return on investment for transportation … steve banker arc strategies november 2011 return on...

24
By Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview .................................................................... 3 Methodology .............................................................................. 4 The ROI of TMS .......................................................................... 5 Multitenant versus Traditional TMS...............................................12 TMS ROI Correlations .................................................................14 Risk versus Reward ...................................................................15 Final Thoughts ..........................................................................19 Appendix 1: Demographic Data ..................................................20 VISION, EXPERIENCE, ANSWERS FOR INDUSTRY

Upload: vuque

Post on 18-Apr-2018

216 views

Category:

Documents


3 download

TRANSCRIPT

Page 1: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

By Steve Banker

ARC STRATEGIES

NOVEMBER 2011

Return on Investment for Transportation Management Systems

Executive Overview .................................................................... 3

Methodology .............................................................................. 4

The ROI of TMS .......................................................................... 5

Multitenant versus Traditional TMS ............................................... 12

TMS ROI Correlations ................................................................. 14

Risk versus Reward ................................................................... 15

Final Thoughts .......................................................................... 19

Appendix 1: Demographic Data .................................................. 20

VISION, EXPERIENCE, ANSWERS FOR INDUSTRY

Page 2: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

2 • Copyright © ARC Advisory Group • ARCweb.com

Question: As compared to manual processes, what do you believe you save, as a percentage of freight costs, from using a TMS?

3.8%

9.6%

23.1%

40.4%

23.1%

0.0% 15.0% 30.0% 45.0%

Use of TMS Increases our Costs

No Difference

TMS Decreases our Freight Costs by < 5%

TMS Decreases our Freight Costs by 5-10%

TMS Decreases our Freight Costs by > 10%

Savings from TMS

Savings Buckets

No Savings

Savings<2%

Savings2-4%

Savings 5-7%

Savings 8-10%

Savings>10%

Increased Usage of Preferred Carriers 32.7% Most

Common Largest Possible

Better Procurement Negotiations 42.3% Most Common Largest

Possible

Lower Cost Mode Selections 30.8% Most

Common LargestPossible

More Fully Loaded Equipment 44.2% Most Common Largest

Possible

Better Routing 30.8% Most Common Largest

Possible

Reduction in Carrier Overcharges 38.5% Most Common

LargestPossible

Key Areas in Which a TMS Reduces Freight Spend

Page 3: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 3

Perhaps no other supply chain application offers so many ways

to save money or drive value. And no other supply chain application offers so many

different forms of optimization.

Executive Overview

A transportation management system (TMS) helps companies move freight

from origin to destination efficiently, reliably, and cost effectively. TMS

encompasses solutions for moving freight in all modes and also includes

intermodal movements. The TMS processes include freight transported

inbound or outbound, domestically or internationally; using transportation

assets owned either by the company or an outside service provider. The

freight managed by a TMS ranges in size from parcels to bulk commodities.

Perhaps no other supply chain application offers so many

ways to save money or drive value. But the main reason

companies implement a TMS is to reduce freight spend.

A TMS achieves these savings based on process enforce-

ment, analytics, and optimization; with virtually no other

supply chain application offering so many different forms

of optimization.

This ARC Advisory Group report, based on a user survey, is designed to

report on the ROI associated with implementing a TMS. There is particular

focus on the degree to which a TMS can reduce freight spend. Several

methods can be used to reduce freight spend, with the different “savings

buckets” having different levels of savings (and different risks) associated

with them.

To get something, a company must give something. This report shows the

degree to which the freight savings are captured by TMS suppliers in the

form of software licenses, implementation, and other costs associated with

a TMS implementation.

Finally, this survey was designed to investigate what sorts of implementa-

tions achieved a higher ROI. The sample size is not big enough to drive to

the 95 percent level of statistical significance used in academia, but the data

do suggest certain correlations. The most important being that shippers

that implemented TMS solutions based on a traditional architecture per-

formed somewhat better in terms of service levels and freight savings.

Page 4: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

4 • Copyright © ARC Advisory Group • ARCweb.com

Methodology

This study on the ROI associated with implementing a transportation man-

agement system (TMS) is shipper centric. We were not interested in

learning the ROI a third-party logistics (3PL) supplier might achieve by im-

plementing TMS. Thus, we excluded 3PLs respondent from the survey.

Forty people responded to the survey. ARC then completed 12 telephone

interviews to gather more data points and gain qualitative insights. This

brought the total sample size to 52. We present additional demographic

data on size of companies, industries, and job titles in Appendix 1.

5.8%

26.9%

44.2%

23.1%

Under $5 Million

Between $5 and $25 million

Between $25 and $100 million

Over $100 million

Freight Spend Under the Control of the TMS

We asked a series of question to see what sorts of factors might be correlat-

ed with achieving a higher ROI from TMS investments. For example, we

asked about the freight spend under the control of the TMS to see if there

was a correlation between the size of the freight spend and the percentage

reduction in freight spend achieved. The spend demographics are shown

above. Further demographic data collected in the hope of determining cor-

relations can also be seen in Appendix 1.

Page 5: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 5

The ROI of TMS

Transportation management systems offer a strong ROI. The primary area

where a TMS can save a company money is to lower its freight spend. The

figure on the inside front cover shows that over 40 percent of respondents

felt that if they were forced to give up their TMS and go back to more man-

ual processes for planning and execution, their total freight costs would

increase by 5-10 percent. Twenty-three percent felt their total freight costs

under the control of the TMS would increase by over 10 percent.

Freight spend can be reduced in a number of ways. Some methods focus

on collecting data that can lead to better decision making (for example,

gathering data for better procurement engagements). Some methods might

be classified as process enforcement (for example, by helping to ensure the

best carriers on a lane are selected for moves). And some would fall under

the rubric of optimization. The following table shows the savings opportu-

nities for the most common TMS freight savings categories.

Savings Buckets

No Savings

Savings<2%

Savings2-4%

Savings 5-7%

Savings8-10%

Savings>10%

Increased Usage of Preferred Carriers 32.7% Most

Common Largest Possible

Better Procurement Negotiations 42.3% Most

Common Largest Possible

Lower Cost Mode Selections 30.8% Most

Common Largest Possible

More Fully Loaded Equipment 44.2% Most

Common Largest Possible

Better Routing 30.8% Most Common Largest

Possible

Reduction in Carrier Overcharges 38.5% Most

CommonLargest Possible

To simplify the data, we have not provided the responses for all the fields

in the table. The data bolded in black show the percentage of respondents

that received no savings in a particular category. It is important to realize

that not every category of savings will apply to every company. The data

bolded in red show the most common response among those that did re-

port savings. The blue bolded data show the largest possible savings. To

control for inadvertent responses and outliers, we only would list “Largest

Page 6: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

6 • Copyright © ARC Advisory Group • ARCweb.com

The percentage of respondents that got no savings in a particular area provides a rough indicator of where it is easiest – or hardest –

to achieve savings.

Possible” savings if a cell on the far right hand side of the table had three or

more respondents.

We need to make a couple of points about this table.

First, when we examined the individual responses, the

different savings buckets often added up to more than

the total freight savings claimed. In phone conversations,

ARC learned that these savings are often not linear.

One reason for this is that the categories for savings represent a simplifica-

tion of the different ways in which freight savings can be achieved. For

example, in the routing area alone there are at least six distinct forms of

routing that might drive different levels of savings for a shipper. Further,

in some cases, these savings buckets overlap. For example, on the inbound

side you might combine the routing of Less-than-Truckload (LTL) ship-

ments to a merge point, at which point you are able to move to a lower cost

Truckload (TL) move. So, in our table, they might give a 5-7 percent sav-

ings to both “Better Routing” and “Lower Cost Mode Selections,” when this

is really one form of optimization involving what we have listed as two dis-

tinct categories.

Another reason that you cannot simply add the savings of the different sav-

ings bucket to get total savings is because they apply to different portions

of the total spend. For example, a shipper might be doing freight audit

across multiple modes, but only doing routing for outbound truck moves.

Another important thing to look at on this chart is the percentage of re-

spondents that got no savings in a particular area. This is a rough indicator

of where it is easiest – or hardest – to achieve savings. There are so many

ways a TMS can drive freight savings, trying to drive savings in all areas in

an initial implementation would greatly increase the chances of having a

failed implementation. So a key question becomes, which areas should a

company focus on initially?

In addition to reductions in overall freight spend, a TMS can also drive oth-

er types of benefits. ARC had conversations with respondents that sited

customer satisfaction as a primary justification in their business case for

doing a TMS project.

Page 7: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 7

21.2%

23.1%

26.9%

30.8%

67.3%

0.0% 20.0% 40.0% 60.0% 80.0%

Cash Flow Improvements

Inventory Reductions

New Delivery Capabilities

Warehouse Efficiencies

Customer Satisfaction

A TMS Can Drive a Variety of Benefits in Addition to Lower Freight Spend

We gave respondents the ability to write in other improvements that could

be garnered from a TMS implementation. Respondents listed a variety of

other advantages. These included:

• Achieving a better understanding of the cost to serve customers or bet-

ter cost allocation at the product level

• Reductions in the size of the transportation department

• Sustainability

• Access to a greater number of carriers and increased ability to lock up

capacity over a longer planning horizon

• A reduction in the number of warehouses required

• And, better compliance to transportation related health, safety and en-

vironmental programs

These freight savings and other benefits do not come at the expense of ser-

vice degradation. We define service level here as the percentage of on-time

deliveries within a two-hour window.

Page 8: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

8 • Copyright © ARC Advisory Group • ARCweb.com

2.1%

34.0%

38.3%

25.5%

0.0% 15.0% 30.0% 45.0%

Service Deteriorated

Service Stayed the Same

Service Improved 5% or Less

Service Improved > 5%

64 Percent of Respondents Reported Improved Service after Implementing a TMS Solution

What Does a TMS Cost in Comparison to Its Savings?

Benefits do not come for free. Companies must pay for a transportation

management system. We asked respondents, “How reasonable are the fees

charged by your TMS supplier? If you consider the total costs associated

with the TMS over the first full three years of usage, what percentage of the

freight savings were eaten up by the costs associated with the TMS? Total

TMS costs would include all costs associated with implementation, soft-

ware license, maintenance or SaaS fees, new hardware costs, etc. Please

make your best estimate!”

As you can see in the chart on the next page, the most common answer was

that a TMS absorbed less than 10 percent of the total freight savings it

helped generate.

But 12 percent of respondents also reported failed implementations, at least

if a primary goal was to save money. Their TMS cost more than it saved in

freight costs.

Page 9: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 9

11.6%

2.3%

11.6%

16.3%

25.6%

32.6%

0.0% 10.0% 20.0% 30.0% 40.0%

More than Savings

About the same as Savings

Absorbed more than 50% of savings

Absorbed between 25-50% of savings

Absorbed between 10-25% of savings

Absorbed < 10% of savings

Total TMS Costs as a Percentage of Freight Savings

A Tale of Two TMS Implementations

ARC talked to two natural resource companies that implemented a trans-

portation management system and achieved very different outcomes. In

both cases, the goals were similar: reduce the freight spend and improve

service. One company has had success on both fronts; the other has had on-

ly limited success improving service.

The company that achieved success was Baillie Lumber, a leading manufac-

turer and exporter of hardwood lumber to furniture, cabinet, and hardware

floor manufacturers around the world.

We won’t name the company that failed.

ARC talked to John Vitale, an IT Director at Baillie, about the company’s

implementation of Oracle Transportation Management (OTM).

Baillie moves lumber on flatbed trucks. Not many large carriers compete

for flatbed moves. The company actually gets the best rates on the spot

market. In short, the ability to drive savings in its domestic business, which

relies on trucking, was limited.

Page 10: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

10 • Copyright © ARC Advisory Group • ARCweb.com

Baillie’s largest TMS ROI bucket occurs on the export side and is based on

optimized routing. Routing is something that many associate with multi-

stop truck movements, but it also applies to global moves. This simplified

example shows shipping options that exist between one of its plants in

Leitchfield Kentucky and a port in Shanghai.

Global Routing Options

Many optimization runs generate more than six options, automatically

listed by OTM with the low choice route on top and the highest cost option

listed last. Based on the number of shipments done, and the complexities

associated with global moves, the company needed new hardware to be

able to scale to solve the problem sets.

Historically, when ARC has talked to companies with failed supply chain

implementations, the companies often do not blame the software supplier.

Rather they admit that the fault was their own. One common reason a

company will cite for a failed implementation is that it couldn’t change its

internal culture. And one is much more likely to hear “culture” as the cause

of a failed implementation when a project will require changes to the way a

sales force wants to do business.

This was the case with the failed TMS implementation. This company had

customers complaining about late deliveries. TMS was implemented, in

Page 11: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 11

TMS Suppliers Respondents Reported Using

(Ordered from most frequently reported to least frequent)

• JDA • Oracle • RedPrairie • LeanLogistics • MercuryGate • IBM (Sterling Commerce) • Precision • SAP • Manhattan Associates • Logility • GT Nexus • One Network • Paragon • Descartes

part, so that the company could give more accurate estimated time of arri-

vals as part of the quote to potential customers. But in many cases, the sales

force ignored the estimated time of arrivals from the TMS and promised

quicker than feasible delivery dates to win business. The

transportation analyst responded by creating and pub-

lishing an “average days late” report. Now, the company

is under 10 days late. It had been substantially larger.

Evidence indicates this is driving new business and in-

creased wallet share on lanes where the company can

consistently hit the delivery day promise. But the sales

quotas, combined with a lack of executive oversight and

support, have made progress much slower than it should

have been.

Baillie has a very different culture. At Baillie, the Presi-

dent and top management actually continue to sell. They

have their own accounts and have to face their customers

on an ongoing basis. Consequently, at Baillie when the

TMS project commenced the top executives understood

the problems clearly and provided the executive-level

support necessary.

Baillie sets targets for its sales force, both for revenue and margin. The IT

department generates daily reports that show how all the salespeople are

performing to both their revenue and margin targets, up to date as of mid-

night the previous day. Salespeople can’t maximize revenues by lowballing

transportation costs without taking the hit on margin.

The sales force should not always quote the low-cost option. Usually, the

quoted price, which includes transportation costs, is given to the customer

before the carriers can confirm that they can take the load. The shipment

may end up going out based on a higher cost route than initially estimated.

The transportation manager has added comments to the options to help

guide the sales force. When a salesperson pulls up the different route op-

tions on his or her Blackberry, they may see a note that the low-cost ocean

carrier on a particular lane is having a hard time supplying containers. Or

perhaps a particular carrier’s charges will go up $400 on this lane in one

month’s time. Further, salespeople need to understand what their custom-

ers want. One of their customers may ask them not to use a particular

carrier because they have performed badly in the past.

Page 12: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

12 • Copyright © ARC Advisory Group • ARCweb.com

The company’s goal for the future is to have the transportation options dis-

played on the salesperson’s Blackberry show up with an asterisk next to the

suggested route. How they will balance predicted service levels and cost

has yet to be fully worked out. An IT Director’s work is never done.

Multitenant versus Traditional TMS

In no other supply chain market are both software as a service (a solution

sold in a leasing model) and multitenant solutions (public cloud) so well

entrenched. A multitenant solution is one in which multiple users from

multiple companies hit the same instance of the software. In TMS, a solu-

tion can be multitenant at the application layer, at the carrier

communication level, or both. Behind-the-firewall solutions are usually

sold using a software license model; multitenant TMS are sold using the

SaaS payment model.

So which solution is better?

In the area of service — where we define “service level” here as the per-

centage of on time deliveries within a two hour window — traditional

transportation management solutions perform better. In a traditional TMS,

the software license and implementation fee are paid for up front. Archi-

tecturally, the shipper has its own instance of the TMS, which resides

behind their firewall.

Service Improved by > 5%

Service Improved by 0-5%

Service Remainedthe Same

Service Got

Worse

Sample Size (N)

Traditional 41.7% 29.2% 25.0% 4.2% 24

SaaS Multitenant 10.0% 50.0% 40.0% 0.0% 20

This came as a surprise. If a shipper is doing EDI for tendering, advanced

ship notices, and overall visibility, then managing the EDI mappings and

the alerts generated by problem messages is not a trivial process. Small-

and medium-sized companies in particular can struggle with this. It may

be that functionality like broadcast tendering and dock scheduling are more

important in achieving service success than the communication infrastruc-

ture.

Page 13: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 13

On the question of how respondents felt their TMS costs would increase if

they were to cease using it and replace it with manual processes, traditional

solutions again performed better.

Decreases Freight

Costs by >10%

Decreases Freight

Costs by 5-10%

Decreases Freight

Costs by < 5%

Freight Costs Stay the Same

or Increase N

Traditional 29.6% 44.4% 11.1% 14.8% 27

SaaS Multitenant 15.0% 35.0% 40.0% 10.0% 20

However, when asked how much their TMS savings were being whittled

down by the total costs associated with owning and running the TMS, the

data suggests that SaaS solutions were more economical.

As ARC looks across the TMS market, it appears to us that on a feature-

function basis, the leading traditional solutions as a group are more mature

than the SaaS solutions. While a few multitenant solutions are very mature,

many are much less so. This is not surprising. Many of the public cloud

TMS companies are much younger.

ARC interviewed one respondent who worked for a company with over a

billion dollars in North American freight spend. This shipper used both

traditional TMS and the multitenant solutions from JDA. It used the tradi-

tional solution to plan and execute core freight shipments. This shipper had

also created its own 3PL firm, responsible for non-core freight shipments,

such as for small air shipments to a R&D lab. Its 3PL used the multitenant

solution to “fill in the white space” because it could be implemented more

quickly and thus had better time-to-value.

In this respondent’s view the JDA public cloud solution had great optimiza-

tion capabilities, particularly surrounding less-than-truckload to truckload

consolidation and multi-stop routing. The company’s main reason for us-

ing the traditional, behind-the-firewall solution for the bulk of its business

was that it generated such huge numbers of transactions that if it had gone

with the public cloud solution, JDA would have had to add three huge

servers and then charge extra for those transactions. The math suggested it

was cheaper for the company to own the hardware. This respondent also

believed that if a shipper had a private fleet, some customization might be

necessary to maximize savings. Public cloud solutions cannot support cus-

tomization.

Page 14: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

14 • Copyright © ARC Advisory Group • ARCweb.com

TMS ROI Correlations

Shippers that had previously been doing their transportation planning and

execution manually achieved somewhat better results than those that had

previously been using a different TMS or who had used a 3PL to do their

planning and execution. One would think that moving from nothing to

something would lead to better results than moving from something to

something similar. However, the difference was surprisingly modest.

Previously Doing Manual Planning

& Execution

Previously Used a TMS or 3PL for Planning &

Execution

Use of TMS Increases our Freight Costs 0.0% 14.3%

No Difference 10.5% 7.1%

Use of TMS Decreases our Freight Costs 89.5% 78.6%

Sample Size 38 14

A transportation management system can be used in different types of

moves: outbound or inbound. Users can also plan inbound and outbound

jointly to reduce empty miles, and can use a TMS for planning private or

dedicated fleet movements. Historically, TMS was used mainly for plan-

ning and executing outbound moves. But the ROI from a TMS is better if

you use it to plan multiple types of moves. Three companies reported us-

ing TMS only for planning inbound moves. Because that subsample is so

small, we excluded it from the following table.

Outbound Only

Multiple Types of Moves

Use of TMS Increases our Freight Costs 7.1% 0.0%

No Difference 14.3% 4.5%

Use of TMS Decreases our Freight Costs 78.6% 95.5%

Sample Size 28 22

Page 15: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 15

One goal of this research was to see whether respondents that used a TMS

for truckload (TL) or less-than-truckload (LTL) got better results than those

that used a TMS to plan and execute air, ocean, or rail moves. We suspect

this was the case because TL and LTL moves lend themselves to more dif-

ferent types of optimization. For example, if you load a rail car and it goes

out full to a customer site and comes back empty, the opportunities for

mode consolidation are nil and clever routing opportunities would be min-

imal.

However, the data did not lend itself to this type of analysis. Most shippers

that used a TMS to plan ocean, air, or rail moves also used it for TL and

LTL planning.

Risk versus Reward

Perhaps the most important chart in this report showed the key areas

where a transportation management system can reduce a shipper’s freight

spend, and the potential freight reductions driven by those different sav-

ings buckets. But there are so many ways a TMS can drive freight savings,

trying to drive savings in all areas in an initial implementation would great-

ly increase the chances of having a failed implementation.

So a key question becomes: on which areas should a company focus initial-

ly? This depends partly on a company’s strategy. But it also makes sense

to focus on areas where the savings potential is greater, while the chances

of failure are lower. The following table shows our analysis of the difficulty

of achieving freight savings in the different areas.

Increased Usage of Preferred Carriers

No Savings Savings

<2% Savings 2-4%

Savings 5-7%

Savings 8-10%

Savings >10%

32.7% Most Common Largest

Possible

EASY TO MODERATELY DIFFICULT: Achieving savings in this area is

relatively easy if a shipper implements a networked multitenant solution.

This style solution largely solves the EDI connectivity to carriers’ issues that

Page 16: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

16 • Copyright © ARC Advisory Group • ARCweb.com

can be so difficult to solve for small firms without an electronic commerce

department.

For carriers that move hazardous materials, gaining this functionality is

important even if it does not lead to significant savings. It is important that

the carriers they work with are properly insured and certified and this often

trumps the potential savings.

Better Procurement Negotiations

No Savings Savings

<2% Savings 2-4%

Savings 5-7%

Savings 8-10%

Savings >10%

42.3% Most Common Largest

Possible

MODERATELY DIFFICULT TO DIFFICULT: A TMS provides data that

can help drive better procurement negotiations. But it takes time to gather

these data and there is not an immediate ROI.

Shippers that move significant amounts of hazardous materials, chilled or

frozen goods, or other equipment in short supply cannot expect the same

level of savings from procurement.

Centralized planning also allows for better procurement. But only 56 per-

cent of the respondents had moved to centralized planning based upon

their most recent TMS implementation. This could indicate cultural chal-

lenges in this area.

Various forms of complex optimization are also possible in this area that

can drive higher levels of savings. But these forms of advanced optimiza-

tion can be technically difficult and require planners with an industrial

engineering background.

Lower Cost Mode Selections

No Savings Savings

<2% Savings 2-4%

Savings 5-7%

Savings 8-10%

Savings >10%

30.8% Most Common Largest

Possible

Page 17: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 17

EASY: The lower the percentage of respondents that say they received no

savings in a particular savings area, the better. More respondents got value

in this category than any other. Consolidating from LTL to TL is fairly easy

with a TMS and offers the largest possible savings.

However, not all shippers have operations that lend themselves to this.

Chemical industry respondents, who frequently ship by rail and ship, said

this category offered limited savings for them.

More Fully Loaded Equipment

No Savings Savings

<2% Savings 2-4%

Savings 5-7%

Savings 8-10%

Savings >10%

44.2% Most Common Largest

Possible

EASY TO DIFFICULT: At one level, this is easy. The TMS produces re-

ports on how fully loaded a container is and these data can help drive

better performance from the planners.

In other industries, customer service representatives or salespeople take

orders and are supposed to provide discounts only for full truckloads.

These reports can again help ensure that discounting is done properly.

However, as the case study showed, changing sales force behavior is not

always easy.

This can also be an optimization problem that works particularly well if

customer service personnel can suggest to a customer that their orders be

slightly larger or smaller to allow them to better fill the trucks. This can be

the case in vendor-managed inventory relationships in which the shipper

has been given a certain amount of latitude in the quantities delivered. But

achieving these types of collaborative partner relationships is not easy and

often goes beyond the scope of a transportation department.

Finally, many industrial manufacturers have loads that will always weigh

out before they cube out. Their savings potential for these shippers is non-

existent.

Page 18: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

18 • Copyright © ARC Advisory Group • ARCweb.com

Better Routing

No Savings Savings

<2% Savings 2-4%

Savings 5-7%

Savings 8-10%

Savings >10%

30.8% Most Common Largest

Possible

EASY TO DIFFICULT: This is one of the two areas in which the largest

numbers of respondents get their savings. Outbound, multi-stop TL rout-

ing is the most common form of routing and its prevalence suggests that

most TMS suppliers do not have problems supplying savings in this area.

However, jointly routing inbound and outbound shipments to reduce emp-

ty miles, or jointly routing carriers and private fleets, can be very complex

and require a highly scalable solution. Suppliers differ widely in their abil-

ity to do complex routing.

Reduction in Carrier Overcharges

No Savings Savings

<2% Savings 2-4%

Savings 5-7%

Savings 8-10%

Savings >10%

44.2% Most Common Largest

Possible

MODERATE TO DIFFICULT: Here we saw the lowest savings potential of

all areas. Planners have to stay on top of changes in fuel surcharges and

accessorials to drive ongoing savings based on freight audit.

If a shipper gets all or most of its LTLs on one fuel surcharge program and

its TL carriers on a different program, then the shipper only needs to make

two changes a week in its system to cover a large part of its carrier base.

Achieving these programmatic changes can take time.

Finally, the desire to achieve these capabilities is often driven more by a

desire to understand costs, than to save money on freight. A freight audit

module can help deliver granular costs associated with serving different

customers or the fully loaded costs associated with different products’ prof-

itability.

Page 19: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 19

Final Thoughts

Historically, transportation management systems were implemented main-

ly by food & beverage, consumer goods, retail, and high tech industries

because these industries had more opportunities to drive savings in more

different areas, or higher savings in a particular savings bucket. However,

increasingly, TMS are being bought by a wide range of industrial manufac-

turers and distributors that may not be able to achieve the same level of

savings, but are convinced they can achieve payback within two years.

For companies that have never implemented a TMS, the decision is not just

whether to implement a TMS or continue to rely on manual planning. The

true decision a shipper must make is whether to implement a TMS or have

a 3PL firm with a good TMS do the transportation planning and execution

for them. A future ARC report will look at the ROI associated with trans-

portation planning and execution-managed services.

Finally, because of the myriad ways in which a TMS can save a company

money and the difficulty in accomplishing savings in all areas in the initial

implementation, the business case for upgrades is much stronger in TMS

than in many other supply chain applications. It is common for companies

to start with outbound LTL/TL on an initial implementation and then ex-

pand to cover inbound, other modes, and other regions, during subsequent

upgrades.

Page 20: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

20 • Copyright © ARC Advisory Group • ARCweb.com

Appendix 1: Demographic Data

Hierarchical Job Title Data

Departmental Job Title Data

6% 6%

88%

Not Classifiable by Department

IT

Supply Chain

Supply Chain titles include jobs with the terms Supply Chain, Logistics,

Transportation, Shipping or a freight mode (like “Ocean”) in the job title.

Industry Demographics

Respondents came from the following industries:

25.0%

9.6%

9.6%11.6%

44.2%

Other Manufacturing or Distribution

Retail

Electronics/High Tech

Chemicals

Consumer Goods/Food & Beverage

Page 21: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 21

Regional Shipping Supported by the TMS

ARC asked “What regions are you using the TMS to plan and execute

shipments for? Please select all that apply!”

1.9%

1.9%

9.6%

17.3%

94.2%

0.0% 25.0% 50.0% 75.0% 100.0%

Internally within Australia/New Zealand

Internally within Asia

Internally within Europe

Cross border shipments between regions

Internally within North America

Multiple Answers Permitted

Moves Supported by the TMS

19.2%

23.1%

42.3%

90.4%

0.0% 25.0% 50.0% 75.0% 100.0%

Plan inbound and outbound moves together to reduce

empty miles

Plans private fleet, dedicated fleet, or common

carrier moves together

Inbound Moves

Outbound Moves

Multiple Answers Permitted

We also asked respondents, “Do you make significant numbers of ship-

ments that have the following characteristics?”

Page 22: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

22 • Copyright © ARC Advisory Group • ARCweb.com

17.3%

19.2%

21.2%

25.0%

25.0%

0.0% 10.0% 20.0% 30.0%

Hazardour Materials

Dedicated Fleet

Private Fleet

Direct to Store

Chilled/Frozen Goods

Multiple Answers Permitted

TMS Architecture

17.3%

30.8%51.9% Hosted

Multi-tenant

Traditional

These different forms of architecture are defined in the section titled “Mul-

titenant versus Traditional TMS”.

Modes Supported by the TMS

13.5%

17.3%

17.3%

36.5%

36.5%

76.9%

90.4%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

Ocean

Air

Other

Rail

Parcel

LTL

TL

Multiple Answers Permitted (Other was mostly identified as being Intermodal)

Page 23: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

ARC Strategies • November 2011

Copyright © ARC Advisory Group • ARCweb.com • 23

Author: Steve Banker

Survey/Analysis Support: Clint Reiser, Antonio Ciolfi, Paul Chatha Editor: Paul Miller Distribution: EAS Clients

Acronym Reference: For a complete list of industry acronyms, refer to our web page at www.arcweb.com/Research/IndustryTerms/

3PL Third Party Logistics EDI Electronic Data Interchange IE Industrial Engineering IT Information Technology LTL Less than Truckload N Sample Size ROI Return on Investment

SaaS Software as a Service SCM Supply Chain Management TMS Transportation Management

System TL Truckload VMI Vendor Managed Inventory

Founded in 1986, ARC Advisory Group is the leading research and advisory firm for industry. Our coverage of technology from business systems to prod-uct and asset lifecycle management, supply chain management, operations management, and automation systems makes us the go-to firm for business and IT executives around the world. For the complex business issues facing organizations today, our analysts have the industry knowledge and first-hand experience to help our clients find the best answers.

ARC Strategies is published monthly by ARC. All information in this report is proprietary to and copyrighted by ARC. No part of it may be reproduced with-out prior permission from ARC.

You can take advantage of ARC's extensive ongoing research plus experience of our staff members through our Advisory Services. ARC’s Advisory Services are specifically designed for executives responsible for developing strategies and directions for their organizations. For membership information, please call, fax, or write to:

ARC Advisory Group, Three Allied Drive, Dedham, MA 02026 USA Tel: 781-471-1000, Fax: 781-471-1100 Visit our web pages at www.arcweb.com

Page 24: Return on Investment for Transportation … Steve Banker ARC STRATEGIES NOVEMBER 2011 Return on Investment for Transportation Management Systems Executive Overview 3 …

3 ALLIED DRIVE DEDHAM, MA 02026 USA 781-471-1000

USA | GERMANY | JAPAN | KOREA | CHINA | INDIA | BRAZIL | ARGENTINA