Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
By Steve Banker
ARC STRATEGIES
NOVEMBER 2011
Return on Investment for Transportation Management Systems
Executive Overview .................................................................... 3
Methodology .............................................................................. 4
The ROI of TMS .......................................................................... 5
Multitenant versus Traditional TMS ............................................... 12
TMS ROI Correlations ................................................................. 14
Risk versus Reward ................................................................... 15
Final Thoughts .......................................................................... 19
Appendix 1: Demographic Data .................................................. 20
VISION, EXPERIENCE, ANSWERS FOR INDUSTRY
ARC Strategies • November 2011
2 • Copyright © ARC Advisory Group • ARCweb.com
Question: As compared to manual processes, what do you believe you save, as a percentage of freight costs, from using a TMS?
3.8%
9.6%
23.1%
40.4%
23.1%
0.0% 15.0% 30.0% 45.0%
Use of TMS Increases our Costs
No Difference
TMS Decreases our Freight Costs by < 5%
TMS Decreases our Freight Costs by 5-10%
TMS Decreases our Freight Costs by > 10%
Savings from TMS
Savings Buckets
No Savings
Savings<2%
Savings2-4%
Savings 5-7%
Savings 8-10%
Savings>10%
Increased Usage of Preferred Carriers 32.7% Most
Common Largest Possible
Better Procurement Negotiations 42.3% Most Common Largest
Possible
Lower Cost Mode Selections 30.8% Most
Common LargestPossible
More Fully Loaded Equipment 44.2% Most Common Largest
Possible
Better Routing 30.8% Most Common Largest
Possible
Reduction in Carrier Overcharges 38.5% Most Common
LargestPossible
Key Areas in Which a TMS Reduces Freight Spend
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 3
Perhaps no other supply chain application offers so many ways
to save money or drive value. And no other supply chain application offers so many
different forms of optimization.
Executive Overview
A transportation management system (TMS) helps companies move freight
from origin to destination efficiently, reliably, and cost effectively. TMS
encompasses solutions for moving freight in all modes and also includes
intermodal movements. The TMS processes include freight transported
inbound or outbound, domestically or internationally; using transportation
assets owned either by the company or an outside service provider. The
freight managed by a TMS ranges in size from parcels to bulk commodities.
Perhaps no other supply chain application offers so many
ways to save money or drive value. But the main reason
companies implement a TMS is to reduce freight spend.
A TMS achieves these savings based on process enforce-
ment, analytics, and optimization; with virtually no other
supply chain application offering so many different forms
of optimization.
This ARC Advisory Group report, based on a user survey, is designed to
report on the ROI associated with implementing a TMS. There is particular
focus on the degree to which a TMS can reduce freight spend. Several
methods can be used to reduce freight spend, with the different “savings
buckets” having different levels of savings (and different risks) associated
with them.
To get something, a company must give something. This report shows the
degree to which the freight savings are captured by TMS suppliers in the
form of software licenses, implementation, and other costs associated with
a TMS implementation.
Finally, this survey was designed to investigate what sorts of implementa-
tions achieved a higher ROI. The sample size is not big enough to drive to
the 95 percent level of statistical significance used in academia, but the data
do suggest certain correlations. The most important being that shippers
that implemented TMS solutions based on a traditional architecture per-
formed somewhat better in terms of service levels and freight savings.
ARC Strategies • November 2011
4 • Copyright © ARC Advisory Group • ARCweb.com
Methodology
This study on the ROI associated with implementing a transportation man-
agement system (TMS) is shipper centric. We were not interested in
learning the ROI a third-party logistics (3PL) supplier might achieve by im-
plementing TMS. Thus, we excluded 3PLs respondent from the survey.
Forty people responded to the survey. ARC then completed 12 telephone
interviews to gather more data points and gain qualitative insights. This
brought the total sample size to 52. We present additional demographic
data on size of companies, industries, and job titles in Appendix 1.
5.8%
26.9%
44.2%
23.1%
Under $5 Million
Between $5 and $25 million
Between $25 and $100 million
Over $100 million
Freight Spend Under the Control of the TMS
We asked a series of question to see what sorts of factors might be correlat-
ed with achieving a higher ROI from TMS investments. For example, we
asked about the freight spend under the control of the TMS to see if there
was a correlation between the size of the freight spend and the percentage
reduction in freight spend achieved. The spend demographics are shown
above. Further demographic data collected in the hope of determining cor-
relations can also be seen in Appendix 1.
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 5
The ROI of TMS
Transportation management systems offer a strong ROI. The primary area
where a TMS can save a company money is to lower its freight spend. The
figure on the inside front cover shows that over 40 percent of respondents
felt that if they were forced to give up their TMS and go back to more man-
ual processes for planning and execution, their total freight costs would
increase by 5-10 percent. Twenty-three percent felt their total freight costs
under the control of the TMS would increase by over 10 percent.
Freight spend can be reduced in a number of ways. Some methods focus
on collecting data that can lead to better decision making (for example,
gathering data for better procurement engagements). Some methods might
be classified as process enforcement (for example, by helping to ensure the
best carriers on a lane are selected for moves). And some would fall under
the rubric of optimization. The following table shows the savings opportu-
nities for the most common TMS freight savings categories.
Savings Buckets
No Savings
Savings<2%
Savings2-4%
Savings 5-7%
Savings8-10%
Savings>10%
Increased Usage of Preferred Carriers 32.7% Most
Common Largest Possible
Better Procurement Negotiations 42.3% Most
Common Largest Possible
Lower Cost Mode Selections 30.8% Most
Common Largest Possible
More Fully Loaded Equipment 44.2% Most
Common Largest Possible
Better Routing 30.8% Most Common Largest
Possible
Reduction in Carrier Overcharges 38.5% Most
CommonLargest Possible
To simplify the data, we have not provided the responses for all the fields
in the table. The data bolded in black show the percentage of respondents
that received no savings in a particular category. It is important to realize
that not every category of savings will apply to every company. The data
bolded in red show the most common response among those that did re-
port savings. The blue bolded data show the largest possible savings. To
control for inadvertent responses and outliers, we only would list “Largest
ARC Strategies • November 2011
6 • Copyright © ARC Advisory Group • ARCweb.com
The percentage of respondents that got no savings in a particular area provides a rough indicator of where it is easiest – or hardest –
to achieve savings.
Possible” savings if a cell on the far right hand side of the table had three or
more respondents.
We need to make a couple of points about this table.
First, when we examined the individual responses, the
different savings buckets often added up to more than
the total freight savings claimed. In phone conversations,
ARC learned that these savings are often not linear.
One reason for this is that the categories for savings represent a simplifica-
tion of the different ways in which freight savings can be achieved. For
example, in the routing area alone there are at least six distinct forms of
routing that might drive different levels of savings for a shipper. Further,
in some cases, these savings buckets overlap. For example, on the inbound
side you might combine the routing of Less-than-Truckload (LTL) ship-
ments to a merge point, at which point you are able to move to a lower cost
Truckload (TL) move. So, in our table, they might give a 5-7 percent sav-
ings to both “Better Routing” and “Lower Cost Mode Selections,” when this
is really one form of optimization involving what we have listed as two dis-
tinct categories.
Another reason that you cannot simply add the savings of the different sav-
ings bucket to get total savings is because they apply to different portions
of the total spend. For example, a shipper might be doing freight audit
across multiple modes, but only doing routing for outbound truck moves.
Another important thing to look at on this chart is the percentage of re-
spondents that got no savings in a particular area. This is a rough indicator
of where it is easiest – or hardest – to achieve savings. There are so many
ways a TMS can drive freight savings, trying to drive savings in all areas in
an initial implementation would greatly increase the chances of having a
failed implementation. So a key question becomes, which areas should a
company focus on initially?
In addition to reductions in overall freight spend, a TMS can also drive oth-
er types of benefits. ARC had conversations with respondents that sited
customer satisfaction as a primary justification in their business case for
doing a TMS project.
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 7
21.2%
23.1%
26.9%
30.8%
67.3%
0.0% 20.0% 40.0% 60.0% 80.0%
Cash Flow Improvements
Inventory Reductions
New Delivery Capabilities
Warehouse Efficiencies
Customer Satisfaction
A TMS Can Drive a Variety of Benefits in Addition to Lower Freight Spend
We gave respondents the ability to write in other improvements that could
be garnered from a TMS implementation. Respondents listed a variety of
other advantages. These included:
• Achieving a better understanding of the cost to serve customers or bet-
ter cost allocation at the product level
• Reductions in the size of the transportation department
• Sustainability
• Access to a greater number of carriers and increased ability to lock up
capacity over a longer planning horizon
• A reduction in the number of warehouses required
• And, better compliance to transportation related health, safety and en-
vironmental programs
These freight savings and other benefits do not come at the expense of ser-
vice degradation. We define service level here as the percentage of on-time
deliveries within a two-hour window.
ARC Strategies • November 2011
8 • Copyright © ARC Advisory Group • ARCweb.com
2.1%
34.0%
38.3%
25.5%
0.0% 15.0% 30.0% 45.0%
Service Deteriorated
Service Stayed the Same
Service Improved 5% or Less
Service Improved > 5%
64 Percent of Respondents Reported Improved Service after Implementing a TMS Solution
What Does a TMS Cost in Comparison to Its Savings?
Benefits do not come for free. Companies must pay for a transportation
management system. We asked respondents, “How reasonable are the fees
charged by your TMS supplier? If you consider the total costs associated
with the TMS over the first full three years of usage, what percentage of the
freight savings were eaten up by the costs associated with the TMS? Total
TMS costs would include all costs associated with implementation, soft-
ware license, maintenance or SaaS fees, new hardware costs, etc. Please
make your best estimate!”
As you can see in the chart on the next page, the most common answer was
that a TMS absorbed less than 10 percent of the total freight savings it
helped generate.
But 12 percent of respondents also reported failed implementations, at least
if a primary goal was to save money. Their TMS cost more than it saved in
freight costs.
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 9
11.6%
2.3%
11.6%
16.3%
25.6%
32.6%
0.0% 10.0% 20.0% 30.0% 40.0%
More than Savings
About the same as Savings
Absorbed more than 50% of savings
Absorbed between 25-50% of savings
Absorbed between 10-25% of savings
Absorbed < 10% of savings
Total TMS Costs as a Percentage of Freight Savings
A Tale of Two TMS Implementations
ARC talked to two natural resource companies that implemented a trans-
portation management system and achieved very different outcomes. In
both cases, the goals were similar: reduce the freight spend and improve
service. One company has had success on both fronts; the other has had on-
ly limited success improving service.
The company that achieved success was Baillie Lumber, a leading manufac-
turer and exporter of hardwood lumber to furniture, cabinet, and hardware
floor manufacturers around the world.
We won’t name the company that failed.
ARC talked to John Vitale, an IT Director at Baillie, about the company’s
implementation of Oracle Transportation Management (OTM).
Baillie moves lumber on flatbed trucks. Not many large carriers compete
for flatbed moves. The company actually gets the best rates on the spot
market. In short, the ability to drive savings in its domestic business, which
relies on trucking, was limited.
ARC Strategies • November 2011
10 • Copyright © ARC Advisory Group • ARCweb.com
Baillie’s largest TMS ROI bucket occurs on the export side and is based on
optimized routing. Routing is something that many associate with multi-
stop truck movements, but it also applies to global moves. This simplified
example shows shipping options that exist between one of its plants in
Leitchfield Kentucky and a port in Shanghai.
Global Routing Options
Many optimization runs generate more than six options, automatically
listed by OTM with the low choice route on top and the highest cost option
listed last. Based on the number of shipments done, and the complexities
associated with global moves, the company needed new hardware to be
able to scale to solve the problem sets.
Historically, when ARC has talked to companies with failed supply chain
implementations, the companies often do not blame the software supplier.
Rather they admit that the fault was their own. One common reason a
company will cite for a failed implementation is that it couldn’t change its
internal culture. And one is much more likely to hear “culture” as the cause
of a failed implementation when a project will require changes to the way a
sales force wants to do business.
This was the case with the failed TMS implementation. This company had
customers complaining about late deliveries. TMS was implemented, in
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 11
TMS Suppliers Respondents Reported Using
(Ordered from most frequently reported to least frequent)
• JDA • Oracle • RedPrairie • LeanLogistics • MercuryGate • IBM (Sterling Commerce) • Precision • SAP • Manhattan Associates • Logility • GT Nexus • One Network • Paragon • Descartes
part, so that the company could give more accurate estimated time of arri-
vals as part of the quote to potential customers. But in many cases, the sales
force ignored the estimated time of arrivals from the TMS and promised
quicker than feasible delivery dates to win business. The
transportation analyst responded by creating and pub-
lishing an “average days late” report. Now, the company
is under 10 days late. It had been substantially larger.
Evidence indicates this is driving new business and in-
creased wallet share on lanes where the company can
consistently hit the delivery day promise. But the sales
quotas, combined with a lack of executive oversight and
support, have made progress much slower than it should
have been.
Baillie has a very different culture. At Baillie, the Presi-
dent and top management actually continue to sell. They
have their own accounts and have to face their customers
on an ongoing basis. Consequently, at Baillie when the
TMS project commenced the top executives understood
the problems clearly and provided the executive-level
support necessary.
Baillie sets targets for its sales force, both for revenue and margin. The IT
department generates daily reports that show how all the salespeople are
performing to both their revenue and margin targets, up to date as of mid-
night the previous day. Salespeople can’t maximize revenues by lowballing
transportation costs without taking the hit on margin.
The sales force should not always quote the low-cost option. Usually, the
quoted price, which includes transportation costs, is given to the customer
before the carriers can confirm that they can take the load. The shipment
may end up going out based on a higher cost route than initially estimated.
The transportation manager has added comments to the options to help
guide the sales force. When a salesperson pulls up the different route op-
tions on his or her Blackberry, they may see a note that the low-cost ocean
carrier on a particular lane is having a hard time supplying containers. Or
perhaps a particular carrier’s charges will go up $400 on this lane in one
month’s time. Further, salespeople need to understand what their custom-
ers want. One of their customers may ask them not to use a particular
carrier because they have performed badly in the past.
ARC Strategies • November 2011
12 • Copyright © ARC Advisory Group • ARCweb.com
The company’s goal for the future is to have the transportation options dis-
played on the salesperson’s Blackberry show up with an asterisk next to the
suggested route. How they will balance predicted service levels and cost
has yet to be fully worked out. An IT Director’s work is never done.
Multitenant versus Traditional TMS
In no other supply chain market are both software as a service (a solution
sold in a leasing model) and multitenant solutions (public cloud) so well
entrenched. A multitenant solution is one in which multiple users from
multiple companies hit the same instance of the software. In TMS, a solu-
tion can be multitenant at the application layer, at the carrier
communication level, or both. Behind-the-firewall solutions are usually
sold using a software license model; multitenant TMS are sold using the
SaaS payment model.
So which solution is better?
In the area of service — where we define “service level” here as the per-
centage of on time deliveries within a two hour window — traditional
transportation management solutions perform better. In a traditional TMS,
the software license and implementation fee are paid for up front. Archi-
tecturally, the shipper has its own instance of the TMS, which resides
behind their firewall.
Service Improved by > 5%
Service Improved by 0-5%
Service Remainedthe Same
Service Got
Worse
Sample Size (N)
Traditional 41.7% 29.2% 25.0% 4.2% 24
SaaS Multitenant 10.0% 50.0% 40.0% 0.0% 20
This came as a surprise. If a shipper is doing EDI for tendering, advanced
ship notices, and overall visibility, then managing the EDI mappings and
the alerts generated by problem messages is not a trivial process. Small-
and medium-sized companies in particular can struggle with this. It may
be that functionality like broadcast tendering and dock scheduling are more
important in achieving service success than the communication infrastruc-
ture.
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 13
On the question of how respondents felt their TMS costs would increase if
they were to cease using it and replace it with manual processes, traditional
solutions again performed better.
Decreases Freight
Costs by >10%
Decreases Freight
Costs by 5-10%
Decreases Freight
Costs by < 5%
Freight Costs Stay the Same
or Increase N
Traditional 29.6% 44.4% 11.1% 14.8% 27
SaaS Multitenant 15.0% 35.0% 40.0% 10.0% 20
However, when asked how much their TMS savings were being whittled
down by the total costs associated with owning and running the TMS, the
data suggests that SaaS solutions were more economical.
As ARC looks across the TMS market, it appears to us that on a feature-
function basis, the leading traditional solutions as a group are more mature
than the SaaS solutions. While a few multitenant solutions are very mature,
many are much less so. This is not surprising. Many of the public cloud
TMS companies are much younger.
ARC interviewed one respondent who worked for a company with over a
billion dollars in North American freight spend. This shipper used both
traditional TMS and the multitenant solutions from JDA. It used the tradi-
tional solution to plan and execute core freight shipments. This shipper had
also created its own 3PL firm, responsible for non-core freight shipments,
such as for small air shipments to a R&D lab. Its 3PL used the multitenant
solution to “fill in the white space” because it could be implemented more
quickly and thus had better time-to-value.
In this respondent’s view the JDA public cloud solution had great optimiza-
tion capabilities, particularly surrounding less-than-truckload to truckload
consolidation and multi-stop routing. The company’s main reason for us-
ing the traditional, behind-the-firewall solution for the bulk of its business
was that it generated such huge numbers of transactions that if it had gone
with the public cloud solution, JDA would have had to add three huge
servers and then charge extra for those transactions. The math suggested it
was cheaper for the company to own the hardware. This respondent also
believed that if a shipper had a private fleet, some customization might be
necessary to maximize savings. Public cloud solutions cannot support cus-
tomization.
ARC Strategies • November 2011
14 • Copyright © ARC Advisory Group • ARCweb.com
TMS ROI Correlations
Shippers that had previously been doing their transportation planning and
execution manually achieved somewhat better results than those that had
previously been using a different TMS or who had used a 3PL to do their
planning and execution. One would think that moving from nothing to
something would lead to better results than moving from something to
something similar. However, the difference was surprisingly modest.
Previously Doing Manual Planning
& Execution
Previously Used a TMS or 3PL for Planning &
Execution
Use of TMS Increases our Freight Costs 0.0% 14.3%
No Difference 10.5% 7.1%
Use of TMS Decreases our Freight Costs 89.5% 78.6%
Sample Size 38 14
A transportation management system can be used in different types of
moves: outbound or inbound. Users can also plan inbound and outbound
jointly to reduce empty miles, and can use a TMS for planning private or
dedicated fleet movements. Historically, TMS was used mainly for plan-
ning and executing outbound moves. But the ROI from a TMS is better if
you use it to plan multiple types of moves. Three companies reported us-
ing TMS only for planning inbound moves. Because that subsample is so
small, we excluded it from the following table.
Outbound Only
Multiple Types of Moves
Use of TMS Increases our Freight Costs 7.1% 0.0%
No Difference 14.3% 4.5%
Use of TMS Decreases our Freight Costs 78.6% 95.5%
Sample Size 28 22
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 15
One goal of this research was to see whether respondents that used a TMS
for truckload (TL) or less-than-truckload (LTL) got better results than those
that used a TMS to plan and execute air, ocean, or rail moves. We suspect
this was the case because TL and LTL moves lend themselves to more dif-
ferent types of optimization. For example, if you load a rail car and it goes
out full to a customer site and comes back empty, the opportunities for
mode consolidation are nil and clever routing opportunities would be min-
imal.
However, the data did not lend itself to this type of analysis. Most shippers
that used a TMS to plan ocean, air, or rail moves also used it for TL and
LTL planning.
Risk versus Reward
Perhaps the most important chart in this report showed the key areas
where a transportation management system can reduce a shipper’s freight
spend, and the potential freight reductions driven by those different sav-
ings buckets. But there are so many ways a TMS can drive freight savings,
trying to drive savings in all areas in an initial implementation would great-
ly increase the chances of having a failed implementation.
So a key question becomes: on which areas should a company focus initial-
ly? This depends partly on a company’s strategy. But it also makes sense
to focus on areas where the savings potential is greater, while the chances
of failure are lower. The following table shows our analysis of the difficulty
of achieving freight savings in the different areas.
Increased Usage of Preferred Carriers
No Savings Savings
<2% Savings 2-4%
Savings 5-7%
Savings 8-10%
Savings >10%
32.7% Most Common Largest
Possible
EASY TO MODERATELY DIFFICULT: Achieving savings in this area is
relatively easy if a shipper implements a networked multitenant solution.
This style solution largely solves the EDI connectivity to carriers’ issues that
ARC Strategies • November 2011
16 • Copyright © ARC Advisory Group • ARCweb.com
can be so difficult to solve for small firms without an electronic commerce
department.
For carriers that move hazardous materials, gaining this functionality is
important even if it does not lead to significant savings. It is important that
the carriers they work with are properly insured and certified and this often
trumps the potential savings.
Better Procurement Negotiations
No Savings Savings
<2% Savings 2-4%
Savings 5-7%
Savings 8-10%
Savings >10%
42.3% Most Common Largest
Possible
MODERATELY DIFFICULT TO DIFFICULT: A TMS provides data that
can help drive better procurement negotiations. But it takes time to gather
these data and there is not an immediate ROI.
Shippers that move significant amounts of hazardous materials, chilled or
frozen goods, or other equipment in short supply cannot expect the same
level of savings from procurement.
Centralized planning also allows for better procurement. But only 56 per-
cent of the respondents had moved to centralized planning based upon
their most recent TMS implementation. This could indicate cultural chal-
lenges in this area.
Various forms of complex optimization are also possible in this area that
can drive higher levels of savings. But these forms of advanced optimiza-
tion can be technically difficult and require planners with an industrial
engineering background.
Lower Cost Mode Selections
No Savings Savings
<2% Savings 2-4%
Savings 5-7%
Savings 8-10%
Savings >10%
30.8% Most Common Largest
Possible
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 17
EASY: The lower the percentage of respondents that say they received no
savings in a particular savings area, the better. More respondents got value
in this category than any other. Consolidating from LTL to TL is fairly easy
with a TMS and offers the largest possible savings.
However, not all shippers have operations that lend themselves to this.
Chemical industry respondents, who frequently ship by rail and ship, said
this category offered limited savings for them.
More Fully Loaded Equipment
No Savings Savings
<2% Savings 2-4%
Savings 5-7%
Savings 8-10%
Savings >10%
44.2% Most Common Largest
Possible
EASY TO DIFFICULT: At one level, this is easy. The TMS produces re-
ports on how fully loaded a container is and these data can help drive
better performance from the planners.
In other industries, customer service representatives or salespeople take
orders and are supposed to provide discounts only for full truckloads.
These reports can again help ensure that discounting is done properly.
However, as the case study showed, changing sales force behavior is not
always easy.
This can also be an optimization problem that works particularly well if
customer service personnel can suggest to a customer that their orders be
slightly larger or smaller to allow them to better fill the trucks. This can be
the case in vendor-managed inventory relationships in which the shipper
has been given a certain amount of latitude in the quantities delivered. But
achieving these types of collaborative partner relationships is not easy and
often goes beyond the scope of a transportation department.
Finally, many industrial manufacturers have loads that will always weigh
out before they cube out. Their savings potential for these shippers is non-
existent.
ARC Strategies • November 2011
18 • Copyright © ARC Advisory Group • ARCweb.com
Better Routing
No Savings Savings
<2% Savings 2-4%
Savings 5-7%
Savings 8-10%
Savings >10%
30.8% Most Common Largest
Possible
EASY TO DIFFICULT: This is one of the two areas in which the largest
numbers of respondents get their savings. Outbound, multi-stop TL rout-
ing is the most common form of routing and its prevalence suggests that
most TMS suppliers do not have problems supplying savings in this area.
However, jointly routing inbound and outbound shipments to reduce emp-
ty miles, or jointly routing carriers and private fleets, can be very complex
and require a highly scalable solution. Suppliers differ widely in their abil-
ity to do complex routing.
Reduction in Carrier Overcharges
No Savings Savings
<2% Savings 2-4%
Savings 5-7%
Savings 8-10%
Savings >10%
44.2% Most Common Largest
Possible
MODERATE TO DIFFICULT: Here we saw the lowest savings potential of
all areas. Planners have to stay on top of changes in fuel surcharges and
accessorials to drive ongoing savings based on freight audit.
If a shipper gets all or most of its LTLs on one fuel surcharge program and
its TL carriers on a different program, then the shipper only needs to make
two changes a week in its system to cover a large part of its carrier base.
Achieving these programmatic changes can take time.
Finally, the desire to achieve these capabilities is often driven more by a
desire to understand costs, than to save money on freight. A freight audit
module can help deliver granular costs associated with serving different
customers or the fully loaded costs associated with different products’ prof-
itability.
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 19
Final Thoughts
Historically, transportation management systems were implemented main-
ly by food & beverage, consumer goods, retail, and high tech industries
because these industries had more opportunities to drive savings in more
different areas, or higher savings in a particular savings bucket. However,
increasingly, TMS are being bought by a wide range of industrial manufac-
turers and distributors that may not be able to achieve the same level of
savings, but are convinced they can achieve payback within two years.
For companies that have never implemented a TMS, the decision is not just
whether to implement a TMS or continue to rely on manual planning. The
true decision a shipper must make is whether to implement a TMS or have
a 3PL firm with a good TMS do the transportation planning and execution
for them. A future ARC report will look at the ROI associated with trans-
portation planning and execution-managed services.
Finally, because of the myriad ways in which a TMS can save a company
money and the difficulty in accomplishing savings in all areas in the initial
implementation, the business case for upgrades is much stronger in TMS
than in many other supply chain applications. It is common for companies
to start with outbound LTL/TL on an initial implementation and then ex-
pand to cover inbound, other modes, and other regions, during subsequent
upgrades.
ARC Strategies • November 2011
20 • Copyright © ARC Advisory Group • ARCweb.com
Appendix 1: Demographic Data
Hierarchical Job Title Data
Departmental Job Title Data
6% 6%
88%
Not Classifiable by Department
IT
Supply Chain
Supply Chain titles include jobs with the terms Supply Chain, Logistics,
Transportation, Shipping or a freight mode (like “Ocean”) in the job title.
Industry Demographics
Respondents came from the following industries:
25.0%
9.6%
9.6%11.6%
44.2%
Other Manufacturing or Distribution
Retail
Electronics/High Tech
Chemicals
Consumer Goods/Food & Beverage
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 21
Regional Shipping Supported by the TMS
ARC asked “What regions are you using the TMS to plan and execute
shipments for? Please select all that apply!”
1.9%
1.9%
9.6%
17.3%
94.2%
0.0% 25.0% 50.0% 75.0% 100.0%
Internally within Australia/New Zealand
Internally within Asia
Internally within Europe
Cross border shipments between regions
Internally within North America
Multiple Answers Permitted
Moves Supported by the TMS
19.2%
23.1%
42.3%
90.4%
0.0% 25.0% 50.0% 75.0% 100.0%
Plan inbound and outbound moves together to reduce
empty miles
Plans private fleet, dedicated fleet, or common
carrier moves together
Inbound Moves
Outbound Moves
Multiple Answers Permitted
We also asked respondents, “Do you make significant numbers of ship-
ments that have the following characteristics?”
ARC Strategies • November 2011
22 • Copyright © ARC Advisory Group • ARCweb.com
17.3%
19.2%
21.2%
25.0%
25.0%
0.0% 10.0% 20.0% 30.0%
Hazardour Materials
Dedicated Fleet
Private Fleet
Direct to Store
Chilled/Frozen Goods
Multiple Answers Permitted
TMS Architecture
17.3%
30.8%51.9% Hosted
Multi-tenant
Traditional
These different forms of architecture are defined in the section titled “Mul-
titenant versus Traditional TMS”.
Modes Supported by the TMS
13.5%
17.3%
17.3%
36.5%
36.5%
76.9%
90.4%
0.0% 20.0% 40.0% 60.0% 80.0% 100.0%
Ocean
Air
Other
Rail
Parcel
LTL
TL
Multiple Answers Permitted (Other was mostly identified as being Intermodal)
ARC Strategies • November 2011
Copyright © ARC Advisory Group • ARCweb.com • 23
Author: Steve Banker
Survey/Analysis Support: Clint Reiser, Antonio Ciolfi, Paul Chatha Editor: Paul Miller Distribution: EAS Clients
Acronym Reference: For a complete list of industry acronyms, refer to our web page at www.arcweb.com/Research/IndustryTerms/
3PL Third Party Logistics EDI Electronic Data Interchange IE Industrial Engineering IT Information Technology LTL Less than Truckload N Sample Size ROI Return on Investment
SaaS Software as a Service SCM Supply Chain Management TMS Transportation Management
System TL Truckload VMI Vendor Managed Inventory
Founded in 1986, ARC Advisory Group is the leading research and advisory firm for industry. Our coverage of technology from business systems to prod-uct and asset lifecycle management, supply chain management, operations management, and automation systems makes us the go-to firm for business and IT executives around the world. For the complex business issues facing organizations today, our analysts have the industry knowledge and first-hand experience to help our clients find the best answers.
ARC Strategies is published monthly by ARC. All information in this report is proprietary to and copyrighted by ARC. No part of it may be reproduced with-out prior permission from ARC.
You can take advantage of ARC's extensive ongoing research plus experience of our staff members through our Advisory Services. ARC’s Advisory Services are specifically designed for executives responsible for developing strategies and directions for their organizations. For membership information, please call, fax, or write to:
ARC Advisory Group, Three Allied Drive, Dedham, MA 02026 USA Tel: 781-471-1000, Fax: 781-471-1100 Visit our web pages at www.arcweb.com
3 ALLIED DRIVE DEDHAM, MA 02026 USA 781-471-1000
USA | GERMANY | JAPAN | KOREA | CHINA | INDIA | BRAZIL | ARGENTINA