Which TMS is Right for You? Using supply chain software to meet today's shipping challenges
By George Moser and Peter Ward -- Supply Chain Management Review, 4/1/2008
&& Back to the beginning of "What Transportation Management System (TMS) is Right for You?"
Every day it seems the challenges to efficiently managing global transportation resources only intensify:
-
Ocean carriers are separating inland drayage from the ocean voyage letting shippers fend for themselves and/or pay more.
-
New, stricter Customs screening regulations (commonly known as the new 10+2 law) will require more collaboration between shippers and carriers. Shippers may be able to gain pricing concessions from carriers and freight forwarders if they can efficiently take on the burden of providing the bulk of the information for 10+2 electronically.
-
Crude oil prices around the $100/barrel level are forcing diesel and bunker fuel prices higher, and carriers are passing back these increases as fuel surcharges. Shippers who can efficiently manage fuel surcharges are better positioned to pass on those costs to customers, thus minimizing profit erosion.
There are three major areas of consideration for managing transportation functions more efficiently and effectively:
-
technology,
-
processes, and
-
organization and people.
Since technology should enable better processes and a more productive organization, let's look at that first.
As the supply chain has become more integrated, access to logistics and transportation information across multiple functions and groups has become more common and more important. In order to provide greater shipment visibility, an increasing number of companies are looking at options for TMS to replace antiquated legacy systems or to augment standard ERP functionality. The choice for a TMS solution is no longer limited to the stand alone (or perpetual license) system. Basically, there are three TMS options available today:
-
Perpetual License/Perpetual License with Hosting
-
Multi-Tenant Software as a Service
-
Partial Outsourcing/Private Software as a Service Transportation Management Systems, as introduced in the 1990s, were specialized stand-alone systems designed specifically for transportation-mode users. At that time These systems had limited capability to manage large amounts of data efficiently.
In many companies, each mode of transportation (trucking, rail, ocean, and air) had its own distinct staff, culture, and technology needs. The classic configuration typically required a specific software license and additional infrastructure hardware. The system implementation nearly always required outside support as well as ongoing support from the company's IT group.
The licensing arrangement also typically required the payment of annual maintenance fee for the software, usually 18-22 percent of the original acquisition price. This “perpetual license” model has some variations. It can be managed by the corporate transportation staff and maintained by the IT department. Alternatively, the hardware can be hosted at an off-site location by a company specializing in those services.
Another form of the perpetual license that has gained currency recently uses the best-of-breed software typified by the perpetual license, but with transportation process outsourcing. Typically, this is only available as a private subscription.
With the widespread use of the Internet for business beginning in the early part of this century, another form of TMS has emerged: the multi-tenant software as a service. Typically web-based, these systems are hosted by the software provider with access granted via the Internet to related business parties.
| Exhibit 1 - Key TMS Characteristics | |||
|---|---|---|---|
| Characteristics | Perpetual License and Perpetual License with Hosting | Transportation Process Outsourcing With Private Software as a Service (SaaS) | Multi-tenat Software as a Service |
| Timing of Buyer's Cash Outlays | Software license and services paid at beginning plus periodic payment to host vendor | Periodic payment (e.g. monthly) over life of contract for license, services & hosting | Periodic payment (e.g. monthly or transaction-based) over life of contract for license, services & hosting |
| Time to Implement | 4-6 months depending on functionality needed | 3-5 months depending on functionality needed | 2-3 months using current built-In configurations and if system infrastructure is already set up |
| Need for IT Staff Involvement for Hardware | High | Low | Low |
| Need IT staff for network connections | High | Medium | Low |
| Need for Implementation Consultants | High | Included | Low |
| Ease of Upgrade | Medium | Low | Low |
| Hardware Uptime Responsibility | IT Staff (or host if using hosted model) | Provider | Provider |
| Ready Access to EDI Links to Carrier Base | Low | Medium | High |
| Data Security | High | High | Potential Problem |
| Restricted Access to Shipper Information | High | High | Potential Problem |
| Performance at Peak Times | High | High | Potential Problem |
| Ability to Customize Configuration | High | High | Low |
| Ability to Control Scheduled System Maintenance | High | High | Low |
When planning to acquire a TMS, companies need to assess certain longer-term considerations as well. Exhibit 2 characterizes the various models from this perspective. Note that the chart indicates several potential problems with the multi-tenant SaaS model in terms of access and control of data, carriers' rates, etc.
| Exhibit 2 -Long-Term Issues | |||
|---|---|---|---|
| Characteristics | Perpetual License and Perpetual License with Hosting | Transportation Process Outsourcing with Private Software as Service | Multi-Tenat Software as Service |
| SOX Compliance | High | High | Potential Problem |
| Scalability for Future Growth | High | High | Potential Problem |
| Data Ownership | Shipper | Shipper | Potential Problem |
| Ownership of Carrier Rates | Shipper | Shipper | Potential Problem |
| End of Contract Concerns | N/A | Low | Potential Problem |
| Access to Additional Carriers | No | No | Yes |
>> Next: The private SaaS model benefits
In this article, Which Transportation Management System is Right For You?
-
Using supply chain software to meet today's shipping challenges
View All On-Demand Webcasts
