Debunked: The 3 Myths of TMS Implementation
There is a lot of talk about transportation and its importance to omnichannel and global supply chains in general. There are also a lot of myths and misconceptions about implementing and utilizing a TMS. We have all heard the statement below at some point in the last few years.
- Implementing a TMS cost millions of dollars
- It takes 6-12 months minimum to implement a TMS
- ROI for a TMS system takes years
So let’s cut through the TMS BS!
Implementing a TMS cost millions of dollars. Upfront costs in next generation and cloud based solutions have dropped significantly in the last 5 years. Gone are the days of the million dollars license fees. Improved technology and SaaS products are offering low entry fees, user friendly interfaces and solutions that enable a company to start small and only pay for the features they need but scale as they grow. This growth could be from expanded business or a large company starting with one segment of transportation (inbound) and growing to other segments (outbound, private fleet, International) or other divisions.
For you skeptics – sure there are exceptions to every rule, if you are a multi-national company looking to perform a complete implementation or upgrade it will cost you pretty penny but even these companies are beginning to evaluate the use of SaaS TMS rather than going through massive upgrades to their existing implementations every few years.
It takes years to implement a TMS. I have seen small to mid-size companies get TMS base functionality up and running in 2-6 weeks on cloud based TMS’s. TMS base functionality includes – mode, rate and route optimization, tendering, and shipment tracking. There are even some TMS providers like Cloud Logistics that have cut implementation time to days. Yes, there is still some upfront work that needs to be thought through, as well as data and process considerations (For details see my previous blog series The House TMS Built) but a few weeks of homework will pay big dividends when the implementation begins. With no hardware or software to install users can simply connect with their browser and begin setup and configuration.
Connecting carriers, brokers, 3PL’s and forwarders was historically one of the largest time consumers in a TMS implementation. Now, with the pre-existing connections of cloud based TMS providers that isn’t the case. In addition, most carriers now offer standard API’s or web services to communicate which speeds and simplifies the dated EDI process. There are also SaaS based service providers with an existing ecosystem of pre-existing connections from traditional EDI VAN’s like GSX and Kleinschmidt to newcomers like Project 44. Web-based portal serve as an alternative to to less advanced carrier, until they are capable of connecting electronically.
ROI for a TMS system takes years. A recent ARC survey the ROI of TMS indicated freight savings of approximately 6 percent with the use of a TMS. The majority of companies indicated that only 25% of the net savings were negated by the TMS cost – so for every million of freight spend, $60k in savings is achieved minus $15k TMS expense. $45k to the bottom line for every million in freight spend would make any CFO or CLO smile. My 28 years of TMS implementation has seen from 3-4% on the low end of savings to as high as 15-18%. Given the current freight market conditions, the spot market is helping companies gain even faster than normal ROI. The Wall Street Journal recently reported the difference between spot market and long-term contract rates widened. Spot market rates were 4.5% lower for dry vans and 6%-9% lower for refrigerated loads.
As discussed in the last section, point the time-to-value for TMS’s have dropped dramatically due to new cloud based systems, connected ecosystems of carriers and the ability for the shipper to to buy only the feature and functions they need. All these improvements leads to quicker, measurable ROI which does not include all the hard to measure benefits.
- Visibility – Shipment and item level tracking
- Improved customer service – Ability to communicate accurate ETA’s and proactively communicate delays
- Carrier performance tracking – Capturing metric to measure and work with carriers to improve tender accept and response rate, on-time performance and timeliness of status messages
- Invaluable repository – Single source of the truth for rates, shipping costs, status information no more collating data from a mix of spreadsheets, phone calls, and e-mail to manage their transportation components.
- Reallocated resources – If customer service and transportation resources are spending time chasing shipments they are not spending time analyzing and improving current operations.
In a recent survey of Logistics Management readers about 35 percent of shippers are using a TMS as part of their overall supply chain management strategies which is consistent with other surveys I have seen and most of the 35% are the large companies that were early adopters. The good news is 39% plan to install or upgrade their TMS in the next 12 months. I believe the bulk of this group to be the small and mid-size companies now that the cost of entry is so much lower so if you’re a retailer or CPG company and have no TMS getting a TMS project approved should be a “no-brainer” no matter your size.. If your TMS is behind a firewall, difficult to use or not on the latest technology, a TMS assessment will identify areas for savings and improvement. This may mean a configuration change to the current system, an upgrade, replacement or just improvement to current business processes.