TMS solutions for SMEs: Transportation management FAQs

One single word: digitalization. It’s happening now, accelerated by the covid-19 pandemic, and will only become more necessary in the coming years. Whether you are a carrier, 3PL or freight buyer, you will have to manage eCMR, electronic customs clearance, regulatory demands on e-invoicing, etc. If not today, then most definitely sooner rather than later. Not acting now will cause loss of business in the very near future. And that’s not a threat – it’s a fact.

It very likely will. Today, even with rather modest freight expenses (under EUR 3M/year), a TMS is profitable simply by reducing manual labour end-to-end through automation, depending on your type of operations.

However, it is important that you don’t do it half-way, say, by only implementing a freight ordering tool. Then you are still stuck handling the paperwork outside of the booking process and the benefits are lost to you. You don’t need to do it all at once – on the contrary. You should avoid a “big bang” implementation, but only addressing one or two parts of your process will leave you disappointed in the outcome. Therefore, select your solution provider with care.

If you’re concerned with solutions being overly expensive, it’s important to know that a business that uses an ERP system can also afford a TMS. The pricing has come down significantly as TMS use has become more commonplace, provided you accept standardization. Many TMS solutions of today are multi-tenant SaaS and ready to go, given that you avoid costly system adaptations. This is very different from the previous on-prem monolith, super-complicated systems of the previous decades.

That’s intuitively good buying criterion, but keep in mind that just because a vendor boasts many connected carriers doesn’t necessarily mean that you can reuse those connections to your benefit. You need to dig deeper and ask questions like:

• Does the existing connection support your format?
• If not, are you willing to adapt?
• Does the existing connection support all the document types you want to exchange, such as invoices, orders, etc.? If not, you will likely have to pay for a new connection anyway.

This is a specifically delicate challenge for SMEs. For larger companies, the ROI of adaptations and customizations can sometimes be motivated by scaling synergies. For smaller enterprises though, this is almost always a black hole of runaway costs with potentially severe cross-enterprise financial impact. As an SME, you should consider two possible paths:

• Buy off-the-shelf solutions that are fit-for-purpose for each process and tie them together where necessary with your own or procured integration solution. Resist the temptation to build customized logic in the integration layer; or
• limit your scope.

There are several solution providers that offer a high degree of customization and a broad spectrum of features. However, this often comes with many hidden and unexpected costs which can turn out disastrous for an SME. Therefore, it’s better to put in extra effort towards change management and go with a standard multi-tenant SaaS solution.

The first crossroads in transportation IT solutions is whether you have your own fleet of vehicles or buy transportation services from LSPs (logistics service providers) or forwarders.

Even those with their own fleets usually have to procure certain services, like long-haul, through LSPs. That’s why you seldom find solutions addressing all your needs in one package. If they do, it often entails a lot of adaptations or siloed solutions due to acquisitions.

That’s where VRS (vehicle routing and scheduling) solutions and FMS (fleet management solutions) come in. VRS and FMS are sometimes used together for in-house fleet management, usually found in the last-mile delivery space or for large road carriers.

For the process of procuring transportation services from LSPs, you will often still revert to a TES (transportation execution system), an MCPMS (multi-carrier parcel management system) or a TMS (transportation management system). To confuse the picture, all three will most likely refer to themselves as “TMS”. However, there are fundamental differences that are important to understand.

A TMS covers all the main steps in the P2P (purchase-to-pay) process for freight: planning (order consolidation and allocation), ordering, tracking, settlement and analytics/KPI reporting. A TES or MCPMS covers different subsets. More specifically, an MCPMS covers ordering and tracking (usually in the last-mile delivery space or one-leg shipments); a TES usually has some limited settlement and/or analytics features as add-ons to the MCPMS offering.

The best solution for your business boils down to your needs as well as your perspective. If you are looking to digitalize the ordering process in the short term, then a TES or MCPMS is likely a good choice. If you are looking to increase end-to-end automation, including orders, you should lean more towards a TMS and address the 80% (or likely more) repetitive routes that you are operating.

As an SME without a private fleet, fixed route planning will suffice nicely. I’ve never seen benefits exceeding lower single digit percentages in resource utilization (if at all) with dynamic route planning compared to a fixed network of routes for procured transportation services.

Whether you choose one of the above solutions or a combination, another important aspect to consider is that you need to manage not only orders but also invoices and payments. This usually involves complicated contracts in an increasingly complicated regulatory environment. Even if that is not your first concern, it will follow like dominoes. So, it is important to consider whether you will insource or outsource this automation.