the economics of transportation management … [the economics of transportation management systems]...

1

Whitepaper2014

THE ECONOMICS OF

TRANSPORTATION MANAGEMENT SYSTEMS

Whitepaper [THE ECONOMICS OF TRANSPORTATION MANAGEMENT SYSTEMS]

2

Even in a soft economy transportation costs in the United States have continued

to increase and there is every reason to expect these increases to continue

According to the 2014 CSCMP State of Logistics Report transportation costs were

up 2 in 2013 but evidence suggests that when 2014 figures are available the

increases will be somewhat higher As economic conditions improve carriers are

expected to experience continuing rising fuel costs and capacity constraints as

well as driver shortages The supply of drivers will be particularly concerning as

new government regulations hours of

service issues and lack of interest in

the driver lifestyle will combine to

exacerbate shortages and increase

carrier costs The new driver hours of

service rules which became effective on

July 1 2013 are especially problematic

for both drivers and carriers and even

the more efficient carriers such as

Schneider National and others have experienced losses in productivity ranging

from 3 to 5 While the courts have ruled on these regulations - several times - a

new bill has been introduced in Congress that would roll some of the provisions

back to pre- 2013 levels These and other factors will almost certainly increase the

rates to the shipping public Already a major expense for most firms transportation

costs in 2013 totaled $862 billion or 51 of 2013 GDP according to the State of

Logistics Report

This is putting a tremendous amount of pressure on supply chain managers to

monitor and manage their transportation expenses as closely as possible

Especially under the difficult economic conditions experienced over the past few


3

years managers are finding that they are expected to do more with less while at

the same time minimize costs and maintain superior levels of customer service

Concurrently with these often stressful working conditions management of the

transportation function is simply getting more complicated The increasing need to

deal with different modes of transport globalization and the multiple methods of

delivery required by customers is making it much more difficult to manage than it

was 10 years ago

In 1610 Galileo Galilei said ldquoWe must measure what can be measured and make

measurable what cannot be measuredrdquo Over the years this statement has

evolved into the more direct often quoted axiom ldquoYou cannot manage what you

cannot measurerdquo But today over 400 years later logistics managers still struggle

with the premise While transportation management systems (TMS) have been

utilized by some firms for over 30 years it was not until fairly recently that more

sophisticated and readily available technology have made them extremely efficient

measurement and management tools Today in order to protect their firmsrsquo costs

service and positions in the marketplace increasingly supply chain managers are

turning to this technology as a necessary tool No longer are transportation

management systems a ldquonice to haverdquo functionality they are critical to the

management of this important and expensive function According to the 2013

Logistics Management Technology Usage

Study in 2012 34 of the companies

responding were utilizing a TMS This was

up about 16 from 2011 Fifty percent

were either using or planning to purchase

a system in the near future


4

Steve Banker service director for supply chain management at the ARC Advisory

Group forecasts a 68 compounded annual growth through 2015 This data is

consistent with a recent survey by the Warehousing Education and Research

Council as well These findings suggest that many of todayrsquos managers are

recognizing the importance of these systems

Transportation Management Systems are

particularly important to logistics service providers

as they collaborate with their customers in

minimizing costs while at the same time

providing ldquobest practicerdquo service to their

customersrsquo customers Most providers will agree

that in todays marketplace prospective clients of

logistics service providers expect them to provide

a fully functional TMS which includes at the very

least a load optimizer a rate and transit time

comparison an electronic request for service and

load confirmation to and from carriers a route

optimizer and an electronic delivery confirmation According to Jeff Miller

President of EFill America This type of TMS functionality is no longer an option

but the price of admission needed to gain entry into the selection process The

Transportation Specialists Group (TSG) is a third-party logistics and transportation

management firm providing solutions that will optimize its clients supply chain

operations According to president Gary Smith TSG relies heavily on TMS to

facilitate these solutions Having the TMS technology in place gives our clients the

ability to make intelligent informed decisions about the shipping lanes available to

them It takes the emotion out of the decisionrdquo says Smith The 2014 Third Party

Logistics Study confirmed that 70 of the respondents expect their logistics

service providers to have a good TMS


5

What was just a few years ago a small cottage industry now provides one of the

major pieces of software used in the supply chain industry There are literally

hundreds of systems to choose from Of course some firms have developed their

own proprietary systems but many are turning to one of the many software

vendors offering the TMS

capability Some companies

prefer a one-client system

developed specifically for their

use and others utilize hosted

software-as-a-service systems

Often a smaller firm will not

require an extensive TMS and

can utilize one of the cafeteria

plans available Under this

type of arrangement some

providers will offer individual

modules and the user can buy

what they need initially and

add on as they need it Most of these firms seem to prefer routing scheduling

rating carrier selection consolidation of shipments and load tendering tools All

users whether large or small seem to agree however that a good system will have

two basic modules - planning and execution Most will also agree that they are

experiencing savings in transportation spend of at least 5 - 6

Savings of course are averages but have been confirmed by extensive research

by consultants educators publications and others Savings will also vary by

individual firm depending on what improvement opportunities are available and

how well the users manage the systems If a manager has information available


6

and doesnt act on it he or she is not going to save much TMS expert Adrian

Gonzalez said several years ago ldquoReal-Time Performance Management (RPM) is

the next frontier in achieving operational excellence and TMS will play a critical

role by providing more accurate and timely visibility to costs and other KPIrsquosrdquo This

prediction has proven to be true and those firms utilizing a TMS are experiencing

cost savings in several areas

AVAILABILITY OF INFORMATION OR BUSINESS INTELLIGENCE

The business intelligence that can be gained from a TMS can be invaluable to the

user firm All the rates routes contracts and other relevant data are captured in

the system and reside there for later revision and analysis Having visibility to all

the data relating to your transportation function and being able to improve

performance through a careful analysis of this information can reduce a

transportation spend by anywhere from 25 to 3 Some of the things that can be

done with information derived from a TMS are

The issuance of carrier report cards providing consolidated information

about all the key carrier metrics such as performance and billing accuracy

The development of an executive dashboard graphically displaying all your

key performance indicators and

Modeling The TMS gives you the ability to analyze any type of what if

scenario to compare different modes carriers and services

MCG Logistics utilizes the CTSI-Global TMS James Manning President amp CEO

says ldquoThe CTSI-Global TMS technology is a must for MCG to provide key

analytics Utilizing the modeling tool is a critical component of our process


7

Furthermore many MCG clients move their loads in a more efficient manner

through MCG utilizing the CTSI-Global applications enabling us to deliver both

hard and soft savings to our clientsrdquo

CONTRACT MANAGEMENT

One of the major areas in

which firms have

experienced cost reductions

by using a transportation

management system is

contract management The

system provides a central

repository for all carrier

contracts and greatly

enhances the process of

modifying rates and terms Through standardization at a central location a firm

can manage changes benchmark make comparisons and perform analyses of

surcharges across various modes and carriers This eliminates a significant

administrative burden To manage contracts manually is a time-consuming often

error-prone activity Experts estimate that administrative costs for an average-

sized firm can be reduced by as much as 10 Obviously the more contracts a

firm has the greater the cost reductions will be And this doesnrsquot include the

savings that may be realized in freight spend as a result of more efficient

standardized management


8

MODE AND CARRIER SELECTION

One of the more complex decisions a supply chain manager must make is which

mode or carrier to use in moving its products In the past mode selection has been

fairly straightforward but the growth in intermodal service and the improvements in

rail schedules of

recent years have

made the motor

carrier intermodal

decision much

more competitive

Even after the

appropriate mode

has been selected

the choice of a

carrier within that mode sometimes can be a daunting task The goal of the user of

course is to provide the best possible service at the lowest possible cost

As a result there is much more to carrier selection than simply utilizing the least

cost provider The firm must be able to develop a carrier base that recognizes the

carriersrsquo performance and cost in each traffic lane it utilizes A routing guide can be

developed and constant monitoring facilitated Reasons for not using the preferred

carriers can be documented as can the carriersrsquo own performance The contract

management module is also helpful here in that it will keep current the information

necessary to make educated decisions


9

Mobile Mini another user of the CTSI-Global system ldquohas experienced operational

efficiencies through the routing of loads obtaining multiple freight quotes selecting

carriers creating bills of lading and monitoring shipment statusrdquo Says Mark

Baldwin Fleet Manager ldquoMost importantly the TMS has allowed us to meet our

customer commitments without having to rely on additional expense for expediter

carriersrdquo

Estimates of reductions in freight expenditures through more efficient carrier

selection range from 5 to 10 However one major logistics service provider

realized savings of over 12 by eliminating the ldquohuman factorrdquo In their particular

case they found that carrier selection that was not influenced by relationships

resulted in significant cost reductions This can be a much more significant

problem than many of us realize This industry has to a large extent been built on

relationships and these may still affect our carrier choices

RATE NEGOTIATION

Having a database of all the rates paid to various carriers greatly enhances a firmrsquos

negotiating capability The user can determine trends and easily make

comparisons among the various modes and

carriers Armed with detailed information

about what rates are being paid to which

carrier as well as alternatives that are

available a logistics manager will have a

decided advantage in the discussion

Savings can range from 5 to a high of 15

through well-documented negotiations


10

LOAD OPTIMIZATION AND CONSOLIDATION

One of the more popular modules of a TMS provides a tool for optimizing loads

and routing Over the years as shipments have become smaller and capacity has

become more problematic firms have found themselves faced with smaller more

expensive LTL shipments The optimization technology available today will enable

shippers to analyze shipments and aggregate orders build drop shipments and

stop offs set up continuous moves shift modes or consolidate smaller shipments

into one truckload Most experts will agree that this module can reduce freight

spend by as much as 10

Consolidation of shipments is even

more profitable for the logistics

provider and its customers LSPs

have consolidated shipments for over

50 years but today with their large

client bases and sophisticated

optimization tools they are able to

combine what would have been LTL

shipments into truckloads reducing

freight and handling costs as well as

carbon footprints The leading providers have excellent systems that automatically

will optimize both loads and routes A case in point is that of Scranton

Pennsylvania-based Kane Is Able The Kane TMS allows them to provide faster

delivery times reduce carbon footprints economically refresh inventories with

regular smaller shipments and in addition afford their customers savings ranging


11

from 20 to 35 of their freight costs This is a classic example of how creative

thinking about an old concept using a modern TMS can result in new successes

CH Robinson also has taken steps to make it easier and more economical for its

customers to consolidate shipments

It is probable that consolidation is going to become much more important

particularly in the retail industry Since 2010 Amazoncom has spent almost $14

billion on new distribution centers The company now has 89 centers and more

are planned Their goal is to be in a position to deliver most of their orders on the

day they are received With the increase in online purchases expected to total

$14 trillion by 2015 consumers are becoming more demanding and overnight

service no longer is enough This suggests an opportunity for a logistics service

provider to move into a densely populated area and offer a service that provides

various manufacturers and distributors an opportunity to consolidate their products

with those of other manufacturers and distributors for same-day delivery Many

firms cannot afford to take the Amazon approach of building huge facilities in

multiple markets nor should they An efficient logistics service provider with a

strong TMS can enable their retail clients to compete quite effectively with the

Amazons of the industry at a reasonable cost

SHIPMENT EXECUTION

One of the more time-consuming activities of a transportation manager is that of

tendering loads to the various carriers in their database While it is sometimes

difficult to quantify the automation of this somewhat tedious process can result in

administrative savings as well as reductions in freight expenditures The use of a

shipment execution module can automate load tendering and create an online bill

of lading that can be transmitted to the carrier using either EDI or email Carriers


12

can respond immediately if there is an error and corrections can be made

immediately thus avoiding later issues Appointments can be scheduled and proof

of delivery provided all electronically Load builders aid in reviewing approving or

modifying load plans

Order status can be determined

throughout the transaction and if

necessary replacement shipments can

be made promptly In addition to

administrative savings (which could be

significant depending on volume of

traffic) the accurate execution of every

shipment every time can yield freight

savings of 1 to 3

INVOICE AUDIT AND PAYMENT

A state-of-the-art TMS will have a freight bill audit and payment module Arguably

this can be one of the most gratifying of all the modules The primary appeal is the

strong possibility of reduced costs It costs a large firm about $11 in fully allocated

costs to pay a freight bill manually Using a freight bill payment (FBP) module the

cost will be approximately 5-10 of manual handling Add to this another 2 to 5

saved through the reduction in incorrect andor duplicate freight bills and the

savings can be significant While the cost reduction can be significant in and of

itself the real value is added through the business intelligence generated by the

system Even before the bill is paid the system will assure that the correct rates

and accessorial charges are paid Post-payment activity can include almost any


13

type of reporting the managers desire including such things as routing

compliance expense by mode and expense by product

INVENTORY VISIBILITY

One of the major routes to profitability for any firm is the effective control of

inventory levels A TMS can provide visibility to inventories of raw materials

supplies and finished goods as well as inventories in transit from suppliers to

customers With this information an effective control can be established throughout

the supply chain and total inventories can be reduced The total cost of carrying

inventory often can be quite high and by utilizing a TMS a firm can achieve cost

reductions of as much as 2-3 of its total revenue

CUSTOMER COMMUNICATIONS

Customers and other receivers have become

much more particular about the service they

are receiving and demand real-time visibility

to their orders A TMS provides this ability

and receivers can determine the status of

orders and shipments The system can also

produce ASNs or Advance Shipping Notices

so the receiver will know what products are

on the way before they arrive This is

particularly important to customers like Walmart who operate sophisticated cross-

dock distribution centers


14

Michael Fairchild Director of IT Sales and Operations Support at Givens

Companies stated ldquoAt Givens we derive value from the CTSI-Global TMS by

automating extremely complex business rules For instance many of our clients

are shipping to big box retailers and cannot afford to fall out of compliance due to

the exposure of charge backs The TMS is configured to recognize these

customers and alert our coordinators to orders that will not meet delivery

requirements due to time constraints With this information we are able to expedite

where necessary and avert what otherwise would be a potential delivery failurerdquo

Savings in this area are more difficult to quantify but some firms acknowledge 1-

2 of transportation expenditures

PERFORMANCE IMPROVEMENT

As Galileo suggested the ability to manage a

function is dependent on the firmrsquos ability to

measure performance In the past transportation

management has proven to be one of the most

difficult activities to measure With todayrsquos

transportation management systems however

measuring internal and carrier performance no

longer is such a challenging task Key

Performance Indicators (KPIs) can be established

and performance measured against them TMS

vendors have developed systems that will enable

firms to take advantage of ldquobig datardquo It has been

said many times that ldquoinformation is powerrdquo That might well be true but with


15

trillions of bytes of data being gathered constantly the real power is in having a

capability that will enable the use of the information effectively Transportation

Management Systems can meet that need Savings in this area can be almost

unlimited but even a modest effort will yield cost reductions ranging from 1 to 5

CONCLUSION

If a firm already has a highly effective system the indicated savings will be less

but few if any firms that have installed a TMS did not achieve savings in several

areas As mentioned earlier with all the issues that face transportation users

today the function is becoming increasingly difficult to manage Capacity

problems driver shortages rising fuel costs and deteriorating infrastructure to

name a few contribute to the complexity of this important activity and it is virtually

impossible to manage effectively without sophisticated technology The necessity

for carrier and mode shifts is becoming much more frequent and often decisions

must be made on a momentrsquos notice In many cases millions of dollars are being

spent unnecessarily and with ever increasing cost pressures a firm cannot afford

this inefficiency Transportation Management Systems have been the answer to

the information visibility and execution needs of hundreds of firms Not only will

they facilitate the status quo they offer unlimited opportunities to significantly

reduce costs


16

ABOUT

Clifford F Lynch is Principal C F Lynch amp Associates a supply chain management advisory firm He has several decades of experience in the supply chain and is recognized as an expert on outsourcing and other aspects of the supply chain He is also is the author of several books and numerous articles on the subjects of logistics and supply chain Website wwwcflynchcom Phone 901-619-2182 Email cliffcflynchcom

CTSI-Global provides shippers and 3PLs with freight bill audit and payment customized transportation management system (TMS) applications business intelligence logistics consulting as well as a variety of global solutions that meet its clientsrsquo business requirements and supply chain needs Its supply chain management expertise and technology helps companies manage and control all aspects of their supply chains - physical informational and financial - within one global database giving them more control improved efficiencies and a cost-effective process to result in greater savings Website wwwctsi-globalcom Phone +1-888-836-5135 Email solutionsctsi-globalcom Subscribe to CTSI-Globalrsquos supply chain blog The Link ndash Your Link to Supply Chain Community

lsquoThe Economics of Transportation Management Systemsrsquo was authored by Clifford F Lynch Principal

CF Lynch amp Associates

copy2014 CTSI‐Global All rights protected and reserved


2

Even in a soft economy transportation costs in the United States have continued

to increase and there is every reason to expect these increases to continue

According to the 2014 CSCMP State of Logistics Report transportation costs were

up 2 in 2013 but evidence suggests that when 2014 figures are available the

increases will be somewhat higher As economic conditions improve carriers are

expected to experience continuing rising fuel costs and capacity constraints as

well as driver shortages The supply of drivers will be particularly concerning as

new government regulations hours of

service issues and lack of interest in

the driver lifestyle will combine to

exacerbate shortages and increase

carrier costs The new driver hours of

service rules which became effective on

July 1 2013 are especially problematic

for both drivers and carriers and even

the more efficient carriers such as

Schneider National and others have experienced losses in productivity ranging

from 3 to 5 While the courts have ruled on these regulations - several times - a

new bill has been introduced in Congress that would roll some of the provisions

back to pre- 2013 levels These and other factors will almost certainly increase the

rates to the shipping public Already a major expense for most firms transportation

costs in 2013 totaled $862 billion or 51 of 2013 GDP according to the State of

Logistics Report

This is putting a tremendous amount of pressure on supply chain managers to

monitor and manage their transportation expenses as closely as possible

Especially under the difficult economic conditions experienced over the past few


3







was 10 years ago




















4






























5





























6

























7




CONTRACT MANAGEMENT


which firms have



















8





rail schedules of

recent years have

made the motor

carrier intermodal

decision much

more competitive

Even after the

appropriate mode

has been selected

the choice of a











9






carriersrdquo








RATE NEGOTIATION












10


























11



















SHIPMENT EXECUTION








12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







3







was 10 years ago




















4






























5





























6

























7




CONTRACT MANAGEMENT


which firms have



















8





rail schedules of

recent years have

made the motor

carrier intermodal

decision much

more competitive

Even after the

appropriate mode

has been selected

the choice of a











9






carriersrdquo








RATE NEGOTIATION












10


























11



















SHIPMENT EXECUTION








12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







4






























5





























6

























7




CONTRACT MANAGEMENT


which firms have



















8





rail schedules of

recent years have

made the motor

carrier intermodal

decision much

more competitive

Even after the

appropriate mode

has been selected

the choice of a











9






carriersrdquo








RATE NEGOTIATION












10


























11



















SHIPMENT EXECUTION








12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







5





























6

























7




CONTRACT MANAGEMENT


which firms have



















8





rail schedules of

recent years have

made the motor

carrier intermodal

decision much

more competitive

Even after the

appropriate mode

has been selected

the choice of a











9






carriersrdquo








RATE NEGOTIATION












10


























11



















SHIPMENT EXECUTION








12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







6

























7




CONTRACT MANAGEMENT


which firms have



















8





rail schedules of

recent years have

made the motor

carrier intermodal

decision much

more competitive

Even after the

appropriate mode

has been selected

the choice of a











9






carriersrdquo








RATE NEGOTIATION












10


























11



















SHIPMENT EXECUTION








12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







7




CONTRACT MANAGEMENT


which firms have



















8





rail schedules of

recent years have

made the motor

carrier intermodal

decision much

more competitive

Even after the

appropriate mode

has been selected

the choice of a











9






carriersrdquo








RATE NEGOTIATION












10


























11



















SHIPMENT EXECUTION








12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







8





rail schedules of

recent years have

made the motor

carrier intermodal

decision much

more competitive

Even after the

appropriate mode

has been selected

the choice of a











9






carriersrdquo








RATE NEGOTIATION












10


























11



















SHIPMENT EXECUTION








12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







9






carriersrdquo








RATE NEGOTIATION












10


























11



















SHIPMENT EXECUTION








12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







10


























11



















SHIPMENT EXECUTION








12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







11



















SHIPMENT EXECUTION








12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







12













savings of 1 to 3













13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







13
























14


























15





CONCLUSION














reduce costs


16

ABOUT







14


























15





CONCLUSION














reduce costs


16

ABOUT







15





CONCLUSION














reduce costs


16

ABOUT







16

ABOUT






the economics of transportation management … [the economics of transportation management systems]...

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