Are You Truly Minimizing Your Total Freight Spend?

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Published June 3, 2015

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By Gene Tyndall
Executive Vice President, Tompkins International

There is no scarcity of information available on the practices of Transportation Management (TM) and Transportation Management Systems (TMS) along with their features and functions. The apparent purpose of all the information is to help companies (whether shippers or service providers) do better at managing their transportation (freight) expenses.

The available information on TMS is designed to help compare the over 30 systems on the market today. The standard process for carrying out this comparison is to first, develop the business (or user) requirements. Then, issue either Requests for Information (RFI) or move straight to the Request for Proposals (RFP). The company must reach a consensus decision on the preferred system or application.

Unfortunately, we too often find that this standard process misses the mark. Typically, either the business requirements have been understated or misrepresented or the comparative assessment results in a choice that is not the best match for the company. No matter how disciplined the processes and business rules that surround the TMS are it fails to deliver the true optimal spend of total transportation funds. This is only recognized when the time is taken to validate the plans vs. actual or conduct a pilot audit of “what could have been”.

Admittedly, requirements change, talent is eroded, or business needs are varied beyond what might have been predicted. We discover several factors in a TM Assessment — these as well as others. Nevertheless, when the business requirements are flawed or the TMS is incapable of adjusting to changes, it is almost inevitable that important gaps will exist in planning and managing a Transportation Management Process.

Let’s first consider the definition of a “TMS”. There are numerous systems or applications available that are labeled “TMS”. These include specialized systems such as; for brokerage, for International, for bulk, for parcels, and other specialized needs. Systems designed specifically for 3PL’s and systems designed specifically for shippers including for private fleets. The true “TMS” does much more than handle shipments. Just as with other supply chain systems there are “Tiers” that differentiate the basics — shipment handling – from the most advanced – true total freight cost minimization with substantial features and functions in between.

One of the most critical factors for under-performance is the lack of the overall goal of achieving total freight optimization. Planning individual shipments and booking carriers to deliver at least cost is the standard capability of the average TMS. Even the best TMS may not be focused on truly optimizing the total freight spend. This is most often due to: (1) treating each shipment as an individual move only (2) focusing too much on freight rates and not on total delivered costs or (3) inadequate use of the TMS as a plan and not just as a one-by-one shipment transaction tool.

Moreover, not all TMS include modern algorithms for optimizing total spend. Transportation has become a complex process which includes multiple options thus, related issues. Operational options such as cross-docking, multi-modal choices, load building, consolidations, dynamic routing, and mixed parcel/LTL movements are all examples of what must be built into the TMS for it to reflect accurate realities. Charges for accessorials, dimensional pricing schemes, contract vs. spot rates, size and weight packaging, hazardous materials, etc., are further examples.

Minimizing the particular cost of 100 individual shipments does not achieve total optimized freight spend. The many options available and pricing complexities make this business objective more challenging than ever.

Even further, as TMS move to the cloud and away from traditional on-premise delivery models, while this provides for faster deployments and lower up front investments, many users are not taking the time to think about future plans, TO-BE Visions, or innovations. Simply improving on-time delivery, reducing individual shipment costs, and enhancing visibility does not assure the minimization of total freight spend.

In many cases companies have outsourced TM to service providers assuming this method is preferable in resources, time, costs, and energy. Yet, one of the top three complaints with outsourcing year after year is that there is no gained innovation, consideration of new ways to do business, or actual achieved true total freight cost minimization. Reducing the costs of service providers by itself will not result in innovation or leading practices any more than will selecting the least expensive TMS.

What is needed for total freight cost minimization vs. just achieving the lowest cost of each individual shipment? Consider the following questions as you think about your total freight expense:

  • Routing and scheduling: are you certain these are being done well every day?
  • Integration with your WMS: how tightly is this connection such that load building is optimal and multi-stops are planned effectively?
  • Consolidations and load-building: is order integrity being maintained while deliveries are being consolidated or is consolidation even considered?
  • Omni-channel customer satisfaction: are each of your customers pleased with their service and deliveries?
  • Freight expense linked to the financials: is the process integrated to the general ledger and the financial budgets such that order management and shipment planning practices are being adhered to?
  • Increasingly complex networks: as the company re-designs its networks to better serve with DC’s, FC’s, Cross-Docks, Hubs, etc., are transportation plans re-done to achieve lowest costs?
  • Dynamic pooling: are your freight pooling points updated regularly to achieve minimum costs?
  • Backhauls and dynamic routing: are you assured that your total costs are being reduced by smart routings and your carriers are taking advantage of backhauls to reduce your charges?
  • Horizontal collaboration: are you taking advantage of possible load sharing on major lanes?
  • Total cost management: do you examine your total freight expense regularly to evaluate its accuracies as well as use freight management dashboards to identify opportunities?

There are other important questions to be asked as well in managing total freight expense. Without the right TMS in place and it being used properly these are challenging to answer. Yet, we know that companies are too often spending more on freight than necessary. This is due to limited knowledge, tools, visibility, business processes and practices, and restrictive business rules.

The smart evaluation, selection, and execution of the right TMS for the company’s true needs and opportunities has progressed beyond the standard process of defining today’s user requirements and projected shipment volumes. Too many options exist for improving freight moves and too many complexities exist in changing logistics networks. Only a few TMS have the capabilities to plan and execute shipments considering all the options and total costs.

In summary, we recommend all shippers and service providers take a fresh look at their overall freight spend. Apply relevant benchmarks for the various modes used. Examine the processes and practices used to manage not only individual shipments but the overall spend. Evaluate the system being used to support freight management or the need for one. Define the barriers that exist – cultural, organizational, and other – that limit the ability to achieve total cost minimization. Design a roadmap to move forward. Substantial cost savings are almost always there even while not sacrificing any customer service levels.

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I understand that Tompkins will only use this information to contact me about business opportunities. By completing this form I am confirming that I have read and accept the Privacy Policy.