TMS vendors turn their focus to smaller shippers

A transportation management system (TMS) is a crucial tool for controlling the costs of moving goods. Designed to automate the transportation component of the supply chain, this powerful software enables large companies to manage scheduling, routing, carrier oversight, load tendering, and consolidation all in one place, making the shipper more efficient and accurate, according to the industry group MHI.

However, many small and medium-sized businesses (SMBs) say this full range of capabilities represents a bigger toolbox than they need or can afford. In response, TMS vendors have started offering simpler, streamlined, less expensive options crafted for these users. The change has come just in time, as globalization and e-commerce are opening new markets to SMBs, allowing them to work with suppliers and customers around the world.

Until now, SMBs that were unable to afford or maintain an enterprise TMS platform were faced with a stark choice: either manage their operations with a rudimentary in-house TMS or partner with a third-party logistics service provider (3PL) that could provide one for them.

"It used to be that shippers would choose to partner with a 3PL for greater expertise or pick a TMS to use within their own four walls if they wanted to own the data and integrate it with their own ERP [enterprise resource planning] or WMS [warehouse management system]," said Daniel Vertachnik, chief sales officer at supply chain software developer Kewill PLC.

But the marketplace is starting to change. Kewill recently made waves in the supply chain software segment when it acquired rival TMS provider LeanLogistics, a move that some saw as a case of a pure-play technology provider seeking to defend its turf against the 3PLs that are bringing proprietary software solutions to a broader market.

The merger is also an indication that vendors are looking for ways to expand their product portfolios in order to offer more options and serve a broader range of customers. That larger menu of options often includes versions tailored to different software delivery models.

For example, many small shippers are choosing TMS products that are offered on a software-as-a-service (SaaS) basis, subscribing to the cloud-based software for a relatively modest monthly fee rather than footing the cost of on-premise computing equipment and an IT staff, said Vertachnik.

Web-based TMS solutions offer other advantages as well. In addition to the "very low cost of ownership," their pluses include simplicity and swift implementation, according to Scott Vanselous, executive vice president for marketing and strategy at TMW Systems Inc. TMW offers TMS platforms for enterprise users and is also part-owner of 3Gtms Inc., whose 3G-TM planning and shipment management software is designed for SMB users.

"The reason we can go in and deploy it quickly is that the system has been designed as one application," Vanselous said. "Other TMS systems are trying to conquer the world and optimize global shipments, but the reality is that most SMBs rely on freight forwarders to do that."

Many small businesses start out by developing their own TMS platforms, but as they grow, they discover those basic software applications can't keep up with increasingly complex transportation demands, Vanselous said. SMBs that find on-premise TMS platforms to be too costly often turn to an SaaS product so they can save money on hardware and IT management.

This increasing diversity of options in the TMS sector is a result of the bifurcation of the market between products designed for large shippers and those made for small to medium-sized businesses, said industry analyst Dwight Klappich, a vice president with Gartner.

Gartner defines large shippers as those with an annual freight spend of $75 million to $100 million and complex, multimodal transportation needs. Such customers typically own a TMS already, having chosen a sophisticated TMS product from vendors like Oracle, JDA, SAP, and Manhattan Associates, Klappich said.

In contrast, mid-tier shippers are those with annual freight budgets of $25 million to $50 million. These shippers have long been underserved by software vendors that were more focused on larger customers, but lately that has started to change, according to Klappich. "Now, we have a whole lot of good vendors going after that next tier. That's where we will see a lot of activity in the next five years," he said.

These providers—which include MercuryGate, Cloud Logistics, and 3Gtms—understand that "small and medium shippers are not just 'little big shippers,'" but have their own requirements, he said. For instance, small companies typically place a high value on an intuitive user interface, while large buyers seek complex features like load design tools and optimization engines that calculate the most efficient way to route goods through a complex supply chain.

Other TMS features typically demanded by small and midsized users include quick and easy implementation, the ability to pay for only the features they need, and the option to add more advanced features with the click of a mouse as their business grows, said Tony Wayda, supply chain practice senior director and principal at Boulder, Colo., consulting firm SCApath.

While vendors are capable of supplying any and all of these options if needed, most realize that smaller users may not have the appetite for such a full plate all at once. By offering customers only the tools they need, they have tapped into a pent-up demand.

"Midrange users have been undeserved by vendors, and they are starting to wake up to the full value of a TMS," said Klappich. "[Medium-sized] shippers now realize that these are high-value instruments. If you can save 10 percent—heck, 5 percent—for someone with a $50 million freight bill, you can save a lot of money, even without an optimizer."

Demand from the SMB side will remain strong for the near future, since it's estimated that less than a third of small and midsized companies now have TMS systems.

Plus, it's likely they'll use them in new and creative ways. In addition to the basic trio of TMS options—hosting a TMS application on the user's premises, subscribing to an SaaS-based model, or partnering with a 3PL—users will increasingly deploy a hybrid model, Wayda said. Aided by more user-friendly software platforms, shippers will increasingly mix and match the functions they manage themselves and the ones they outsource to a logistics service provider (LSP).

"On-premise TMS is slowly going away; there are far too many benefits of an SaaS solution," Wayda said. "I see the LSP hybrid model growing for companies that have some resources but need additional transportation heads to help manage certain components and functions."

One notable way a TMS investment can pay off for small and medium-sized shippers is through data analytics that were previously available only to the large shippers and 3PLs that could afford to buy their own TMS software and control the data they produced.

"A good TMS is a data warehouse," said Kewill's Vertachnik. Whether a business hosts its TMS on its premises or accesses it from a server in the cloud, it can squeeze extra profit from the software by digging into the data it collects.

What makes that possible is the software's extraordinary tracking ability. Every time a company manages a shipment via its TMS, the software accumulates mounds of information, recording details about costs, carriers, on-time performance, billing history, and more. Over time, patterns and trends begin to emerge. A savvy user can then mine the data for opportunities to cut costs and eliminate waste, Vertachnik said.

Beyond that, the information in the database can prove valuable in providing supply chain visibility, supporting negotiations for financial settlements, and, in the case of cross-border shipments, maintaining the history required for customs compliance. Plus, it can provide the basis for benchmarking delivery performance against industry averages as well as by lane, mode, or region.

Faced with this wide array of options, customers in the increasingly diverse TMS marketplace must do their homework when picking the best software for their unique business.

"You really have to do your research, whether you're a shipper, a carrier, or an LSP," Vertachnik said. "But it's worth it, because your biggest savings are in transportation management, through efficiencies, processes, and cost. And those come from a 3PL or a TMS."