Control your transportation costs with transportation management software (TMS)
By Rich Freeman
Rising fuel prices are pushing up transportation expenses. Through good management of carriers and the use of transportation management software, however, businesses can gain efficiencies in a volatile global economy.
In Summary:
| • | Consolidate your shipments with a few carriers and send them shipping projections to help you negotiate lower rates. |
| • | To find the least expensive shipping option, use transportation management software (TMS). |
| • | Hosted transportation management software products are a cost-effective option for midsize companies. |
Most decision-makers are too busy thinking about their customers and products to worry much about how they transport the latter to the former. That has been changing lately, though, for reasons all too familiar to anyone who owns a car. Climbing fuel costs are causing higher freight rates and creating anxiety about transportation expenses among senior managers. What many executives are learning, however, is that a little added rigor in how they plan and execute shipments can bring meaningful efficiencies.
Create better relationships with carriers
Many midsize companies take their shipping to whichever carrier happens to have capacity that day. But if you consolidate shipments with a limited number of preferred carriers, you can negotiate reduced rates. Bid optimization applications (also known as transportation procurement systems) can assist with that process by helping you assemble detailed information about your shipping patterns and compare offers from competing vendors.
Sharing shipping projections with your carriers can also shave the transportation bill by allowing them to plan ahead. "You're basically becoming a lower-cost customer for that carrier to serve, and in return they can reward you with lower rates," says Beth Enslow, a senior vice president and supply chain practice leader at the Aberdeen Group.
Automate shipping operations
Most businesses use time-consuming manual processes to schedule shipments. Moreover, many companies employ static rules based on the size of a given load or its destination to decide which carrier they use, even though rates, routes, and availability change constantly. "The business rules you put in place very logically [before] may have little to do with what your actual cost is today," Enslow notes.
Transportation management software systems, such as Supply Chain Execution for Microsoft Dynamics AX, can review an entire day's worth of shipments and automatically find the least expensive combination of load, route, and carrier. "That can drive out significant costs," Enslow observes. In addition, by streamlining labor-intensive tasks such as confirming availability and placing shipment orders, transportation management software (TMS) creates time for more strategic activities.
In fact, companies that use a TMS to automate their interactions with shippers and to send carriers shipping projections two weeks in advance have maintained steady transportation costs in recent years, according to Aberdeen Group. Businesses that don't employ those simple measures have seen their freight costs rise an average of eight percent.
Here's another benefit of using a TMS: It can help you hold your carriers to their promises. Drawing on the data in your TMS, you can build a "carrier scorecard" that monitors whether shippers are meeting their capacity and pricing commitments.
How to choose the right TMS
The best news about TMS software is that it's more affordable than ever before, especially for midsize organizations, says Enslow. She recommends that decision-makers take a close look at hosted TMS products, which don't require large, up-front investments and are easy to install, requiring no infrastructure beyond a Web browser.
Before investing in a TMS, be sure to assess your business requirements carefully. TMS options range from simple to sophisticated, and it's easy to buy more software than you really need. For example, companies with an efficient finance team might benefit from load and route optimization software but get little value from an optional add-on module for payment automation. Other businesses might not require a TMS at all. If you do most of your shipping with parcel carriers such as FedEx and DHL, for instance, you probably have little need for the sophisticated price comparison algorithms in a TMS.
Just the same, with transportation costs rising, every business should study its shipping processes for inefficiencies. "There are lots of things that even the smallest organization can [do] that will streamline [transportation procedures]," notes Dennis Kelley,
project manager for Tompkins Associates Inc., a supply chain consulting firm that does business in the United States and United Kingdom. Taking advantage of just a few can help you neutralize those troublesome fuel prices.
Rich Freeman is a Seattle-based freelance writer specializing in business and technology. He has more than 14 years of strategic marketing and communications experience in the IT industry.
