Don’t Fit Large Shippers into a Square Peg
I recently read an article that did a nice job providing an overview of the choices available to shippers when evaluating transportation management systems (TMS). The article went on to describe how large global shippers approach transportation management. From my perspective this is where the article left readers misinformed.
There are several portions I agreed with; the author provided a solid overview of the different choices available along a clear spectrum from outsourced to self-managed.
The choices provided were:
• Outsource completely to a third party logistics provider (3PL) or forwarder
• Contract with a 3PL or forwarder to provide and manage the technology
• Acquire a TMS from a technology vendor and either have a 3PL or forwarder manage the system, require the vendor to manage the system, or contract with the vendor to manage the system in-house
We have published a lot of content regarding the above framework. I feel there are many factors to consider when choosing a solution that makes the most sense. The size and geographic reach of the shipper’s freight network are important considerations. Also, the degree of control that the shipper is looking for, their outsourcing philosophy, and the level of resources/expertise they possess are all factors that need to be weighed.
When it comes to global as opposed to domestic applications, the choice of TMS solutions is narrow. There are relatively few systems available that are capable of effectively managing a global transportation network.
The article suggested that large shippers with global supply chains should question whether a 3PL is capable of managing such a network, and these shippers probably opt for an in-house TMS function. This is where I think this article and others like it are not looking at the whole picture.
From my perspective, the use of management services is a very compelling and growing trend among large global shippers and there is hard tangible evidence as to why.
Modern supply chains are vastly different from the traditional, linear model, particularly on a global scale. Today’s shippers have to deal with longer and shorter lead times, more carriers, more geographies, and different customer demands. The number of supply chain variations is mind-boggling, and encompasses crossdocks, e-fulfillment centers, 3PLs, and deliveries direct to stores, end customers, and transition points or free trade zones. The new emphasis is on multi-channel, multi-modal logistics at a worldwide level.
The few TMS solutions that can handle this degree of complexity globally have a high price point, and it is not easy to compute their return on investment (ROI). Justifying the upfront capital expense—including the cost to manage and maintain the system internally—can be a stretch, even for large players. And that is assuming that the shipper is able to acquire the resources, including the talent, to manage the TMS and extract maximum value from the investment.
In addition to the above, I want to make one more point very clear. In today’s business environment, every shipper, and in particular large global companies, are under pressure to do more with fewer resources. They are asked to take their few and finite resources and focus them on strategic initiatives that drive profitable growth of their core brands. This is what makes management services compelling. It allows a shipper to gain all the benefits of insourcing a TMS, without having to employ, manage, and train people to operate the technology. Furthermore, the shipper gets to plug into pre-established processes and expertise that can allow them to gain a ROI on the technology faster.
I admit my position assumes you work with a provider that has a robust global TMS that can handle the complexities of a global supply chain. To be clear, those companies exist. From our vantage point, large global shippers are very attracted to this solution because of the blend of software and services. They get to have their cake and eat it too.