Today we are going to pick up from where we left to discuss the benefits and ROI of transportation management services. We’ve already discussed how we view what we call the new model to approach transportation management from a third party logistics provider environment. As a quick recap, the old model separated the use of a transportation management system and managed transportation services. In the old model, managed transportation was then defined as taking over completely the planning and arrangement of transportation.
However, at Cerasis, we believe when you are hiring an outside company for transportation management, it is not entirely taking over, but instead that the 3PL, as in our case, arms the shipper with technology (tools) to procure and make their own choices when it comes to what carriers and what modes are best. The technology aids in this process by more efficiently offering up many choices and letting the shipper know the optimal mode. Then the services that naturally are needed to deal with anything outside of processing a shipment are the transportation management services. These include such things as carrier relations for rate negotiation and maintenance of rates, freight accounting services like payment, auditing, and invoice consolidation, and finally other things like freight claims management.
With technology and services the focus of the transportation management services provider, it allows the logistics or transportation manager to stay strategic and thus embed themselves and their department more deeply into the business and not get siloed or myopic. You can read countless books and studies that say when any job function is in the weeds, it’s hard to move the department, and thus the business forward. With that said, let’s talk about what are the benefits and ROI potential when you employ transportation management services from an outside provider.
12 Benefits Realized by Shippers When Hiring Outside Transportation Management Services
The decision to outsource any process, including transportation, involves tradeoffs between risks and benefits. Before deciding, it’s important for shippers to understand the costs and risks associated with transportation management services and must assess what are the shipper’s needs in order to align to a provider who can meet those needs and thus provide a tangible and beneficial ROI.
If a shipper currently plans and executes transportation activities using manual processes (spreadsheets, faxes, phone calls) and has more than about $1 million in freight spend or more, it can almost certainly save money while maintaining services levels by moving either transportation management services to a provider who can offer both managed services and a transportation management system.
Transportation management services can offer a significant return on investment (ROI). The primary area in which transportation managed service can save a company money is by lowering its freight spend. However, there are also other types of benefits.
By working with a 3PL to provided transportation management services for transportation planning via a TMS or through an inbound program that executes on the shipper’s behalf or with their vendors, there is typically 4 to 15% of freight savings realized. Very few times do shippers not realize direct freight savings from employing a provider of transportation management services, according to ARC Advisory Group. These savings can occur in a number of different areas as well, typically driving savings mostly in the way transportation procurement occurs. Further, those with hazardous materials typically see a great savings from transportation management services.
These savings are also usually achieved without any service degredation, with many shippers realizing increased customer service levels. So, you have thus a win win of savings AND with increased customer service, a shipper also realizes the ability to stay more competitive, supporting long term sustainable growth.
Benefits of Transportation Management Services
Beyond the ability to save on freight costs, there are a number of other benefits realized by transportation management services to include:
- Better Decision Making through Data: When you are not guessing about what you have done it’s a lot easier to plan where you are going. When shippers better understand their activity (much like when you track your own calories) this awareness allows the shipper to make strategic decisions and make better choices to drive down costs.
- Process Enforcement: When a 3PL offers transportation management services through technology, you can build in the custom business logic to make sure users of the TMS are selecting the best carriers for specific lanes. Additionally, a 3PL can enforce a routing guide, working with vendors either through direct freight routing on the vendor’s behalf or by offering a vendor module to access the TMS.
- Domain Expertise and Consultation for Continuous Improvement: When you bring on a 3PL who is an expert at transportation management, you not only get the knowledge they’ve gained since doing business, but you get the knowledge they’ve encountered in thousands of other like experiences for issues you as a shipper may face. It behooves the 3PL to make sure you are informed on all best practices and that you continue to realize a benefit and ROI from their services.
- TMS Development over Time to Respond to Market & Shipper Needs: In line with continuous improvement of transportation management services are the continual improvements to the development of the transportation management system. Now, this is an area you need to ask about BEFORE you hire the 3PL for managed transportation. You should ask if the 3PL has an in house technology team or if they outsource the TMS to an outside provider themselves. You will have more of this benefit if the 3PL has an in house team as they are faster to develop and iterate the TMS to market trends and customer needs.
- Warehouse Efficiencies: When your transportation is managed properly and you are able to successfully procure transportation with less delay, your warehouse and overall operations are also more efficient. You have product coming inbound reliably and product getting to customers reliability. Again, when you are not in the weeds as a Transportation Manager, you can more easily make sure other aspects of the business benefit too.
- Customer Satisfaction: We have already talked a bit about increased customer service levels when hiring a 3PL who offers transportation management services, but it’s such a key differentiator for staying competitive. We all know the old adage of how it’s easy to gain a customer, but much harder to keep one. Do you really want to have the reality that you are not consistently getting product to customers on time? Or that you are having issues with freight claims, or not invoicing correctly? No.
- New Delivery Capabilities: Again, this goes back to a more strategic mindset when you are less in the weeds with transportation management. You can also lean on that domain expertise and work with the 3PL to create optimal shipping strategies, like pool point distribution.
- Cash Flow Improvements: Pre-paid and add? Free shipping? Only Pre-paid? Collect? How do you know how you should charge a customer? When you have the ability to better understand how transportation accounting happens, the 3PL can consult with you on finding the right balance between good customer service and overall profitability/cash flows with your transportation department.
- Inventory Reductions: When you are more confident in your transportation management, with programs like just in time (JIT) and know that each location has a successful inbound transportation program, you start making more strategic business to impact other managers’ jobs, such as the supply chain director. When you hold inventory, cash is tied into product that is not currently driving value.
- Ability to Focus on Core business or allow managers the opportunity to focus on other projects: We’ve indirectly talked about not being in the weeds and how it makes you more strategic. For most companies, it is hard to find the talent they need to effectively scale as they grow. When a transportation or logistics manager is embedded more deeply in the core focus of the business, it helps drive profitability with less resources.
- Reduced headcount as the company grows, creating scale: Speaking of less resources….we want to make this very clear. This is not about firing someone. It’s about making sure you are fully utilizing your resources, and as you grow, instead of adding more resources to transportation, which is a cost, you can deploy those resources to more value producing type activities.
- Better Analysis for driving down more costs through technology: Like the first benefit of making better decisions though data, when you use technology like a transportation management system, you can work with the 3PL who provided reports around all the transportation management services they provide, analyze it and create more and more strategies to drive down over all costs.
Once the decision is made to proceed with transportation management services provider, the next decision becomes which one? Clearly there are many benefits in outsourcing to a 3PL provider who offers transportation management services. However, as a shipper, you must determine what are your pain points and match those to the capabilities of the 3PL. We are the first to say that the most important thing is not for us to acquire customers, but long term partners as our shipper customers where we create value and long term savings and a long term relationship.