It's a tangled web we weave when we practice nationwide distribution. A map showing the transportation routes traced by even a single good-sized company's shipments day in and day out could quickly become an undecipherable maze. Open up additional distribution channels, and the picture gets even more complex. Given all the confusion, what assurances do you have not only that your products moved from origin to destination, but that they did so in the most efficient and reliable way available—time and time again?
That was the dilemma faced by Lifeway Christian Resources. The Nashville-based publisher and book distributor, which is owned by the Southern Baptist Convention, delivers 188 different magazines, along with thousands of books, gifts and other materials, to 124 Christian book stores it owns nationwide. The company also distributes through business-to-business (B2B), business-to-consumer (B2C) and international channels. Its two distribution centers in Nashville handle some 14,000 SKUs, with about 500 new products introduced each year.
Prior to last October, the company generally opted for convenience over cost. It shipped 76 percent of its products via parcel service (which is about the most expensive way to ship short of air express), 12 percent via LTL and 12 percent by other modes, including full truckload. But all that changed in October, when it installed a transportation management system, or TMS, from Irista. Today, the balance has shifted markedly. Lifeway has dropped its small parcel shipments to 55 percent of the total, and it now moves 35 percent via LTL and 10 percent via other modes. The result? During the first three months the software was in use, transportation costs dropped a whopping 14 percent.
Not surprisingly, that translated to a speedy return on investment. "The software package paid for itself in just 15 weeks," reports Randy Brough, the company's supply chain manager. "Our old ERP system was leaving $1.5 million on the table compared to now." He attributes the savings to the TMS's capabilities for carrier selection, rate shopping and load building.
Today, when an order is released, the system looks at customer data programmed into the system and compares the customer's requirements to continuously updated carrier information. At that point, it begins to build loads and routes based on orders being processed. The system also has the ability to consider delivery preferences for each store or receipt point, which enhances the customer services offered. An electronic manifest is automatically sent to the customer.
The TMS also handles international shipments, producing customs and other documents required for global trade. On top of that, the company reports that the Irista TMS software integrates nicely with Lifeway's Vista ERP and SSA Global warehouse management system.
As for the future, Brough says he will soon begin using the TMS for freight auditing. He also expects to push his inbound transportation through the system later this year, which will bring even greater savings.
While no one TMS system can do everything—some are domestic specialists, others international, and many target specific business verticals—collectively the systems offer the opportunity to optimize operations, reduce labor and improve customer service. Transportation management systems, developers claim, can help companies select carriers, manage internal fleets, provide route management and create visibility. They can also audit carrier performance, perform manifesting, produce customs and other trade documents, and navigate through the security issues of post 9-11 commerce. And that's just for starters. Think of TMS as the Swiss army knife of supply chain software.
By far, the most important benefit of a TMS system is what it does for the bottom line. "Transportation costs are 5 to 10 percent of total sales, so customers are increasingly looking beyond the four walls to gain efficiencies," says Kara Ashby, senior consultant at Sedlak, a supply chain consulting firm located in Richfield, Ohio. "They are looking to get the fastest possible transportation at the lowest cost."
"The more you spend on transportation, the more compelling a transportation management system can be," adds John Blanchard, director of transportation services for ESYNC, a consulting and engineering firm headquartered in Toledo, Ohio. "Payback on a TMS is usually less than two years, and often between six months and a year."
Help with the match game
Not surprisingly, the early adopters of TMS have been companies in the business of transportation, where the benefits are most obvious. Take Schneider National, one of the largest providers of logistics services in the nation. Schneider, based in Green Bay, Wis., relies on homegrown software systems to manage its fleet of 14,000 tractors and 48,000 trailers. It also built its own warehouse management system (WMS), so integration was performed internally.
The systems are also designed to link to Qualcomm satellite tracking systems in the carrier's trucks.
"As a third-party logistics provider, our role is to match the right driver with the right load at the right time and at the right price," says Vava Dimond, vice president of product management. "We have to understand our shippers' needs, our capacity issues, as well as know the load parameters."
Besides using the TMS system for its own fleet, Schneider also contracts with several hundred owner/operators to move freight. It makes use of its TMS to perform planning and optimization. It includes Web-based tools that allow the contracted carriers to update their rates and vital shipping information, as well as bid for jobs.
Among the more recent fleet tasks that the TMS has helped Schneider manage are adjustments based on new hours of service rules. Dimond says the company's systems capture all of the data necessary to comply with the new rules. Those rules, which restrict the number of hours a driver can work at one time, have proved challenging for both carriers and shippers, requiring changes in routing and scheduling that almost demand robust systems to manage.
"The transportation side can be very manual," adds Dimond. "If you can properly capture data and then manage it, you can create significant savings."
No more missed opportunities
Like carriers, third-party logistics companies have looked to TMS to buttress their other IT systems. Third-party service provider Exel, for instance, chose G-Log's GC3 software for fleet management, routing for road and rail, and for freight forwarding applications. This Web-based system processes 6 million shipments each year. Currently, some 45 client companies with 6,000 total users log into Exel's G-Log system.
"Our customers see us as managing their whole supply chain. With our TMS, we can offer savings to our customers through optimizing their transportation," says Martin Neil, vice president of global solutions.
As a global player, Exel finds there's an advantage to having a Web-based system that can be accessed from anywhere. Exel's customers enjoy real-time visibility and event management capabilities worldwide. The system also operates in multiple languages.
Web-based systems such as G-Log's represent a growing trend in the TMS space. Whereas Exel hosts its G-Log software on its own enterprise, many software providers like G-Log also serve as application service providers to give clients "ondemand" access to the software. In this model, the software lives on the software provider's servers instead of tying up the client's hardware and IT staff, as occurs under an enterprise-based model. The on-demand approach has its advantages. It provides a centralized depository for data and offers high-security, multiple backup locations, high bandwidth and continuous product upgrades. This model is well suited to companies that prefer to outsource functions that are not core competencies, such as transportation management. It can also be less costly for businesses not prepared for a full blown implementation.
Another third-party service provider that has put TMS to good use is Coopersville, Mich.-based Foreway Management. Foreway, which operates no equipment of its own, places staff on-site at its customers' facilities to coordinate and then expedite their shipments. Among current clients are Bissell (the vacuum cleaner folks) and a South African paper producer that has warehouses in the Upper Midwest.
A TMS has made a world of difference to Foreway, says CEO Pam Hassevoort. Before the company acquired its system, it used less-sophisticated optimization software that required a great deal of human intervention. "It was just too labor intensive and we were missing many opportunities for savings," she says. "The loads we were building tended to be too large. Our margins were going down even though our volumes were going up."
Hassevoort realized that hiring more staff wouldn't solve the problem; the company needed a better way of building loads. In January, Foreway went live with RedPrairie's TMS suite, which includes modules that provide carrier selection and routing, load tendering, lane assignments, manifesting and performance metrics. It also allows visibility for both clients and shippers.
"Our customers can now do their own track and trace," reports Hassevoort. "Also, we used to have one of our staff people making phone calls to verify that a load was delivered. Now carriers can go into our system and report back to us."
It's not just more efficient; it's cheaper too. Hassevoort projects cost savings of 13 percent on loads tendered to carriers.