Only large, high-volume shippers with complex freight networks need to invest in a transportation management system (TMS). This is a familiar argument in the logistics industry, but does it hold water?
The answer is yes and no, although the argument is moving more towards the “no” end of the spectrum. Let me explain why.
First, it is true that some small and medium-sized shippers can’t justify a TMS investment. They move relatively few loads infrequently, and don’t need the support of a sophisticated management system. For these players managing the route guide on a spreadsheet and manually sending load tenders, for example, works perfectly well.
In other cases it is not so much the cost or sophistication of the technology that deters smaller operators from investing in TMS services, but corporate culture. In these organizations freight management is relatively low on management’s list of priorities, and they tend to allocate a small budget to transportation (to be fair, this is the case in some large enterprises as well).
There is no standard definition for what constitutes a high-volume as opposed to a low-volume network. But one rule of thumb is that a threshold of 10,000 shipments per year or $10 million in annual spend separates the large shipper from the small in the context of a TMS investment
Despite barriers like these, however, many smaller players do use TMS technology, often in third-party arrangements since buying a solution and fully utilizing it in-house might not be a viable option.
How come these shippers can justify the use of a third-party TMS provider?
In some cases it again comes back to the question of culture. They see transportation as a strategic activity both from cost-efficiency and customer service standpoints. In fact, we find that both low-volume and large-scale TMS users have almost identical service expectations. Just because a shipper is not in the big league does not mean they have only moderate freight management demands. These players employ advanced features such as business intelligence and continuous improvement in the same way major TMS users do.
It’s also worth keeping in mind that a shipper does not have to invest in an all-singing, all-dancing solution; they can buy specific items from the TMS menu. Making delivery appointments and automated spot bid tendering are examples of discrete services that some shippers purchase. Moreover, the arrival of software-as-a-service offerings facilitates this “buffet” approach.
But perhaps the most compelling argument for small shipper buy-in is that TMS technology is becoming more important for managing international shipments. Globalization is by no means new, but there is more urgency than ever for enterprises large and small to improve the efficiency of their international operations.
We have covered this aspect of freight management in a number of blog posts. But to recap briefly, the explosive growth of e-commerce, the rise of megacities, and expanding middle classes in developing economies, are among the trends that are driving global growth. And these drivers are as relevant for small and medium-sized players as they are for large, multi-national companies. Developing a worldwide customer base is fast becoming a competitive necessity in many industries, regardless of your size.
If small and medium-sized shippers want a piece of the growing global trade pie, they must become proficient at moving freight internationally. TMS technology is moving in the same direction, and eases the burden of dealing with multiple, unfamiliar national cultures and foreign logistics systems. The technology also brings advanced analytics within the reach of the low-volume shipper. The ultimate example of these capabilities is the control tower, where a TMS-based management center oversees the movement of freight across multiple countries.
A decade ago, developments like these may have seemed very distant from the operations of small and medium-sized shippers. Not so today.
That is not to say that TMS solutions are for every enterprise. But for many shippers that have dismissed the technology as the domain of large-scale movers of freight, maybe it’s time to revisit the technology.