I’ve written on here recently about our GTM study, and about the market dynamics that impact the growth of GTM solutions. Similarly, 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 recently published, and I wanted to share some of the drivers for TMS growth.
TMS Has a Proven ROI
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 8 percent with the use of a TMS application, a 2 percent improvement from the last time ARC surveyed TMS users. Of these savings, 60 percent of users indicated that less than 10 percent of the net savings were absorbed by the TMS. These freight savings can be attributed to simulation and network design, load consolidation and lower cost mode selections, and multi-stop route optimization.
When a shipper decides it needs to improve its transportation performance, it typically attempts to achieve this by either buying a transportation management system (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. Further, when it comes to net savings (after all fees are paid to the service provider); TMS appears to perform better.
One of the hottest topics in supply chain management continues to be omni-channel. From a recent ARC survey on omni-channel fulfillment, 83.8 percent of respondents indicated they receive direct retail orders through their online channel, compared to 75.7 percent who receive direct retail orders through a brick and mortar location. This is mainly due to the increase in the number of retailers selling exclusively on the Web. And while 63 percent of revenues come from the brick and mortar location, e-commerce is taking a bigger chunk every year. In the last five years, e-commerce revenues have increased 51 percent, and are expected to grow 42 percent in the next five years. This continued growth will make it more important for organizations to utilize TMS. With more complicated transportation activities, omni-channel is a huge growth area.
The TMS product set continues to improve with new forms of optimization, mobility enhancements, improved usability, and better analytics. Multitenant solutions continue to offer some distinctive capabilities that many companies find attractive. Aside from the freight savings, there are more things for transportation professionals to get excited about, including improved customer satisfaction, warehouse efficiencies, new delivery capabilities, inventory reductions, and cash flow improvements.
Growth of Developing Countries
E-commerce is growing quickly in many emerging markets, and more and more consumers are able to buy the products they want. A TMS is the natural answer for how to ship products to these countries efficiently. From, a growth standpoint, the APAC and Latin American markets are poised to drive a lot of growth in the next few years.
A proven ROI, the rise of e-commerce and the overall omni-channel landscape, better solutions offered by TMS suppliers, and the growth of developing countries are some of the key drivers for TMS growth. Add in the fact that the barriers to entry are lower than ever, and cloud solutions are more robust, and this market should continue to grow. With global transportation growing, a TMS application will continue to be a big part of the future of transportation.
For more information on the market study, check out the brochure.