I’ve written about the TMS market multiple times on here, mainly due to the market studies I’ve done the last two years. These studies look at the TMS market from the supplier point of view – namely they determine and analyze the market shares across numerous categories of the leading TMS suppliers. They do touch on the other side of the equation – the customer – but this is mostly in the form of the major trends that are driving and/or inhibiting growth in the TMS market. And even a lot of this is coming from supplier feedback.
My colleague Steve Banker has done a lot of research on both the TMS and MTS space, with some interesting research looking at the ROI of both TMS and MTS. This research got answers straight from end users on the benefits of using TMS and MTS. In his writing, he has been able to compare and contrast both offerings and provide some guidance to end users as they determine which solution may be best for them. I have been looking through his research a lot lately in preparation for an upcoming virtual conference.* As I look at both Steve’s research and mine, it certainly paints a consistent picture about the future of TMS – it is no longer a “nice to have” solution; it is becoming a “need to have.”
The TMS market is continuing to grow, with omni-channel at the forefront due to the continued expansion of global e-commerce. With more companies delving into e-commerce and expanding to a truly global outlook, transportation management becomes more important. E-commerce has eliminated geographic barriers for many companies. Granted, there are logistical and regulatory issues that accompany global shipping, but e-commerce allows consumers in nearly every part of the world to view and purchase merchandise, regardless of that merchandise’s physical location. According to a recent ARC omni-channel survey, e-commerce revenues have grown for our survey respondent pool by 51% over the last five years, and this growth is expected to continue over the next five years. However, a technology gap exists. According to our research, only 60 percent of respondents are currently using a TMS for omni-channel initiatives. This shows there is a global TMS need to be filled due to more complicated transportation activities.
With expanding global operations, there are more costs to be incurred, absorbed, and managed. Perhaps no other supply chain application offers so many ways to save money or drive value. With the changing complexities of the global transportation market, a TMS offers many areas for companies to benefit. But the main reason companies implement a TMS is to reduce freight spend. A TMS achieves these savings based on process enforcement, analytics, and optimization. These freight savings come in a variety of “buckets” including increased usage of preferred carriers, better procurement negotiations, lower cost mode selections, more fully loaded equipment, better routing, and a reduction in carrier overcharges.
According to a recent ARC Advisory Group survey on the ROI of TMS, prior to their current TMS solution, nearly 75% of respondents were using manual processes to plan and execute their transportation. This means they were relying on spreadsheets, phone calls, and faxes to execute incredibly complex and time consuming processes. We asked survey respondents what their anticipated change in freight cost would be if they ceased using their TMS. This means they would need to go back to manual processes or outsource the process. The majority of respondents indicated that their freight spend would increase, with the highest percentage indicating freight cost increases of 5 – 10%. That is kind of a scary thought. In other words, based on a weighted calculation, the average TMS user reduced freight spend by 7.5%.
Freight savings are not the only benefit of a TMS though. ARC research has indicated that service level improvements and omni-channel metrics also benefit from the use of TMS. Service level is here defined as the percentage of on time deliveries within a two hour window. Achieving improved service levels is directly attributable to better transportation execution and planning. Overall, 64% of respondents improved their service levels in the first full year, with 26% improving by 5% or more. Giving respondents a weighted score, the average service level improvement was 4.5% over the first full year.
From an omni-channel standpoint, TMS users are seeing better year-over-year growth in both revenues (8.7% vs 7.3%) and margins (7.3% vs. 6.1%). Margins are especially important when looking at the role transportation plays in overall costs. Additionally, TMS users are outperforming their peers in terms of on-time order fulfillment (92% vs. 87%).
In conclusion, the TMS market is continuing to grow and evolve. Omni-channel operations are at the forefront of the growth, with global e-commerce playing a huge role. The growing complexities of global transportation are driving more sophisticated TMS offerings which are enabling companies to reduce freight spend, improve service levels, and achieve better on-time order fulfillment rates.
*On December 10th, I will be participating in Logistics Management and Supply Chain Management Review’s Virtual Conference on Technology’s Role in the New Supply Chain. My session will explore why you need TMS to thrive.