A Guide to Transportation Management Software
By Gregory D. Girard -- Supply Chain Management Review, 6/1/1998
Transportation provides a key link in the supply chain between suppliers and customers. When products are delivered, they generally trigger the all-important payment mechanism—or at least initiate the accounts payable process. Customers expect perfect or near-perfect supplier delivery performance. In fact, this expectation is rapidly becoming the norm in most consumer and industrial distribution channels.
Managing the transportation of goods, however, can be complicated for myriad reasons. To master that complexity, some shippers are turning to Transportation Management System (TMS) applications software.
The TMS market is evolving rapidly. Over the last few years, the players in this space have given shippers much of the functionality needed to manage the enterprise's transportation activities effectively. Advances in computing power, continued tuning of transportation modeling techniques, and improved telecommunications technology have supported the extension of TMS functionality.
These technology advances also have caused a shift in TMSs' place in the enterprise. The focus of best-practice TMS functionality has shifted from the shipping dock to the enterprise load-control center. Such centers plan, schedule, and manage transportation activities across the enterprise—and, in some cases, across the supply chain. At the same time, transportation management functionality is being integrated into enterprise applications.
Only a few industry leaders have recognized the strategic potential of transportation management software. The early adopters have been predominantly in the retail, food, and grocery industries, mainly because of the time-sensitive and cost-sensitive nature of their products. They are taking advantage of such TMS capabilities as route planning, shipment consolidation, track and trace, and post-shipment analysis to gain a strategic advantage over their competition with improved customer service. Most companies in most other industries, however, are not capitalizing on the many opportunities available today.
In surveying the TMS market, AMR Research found seven distinct TMS application segments that exist today. (See Exhibit 1.) Significantly, no single vendor provides a comprehensive solution spanning all seven segments. However, this situation will change dramatically over the next 12 to 18 months with the emergence of new, extended component-based TMS capabilities called Global Enterprise Transportation Optimization and Management. GETOM for the first time will provide the architectural framework for "plug and play" enterprise transportation-management components across all modes worldwide. The realization of comprehensive, GETOM-style solutions will take longer.
This market hit its stride last year, establishing TMS as an enterprise application that is no longer relegated to the shipping dock. Consider the following indicators:
- Major industry player SAP redoubled efforts to enhance R/3 functionality for bulk- and packaged-material transportation management and acquired SID of Philadelphia. The acquisition not only brought SID's software product (Industrial Transportation) into the SAP fold, but also SID's domain expertise, particularly in rail transportation for process industries.
- i2 Technologies acquired InterTrans to integrate Supply Chain Strategist, Venture Freight Optimizer, and Venture Freight Management into the Rhythm suite of supply chain applications.
- J.D. Edwards announced it would develop its own Enterprise Transportation Planning (ETP) functionality in OneWorld built on ILOG tools.
- The acquisition of Bender Management Consulting catapulted SynQuest into the TMS space with functionality and domain expertise in ETP and Routing and Scheduling (R&S), which will be used to extend SynQuest's supply chain planning suite.
- The Sabre Group entered the TMS market. The $1.8 billion travel and logistics information-technology provider is majority-owned by AMR Corporation, the parent of American Airlines. With the introduction of Opti-Bid, Sabre has created Carrier Bid Optimization, a new TMS application segment that redresses the functional and business obstacles to constructing optimal combinations of transportation service contracts.
- International Trade Logistics (ITL) emerged as a new TMS segment in 1997. The firms now leading that market are Vastera, Syntra, and RockPort Trade Systems.
- Acquisition-hungry Descartes Systems Group gobbled up Michael Mead & Associates and Roadshow International en route to building an integrated supply chain powerhouse.
All of this activity shows there is more interest in transportation management applications than ever before. However, TMS vendors will find competitors, potential partners, and acquirers coming from all angles. And they may find that the noise Warehouse Management System (WMS), ERP, and Advanced Planning System (APS) vendors are making about their supply chain solutions might make the TMS message hard to hear.
The upside for TMS vendors is that they have strong products that complement the growth plans of larger vendors, especially those emphasizing warehouse management and advance planning systems.
...In a Period of EvolutionTMS applications address business issues at all levels of enterprise management—operational, tactical, and strategic. Some of these applications are database-centric, while others employ optimization and other advanced decision-support methodologies. For example, a routing and scheduling application will build the best daily routes for private or dedicated fleets by running dropoff and pickup appointments, activities planned at each stop, and street-level geographic data through decision-support algorithms. This application also analyzes cost, service, and profitability trade-offs. Shipment management tools, on the other hand, support carrier and mode shopping per shipment. They look at limited load consolidation and carrier performance tracking by analyzing on-line databases that give tariff file updates.
AMR has segmented today's TMS market into the seven categories discussed below, fully recognizing that the market is rapidly evolving. We predict a rapid consolidation in the TMS industry, both in terms of application segments and market share. Five drivers have set these trends in motion:
- ERP vendor encroachment. SAP and J.D. Edwards have announced product-development plans and made strategic technology acquisitions that will strengthen their enterprise transportation products in 1998 and 1999. Other ERP players will follow suit.
- TMS vendor extension of product footprints through internal development and acquisition. Vendors are responding to the predominant user desire for comprehensive functionality from the fewest possible vendors.
- Supply chain management solution suites. Vendors that offer only TMS functionality—and even those that provide more extensive product offerings—are at a disadvantage compared to those that can deliver a comprehensive supply chain management solution. Vendors offering manufacturing planning, supply planning, and demand planning in addition to transportation planning can sell higher in the organization. This gives an edge to a few vendors, such as Manugistics, Logility, and SynQuest, all of which offer TMS functionality within their integrated supply chain management suites. InterTrans Logistics Solutions should have a similar advantage as it integrates its TMS applications with those of its strategic supply chain partner, i2 Technologies.
- Evolution of immature TMS segments. Two TMS application segments, carrier bid optimization and international trade logistics, are new even by the current standards of product and market evolution. However, they represent natural extensions of two more established segments: enterprise transportation planning and enterprise management. AMR expects consolidation through acquisitions involving players in both of these new spaces.
- Convergence on supply chain execution. Historically, four factors have fragmented the order-fulfillment process into two processes, transportation and warehousing. These factors are transportation regulation, functional business silos, narrow information system footprints, and the need for inventory to buffer uncertainty. All of these factors are not as much of a force as they used to be. As a result, TMS and WMS will rapidly converge into a broader configurable component architecture of supply chain execution.
Exhibit 2 shows the TMS application segments that will evolve in the near future. Three segments will provide comprehensive support for life-cycle enterprise transportation management. Although the supply chain analysis and design (SCAD) and shipment management tools (SMT) application spaces will continue with their own identities, a new component—GETOM—will emerge. Global Enterprise Transportation Optimization and Management will include all segments that now constitute the TMS application space with the exception of SCAD and SMT. Importantly, it will provide the architectural framework for "plug and play" enterprise transportation management components. In terms of functionality, these components will be roughly equivalent to the separate applications in today's market, but extend capabilities to handle the complexity of multiple organizations, countries, sites, and transportation modes.
- Offer the appropriate mix of functionality to meet diverse and evolving enterprise transportation requirements effectively.
- Integrate as needed with ERP applications as these vendors evolve their own component architectures to provide such complementary robust functionality as transportation planning.
- Offer comprehensive solutions to carriers, enhancing the solutions they now offer shippers.
As GETOM develops, it will extend the capability of enterprise transportation management to rail and intermodal, modes that have long posed the most vexing challenges for transportation planning, scheduling, and executive applications.
The Seven Current SegmentsTo make the right choices in this dynamic TMS environment—choices that respond to existing requirements while supporting future software enhancements—users need to understand the current capabilities within this space. AMR has broadly categorized today's product offerings into these seven major segments:
1. Supply Chain Analysis and Design (SCAD)
Applications in this segment are decision-support tools that bridge the worlds of TMS and Advanced Planning and Scheduling. Planners and consultants use SCAD applications to address such strategic and tactical decisions as sizing, locating, and configuring production, transportation, and logistics assets; entering and exiting markets; and making long-term commitments to material suppliers, carriers, and customers.
The planning horizon for SCAD tools may extend years into the future, providing an environment to model the costs, capacities, and constraints of all supply chain resources and business rules. These tools employ advanced mathematical techniques to make choices on alternative objectives such as least cost, maximum profit, or maximum market share.
SCAD tools address such questions as:
- Which configuration of material sources, plants, distribution centers, and transportation lanes can we operate at the lowest cost and still achieve customer-service objectives?
- Should we supply a new market from existing sourcing and production points or build new facilities to meet expected new demand?
- Are we balancing transportation, production, and inventory strategies to meet customer-service requirements at the lowest cost?
- Are our customers being supplied by the optimal distribution channels with all costs considered?
Until recently, the effort required to build SCAD models and populate them with well-tuned data restricted their use to longer-term strategic decisions. Although recent enhancements have made these products easier to use, they remain the province of the true power user. With advances in data acquisition and ease of use, these tools increasingly will lend themselves to tactical decision support.
The leading SCAD vendors are CAPS Logistics, InterTrans Logistics Solutions, Manugistics, and SynQuest.
2. Enterprise Transportation Planning (ETP)
These applications bring tactical planning and operational decision support to the large, complex shipping operations of manufacturers, distribution companies, and third-party logistics providers. Typical operations include inbound, outbound, and interplant movement of raw materials, components, Work in Progress (WIP), finished goods, or some subset of these movements through the supply chain network.
Large shippers typically employ a mixture of core transportation modes and services selected from the full range of options: parcel, less-than-truckload (LTL), truckload, rail, intermodal, air, and ocean. They must make tactical and operational decisions regarding modes, carriers, routes, and equipment to meet several sets of objectives and constraints. These decisions center on:
- Inbound delivery schedules for manufacturing.
- Outbound shipment schedules set by distribution and logistics planning.
- Transportation service expectations of customers.
- Operating budgets.
- Carrier capacity constraints.
- Carrier contracted volume and performance commitments.
In operations, ETP applications are used to produce a cost-effective, executable, multi-period transportation plan for the current operating horizon. The plan actually consists of a schedule and near-term plan. The schedule covers a few days and includes carrier and equipment appointments, loads, and routes that meet the transportation requirements. The near-term plan looks out a week or more to adjust requirement forecasts and reserve capacity.
The ETP application reviews all shippable orders inside an "operating horizon" to determine which should be executed either that day or the next day, and which should be held for the near future in order to meet all constraints at the lowest cost. (See Exhibit 3.)
Enterprise Transportation Planning applications use linear programming models to evaluate and select the optimal mix of transportation services. The models reflect the following about the shipper's transportation environment and strategies:
- Shipper's transportation environment:
- Commodities shipped
- Cube, weight, and handling requirements
- Shipment volumes
- Distance and density
- Geography
- Location, order, and product constraints
- Modes and carriers used
- Core carrier programs
- Volume commitments
- Negotiated rates and tariffs
- Expected delivery times
- Relevant business rules
As detailed in Exhibit 4, these applications analyze alternative combinations of shippable orders and transportation service strategies to select the least-cost mix consistent with all constraints.
ETP applications generate proportionally greater cost savings when run against larger transportation problems. The most favorable problems have more shipments and higher shipment densities, not simply more origins and destinations. Such situations are typically found when the transportation requirements of multiple plants, divisions, or businesses are considered simultaneously. This characteristic makes these applications especially useful in load-control—center operations and when used by third-party logistics providers.
Larger problems present more opportunities to find savings. Users whose annual transportation bill exceeds $30 million generally derive the greatest benefit. They typically enjoy transportation savings in the range of 5 to 15 percent, though savings can sometimes be substantially greater.
An ETP application also provides the shipper with a "what if" analysis tool for tactical and strategic planning. In this context, it can be run against a transportation requirements forecast, a business operating scenario, or historical data to address such planning issues as:
- Is our current modal and carrier mix optimal for a planned change in business strategy and operations?
- Which carriers best meet our requirements and should be included in our core carrier program?
- Are we making best use of pool points in our consolidation and deconsolidation strategies?
- Where can we lower cost and improve service?
The leaders in this application segment include CAPS Logistics, InterTrans Logistics Solutions, Manugistics, McHugh Software International, and SynQuest.
3. Enterprise Transportation Management (ETM)
The applications in this segment support the full life cycle of transportation operations in large, complex shipping environments. These are transaction systems that interface with the ERP system (or its legacy equivalent) to support the transportation requirements of inbound material delivery, outbound customer-order delivery, and interplant material transfers.
ETM applications interface with Enterprise Transportation Planning functions at load tendering and carrier acceptance. They also interface with other systems operated by the enterprise, customers, suppliers, carriers, third parties, ports, and customs authorities. These interfaces may be manual, such as phone and fax; semi-automated, for example, autofax; electronic, such as EDI or proprietary systems; or browser-based Web applets.
Included among the elements of the transportation execution life cycle that relate to ETM are the following (see also Exhibit 5 for a graphical depiction):
- Assign pickup and delivery time
- Tender load and accept carrier
- Print shipping and export documents
- Track shipment en route
- Create alerts
- Audit and pay freight bill
- Manage claims
- Measure carrier performance
Best practice is moving toward electronic interfaces in high-volume environments and browser-based Web interfaces in lower-volume environments. Leading ETM vendors include Intellitrans, InterTrans Logistics Solutions, Logility, Manugistics, McHugh Software International, and Optum.
4. International Trade Logistics (ITL)
The ITL segment has developed in recent years to meet the specialized international trade and transportation needs of global manufacturers and distributors. The technology's features respond to users that:
- Operate global supply chains across multiple national or trading bloc frontiers. ITL applications help these organizations on two fronts. First, they reduce the burden of managing administrative tasks for customer service, regulatory compliance, and financial settlement. Second, they meet time-to-market challenges set by seasonal deadlines, customer expectations, and financial considerations.
- Trade commodities subject to tariffs and quotas, or ship products subject to import/export licenses and regulatory controls (such as computers, high-technology components, and chemicals). ITL applications help shippers of these items by managing tariffs and quotas for lower cost and assured supply. In addition, they are configured to ensure compliance with denied party screening requirements and other regularities that carry stiff penalties if violated.
- Can claim duty drawbacks on export of components and finished goods made from imported components and parts on which duty has been paid. Applications in this segment help shippers trace and document duty paid on commodities that have been moved along various supply chain threads.
International Trade Logistics applications provide a specialized superset of ETM functionality specifically designed to support the cross-border movement of materials, components, WIP, and finished goods. (See Exhibit 6.)
Only three vendors to date have emerged with any significant ITL market share, installed base, and product functionality: RockPort Trade Systems, Syntra, and Vastera.
5. Carrier Bid Optimization (CBO)
Bid optimization applications provide new functions to help shippers manage the annual (or less frequent) process of requesting carrier bids and awarding contracts. As any veteran of the transportation Request-for-Proposal (RFP) cycle knows, the process is fraught with both business issues and analytic problems.
From the relationship standpoint, the RFP exercise can be adversarial, if not downright antagonistic. Narrow-minded cost reduction can be the overriding metric of success—often to the detriment of other compelling but tough-to-measure business objectives such as customer service, carrier performance, or core-carrier consolidation. With surplus carrier capacity in certain markets, shippers often can disregard the transportation provider's business needs in contract negotiations, sometimes to the shipper's eventual disadvantage.
Analytic problems compound these business issues. Even between willing parties, collaboration often is limited by the effort needed to mine data for useful bid solicitation and response information. Analysis of complex bids submitted on paper is laborious and ineffective. The use of simple spreadsheets to convey and analyze bids only helps a little. Neither approach provides a framework to optimize bids whose rates are tendered conditionally on various business and operating scenarios such as volume commitments, lane bundles, and tiered pricing. Furthermore, these techniques can't robustly test the optimal solution's sensitivity to changes in operating scenarios, business rules, and objectives.
Largely because of these issues, the costs of preparing and reviewing bids have become unnecessarily high. In addition to the cost drawbacks, the process exposes both parties to sub-optimal economics, leaves potential "win-win" opportunities unrealized, and forces carriers to build risk premiums into their bids. Ultimately, neither the carrier nor the shipper comes out ahead.
Carrier Bid Optimization (CBO) applications are designed to address these issues while providing an environment that reduces business tension between negotiating parties. They support the three major steps in the transportation RFP and contract award process, as illustrated in Exhibit 7.
In the second step, the applications provide carriers with a framework for submitting lane- and equipment-specific bids. Each lane bid can be tendered at one rate on a stand-alone basis and at one or more lower rates on a conditional basis. Conditional factors may include volume commitments, tiered pricing, or stand-alone and bundled lanes.
In the third step, CBO applications provide a solution-constrained optimization model that allows the shipper to develop a least-cost solution from stand-alone, combination, and conditional bids. The models also support "what if" analyses to evaluate the impact of such factors as:
- Volume shifts by lane, region, season, or time of week.
- Penalties for poor carrier performance.
- Changes in the minimum carrier number constraint by lane, by any intermediate aggregation, or by total.
- Incentives for carriers who comply with preferred business practices such as full EDI capabilities.
As of late 1997, Sabre Group's Opti-Bid was the only packaged CBO application on the market. However, at least two other vendors, InterTrans Logistics Solutions and CAPS Logistics, have CBO applications under development. The InterTrans application, aptly named Carrier Bid Optimization, will roll out in four major releases in late 1998 and early 1999. The first version was released in April 1998.
6. Routing and Scheduling (R&S)
Routing and Scheduling (R&S) applications support the design, execution, and management of transportation and transportation-based service operations of single-mode fleets operating within defined service territories. These fleets often are private or dedicated, which eliminates the need for carrier or modal selection. Common R&S applications include management of field service resources; specialty courier services; and delivery and pickup operations serving homes, retail stores, and other businesses. Traditional uses include the delivery (and in some instances pick up) of fuel oil, beverages, bakery items, snacks, newspapers, and medical laboratory test samples, as well as routing and scheduling field service technicians.
R&S applications can support tactical operations as well as strategic planning. In support of daily operations, they are used to build the set of least-cost vehicle routes that meet all service and performance constraints. In planning, the same functionality can be applied to route planning, sales-territory design, calculation of optimal service frequencies, routing strategies, cost and service analysis, and fleet sizing.
Depending on the type of address-finding algorithms used, these applications may be suited for dynamic populations of addresses found in furniture delivery, for example, or for stable populations of addresses as in direct store-delivery operations. R&S applications also can be used for some field service operations.
The leading routing and scheduling vendors include CAPS Logistics, Descartes Systems Group (which has acquired Roadshow International), Lightstone Group, Roadnet Technologies, and SynQuest.
7. Shipment Management Tools (SMT)
These applications have grown out of the parcel-manifesting tools introduced by parcel and overnight carriers in the early 1980s. Today, virtually all small-package carriers—including UPS, FedEx, Roadway Package Systems, Airborne Express, and the U.S. Postal Service—offer free manifesting systems to their higher-volume customers. These systems automate the front end of each carrier's shipping process. They typically calculate shipping charges based on weight, cube, and destination for services offered by the carrier; select the type of service; print out shipping labels; and record charges for later use in the payables process and in any internal charge-back activity.
From the shipper's point of view, carrier-supplied manifesting tools have several drawbacks. The most significant is that the shipper becomes a captive customer. In the carrier's lock, the user often is forced to accept a reduced discount off the tariff, foregoing other discounts that may be available for multiple packages per destination, zone skipping, and the like. Furthermore, through these systems the carrier has raised a technology barrier to rate and service shopping across other options. It also has gained the negotiating leverage of reduced administrative costs when the contract comes up for renewal. Finally, carrier-supplied systems fail to offer key functionality such as carrier performance measurement, invoice automation, and connectivity to host business systems.
Among ETM vendors, InterTrans Logistics Solutions has long held a position in this space thanks largely to a reseller relationship with J.D. Edwards. Optum recently entered the market with MetaStation, a light version of MetaFreight. Among the established players in this market are Pfastship Logistics International, Tandata Corp., Tracer Research, and Varsity Logistics.
Users and Vendors Face Tough ChoicesTMS is, in fact, at a strategic crossroads. Recent activities suggest there is more interest in this marketplace than ever before. Is that good or bad news for vendors and users? Most likely it's a combination of both.
First, consider matters from the user's perspective. Although no leading TMS vendor today offers a comprehensive solution, all are working to extend their functionality. Extensions to new modes (particularly rail and intermodal) and geographies will drive greater potential user benefits. Yet, these improvements won't make selecting an application any easier.
Users continue to have much to consider in the TMS selection process. They must look at the vendors' implementation capabilities, technology choices, partner strategies, and commercial viability. And while driving greater benefits, the introduction of more comprehensive TMS applications evolving around the GETOM model will further complicate at least two areas. Specifically, the new breed of software will:
- Blur the easily drawn distinctions between the types of TMS applications.
- Change how transportation services are bought and sold, supporting new markets, business models, and participants while challenging operating assumptions.
At the same time, International Trade Logistics and Carrier Bid Optimization will add value to TMS return-on-investment calculations.
Finally, users must evaluate stand-alone TMS solutions against two emerging alternatives: (1) supply chain planning and execution suites with embedded TMS functionality and (2) TMS functionality provided by Enterprise Resource Planning applications. A number of companies that provide ERP tools, such as SAP and J.D. Edwards, are developing improved transportation functions in their products for this year and 1999.
Vendors in this space also have a lot to consider as they wind down 1998 and prepare for 1999. With SAP holding ERP leadership at the top of the market—and with Baan, Oracle, and J.D. Edwards remaining strong—partnership priorities would seem obvious. ERP vendor plans to develop their own TMS functionality, however, muddle the alliance picture for these TMS providers.
Priorities are even less clear in the middle market where scores of vendors are jockeying for market share, top-tier vendors are positioning to move in, and users do not yet fully recognize the magnitude of TMS benefits (especially those delivered by Enterprise Transportation Planning). At the same time, with prospects numbering in the hundreds, ITL threatens to turn the TMS revenue model on its head.
Within this dynamic environment, AMR sees several near-term challenges for TMS vendors. Their mandates are to:
- Deliver a comprehensive GETOM-style solution.
- Defend their position against entrants with strong positions in ERP, APS, warehouse management systems, and order-management systems.
- Offer TMS within a comprehensive supply chain planning and execution suite through alliance, acquisition, or internal development.
TMS vendors must respond to the scale advantage enjoyed by several of the larger industry players positioned to enter this market. There is a step-change in capabilities and in market presence as software vendors transition from annual revenue of under $40 million to a range of $90 million to $120 million or more. With the single exception of Manugistics (which had an estimated 1997 revenue of $157 million), no TMS vendor approaches the $100 million mark. Several ERP vendors enjoy an even greater scale advantage.
To the extent that TMS vendors can successfully differentiate their offerings in the user's mind, create a market presence, and partner strategically, they can position themselves for a profitable future.
| Author Information |
| Gregory D. Girard is a senior supply chain analyst for AMR Research, a Boston-based market-analysis firm specializing in enterprise applications and related trends and technologies. |
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