Which TMS is Right for You? A closer look at the partial outsourcing/private SaaS model

By George Moser and Peter Ward -- Supply Chain Management Review, 4/1/2008

Previous page: The private SaaS model benefits

The partial outsourcing/private SaaS model is based on several premises:

• TMS buyers need robust TMS functionality (multi-leg/multi-modal global optimization, buy-side and sell-side rate management, etc.).
• They may lack certain expertise to take maximum advantage of the functionality.
• The IT department lacks resources to materially assist in a TMS implementation.
• The firm wishes to minimize initial cash outlays.

For these firms, exploring this option takes on some urgency. But we need to characterize the model in more detail.

During the initial implementation, providers will need to

1. Review the client's hardware needs, then set specifications when sizing and acquiring the hardware.
2. Load and configure TMS software, communications links and enterprise application information tools, and third-party software such as
   • PCMiler,
   • RateWare,
   • UPS,
   • FEDEX,
   • DHL, etc. as needed.
3. Set up the EAI tool to receive client orders and convert for entry to TMS,
4. Set up the EAI tool to send freight charges from the TMS to the client A/P and G/L systems, and
5. Set up and maintain EDI links with carriers so that tenders, rejections, shipment status, proofs-of-delivery and invoices can be transmitted electronically.
6. And, set up roles for use in TMS and set-up and maintain passwords and other security, based on information supplied by the client.

Clients, for their part, will provide data on shipment activity and users for sizing. They also will provide super-users who know transportation requirements during the software installation and setup, and provide details on security and communications requirements. In addition, clients will need to agree on security plans for data transfer, gain carrier agreements to use EDI, and define user roles and security requirements

Considering that best-of-breed software is used for this model, the process of set-up, configuration and testing could take three to four months. This time is required to account for the specific needs of the client under the private subscription SaaS model. The provider will exert considerable pressure to force the client into accepting certain transportation management practices that will speed the implementation process. Yet this may prove to be beneficial to the client over the longer term. Chief among these benefits is that the TMS will become the sole repository of transportation rates for the entire enterprise. This will require the client to enforce business practices relating to carrier and rate management that may be quite different from the status quo.

Moreover, the process of defining what the provider will do and what the client must do introduces early a rigor that will be needed for longer-term success. These are described in more detail in Exhibit 5.

Note that this scenario makes a provision for the provider to run the optimization and planning for the client. This sort of value-added service could be a critical differentiator in the provider-client relationship. Many TMS buyers lack the staff skills to manage the planning function, even though it typically is the function that offers the most opportunity for cost savings and service improvements. High quality planning requires a robust optimization engine, but also a user who has the time and knowledge to extract maximum value from the tool. This sort of talent may be hard to find at many companies, so centralizing the planning and using the provider's staff to conduct the daily planning may be highly beneficial. The provider's responsibility is to assure consistency in who conducts the planning each day so that the assigned individual grows increasingly knowledgeable of the client's daily requirements. In effect, this person becomes part of the client's transportation operation.

There are other functions which the provider could execute as well. Seven of these functions and their respective provider and client responsibilities deserve special mention here:

1. Tendering shipments to carriers: Providers need to approve the plan and tender loads to carriers using TMS workflows, and run spot bids and/or broadcast tenders automatically, if all previous tenders are rejected. Clients need to call carriers to get loads covered if manual action is required to cover the shipments.
2. Monitoring the progress of shipments from tender to pickup to delivery: Providers must maintain a web portal for the client and its carriers for access (with password) to the system so that the client staff or their approved carriers can update shipment status. Clients need to approve accessorials or any other charges for any shipment, and call a carrier or make any inquiry regarding freight status.
3. Receiving proof of delivery: If required by the client, providers need to accept electronic messages into the TMS (not faxes) from carriers signaling the goods have been delivered. If electronic notification is not required, clients need to call carriers or consignees to see if the goods have been delivered.
4. Managing over/short and damage claims: Providers must structure the TMS so that the freight claims functionality can be used by the client and by participating carrier, as appropriate. Clients need to make claim for and agree to settlements for cargo loss and damage claims.
5. Paying freight carriers: Providers need to generate an electronic record for each shipment showing all charges assigned to each G/L account, as supplied by the client and send to client G/L and A/P as appropriate. If requested by the client, they should also generate an “auto-pay” record for each shipment by carrier and send a “notification of proposed payment” to that carrier upon proof of delivery.
6. Monitor Carrier Performance:Providers must train client staff on the use of the TMS for queries and reports to be able to monitor performance. Clients have to prepare any reports on carrier performance.
7. Other reports: Providers need to train client staff on how to access TMS to create reports that meet their individual needs. Clients must develop report requirements and formats, including reports needed for financial and operating performance reporting, bills of lading, and import and export documents.

These provider and client responsibilities tend to drive the transportation function at the client to a certain structure. We previously noted that the shipment planning function, often decentralized at many companies, ought to become centralized, and could be done by the TMS provider. The other function that can become largely centralized is carrier relations. Agreement on carriers' rates and contract terms needs to be done in the context of the technical requirements of the TMS. For example, a common set of requirements around fuel surcharge structures is helpful. Note that there does not need to be a single structure (all percent based or all mileage based), only a common set of rules for setting up the various structures. Having one individual or small group of the client staff with responsibility for carrier management helps promote this consistency.

Similarly, centralization for defining training requirements and defining reporting requirements is recommended. A common set of training requirements can be managed by the provider and these can be classified by job description. Training progress for each individual can be systematically monitored by the provider, but the curriculum needs to be uniform. For example, every shipping clerk at each facility should have the same training on how to use the TMS and the same for the customer service staff.

Centralized control of reporting requirements helps build and maintain consistent processes across the enterprise—and usually has a beneficial impact on cost control and performance improvement. When the client takes the responsibility for defining and formatting the reports, the provider staff (if offered under the contract) can then configure the reports to the specification.

Next page: Planning ahead

In this article, Which Transportation Management System is Right For You?

• Introduction
• Using supply chain software to meet today's shipping challenges
• The private SaaS model benefits
• A closer look at the partial outsourcing/private SaaS model
• Planning ahead

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