What Is Transportation Management?
Transportation is the beating heart of nearly every business in the world. People, products, and raw materials are constantly on the move — across town and around the globe — carried by container ships, cargo planes, freight trains, trucks of various sizes, and even pipelines. Transportation is how manufacturers get the resources they need to build their products, how retailers get the goods they need to stock their shelves and warehouses, and how online businesses fulfill their customers’ orders. An organization’s ability to manage the process of consistently transporting goods efficiently and cost effectively can easily spell the difference between profit and peril.
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What Is Transport Management in Supply Chain Management?
Many people confuse transportation management with supply chain management or logistics management. Others fail to understand how it relates to enterprise resource management (ERP). Yet, transportation management is neither synonymous with nor completely separate from these other modern business processes.
Cornell University, which offers in-depth courses on the subject, defines supply chain management as “the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally.” Logistics management, which started as a part of military strategy concerned with keeping troops well supplied, is also a subset of supply chain management. In business, logistics management focuses primarily on the many tasks required to get the right goods to the right customers at the right time.
Although transportation is clearly an essential part of both supply chain and logistics management, transportation management is a separate discipline and subordinate to both. “Transportation management comprises the processes and systems used to manage the needs and requirements specific to the physical transportation of goods and cargo as part of supply chain or logistics management,” Seitz says.
Companies that use specialized software solutions for transportation management (and most do nowadays) often incorporate transportation management into their enterprise resource planning. ERP is business management software — typically a suite of integrated applications — that an organization can use to collect, store, manage, and interpret real-time data from a wide range of business activities and to share information across various departments. By integrating transportation management data into its ERP, an organization can link transportation to its other business processes and gain deeper insights into its entire operation.
What Is Transport Management Technology All About?
Transportation management systems (TMS) are software solutions that companies use to automate many of the tasks involved in managing their transportation operations and assist in the day-to-day processes involved in transporting their resources, products, and people. Many of these systems employ real-time data, which makes it much easier for organizations to efficiently manage transportation activities related to their supply chain and logistics. The use of real-time data can also lead to significant time and cost savings.
Salter of Paragon Software Systems enumerates some of the ways that technology increases the efficiency and reduces the cost of transportation management. “Data relating to delivery quantities or work orders, customer addresses, time windows, truck sizes, driver shifts, and any other transportation parameters can be entered individually or uploaded in a file into the TMS,” he says. “Highly developed algorithms then calculate the most effective pick-up and delivery sequences, based upon these operational details and constraints.”
“Loads are allocated to the appropriate trucks and drivers, producing a series of routes with accurate travel times,” Salter notes. “In cases where the same fixed routes are operated daily or weekly, adjustments can be made to optimize the schedule for the day’s deliveries. The transportation plan can be amended to accommodate late orders or specific customer requirements, while ensuring efficiency and feasibility.”
There are essentially three TMS licensing options available:
On Premises: This is the traditional model in which organizations purchase on-premises licenses and deploy the TMS software on their own servers. The advantage of the on-premises model is the control it offers, which is useful if organizations need to integrate the TMS software with existing systems that are hosted internally.
Hosted: These are cloud-based and software as a service (SaaS) models in which someone else hosts the TMS software on their servers, manages many of the related issues, and delivers services remotely.
Hybrid: Hybrid is a blend of both on-premises and hosted licensing, which offers organizations greater flexibility and additional cost savings without giving up the ability to customize the software in ways that best fit their needs.
Until fairly recently, most TMS were traditional on-premises solutions, but over the past few years, nearly all leading TMS vendors have moved to the cloud. Cloud-based TMS applications offer performance improvements at reduced prices, which puts TMS in reach for many small and medium-sized businesses that were never able to afford the more expensive on-premises systems.
Transportation management systems are proprietary technology, and several U.S. companies have filed patents to protect their intellectual property rights for systems they have developed. Companies such as IBM, SAP, Manhattan Associates, TheFreeTMS.com, Oracle, JDA, and Sterling each hold more than a dozen patents on various aspects of their technology, and many other companies either hold or have applied for TMS patents. Judgments against non-U.S. software companies for TMS patent infringement are often unenforceable, however, so a U.S. patent does not offer global protection.
Still, as technology continues to advance, companies will go on filing patents that they hope will give them a competitive edge and help protect their intellectual property. Amazon, for example, has filed patents that may clear the way for the online retailer to use drones to deliver packages to its customers. In 2017, Amazon received a patent for a shipping label that includes a built-in parachute “to enable the delivery of packages by [unpiloted] aerial vehicles (UAVs) or other aerial vehicles.” And in 2018, the company filed a patent for a delivery drone that would recognize and respond to human gestures and speech, enabling customers to help guide the drone to its intended destination or shoo it away if it is off track.
“As with every industry, transportation has its trade-specific particularity that cannot be processed by general business management software,” says Seitz. “What organizations need are tailor-made management solutions (for both business processes and software) that address specific transportation-related needs and requirements.”
Why Do Organizations Need Transportation Management Systems?
There are many compelling reasons why organizations need transportation management systems. There are also many ways that TMS can help organizations efficiently manage the transport of goods. They include the following:
Offering real-time transportation tracking
Improving and integrating transport sourcing, planning, decision making, and execution
Selecting the best carrier and keeping quotes organized
Improving transport follow-up, such as tracking shipments, sending alerts, etc.
Creating a more efficient and higher-velocity logistics network
Effectively measuring performance and productivity
Lessening the impact of driver shortages
Optimizing the capacity of containers and vehicles, consolidating orders, and streamlining location flow and calendars
Gathering business insights to help with future planning
Reducing costs and increasing productivity
For Salter, however, one of the most pressing reasons why organizations need TMS is the challenge of managing modern transport any other way: “Transportation operations are now too complex for a single person to plan manually. That makes them both more expensive and harder to control without help from automation software.”
He elaborates: “Even if a human can mentally swap around delivery times and routes and drivers and trucks and trailers, it’s impossible for them to think three, four, or more steps in advance when there are so many factors involved. They are unable to look at the distribution network as a whole. Even with only one distributor delivering to a hundred customers with 10 trucks, you’re already looking at many thousands of permutations. And, that assumes you have one standard-size product to deliver. When you add in the complexity created by even the simplest of transportation operations, the number of variables becomes almost unimaginable.”
What Are the Key Benefits of Transportation Management Systems?
According to Seitz, “Transportation management systems can provide an increase in process efficiency, a reduction of manual processes, and improvements in staff and customer experience.”
He continues, “A transportation management system allows operations to optimize the use of all of their resources, including drivers, tractors, trailers, and straight trucks, reducing fuels costs and improving customer service levels. It also allows the transportation planner to reduce the daily planning process from hours to minutes, which not only saves money, but also allows for later order cut-off times. Being able to treat delivery operations as a whole also allows the identification of smart ways to plan routes and make real savings while improving customer service levels.”
Return on investment (ROI) is one of the most notable benefits that organizations experience with transportation management systems. Most companies didn’t own a TMS 10 years ago — even those spending millions of dollars every year on transportation services — because the software was too expensive, too difficult to implement, and too hard to use. Moreover, it didn’t drive enough performance and productivity improvements to justify the cost.
Today, however, vendors are creating TMS solutions that are more relevant and user-friendly and far less expensive. In its most recent “TMS Market Research Study,” ARC Advisory group says that companies using TMS software report an average savings of approximately eight percent. Nearly 60 percent of TMS users indicate that their transportation management system absorbs less than 10 percent of their net savings. These freight savings can be attributed to network design, load consolidation, and lower cost mode selections as well as multi-stop route optimization. Other TMS benefits include the following:
Reducing transportation costs and improving cash flow through better route planning, load optimization, carrier mix, and mode selection
Improving accountability with better visibility into the transportation chain
Simplifying processes, improving warehouse efficiency and inventory management, reducing the amount of inventory a company needs to keep on hand, and increasing customer service
Automating manual processes, reducing the time needed for administrative activities, and eliminating many errors
More effectively managing all aspects of fleet transportation
Gaining business insights and improving business decision making
Benefiting from proven ROI
Gaining new delivery capabilities
“A transportation management system enables distribution operations to reduce fuel costs by cutting miles and increasing the accuracy of delivery plans, which leads to more accurate ETAs and improved levels of customer service,” Salter emphasizes.
"Another benefit is that it maximizes the utilization of drivers and vehicles to improve operational efficiency, reducing costs even further,” he says.
TMS also prevents rising costs associated with increased customer demands and the taking on of new business. “Overall, you gain increased control of costs going forward by making better use of your resources while balancing the cost of providing better customer service,” Salter says.
Technology has revolutionized transportation management, offering capabilities, efficiencies, and cost savings that simply were not possible with manual processes.
“The ability to manage transportation operations at the level of individual drivers and trailers, rather than at a group level, is making a really big difference to the efficiencies that can be achieved,” Salter stresses. “For example, the ability to factor in the vehicles that a driver can operate and what skills that driver has (such as whether they are qualified to install equipment at the delivery site), plus the number of hours they have already worked in a week, allows a transportation office to maximize the utilization of all drivers in its team.
“Visibility also massively improves with TMS,” Salter says. “Integrating telematics and tracking provides transportation offices with detailed information about the difference between the planned and actual routes. The resulting feedback loop allows you to feed information back into the system, making it more powerful and up to date. You also gain better communication between transportation and other departments in the company, including accounting, customer service, sales, and marketing,” he suggests.
Using KPIs to Measure Transportation Performance
Another key benefit that TMS technology offers companies is the ability to use a variety of key performance indicators (KPIs) to measure the performance, productivity, and costs of their transportation and delivery services. TMS technology gives companies many different metrics to look at their transport operations, including KPIs such as the following:
On-time pickup and delivery
Cost per mile, kilometer, weight, cube, pallet, and so on
Outbound freight costs as a percentage of net sales
Inbound freight costs as a percentage of purchases
Transit time, meaning how long it takes a shipment leaving a facility to reach its destination
Percent of truckload capacity utilized
Loading and unloading time
Tracking transportation KPIs allows organizations to view their performance over time and provides insight into how they can optimize their logistics and supply chain operations. By tracking these core metrics, management can easily identify problem areas, take corrective action, and then measure those results to make sure they are achieving their improvement goals. Having these metrics also allows companies to compare themselves to other organizations for industry benchmarking.
“Increasingly, businesses are looking to use delivery services to differentiate their brand from the competition,” Salter remarks. “For many, improvements in service levels are essential to maintain and grow market share. An interesting result of this is that colleagues outside of the transportation office — such as sales, marketing, and customer service — are now interested in the performance of the delivery service. With the added demand for visibility comes the need to share KPIs more widely. With the information stored in a TMS, it is possible to produce a wide range of different reports at a detailed level that showcase the performance of transportation operations,” he says.
Salter notes that route-planning software also contains a wealth of information that can be used across businesses to improve customer service and profitability. For example, companies can report on successful first-time deliveries, on-time deliveries within the promised time window, or installations completed successfully on first attempt.
“This is gold dust for a sales team trying to prove how reliable the delivery service is,” Salter says. “Equally, marketing teams looking for statistics to prove how good a delivery service is will find this data invaluable. And finance directors or heads of customer service trying to work out the cost to serve individual customers or customer types will be able to analyze delivery costs on a per-customer basis.”
What Industry Trends Are Fueling the Growth of Transportation Management Systems?
Just as transportation is all about movement, transportation management systems continue to evolve and move forward. This TMS momentum is driven in part by industry trends — from the digital technology revolution to the growth of omni-channel retailing — that are redefining organizational needs and underscoring the need for automated systems that can handle these new challenges. In the following sections, we’ll explore some of the key industry trends currently fueling the growth of TMS:
Changing Buying Behaviors
“All businesses are subject to increased pressure to deliver more frequently and to tighter time windows with more predictable performance,” Salter says. “Brick-and-mortar retailers selecting to add an internet channel to sales need to get very smart about managing multi-channel delivery operations to ensure they can make good on their promises. Many companies are bringing their transportation operations back in house or, at the very least, seeking greater control over them, because they are more crucial than ever to the business. Delivery and, therefore, transportation have become major competitive advantages,” he explains.
Salter says a good example is what is happening in the grocery and supermarket industry. With growing demand from consumers for fresh food, grocery stores are under pressure to ensure that food reaches store shelves as quickly as possible after leaving the field, with the least amount of handling and at the lowest possible cost.
“With shopping habits moving away from large weekly visits to big format stores in favor of more frequent trips for smaller volumes of fresher ingredients, supermarket brands have been forced to change store formats and incorporate a wider choice of fresh food,” he says. “This trend, in turn, puts pressure on the distribution operation to replenish shelves more frequently,” he adds.
Salter feels that a wider range of beverages is also becoming essential for many grocery stores, restaurants, and bars, with customers expecting a choice of craft gins, vodkas, and beers as well as foreign and domestic wines and specialty soft drinks.
“With margins already tight, changing consumer behaviors create more pressure on these establishments to run a highly efficient supply chain operation that can deliver food to the point of sale as quickly as possible at the minimum cost,” he continues. “The ability to optimize all resources available (drivers, tractors, and trailers) is essential to meeting demand but also doing it cost effectively,” he summarizes.
The Digital Technology Revolution
Digital technology is transforming whole industries, and transportation management is no exception. But the benefits of digital technology also come with a few challenges.
“Technology capabilities are changing and improving so fast that an enterprise's management systems must keep up with these trends or risk falling behind competitors,” Seitz says. “Yet, due to the rapid increase in capabilities, efficiencies, speed, and other factors, industry enterprises face the challenge of committing to technology that may be obsolete within a few months,” he points out.
TMS that are designed to scale easily and add new capabilities to meet emerging challenges offer organizations benefits they can rely on long term.
Changing government regulations, in the United States and around the world, have a direct impact on companies that ship resources and products. When shipments cross international borders, the effect is often magnified.
One recent regulatory change that is affecting companies that operate in the United States is a new U.S. congressional mandate that requires trucking companies to install electronic logging devices (ELD) to accurately track, manage, and share data. The ELD synchronizes with a vehicle’s engine to automatically record driving time and ensure that drivers are not exceeding the legal limits for the number of hours and days they spend on the road. The new law affects 3.1 million trucks and 3.4 million drivers nationwide.
“It is perhaps too early to say what the real impact of the ELD mandate on the trucking industry will be, but some distribution operations have reported drivers working fewer hours and fewer drops being completed because of tighter monitoring of hours of service,” Salter says. “It is now essential to be able to accurately plan at an individual driver level, where the actual hours worked by driver A and driver B can be factored into the transportation plan to ensure accurate delivery times and good communication with the customer,” he notes.
Like many other industries, transportation is struggling to cope with a lack of qualified workers. In the case of the trucking industry, the growing shortage of drivers is increasing costs and creating logistical challenges.
“The driver shortage is an issue that has affected the industry for years, but it is getting worse,” Salter says. “The lack of young drivers entering the industry is compounded by the aging workforce retiring from the profession. With the need to retain drivers being more pressing, it’s essential to keep drivers as happy as possible by ensuring they are given fair, predictable, workable shifts. The shortage is also driving up driver pay, creating a need to make sure transportation operations are planned to get the most out of each hour available,” he emphasizes.
Salter says that planning routes manually can lead to emotional decisions or favoritism in assigning routes and shifts.
“Transport management systems ensure that all drivers are given fair and feasible routes to drive, while at the same time ensuring that driver and vehicle utilization is optimized on every route, every day,” he says. “Monitoring actual routes taken against the route plan also gives a more accurate picture of how drivers are performing and how that could be improved. Feeding information back into the system allows continuous improvement of delivery performance as well as the ability to keep customer service informed, which means the end customer is better informed, too.”
Growing Customer Expectations
Salter says that whether a transportation operation is distributing to business or consumer customers, all customers want greater levels of visibility and accuracy, which includes the provision of faster and more regular deliveries, along with increased reporting and real-time communications. “The result of this universal increase in customer expectations is that logistics operations across the U.S. and beyond are left in the unenviable position of having to continually improve service levels while operating within already tight margins,” he says.
He adds that transportation management systems allow delivery operations to contribute to enhanced customer service in a number of different ways: “First, the routes are planned according to better information, which improves the accuracy of the predicted arrival time. Second, routing and scheduling software can be combined with telematics that give information about actual routes taken, delivery times, and delays. That means transportation managers are able to compare the planned route with the actual route in real time and automate the process of communicating up-to-date ETAs to all customers as well as gaining better overall visibility,” he concludes.
Finding the Best Transportation Management Systems
There are hundreds, possibly thousands, of TMS solutions on the market. So, how do you figure out which one is best suited to the needs of your business? All it takes is a little research.
A number of reputable organizations regularly review leading TMS solutions and post their findings online. Often, the TMS vendors offer demos or other opportunities for you to test their products before proceeding any further. Also, if you already work with one or more software vendors, they may have knowledge about TMS solutions that will help you make an informed choice.
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