president and CEO of Varsity Logistics, San Francisco, Calif. According to Herman, one of Varsity's shippers is saving $15 million a year from comparing service types and commitment times.

After delivery, these systems also audit costs and carrier performance to ensure that carriers are meeting their service guarantees.

Global management of order delivery is essential if you're going to sell on the Internet. "Put up a Web site and you'll get hits from all over the world," says Steve Cole, vice president of marketing for ClearCross, a global commerce management company in New York. "The question then is: How do you respond to those orders?"

Global logistics applications for TMS manage all aspects of international shipping from calculating the total landed cost to producing the documents needed to pass borders and customs departments. It can make the difference between a $50 item and a $70 item when applying only the appropriate tarriffs and duties.

Integration of TMS with other execution systems is making the software an integral part of the order fulfillment process.

While TMS integration with order and warehouse management systems still has a ways to go, the three are working much more closely together than in the past. The TMS plans optimal delivery of the product, choosing from several facilities, while the WMS plans the optimal way to pick the orders.

"By bringing those applications together, you create an execution suite that is more efficient than the pieces working separately," says Greg Aimi, vice president of product strategy and management, McHugh Software International.

Execution suites are still evolving, says Chris Newton, an industry analyst specializing in supply chain management for AMR Research. "The vendors who have all three applications are working on tighter integration, but the first generation of those products is coming together now," says Newton. See box for details.

Supply chain visibility, which allows shippers and customers to track orders in real time, is crucial to warehousing and manufacturing strategies like just-in-time deliveries, vendor-managed inventory, and cross-docking.

"When a pallet arrives on the dock, it generally arrives in tact," says Mark Picarello, director of product management for Kewill Electronic Commerce Div. "But an order involving five different packages might come from a variety of locations. Too often the boxes get pushed aside until the whole order arrives. Users want visibility into each individual package."

Increasingly complex orders require complex solutions to match. In development are TMS solutions that will synchronize, or merge-in-transit, the delivery of component parts so that they arrive as one at their destination.

"If you think of a PC," says Dan Gilmore, vice president of marketing at McHugh Software, "you might have a CPU, a monitor, a printer, a scanner, and a mouse, all coming from different suppliers. Today, they either arrive separately, or we bring them together at a static facility. In the future, by intelligently selecting sources based on capacity, constraint, and the lowest delivered cost, you may be able to cross dock and merge-in-transit those items at a lower cost."

Web-deployable applications are providing new ways to access and pay for TMS solutions. Until recently, if you wanted a TMS system, you had to license, implement, and maintain the software in house. With the Internet, you can rent access over the Internet to the software from an application service provider (ASP), and pay by the transaction or a monthly fee.

While users of other supply chain execution applications have been slow to jump on the ASP band wagon, TMS lends itself to this new model.

"A warehouse management system is getting thousands of hits a minute," says AMR's Newton. "But the TMS is generally accessed a lot less. And, transportation is still very document driven, with shipping labels and bills of lading. The Web is the perfect medium for documents."

Thanks to the Web, some TMS users are adopting a hybrid approach to their transportation needs. "They may use an internal TMS to optimize resources and plan orders," says Andrew Hogenson, vice president, strategic consulting services for Manugistics. "Or they may use a private network to get a contract price or to link with a third party logistics provider, and an Internet-enabled parcel shipment program for their parcel shipments. Then they may turn to a transportation exchange for spot shipments."

Trading exchanges are impacting the transportation landscape too. In the most common exchanges, buyers who need to expedite an order are matched with sellers who have excess capacity. The exchange of the future, AMR's Chris Newton believes, will add TMS functionality to the exchanges that survive. "There will be a shakeout of logistics exchanges, especially once a few large shippers begin to use them as their shipping departments," says Newton. "With the addition of TMS functionality, they'll be able to arrange, rate, route, build a load, spot ship, and make payments online. It's not there yet, but that's going to be a big development."

Kewill's Picarello agrees. "You're going to see exchanges put up centralized TMS systems that anyone can come in and use. Then, they'll try to negotiate better rates based on volume," says Picarello. "Only time will tell whether you can attract enough high volume users to process their orders over the Internet to make that model work." Integration remains a second critical hurdle for transportation exchanges. "The Web has historically been a place to display information," says Picarello. "We're all struggling with finding a way to deploy applications over the Internet and exchanges, and integrate them with existing systems. That isn't easy today, but that will change over time."

TMS and integrated order fulfillment