By Tony Donofrio, Stephen Francis and Harsh Joshi
In a column in the Spring 2016 issue of Wholesale and Distrbution International, we discussed the power of simplicity and noted that “simple and easy are not always the same thing.” Now we’ll help your company drive simplicity by asking some hard questions about transportation management systems (TMS).
If you haven’t heard of TMS, you can think of it as “Uber for freight.” Just as the smartphone app allows passengers to “pool” rides, a TMS enables you to aggregate freight with actors outside of your enterprise.
This might not sound like a big deal, but in fact, it’s revolutionary. All enterprises that ship physical product must decide where they fall on the axis of “responsiveness” vs. “efficiency”. Efficiency is largely a matter of aggregation — you pool shipments together to save on costs — like sharing a taxi with a friend, then splitting the fare. A TMS with a large network saves money for all of its users, because there are more opportunities to “split the fare” and load transports in both directions. As you can imagine, the more actors in the network, the bigger these “network effects” become.
Of course, you can overdo aggregation by adding pickups and drop-offs and thereby running up costs. The ideal supply chain hits the sweet spot between aggregation and number of stops. This is impossible to achieve by using a spreadsheet – it takes the automation that only a TMS can provide.
What Can It Do For You?
If we look at the six main factors in supply chain — facility, inventory, transportation, pricing, information and sourcing – we can see that TMS provides a single lever that influences all of them. It also improves supply chain visibility; for example, a TMS ranges across your entire organization to find freight that can be bundled then prices vendors, optimizes routes, and automates tracking while improving productivity and driving better customer service. One great side effect of this is that silos break down and efforts become more coordinated. It also hits the “responsiveness” side of the equation – simply put, TMS speeds things up.
These systems also greatly improve overall visibility and provide you with actionable intelligence about your freight and third-party logistics providers. The finance functions in your organization will likely become advocates, as calculating cost of goods sold and other key measures becomes an automated process based on effective and accurate measurement. We find that clients who start using a TMS not only improve on total delivered cost, they actually learn which KPI’s are worth focusing on. TMS provides real-time data sets they could never gather any other way.
We mentioned that you’d have to ask yourself some hard questions. What would the optimal TMS do for you? What improvements in cost and service could you realize? What KPI’s should you focus on? Would those really serve you? How can you be sure?
These questions are critical if you’re shopping for a system, because they refine your thinking. There are so many excellent TMS offerings out there that simply issuing an RFP will swamp you with replies. The above questions are a good start toward getting clear about your requirements; we recommend you set your answers down in a “Statement of Objectives” (SOO) before looking for vendors. As bids come in, you’ll learn what else is possible and update your SOO accordingly. This forms the basis for a Statement of Work, which then flows into the eventual contract. A reputable consultant can be a big help here — look for one that asks a lot of questions and has some real depth, who knows the vendors and can help you find the right one — and one who gets paid via a fee, not vendor commissions.
Supply Chain professionals are always trying to balance responsiveness and efficiency. When was the last time you found a tool that would help with both — and that allowed you to scale up with no added costs? Get in front of your competitors: Embrace this revolutionary tool without delay.
Tony Donofrio, principal and head of Argo Consulting’s supply chain practice, has more than 30 years of supply chain experience. He has a reputation for taking on tough challenges, creating growth opportunities and outperforming the competition. Stephen Francis, senior consultant, co-created the “Argo Integrated Management System” (AIMS). He develops and implements tools that drive deep and rapid change for Argo’s clients. Harsh Joshi, senior consultant, within Argo’s Supply Chain Practice, leads financial and operational improvement projects. He has also managed many TMS projects for the company.