Technology can be leveraged to optimize transportation at three basic levels: Strategic Direction, Planning and Actual Execution. Companies typically start using technology to help in setting right the basics first (execution challenges) and then as they mature and become lean, they understand the need for using technology to drive strategic direction and planning.
1. What is a Transportation Management System?
Transportation Management System refers to a category of software that deals with the planning and execution of the external physical movements (transportation) of products across supply chains. Various subcomponents/ features of a typical TMS can be categorized broadly into three categories, namely:
- Planning and Optimization
- Visibility and Performance Management
Planning and Optimization
Figure – Components of a typical Transport Management System (Source: Magic Quadrant for Transportation Management Systems, 2007, C. Dwight Klappich)
The key features which a TMS supports with respect to planning and optimization are :
Load Consolidation –
Firms employ consolidation tactics in order to minimize on the transportation cost and it can be based on any number of considerations including, routing, delivery date, capacity, and customer preferences. Load or for that matter order consolidation help firms to minimize both billable and payable freight costs.
Route Planning and Scheduling –
Route Planning allows firms to run businesses more efficiently by managing dozens of customer and regulatory requirements while building the best routes for private or dedicated fleets. It does all this by accommodating a range of factors including delivery windows, delivery appointments, load and unload times, product-to-vehicle compatibility, and driver assignments. Route Planning helps firms create the most efficient logistical routing plans. It does this by allowing them to assign orders and customers to routes, move orders and customers between routes, rearrange route sequences, establish balanced zones and territories, and pool equipment and driver resources according to established business rules. Route planning and scheduling has direct impact on firm’s transportation cost, asset utilization, service levels etc.
Mode and Carrier Selection –
Mode selection analyzes the cost and services requirements for shipments and recommends the optimal mode. In the case of a truckload shipment mode analysis, Transport management system automatically searches for an intermodal rate and service requirement. If the intermodal mode will meet transit requirements, the load is tendered to move using the lowest cost intermodal provider. This process also applies to LTL versus TL shipment mode analysis. Less than truckload (LTL) orders are automatically pre-consolidated. If a client has multiple orders moving in the same timeframe and same origin/destination, the system will combine them. Each shipment is then auto-rated using both LTL and TL rates stored in the system. These shipments are passed to TMS for LTL mode selection optimization. TMS then consolidates individual shipments into optimal multi-stop truckloads or pool distribution loads. The lowest cost solution will be returned to the order management module for execution. Carrier selection takes into account Client loads for the period, Carrier capacity commitment for the period, Carrier’s applicable transportation rate matrix etc. TMS technology optimizes the freight mix for any designated period, providing the minimal total transportation cost for the period regardless of the number of shipments.
Freight Audit and Payment –
A typical TMS calculates full bottom-line freight costs, evaluates rating and service options, and improves freight audit accuracy. As bills of lading are received, the freight audit tool conducts a rate search of each shipment to verify that the proper version of the contract is used, along with any contract amendments and assessorial charges. This ensures that overcharges are promptly acknowledged and resolved with the carrier. Linkages to ERP and other financial system ensure greater visibility throughout the firm.
Freight Procurement –
One of the key features of a typical TMS is the freight procurement tool which helps firms in managing the bidding process be it, incremental bidding, multi-round bidding or expressive bidding. It also has features enabling online bidding from various 3PLs wherein they can send quotations and request for proposals, which goes a long way in removing the bottlenecks in case of manual process.
Multi-modal Transportation –
Built for international users, Transportation Management System (TMS) additions include ocean, rail, and air-based multi-modal transportation support; time-based transit service standards; and enhanced geo coding. Features allow transport by means other than roads, including barge and ferry travel over ocean or Short Sea, maximizing efficient transportation methods and allowing accurate transit time calculation. Software also features global map and guide support.
Visibility and Performance Management
Shipment Tracking and Trace –
communicates shipping information to the carrier and enables track and trace functionality. Web visibility enables timely and accurate shipment tracking, status monitoring, event management, and reporting to efficiently share information across the organization.
Visibility and Event Management –
Through Event Management & Visibility feature of TMS, each step in the transportation management process can be managed. This includes generating the low-cost constraint-based transportation plan, tendering the load, receiving carrier confirmation, tracking and monitoring shipments in real-time, and analyzing your carriers and your freight costs to detect areas of improvement. By gaining more accurate and timely visibility into this critical information, organizations are able to exponentially improve the flow of data and information within their supply and demand chains and logistics organizations to proactively manage the flow of goods and minimize the additional cost of expediting late orders.
This feature captures complete shipment history for analytic analysis of performance and costs. It allows integration of information, analyses, and analysis tools to help decision makers prioritize their transportation needs. The function of this feature is to inventory information and other transportation features; collect, analyze, and summarize data; identify and track performance measures; identify needs and help determine strategies and actions to address those needs; and monitor and evaluate the effectiveness of strategies and actions that are implemented.