C. F. Lynch & Associates

Cutting TMS Down to Size

By Clifford F. Lynch

DC Velocity, April 2005

Should you still need convincing that Corporate America’s transportation productivity has shot up over the years, all you need to consider is this: Back when transportation was deregulated in 1980, U.S. transportation expenditures totaled $228 billion, or a whopping 16.2 percent of gross domestic product (GDP). By 2003, U.S. transportation expenditures had dropped to a mere 8.5 percent of GDP.

What happened? Part of it, of course, was shippers’ newfound ability to negotiate freely with carriers once the regulatory shackles had been removed. But another part was shippers’ success managing these costs more effectively – more often than not with the help of automation, specifically that breed of software known as the transportation management system, or TMS.

Transportation management systems first hit the market in the early 1980s. Though the early versions many seem primitive today, they literally transformed many a logistics operation: Users began achieving both efficiencies and cost reductions from day one. And in the intervening years, as both software and analysts grew ever more sophisticated, companies found they could kick their savings into high gear by integrating the TMS with other systems.

Today, it’s been estimated that a company implementing its first TMS can expect to cut transportation expenditures by anywhere from 10 to 40 percent. Given that transportation expenses typically account for more than 60 percent of a company’s total logistics expenses, that’s not exactly chump change.

At no time in history have those savings been so essential. It’s no secret that trucking costs are soaring. A recent survey by Georgia Southern University, the University of Tennessee and others revealed that respondents spent a whopping 55.7 percent more on truckload freight during this past year than they did in the previous year, and there’s every reason to expect this trend to continue. That only increases the pressure on logistics and supply chain managers to do whatever they can to hold down these expenses without compromising customer service. It’s also putting pressure on them to automate. These days, a reliable and efficient transportation management system (TMS) is no longer a luxury; it’s a necessity.

But what if you can’t afford it? Traditionally, transportation management systems have come with a high price tag, sometimes costing upwards of $750,000.

For managers who don’t have a lot of spare cash lying around, there’s good news on the horizon. The more creative TMS vendors have "modularized" their systems, making it possible for customers to buy only what they need or can afford, rather than sinking a lot of money into a full cradle-to-grave system. If all you need is a routing guide or an order and shipment visibility module, now you can buy just that.

These Web-based cafeteria plans can put good, workable TMS modules into the hands of practically any company. And they’re expected to have broad appeal. Virtually all of the research indicates that managers with responsibility for transportation want a TMS whose operations they can understand, that they can install quickly and easily, and that they can add onto easily.

We’re not suggesting radical change here. The basic blocking and tackling hasn’t changed much over the years. A company still has to pick an order, stage it and find a carrier to move it from point A to point B. Today’s shippers are still doing pretty much what they’ve always done. They’re just doing it differently. And it’s the TMS that is making the difference.



List all publications

Return to Logistics Advice