TMS tools expand logistics procurement functionality
Freight and logistics buyers like what they are seeing from TMS vendors
By David Hannon -- Purchasing, 9/17/2009 2:00:00 AM
The functionality available in transportation management systems (TMS) is broadening in a host of different directions—so much so, it can be difficult to really keep track of what is available today. But a recent AMR Research report points out that, "Enterprise TMS capabilities can be broken up into two major products sets: modeling and optimization programs that help with strategic planning and transportation procurement, and TMS execution, including tactical planning (optimization of route and carrier selection), shipment execution, and settlement processes."
And it's that transportation modeling, optimization and procurement functionality that logistics and transportation buyers are most interested in. As outlined in AMR's report, the transportation modeling capability in a typical TMS leverages historical data and demand patterns to "develop a freight demographic profile that can be used to put the freight out to bid. Transportation procurement, or bid optimization, is then used to manage the process of negotiating with for-hire carriers."
Perhaps no one knows this as well as Scott McLean, director of transportation at Ace Hardware in Oak Brook, Ill., which has been using a TMS from Holland, Mich.-based LeanLogistics for several years. In that time, McLean has become Ace's expert in the procurement tools on LeanLogistics.
"We use the procurement functionality of the TMS in two ways," says McLean. "First we use it in our annual RFP process, but we also use it in spot market buying as well." On the spot market side, Ace is using the LeanLogistics tool to solicit rates from carriers on specific new lanes several times a month.
On the RFP side, for example, Ace has held two truckload RFPs leveraging the LeanLogistics tools and managed services options where the provider actually hosts the RFP, but Ace still appears as the face to the bidders.
"We've seen some huge improvements in the TMS' RFP capabilities which has made both RFPs very successful," he says. Specifically, McLean says the improvements in being able to extract data from the TMS system have made the RFP process much more streamlined. LeanLogistics has also improved its network of carriers that can be brought into RFPs for increased competition where appropriate.
With the trucking market in a major slump and more concern about carriers' long-term viability, Ace Hardware was more careful about pre-qualifying carriers for the RFP it held earlier this year, says McLean. "We didn't commit 100% of our volume in the RFP process and held back 25% in case the market turned even lower," McLean says. "And that strategy seems to have worked well for us."
One area in specific that McLean has seen some major improvements in is the analytics tools within the logistics procurement functionality of their TMS. He says the ability to control and view various "what if" scenarios with the bids has helped identify a variety of new savings and optimization opportunities that simply would not have come through by analyzing spreadsheets. "[The analytics options] need to be flexible because what matters more to one shipper might not matter as much to another," he says. "And that's where the managed services offering comes in handy so they can help talk us through the options."
McLean says he's always been a strong proponent of TMS' role in transportation sourcing, but having procurement tools integrated with the broader TMS makes for a much smoother sourcing and compliance process overall. "With that integration, we have the historical data available to build the RFP, we can execute the RFP and then analyze it and load the results into the execution aspects of the TMS. It's just a much more streamlined process because you used to have to mine all the historical data from the freight payment tools."
At the same time, carriers are more accpeting of TMS-based sourcing projects as an industry standard, which has also helped streamline the process. "The carriers have to learn multiple tools, though, so you can see why they pushed back in the early days," he says.
That streamlined process allows Ace to hold an RFP every year and keep up to pace with trends in the market. "And by holding an RFP more often, our company is more convinced we're doing all we can to keep our transportation costs on par with the market," McLean says. "Our ability to impact the bottom line has certainly improved."
The right fit Carriers are so accepting of TMS in today's market, that some of them have even developed or bought their own TMS to offer to their customers. Leif Holm-Andersen, director of transportation and trade compliance at Melville, N.Y.-based electronics distributor Arrow Electronics says he was introduced to the ConnectShip TMS by UPS, which owns ConnectShip.
However, Holm-Anderson points out that the system is not a proprietary UPS system by any means. ConnectShip is a multi-carrier system which rate-shops across modes and carriers. Holm-Anderson says Arrow did a lot of work customizing the rate shopping capabilities of the system to get the most "bang for the buck."
"We're primarily a small parcel shipper, so we wanted a system that provided good rate-shopping capability in that area specifically," he says. "This system automates the shipping process in areas such as international which is a big time savings. The system provides the labels and best routes, rather than using three different systems to process international shipments."
In its two years of use, Holm-Andersen says use of the TMS has driven compliance to preferred carries from 55% to about 75%, producing significant savings. Also, when DHL pulled out of the U.S. small parcel market, the business was more easily transitioned to other carriers by using the TMS.
On-demand turns the corner According to AMR Research, the software as a service model is an "ever-increasing option for transportation management systems...Several TMS productions can't even be deployed behind a company's firewall."
Brian Cronenwett, director of supply chain logistics at Ace Hardware says the on-demand model for software makes so much sense in today's market that "unless you have some very unique requirements—and some companies do—I cannot imagine doing a fully software license installs for a TMS. It takes too long to install."
The security questions around web-based software have abated significantly, says Cronenwett, as software users get more comfortable with things like online banking and shopping.
Cronenwett points out that TMS is, at its essence, a collaborative tool where buyers and suppliers can connect on. And the flexibility of web-based software is "inherently such a better option for that collaboration than an installed software model." Cronenwett points out that the overhead to maintain an installed software product can be more significant than expected. And since the system is web-based, the transportation staff at Arrow can access the TMS from home, so they can work even when there is an IT outage at their offices.
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