ARC Advisory Group conducts an annual analysis of the global transportation management systems (TMS) market. The research process includes the analysis of large amounts of information and interviews with executives from numerous TMS software companies. The process concludes with the publication of ARC’s TMS Global Market Research Study, which analyzes the market shares across numerous categories of the leading TMS suppliers. Aside from the market share analysis, the study looks at the trends that are driving and/or inhibiting growth in the TMS market. This year’s study will be publishing in the coming weeks, but I wanted to give a sneak peek at some of the drivers for TMS growth.
TMS Has a Proven ROI
Historically, transportation management systems offer a strong ROI. Primarily, a TMS can save companies money by lowering their freight spend. An ARC survey on the ROI of TMS found that respondents indicated freight savings of approximately 6 percent with the use of a TMS application. Of these savings, nearly 60 percent of users indicated that less than 25 percent of the net savings were absorbed by the TMS. These freight savings can be attributed to lower cost mode selections, better routing, and better procurement negotiations.
When a shipper decides it needs to improve its transportation performance, it typically attempts to achieve this by either buying a TMS or outsourcing transportation planning and execution to a managed transportation services (MTS) provider. According to ARC Advisory Group research, among those shippers that successfully achieve significant reductions in freight savings, TMS and MTS perform roughly the same. However, when you look at the proportion of respondents that achieved negative results (increased freight costs) or no improvement in their freight spend, TMS appears to be the less-risky investment.
Lower Barriers to Entry
The freight spend required to invest in a TMS solution is lower than ever. Historically, if a company did not have over $20 million in freight spend, purchasing a TMS was out of the question. The emergence of SaaS solutions, and less sophisticated on-premise applications, has reduced that number significantly. Now, essentially companies of all sizes can afford a TMS. This includes companies with as little as $1 million in freight spend. With lower barriers to entry in the market, smaller Tier 3 and 4 customers that needed to rely on a 3PL for their transportation needs can bring those functions in-house. This change brings a wide variety of new companies into the TMS market.
Arguably the hottest topic in supply chain management is omni-channel. With more companies delving into e-commerce and expanding to a truly global outlook, transportation management becomes more important. According to a recent ARC omni-channel survey, only 60 percent of respondents are currently using a TMS as part of their omni-channel initiatives. This shows a large technology gap exists, and there is a global TMS need to be filled. With more complicated transportation activities, omni-channel is a huge growth area.
A proven ROI, lower barriers to entry, and the need for improved omni-channel operations are the key drivers for growth in the TMS market. Add in the fact that TMS products are now more sophisticated and better in general, and the market should continue to grow in the foreseeable future. As more and more businesses became truly global in their operations, TMS applications will remain a vital piece of their business. These findings and more will be explored in the soon-to-be published TMS Global Market Study.