Supply Chain Technology: Transportation Management Systems (TMS) gaining altitude
January 01, 2013 - LM Editorial
Critical factors such as a gradually improving national economy, shippers’ increased desire for supply chain optimization and visibility, and continual innovation on the part of software vendors worked together to drive growth in the transportation management systems (TMS) market in 2012.
According to recent Peerless Research Group (PRG) surveys and feedback from top software analysts, expansion is expected to continue this year as more shippers invest in both on-premise and cloud-based TMS or plan to upgrade their existing technology.
According to Logistics Management’s (LM) Annual Software Users Survey conducted by PRG, 37 percent of companies were using TMS in 2012, up from 32 percent the prior year. Twenty-five percent of respondents say they plan to buy or upgrade—steady from 2011’s numbers—and a net 50 percent were either using or planning to buy a TMS. From their software investments, shippers were looking for routing and scheduling, routing and rating, shipment consolidation, carrier selection, and load tendering capabilities.
Steve Banker, director of supply chain solutions for analyst firm ARC Advisory Group, says his firm’s most recent research (released in 2012 with updated results set for release early this year) correlates with LM’s survey results. With more companies attempting to squeeze efficiencies out of their supply chains by optimizing the transportation component, Banker says that the TMS market is enjoying double-digit annual growth.
A few of the verticals driving that growth include consumer package goods, food and beverage, electronics, and third-party logistics providers (3PL), says Banker. “We’re beginning to see TMS adopted across a broader set of verticals.” Credit the fact that optimization supports more verticals than it used to with helping to drive that expansion, he adds.
“Historically, TMS was good for multi-stop routes and for combining less-than-truckload [LTL] and truckload,” Banker explains. “Now we’re seeing international shippers using TMS to manage multi-route, international shipments on the road, on rail lines, and in ports.”
Banker points to natural resources as one vertical where TMS has taken hold in recent years. “Sawmills are using TMS to manage the transportation of heavy loads of lumber, something we didn’t necessarily see a few years ago,” says Banker, who adds that growth in the Latin American market is also pushing up TMS’ adoption rates. “We’re seeing pretty rapid growth in that enterprise market where companies are willing to pay full price for TMS solutions—vendors don’t even have to discount their products.”
Over the next few pages we’ll dig deeper into the key drivers behind the TMS market, show what vendors are doing to enhance and improve their solutions, and look ahead to 2013 to see how the TMS market will fare in the months ahead.
Fulfilling a need
A mature segment by supply chain software standards, TMS was first introduced in the 1980s as a way to more affordably and easily move freight between trade partners. Fast-forward to 2013 and TMS systems have evolved rapidly in order to keep up with user needs and demands.
Available as a standalone software package, integrated enterprise resource planning (ERP) system, or in the cloud, TMS systems help shippers effectively move freight—from parcels to bulk commodities and everything in between—from origin to destination in the most affordable, streamlined manner possible.
The basic premise behind TMS hasn’t changed much since the solutions were first introduced more than three decades ago, but the way in which the software manages the tasks, oversees activities, and reports back to its users has improved. Banker says that while the traditional architecture solutions remain the richest in terms of functionality, the developers of cloud-based TMS are integrating more modern ideas and connections into their offerings.
“We’re definitely seeing more innovation from them than from traditional TMS vendors,” says Banker. “The [cloud] vendors are leveraging their networks in new ways and moving faster than traditional solutions.”
Also driving the TMS market right now is a large contingency of small- to mid-sized shippers that are waking up to the magic of combining technology with largely manual processes to achieve better results. The industrial distributor that manually manages multiple, daily deliveries to contractor jobsites within a specific geography, for example, can tap into routing and scheduling, routing and rating, and shipment consolidation functions via a cloud-based TMS for little or no upfront investment and no IT infrastructure other than a web browser and Internet access.
“There’s definitely a much bigger potential installed base out there,” says Banker, “within the market of small- to midsized shippers that aren’t using TMS at all right now.”
In some instances, it’s the larger companies that have been holding back on their TMS investments, thinking that the projects will be too unwieldy or expensive to undertake. Companies that rely on age-old, complicated internal processes, for example, may steer clear of such investments. These shippers present significant opportunity for TMS vendors that can break through the objections and present solutions that enhance operations rather than interrupting them.
“Many corporations fear change and know how complicated it can be,” observes Brad Silvers, a manager at consulting firm Capgemini. “As a result, there’s been a lot of focus on the ‘change management’ portion of these TMS projects.”
To assuage that fear many TMS vendors are stepping up to the plate and ensuring that implementations go smoothly and that key shipper processes aren’t interrupted. Vendors are also offering customizations based on the shippers’ own business rules and providing, for example, EDI-based carrier integrations that are “linked right into the TMS,” says Silvers. “That way the shipper doesn’t have to go out and talk to every single carrier to complete the on-boarding process.”
Another area where TMS continues to expand its footprint is within the fleet management space, where Silvers says the software is making a pretty big impact right now. “More and more companies that own their own fleets want to manage that portion of their business with their TMS,” Silvers says. “Using a TMS they can run that portion of their business just like they would a typical carrier, complete with the cost analysis, optimization, and other benefits.”
Silvers, who has helped several companies successfully make the connection between TMS and private fleets, says that those implementations have been largely successful. “We’ve been able to build several solid fleet models by using the latest versions of the TMS that are currently on the market,” says Silvers, who sees more potential for market growth within this area. “TMS has become a pretty competitive area and vendors are trying to one-up each other all the time. Right now, fleet is one of the areas that they’re focused on.”
It’s not quite there yet, but TMS could become a major player in the global software market of the future, where a growing number of importers and exporters rely on robust technology systems to help them manage a fairly complex business environment.
“We see a lot of shippers that are seeking global trade capabilities integrated with their TMS,” says Silvers, who points out that vendors have been moving in that direction over the last few years. “Global trade and TMS tend to work well together, although it does take some effort to get the two groups aligned with each other.”
For now at least, Silvers says that the global trade options that are integrated into TMS lack the robust software features of their full-blown global trade management (GTM) counterparts. Greg Aimi, research director with Gartner, says that the lines are definitely beginning to blur between the two types of software, but points out that a global-enabled TMS is not the same as a GTM solution.
“GTM specifically centers on the regulatory and commercial requirements for cross-border shipments and import/export,” Aimi explains. “Within TMS, the global transportation component plans the freight movement, optimizes it, and provides logistics visibility.” Such systems are currently being used for air, road, ocean, and rail shipments across borders, says Aimi, based on carriers that are assigned across the multi-legged, multi-modal transportation system.
Expect to see more such functionality worked into TMS, says Aimi, who points to the recent merger of RedPrairie and JDA Software as a sign of things to come within the space. And as the national economy continues its slow recovery and technology infrastructure budgets loosen up, the number of companies investing in a new TMS should continue to climb steadily.
In fact, when you add rising fuel costs, an oncoming capacity crunch, and other challenges to the mix it’s clear that the TMS reign as the mainstay in the supply chain planning will remain solid throughout 2013.