Andrei Radchenko 10.03.2021 11 min read

What is a Transportation Management System (TMS), and why do you need it?

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Over the last two decades, due to the broad availability of the internet and technologies changing the way people live their lives and do business, we have witnessed a significant growth of e-commerce and global trade.

Nowadays, placing orders in e-stores, customers expect to receive the highest quality goods for a relatively low price. Moreover, those goods should be delivered as fast as possible. Thus same-day shipping and real-time tracking are not just other nice-to-have features anymore.

Apart from the high expectations from the customer side, many businesses have to deal with constantly increasing freight costs, capacity shortage issues, and complexities in transportation management.

To keep pace with all those challenges, companies need to utilize advanced information technologies helping them to improve logistics capabilities and simultaneously reduce costs of transportation.

Today, the most prominent technology facilitating better planning, optimization, and execution of transportation operations is Transportation Management System or TMS for sort.

This article discusses what a TMS is, what benefits it provides, and the best options available today on the market.

What Is a Transportation Management System?

Although defining and explaining the Transportation Management System (TMS) domain is quite challenging, we will try to do our best to provide you with a clear picture of what TMS is and why it might benefit your business.

If you try to google the term, you will find many definitions provided by software companies and TMS solution vendors. For instance, Oracle defines TMS as a logistics platform that uses technology to help businesses plan, execute, and optimize the physical movement of goods, both incoming and outgoing, and making sure the shipment is compliant, proper documentation is available. Gartner sees it as a system used to plan freight movements, do freight rating and shopping across all modes, select the appropriate route and carrier, and manage freight bills and payments.

Whatever the definition you like the most, the main idea behind the concept is to provide companies with an ability to automate and simplify the tendering and booking process as well as to consolidate all the information regarding freight movements in one place to be able to plan and execute transportation operations in the most efficient and cost effective manner.

Put simply, the technology allows companies to convert data into information vital for better decision-making and achieving greater effectiveness and efficiency of logistics operations.

The most common TMS functions

While the definition and the purpose of transportation management systems are clear, let's look at the functionalities businesses expect to have when adopting TMS solutions today.

According to the "Transportation Management Systems: An Exploration of Progress and Future Prospects” article written by Stanley E. Griffis (Michigan State University) and Thomas J. Goldsby (The Ohio State University), among companies that already adopted the technology, the most popular functions of TMS are the following:

  • Shipment routing (defining of how and where to route individual shipments during the planning stages)
  • Shipment tracking (providing the shipper with visibility of in-transit inventory)
  • Shipment scheduling
  • Transportation performance measurement
  • Overall freight cost management, and
  • Carrier selection

Looking closely at the functionalities outlined above, we can conclude that a TMS plays a central role in supply chains and affects every part of the process — from planning and procurement to logistics and lifecycle management.

Who should use it, and what are the benefits to expect?

As clear from the name, transportation management systems are primarily designed to be used by logistics companies and service providers (LSPs, 3PL,4PL) as well as by companies that need to ship, move, or receive goods in considerable amounts regularly (Manufacturers, Distributors, Ecommerce companies, Retail businesses).

Of course, the nature of the business for these two groups is different, so they have different needs, requirements, and integration strategies and approaches when it comes to adopting the technology.

For instance, while for logistics service providers, a TMS is the core system for managing their operations. For logistics service buyers, who are predominantly larger shippers, a TMS is an additional system ensuring the efficiency of all transportations and logistics operations.

In our future articles, we will look in more detail at the difference between each group's needs and the challenges they are experiencing when adopting the technology, and the strategies they apply to overcome those challenges.

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The benefits a TMS provides

A while ago, TMS solutions were applicable only for huge companies spending more than 100 million USD annually on freight. Thanks to the continually evolving cloud technologies, it is no longer the case.

Today TMSs are relatively affordable, so any company, no matter the size, operating within the logistics domain or having the need to manage transportations more efficiently, can benefit from using the technology.

The list provided below represents only a fraction of the benefits companies utilizing modern TMSs might expect:

  • Automation of business operations for faster and more accurate billing and documentation
  • Better communication and complete visibility throughout the whole supply chain
  • The ability to consolidate vital data in one system to track all freights on a single platform and have efficient planning of inbound and outbound shipments
  • The ability to track carrier rates for any mods of transportation
  • The ability to monitor carrier's performance
  • The ability to increase profitability/to reduce the freight cost per unit by full utilization of carrier's capacity and better transportation decisions
  • Improvements in customer service customer support with better data analytics capabilities and 24/7 monitoring

The best TMS solutions available today on the market

The list below outlines solutions featured in Gartner's Magic Quadrant for Transportation Management Systems. Gartner's research covered multiple multimodal TMS solutions, including on-premises, hosted, on-demand cloud/SaaS, and TMS-managed services.

  • 3Gtms
  • 3T Logistics
  • Alpega Group
  • Blue Yonder
  • BluJay
  • C.H. Robinson (TMC)
  • E2open
  • Kuebix
  • Manhattan Associates
  • MercuryGate
  • Oracle
  • SAP
  • Transplace

Since the choice of a TMS solution always depends on a particular company's individual needs and requirements, we deliberately do not suggest a specific name from the list. Instead, we encourage you to visit vendors' websites and define yourself what product is the best option for your case.

 

In this article, we tried to provide you with an overview of transportation management systems' concept and outline some benefits and functions modern TMSs provide. If you are interested to learn more about the strategies and approaches companies use to adopt TMSs, please subscribe to our blog or follow us on social media not to miss the upcoming articles.

 

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Andrei Radchenko

Product Marketing Manager, Youredi

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