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Over the past couple of years, shippers have shown increased interest in using Transportation Management Systems (TMS) software to control logistics costs and find carriers....
What's driving the need for TMS?

Over the past couple of years, shippers have shown increased interest in using Transportation Management Systems (TMS) software to control logistics costs and find carriers. To find out what new directions shippers can expect in the TMS market, Logistics Management turned to two thought leaders on software developments: Adrian Gonzalez of ARC Advisory Group and Dr. Chris Caplice of the Massachusetts Institute of Technology (MIT).

Gonzalez serves as the director of the Logistics Executive Council at ARC, a Dedham, Mass., technology analysis and assessment firm. He has done extensive research on TMS software and is regarded as a leading authority on supply chain applications. He holds a B.S. in materials science and engineering from Cornell University and a graduate certificate in supply chain management from Northeastern University.

Dr. Caplice runs MIT's Masters of Engineering in Logistics program. Prior to joining MIT, he held senior management positions in supply chain consulting, product development, and professional services at several companies, including Chainalytics LLC,, SABRE, and PTCG. He holds bachelor's and master's degrees in civil engineering and received a Ph.D. from MIT in transportation and logistics systems.

Executive Editor James A. Cooke recently asked Gonzalez and Caplice for their insights regarding TMS trends and developments.

LM: Are many companies buying TMS packages today, and if so, why?

Gonzalez: TMS has been a solution that has remained in the spotlight since early 2000. Companies are still under pressure to reduce transportation costs. The whole transportation function in light of capacity restraints, in light of the delays at the ports, in light of globalization, has become more critical. Relying on manual processing is no longer an option for succeeding in this type of environment.

Caplice: I agree. Sales are up. Interest is certainly up, mainly in a lot of the execution systems. Capacity is tight right now. There are not too many places anymore to find extra capacity, and that's driving the need for TMS.

LM: Have sales of TMS packages increased in the age of Web hosting and ASPs (application service providers)? In other words, how are people taking their TMS applications these days?

Gonzalez: In some ways, the ASP term is outdated. There are a lot of negative connotations to that term dating back to the earliest form of that model, when there were a lot of failures.

The hot term today is "on demand," fueled by the likes of in the CRM (customer relationship management) arena, as well as IBM promoting that label. Certainly you're seeing continued traction of that model in deploying that solution outside the four walls and implementing different pricing structures, where you pay as you get the value. Some network-based TMS vendors are going after that model. Even those in the traditional model are thinking along those lines.

Caplice: It depends on what the package does. If it has a heavy optimization component to it, then it's still the traditional method—you buy the software and you host it yourself.

If it's more of a visibility, workflow-process system, it makes more sense to go with an on-demand model, where you have Web visibility. But again, there's still a break point on size of company, because large companies are going to buy and host it themselves as they can do it more efficiently.

LM: What type of payback can a logistics manager expect from a TMS?

Gonzalez: It all depends on how manual and inefficient you are to begin with. It also depends on what you're targeting. If you look at it from a life-cycle perspective, there are savings opportunities in the procurement arena. And there again, it depends on how fragmented your carrier base is. In general, you can expect anywhere between low single-digit to high single-digit savings, assuming you have a somewhat manual and somewhat fragmented transportation environment.

Caplice: If you put in a TMS for visibility, it's tough to measure what the savings are because the savings might show up in lower safety-stock levels. But that might be lower safety stock at your customer's location. Depending on your relationship, you might never see that. If it's an optimization system, there are usually hard dollars you can measure. But there are three main factors that affect what your improvements are going to be. The first is, how decentralized are your current operations? If you bring in a system to bring processes together, you see a lot of savings on standardization of processes.

The second is, how manual is the current process? Because you're currently missing a lot of opportunities.

And finally, how "siloed" are each of the activities? If you introduce a TMS and at the same time you're bringing inbound and outbound transportation together, you get a huge savings. It's not because of the TMS, but because of synergies in your operating processes.

LM: Shippers have historically bought TMS packages for routing, scheduling, consolidation, and carrier selection. What new features can shippers expect to find in TMS applications?

Caplice: I think visibility will start rearing its head again. That market was hot for a little while and then it cooled off. People are going to try to justify RFID expenditures, and that's going to show up in visibility and event management.

Maybe we'll also start seeing something that looks at the modal supply chain, because most TMS packages are set up for a single mode. And the real synergy is at the intersections where the modes touch, such as at ports. So having a system that manages across the modes and that looks at transfer points will get more emphasis.

Gonzalez: You highlighted the traditional definition of TMS, which includes functions like routing, shipment consolidation, and scheduling. In the past few years, that footprint has expanded and now includes things like order collaboration. That's a prerequisite for inbound transportation management. Visibility of the status of purchase orders and visibility of where the suppliers will be shipping from allows you to have some consolidation on the inbound side. In cases where it makes sense, it gives you the ability to shift from prepaid to collect (shipments).

That's seen as an extension of the traditional functionality. The same thing is true for appointment scheduling, another module that TMS vendors have added over the years to get a broader perspective of the execution side of transportation.

The area that's beginning to get some more attention is business analytics or intelligence, in terms of being able to link the operational metrics you have in transportation with the financial metrics. In some respects, [the] Sarbanes-Oxley [Act] is serving as a catalyst to provide visibility up to the CFO (chief financial officer) level. You'll see more investment by TMS vendors to provide that sort of visibility.

LM: There's a lot of buzz these days about RFID (radio frequency identification). How do you see that technology impacting TMS?

Caplice: I think there's going to be a significant amount of hype and confusion. RFID—and I'm talking passive tags—is essentially a technology for two pieces of information: non-line-of-sight recognition and SKU (stock-keeping unit) accountability. So the question is, what can you do with them in a TMS? Maybe you can go into some better level of tracking and visibility. The problem is that we already track every SKU and every item…and how that ties into an order number and into a shipment number for a carrier.… With the infrastructure that we have now, you can track and know how something goes through your system. So RFID will not help you with that.

RFID will do a bunch of other things. For example, it will tell you the status of the inventory level rather than building that out of laws of conservation—a "numbers in, numbers out" calculation. For transportation, it's going to provide a finer grain of visibility. I don't think any TMS is prepared to handle that now, because the amount of data coming will be tremendous.

We had a student…try to quantify the benefit from having RFID for truckload or LTL (less-than-truckload). And the answer was, not so much right now, unless the LTL had one hundred percent of shipments come through with the RFID technology.

My bottom line: I don't see it impacting TMS that much until the information on the tag can increase and we get more active tags.

LM: How will performance-driven metrics change TMS packages?

Gonzalez: Part of it is driven by Sarbanes-Oxley. Part of it is just a need for companies to really understand things like the financial impact of on-time delivery, and being able to link operational metrics with financial metrics. As companies are looking to understand what are the costs to serve a particular customer and who are the most profitable customers, there is a strong desire to get more granular information with regard to transportation costs and logistics activities in general.

You'll see more efforts to get information related to the transportation operation. Right now it's amazing that many companies don't have any information about what they're actually spending on transportation. It's rolled up in other costs.

LM: With the continuing increase in international trade, do you expect to see more integration between TMS and export/import applications?

Gonzalez: When you talk about integration—connecting two different applications together—it may not make sense to integrate them directly. But if they're integrated as part of some overall workflow, then that makes sense. Ultimately, they need to be integrated at that level, certainly on the visibility side and certainly in terms of automating the filing of (export/import) documents and bills of lading.

Caplice: If the purpose of the TMS is to improve the efficiency and effectiveness of the flow of materials and information within your network, then anything that deals with the import or export process will be part of that network. When you look at the material coming in these days, we're a trading nation now more than a manufacturing nation, and that situation is only going to increase.

LM: Are more software vendors being asked to unbundle their TMS packages for sale?

Gonzalez: For the most part, vendors have always sold TMS software as an unbundled solution. One thing that's made it easier is that these vendors have moved toward a Web-based architecture. Even within the TMS application, one can unbundle specific functionality, such as a routing guide. Many companies are unwilling to buy an entire suite of solutions. They want to focus on their pain points today and add on as their needs evolve.

LM: Do you think logistics networks will replace TMS packages?

Gonzalez: "Replace" is too strong a word. This is another option to consider.…When an end user is looking at what they want to do from a transportation standpoint, it will assign different values to optimization, to connectivity, to execution, to whatever. In some cases the scale will tip in favor of a network-based solution. In other cases it will tip toward a more traditional solution.

LM: Finally, will there be fewer TMS vendors next year than there are now?

Gonzalez: We tend to use a broad definition of TMS at ARC, but you have somewhere in the neighborhood of eight or 10 respectable players. Some of the ERP players are becoming stronger competitors in this market. At the same time, as some of these vendors have been acquired or have gone out of business, another one pops up that approaches the transportation problem differently.

In the past 18 months, for example, there have been three different vendors that popped up to focus on visibility in spending on parcel shipping: IntraVex, nSite, and BirdDog Solutions. In many ways, you can look at it as a visibility tool in terms of companies understanding the different parcel carriers and their charges. They didn't exist years ago, and now you've got three little vendors fighting it out.

Caplice: There's consolidation going on and it's not going to stop. There aren't as many stand-alone TMS vendors as there were five years ago. There are a lot of startups for niche areas, but they will be bought sooner than they were in the past.

Gonzalez: The [stand-alone vendors] come at it from the network side. They are doing the on-demand piece. They are presenting a slightly different value proposition or deployment option.

All indications from the acquisitions are that it's harder and harder for stand-alone vendors—not only in TMS, but in any market—to compete. They have to constantly innovate or come up with a slightly different value proposition to justify being a stand-alone.

Caplice: That's a good sign for the market because that tells us that supply chain management software is now truly being treated as supply chain management and not software in different functional areas that just happen to be talking to one another. It's moving in the same direction and mirroring the organizational behavior of most companies. Supply chain management is too important a topic to keep in its own silo.

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