For decades, transportation management system (TMS) software has been an effective tool for helping shippers and third-party logistics service providers (3PLs) cut freight costs, plan routes, and select and manage carriers. But these days, many companies are discovering new uses for their TMS applications. They're turning to the software to handle a wide variety of tasks, such as managing capacity in a constrained market and making cost/service tradeoffs, all with the end goal of improving customer service.
As for what's behind the trend, it's partly because the economic sands keep shifting under the users' feet. Changing economic conditions can alter a company's concerns and priorities from year to year, said Frank McGuigan, CEO of Frisco, Texas-based 3PL Transplace.
Sephora sees the beauty in TMS
When a company buys or leases a TMS, it's usually because it's looking to slash freight costs. But for some, it's all about the service improvements. That was the case with French cosmetics retailer Sephora, which turned to a TMS to boost service levels as measured by on-time deliveries at its DCs and stores.
As a player in the fickle and fast-changing fashion market, Sephora, a subsidiary of the luxury products conglomerate LVMH Moët Hennessy Louis Vuitton, must keep its store shelves stocked with the very latest goods, from skin care to makeup to hair products. To do that, company relies on a smooth flow of goods into and through its own DCs and on to its more than 700 retail locations, according to report released in January by Dedham, Mass.-based ARC Advisory Group. Delays in the delivery of merchandise could cost the company sales and jeopardize customer loyalty, according to the paper, "Using a Transportation Management System to Drive Service Excellence." The report was written by ARC on behalf of MercuryGate International Inc., a Cary, N.C.-based TMS vendor.
A big factor in avoiding such delays is selecting the right carriers—ones that can be relied on to deliver merchandise to the retailer's DCs on time for outbound shipment to stores. But that requires the shipper to monitor and track the performance of all the carriers it uses. As Sephora's volumes grew, that process became increasingly difficult to manage. With little prospect of relief in sight, the company decided its best option was to automate the process.
Today, Sephora uses the MercuryGate cloud-based TMS to manage inbound shipments from suppliers all over the world. Among other benefits, the system provides full visibility into carriers' on-time performance records, which helps the team pick the best carriers for specific lanes. In addition to streamlining the carrier selection process, the TMS "is saving the company thousands of dollars by selecting carriers that are more efficient and provide greater value," according to the ARC paper. The net result is an improvement in customer service by ensuring that Sephora's brands are always on store shelves when promised, ARC said.
For example, in 2017, the shipper community's top priority was timely delivery, as suppliers sought to avoid penalties levied by Wal-Mart Stores Inc. as part of its "on time in full" delivery requirement, McGuigan said. But in 2018, one of the most capacity-constrained markets in years, companies are more worried about ensuring that their freight moves under contract, rather than via a carrier found through the spot market, where rates can soar to unpredictable levels, he said.
That trend means that TMS users are shifting their focus from metrics like on-time delivery to ones like primary tender acceptance, which is a measure of how often shippers are able to book loads with their intended carrier. "Otherwise, you'll be looking on the spot market, where the service level is not as managed because you're not used to doing business with them or because you've gone through a broker," McGuigan said. At a time when companies are struggling to meet rising service demands, that's a risk few shippers are willing to take.
TMS BALANCES COMPETING DEMANDS
When it comes to ways users are leveraging their TMS to boost service, there's more to the story than simply securing contract capacity. A number are also using their TMS to make cost/service tradeoffs. One market segment that has proved particularly adept at that is the third-party logistics community.
Today's 3PLs often find themselves caught between the conflicting transportation needs of different customers. To solve that conflict, they're increasingly likely to use a TMS to prioritize the variables that matter most to each client, instead of simply picking the lowest-cost option on the market, said Duncan Hopwood, director of engineering at Redstone Logistics, an Overland Park, Kan.-based 3PL that uses a TMS platform from Shelton, Conn.-based software vendor 3Gtms Inc. "If all you're offering is a rate play [to compare and minimize costs], you're not creating any value for the customer. You also need to provide planning and process automation" that offers the flexibility required to balance partners' needs, Hopwood said.
For one client, Redstone used its TMS to balance two competing demands—reducing labor costs and improving trucking efficiency—by tweaking the truck loading schedule to match the company's warehouse labor capacity, he said. While that may not have optimized the route from a purely transportation perspective, the strategy allowed the customer to avoid expensive overtime shifts, he said. "We adjusted the dates based on the availability [of goods]," he said. "So now the warehouse crew doesn't have to run overtime to match some crazy transportation plan that says they have to ship everything by Monday."
In another example, Redstone used its TMS to balance a customer's demand for low freight costs with its stipulation that it avoid working with a certain carrier partner. "When you use a rate engine, you can select the least-cost provider," Hopwood said. "But say some customer never wants to see Carrier XYZ? We can 'de-conflict that' and keep the customer's business by choosing a different carrier, even if it's slightly more expensive."
In a third example, Redstone used its TMS for balancing the demand for an efficient route with the need to minimize dwell time. With the aid of its TMS, the 3PL identified certain warehouses that frequently have long delays—even when a driver has an appointment—with the end goal of positioning those facilities as the last stop on the route, where they wouldn't disrupt other deliveries.
The ability to make these kinds of tradeoffs is becoming more critical as customers at every stage of the supply chain increasingly expect a seamless, near-perfect experience, said Karen Sage, chief marketing officer of Cary, N.C.-based TMS vendor MercuryGate International Inc. Providing that level of service can be a headache and a half, she acknowledges, but the rewards of meeting—or exceeding—service expectations can be great. "Customer service is one area in which shippers must meet a high bar that has been set, but if they excel beyond the expected minimum, it presents an opportunity to leverage it as a competitive differentiator," Sage said.
MANAGING THE LAST MILE
These days, TMS are even playing a role—albeit an indirect one—in ensuring that the all-important last-mile delivery is executed to plan, according to one consultant. In a June 21 research brief, "TMS and the Current State of Last-Mile Deliveries," ARC Advisory Group analyst Chris Cunnane argued that even if shippers don't actually use their own TMS to manage these moves, the software can nonetheless contribute to the process by keeping things on track during the run-up to the last mile.
"One of the most overlooked aspects of last-mile delivery is the journey to get there," Cunnane wrote in the brief, which was prepared by ARC on behalf of MercuryGate. "Last mile is a small component of the overall supply chain strategy. Technologies like a transportation management system have proven effective in managing the first and middle miles, which are a critical part of ensuring effective and efficient last-mile deliveries."
TMS technology helps make that happen by bridging the visibility gap on both inbound and outbound shipments. Without such tools, many companies have only a murky picture of their inventory as it moves between suppliers, warehouses, stores, and customers, according to ARC.
EXPANDING SPHERE OF INFLUENCE
The role of a TMS in supporting last-mile delivery is just one example of how the well-established software tool is expanding its sphere of influence throughout the supply chain. As TMS software touches more and more aspects of the modern retail ecosystem, it will play an increasingly essential role in monitoring and managing transportation operations.
"A TMS gives you visibility into how your freight is going to move, and it lets you measure deviations," said Transplace's McGuigan. "Without that system, you'll have your CFO knocking on your door 45 days later, asking why your freight costs went up, and you won't have an answer."