How to cope with the high cost of shipping

In a tough economic environment, a transportation management system is one sure-fire way to get a fast ROI.

By Bob Trebilcock, Editor at Large -- Modern Materials Handling, 11/11/2008

Companies looking for a fast ROI in today’s volatile business environment should look no further than their shipping docks and transportation departments, says Ian Hobkirk, director of supply chain consulting for Forte.

“We’re seeing companies pull the plug on projects that would have seemed viable just a few years ago because they’re hoarding cash,” says Hobkirk. “If they’re going to spend money, they’re telling us the project has to deliver a fast ROI.”

How fast is fast? Twelve months or less, according to Hobkirk.

In a tough economic environment, a transportation management system can deliver those results. “A WMS system can make your operation more efficient, but the gains aren’t so immediate,” says Hobkirk. “A more efficient workforce and better space management are important, but they’re longer term plays.”

Transportation, on the other hand, delivers immediate savings across hundreds of transactions. Those savings are delivered right to the bottom line. “If someone tells us they have a 12-month ROI, we look at transportation,” says Hobkirk. And, since many TMS systems are available in an online subscription model, the upfront costs of implementing the system are low.

Here’s where the savings come from:

Electronic routing guide: Companies without a TMS often don’t have rules, policies or procedures in place around carrier selection. That means money is often spent with the wrong carriers. “An electronic routing guide means that I’m using the best cost-to-service tradeoff for every shipment based on the rates I’ve negotiated with my carriers,” says Hobkirk. “It takes the emotion out of picking the carrier.” 

Reduced administrative costs: With a TMS, you’re communicating electronically with carriers using EDI or a Web portal. “That’s going to reduce your administrative costs,” says Hobkirk. “It’s also going to allow you to monitor your carriers’ performance. You may find that you have a carrier that offers you really low rates, but never accepts your loads.”

Optimized loads: A TMS allows you to optimize your loads across a variety of factors. The system can look on a day-to-day basis to fit more loads onto a truck, or to do mode optimization, like combining multiple LTL loads onto a full truck load with multiple stops; synchronizing inbound deliveries with outbound freight; or using pooling points, zone skipping or merge-in-transit. Hobkirk adds that not all TMS systems have an optimization module.

Procurement and payment: A TMS enables contract bidding to lock in good rates to begin with. It also allows you to run what-if scenarios to analyze bids. The systems also enable automatic invoicing and electronic payments. “I’ve talked to people who have cut three to five people from their accounts payable departments through a TMS,” says Hobkirk.

Despite the savings, he adds, “most companies aren’t taking advantage of them.” Still, a TMS allows you to address the most volatile issue in the supply chain today and get an immediate return on investment without a significant upfront cost.