Much talk about sales, automation and improved processes dominate the conversation when considering outsourcing logistics processes to a transport and logistics providers or using a 3PL-based transportation management system (TMS). Often, the transport and logistics providers’ reps claim initial returns may be as high as 25 percent, if not greater. In reality, the actual savings and return tend to be closer to 10 percent, reports Inbound Logistics. However, 10 percent represents much more than a small bottom line, and you need to understand why.
What Does 10 Percent Buy?
There are many benefits that accompany the use of transport and logistics providers and their TMS systems. According to Supply Chain Digest, a TMS can be leveraged to improve freight consolidation efforts, enable intermodal shipping, improve reverse logistics processes or work to reduce delays and inefficiencies in less-than-truckload (LTL) shipments. However, the 10 percent buys power in the supply chain by addressing three pain points of not using a TMS, which depend
- Immediate upgrades to existing transportation technology systems.
- Increased freight consolidation opportunities.
- Improved centralization of all shipping processes.
Are Shippers “Jumping the Transport and Logistics Providers and TMS Ship?”
You might be inclined to say, “Yes.” But, although the savings do not sound like much initially, the findings from Inbound Logistics are based on assumption and data capture from across the whole industry. In other words, these savings may be an average or due to underreporting. Meanwhile, a recent report, published by ARC Advisory Group, found similar trends. In fact, some respondents in the report indicated a possible increase in savings if returning to the TMS-predecessor were to occur. As a result, ARC sought to dig deeper into the details of why some organizations felt this way.
Why Do Savings Appear to Only Amount to 10 Percent?
Savings analyses may be gathered by assessing a single portion of LTL shipping. This results in the appearance of minimal savings in that particular part of the TMS and transport and logistics providers benefits. However, LTL shipping includes “at least six distinct forms of routing that may have different levels of savings.” Consequently, the only true savings are found when assessing all the components of the TMS, transport and logistics providers and shipping partner together. Essentially, this negates the concept of minimal savings from using a dedicated TMS.
Another reason for incorrect savings estimates revolves around total savings versus “bucket” savings. Bucket savings are savings achieved by similar processes. For example, LTL would comprise one bucket. However, different spend levels associated with each type of bucket can dramatically change how cumulative savings appear. As a result, the 10 percent reflects more of an average of basic, biased figures associated with particular 3PL-based TMS systems. In reality, the savings and return on investment (ROI) may be much higher than meets the eye.
Where Does a TMS Produce Cost Savings for Shippers?
The dedicated TMS is not a system exclusive to printing of labels or processing of individual shipments. It includes use of communication tools as part of customer satisfaction processes, warehouse inventory management and assessment, new delivery capabilities, forecasting for accurate inventory management and improvements in overall cash flow.
In the ARC report, services and ability to manage work flows only deteriorated for 2.1 percent of all TMS users. But, this inherently means 98 percent of all users saw some sort of improvement in overall service and processes. For some shippers, specifically 34 percent, service levels remained the same. However, this does not take economic instability and stress on the industry into account. Therefore, some may assume these businesses or shippers would have other failed should the TMS have never been implemented.
Moreover, respondents in the report indicated the use of a software-as-a-service TMS system would be critical to preventing a loss of profits if traditional processes were restored to use in an organization, further strengthening the argument for the use of a dedicated TMS and outsourcing provider. Ultimately, a TMS is widely accepted as the go-to solution for today’s shippers by 40 percent of shippers using a TMS for current operations, reports Supply Chain 24/7.
Can You Push Cost Savings Higher?
Your organization is not limited to the savings touted by transport and logistics providers. If you know what to look for in a TMS and transport and logistics providers, you can proactive manage and boost the cost savings and return on investment. This includes the use of key performance indicators and metrics to track the system’s efficiency and improvements to current operations. Furthermore, a TMS will ideally track these KPIs and measurements for you, reducing your workload and increasing the resolve for a long-term ROI.
Of course, there are times when the ROI can produce positive results faster. For example, shippers who have not updated technology or processes over long time periods, specifically decades, the simple introduction of a TMS can potentially produce cost savings as high as 33 percent within six months.
Putting It Together for Future Sustainability and Returns.
TMS systems are transforming. The dedicated TMS is starting to take on new roles and responsibilities as an end-to-end supply chain solution for all supply chain management needs as a product lifecycle management (PLM) solution. In a sense, the Cerasis Rater has already made this leap, creating a more productive and lucrative work environment for shippers using the system.
Only time will tell how much more TMS systems evolve and become better-suited to the specific needs of each and every shipper using them. However, the current outlook is bright, and according to Inbound Logistics, cycle times will only get shorter and shorter, promoting the immediate implementation of a TMS as soon as possible for shippers who have not yet made the switch.