What kind of TMS does a shipper need?

What kind of TMS does a shipper need? This highly depends on who is responsible for the planning process, who does the last-mile and which modalities are involved. Learn from the industry leaders in this blog.

The definition of a Transport Management System (TMS) can be broad. Gartner defines it as follows: “A TMS is 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.”

For shippers, it is not always clear what kind of TMS they need. Shippers typically have an ERP system (like SAP) in place for their production activities. More often than not, this ERP system tends to include (some) functionalities to manage their transport activities. There might be an overlap in functionalities with a TMS. So how do you know if you need one? Let’s look at three different situations.

By Goos Kant

Situation 1. The shipper plans the last mile (like deliveries to stores, outlets, and homes)

This situation typically holds for food delivery to groceries, bakeries, beverages, dairy shops and food services. Here, the shipper plans the routes to stores, outlets and/or homes. Typically, they use multi-stop routes, multiple distribution centers and conditioned trucks, and need to account for inner-city challenges. A TMS in these cases should contain a strong routing optimization engine to create efficient routes, taking these characteristics into account. At a more tactical level, the TMS has to support the shipper to compute the right frequency and delivery schedule for each store/outlet, such that the workload is balanced, routes are clustered and respects the minimum/maximum inventory space and expected consumption/sales of the end products.

In these situations, the TMS is typically an Advanced Planning System used in tandem with the ERP system. The APS is normally embedded in SAP (or other ERP systems) or enabled through an integration layer. These APS-solutions are rich in tactical/operational planning, but also in execution. So, regardless of whether the execution of the routes is outsourced or not, the APS can support core processes.

Situation 2. The shipper creates the (FTL/LTL) loads, the carrier combines them with other loads

This situation is applicable for sub-industries, like (most) CPG-products, automotive, high-tech, pharmaceuticals and construction. The shipper tries to maximize the utilization of boxes, pallet(s), trailers or containers, and eventually combines multiple loads in a truckload. After which, the transportation is executed by the right carrier. Here, it is important that the shipper has the right tooling to optimize loads, especially when mixing different product types. The load builder needs to take relevant business rules into account. When transporting fast moving goods to a regular customer, there is typically some flexibility to deliver a little more or less. This flexibility can be used to shape orders that maximize asset utilization. Additional functionality to combine multiple orders in full truck loads can be very useful.

In this situation, the shipper needs a TMS, aside from an ERP and load building functionality, to manage transports with its subcontractors. The TMS should have functionality for tendering and selecting the right carrier for the loads. It should also enable freight rating and shopping across all modes, allowing users to select the appropriate route and carrier, and manage freight bills and payments. Systems like SAP TM and OTM provide functionalities for companies in this situation, but also smaller, TMS-for-shipper vendors can help. These vendors typically emphasize Control Tower capabilities.

It could well be that a shipper finds itself in both Situation 1 and 2. For instance, they could handle the last mile for national distribution, optimizing routes with an Advanced Planning System used in combination with their ERP-system. However, they could be applying the second approach in their international distribution, using load optimization and a TMS with their ERP.

Situation 3. All logistics activities are outsourced to a 3/4PL

In this case, the logistics service provider runs the warehouse (which can be a shared). The transportation can be done with their own fleet or outsourced to other providers. In this situation, the main subcontractor needs to have a proper TMS to run the operation. Instead of a TMS, the shipper needs to have the right functionality to measure the performance of the subcontractor. However, this can easily lead to a cost-plus type of arrangement, where the subcontractor is paid for its activities with a certain margin. The shipper still needs the capabilities to investigate certain logistics improvements, to avoid a price-discussion only with the subcontractor. To overcome this, the shipper can use tactical tooling to compute scenarios and variants, and/or involve a 4PL, who has a target on efficiency improvements.

Learn from your peers

ORTEC has decades of experience in working with shippers to optimize their logistics with the right optimization tooling for all of these situations. Coca-Cola, for instance, uses ORTEC’s optimization engines - embedded in SAP - to optimize their direct-store deliveries. You can read more about their experience in our case study.

Epson is another customer that uses ORTEC products to optimize pallet and container loads., Unlike Coca-Cola, they outsource their transport planning and execution to a 3PL. By including advanced optimizers within SAP, Epson can manage their logistics in an appropriate and efficient way. Read more about their use case here and learn more about our solution.

Other customers include Procter & Gamble, Royal FrieslandCampina and Georgia-Pacific. Contact us to explore how they have optimized their logistics with the right tools and systems. Discover the value that these modeling and optimization capabilities can bring to your business.

Bio: Goos Kant (1967) is a full-time professor of Logistic Optimization at Tilburg University. He is involved in the master program of Business Analytics and Operations Research, as well as in the master program Data Science & Entrepreneurship. He is the project leader of a large R&D project on horizontal collaboration in logistics. Goos is also a managing partner at ORTEC, with global responsibility for all solutions in the logistics industry. His primary area of interest lies in the 3PL-industry in optimizing their planning processes in the end-to-end supply chain. Goos is involved in courses from MBA-schools TIAS and Nyenrode, and member of ORTEC’s supervisory board. He holds both an MSc and a PhD in Computer Science.