The Unbiased TMS Guide To Understanding Transportation Management Systems
Understand your Software options in plain English
Demystify the jargon
Avoid mistakes
Chapter One
Welcome to the first chapter of "The Ultimate TMS Guide," your go-to resource for navigating the world of Transportation Management Systems. This is just the beginning of our journey together. In this first chapter, we'll cover the evolution of TMS, the basic functions of a TMS, the impact of the ELD mandate, and the variety of TMS options available.
While BeyondTrucks offers a TMS, I will stick to the facts, be as unbiased as possible and give a straight down-the-middle explanation of what a transportation management system also known as a TMS for short. Whether you're replacing an old system or just deciding to leave the world of pen and paper behind, some or all of this chapter should be helpful to you. Also note, no system makes paper and pen completely obsolete and spreadsheets do have their place just not for process management. Our hope is you gain some clarity on the uses of a TMS and how it can benefit your business. As we create more chapters we’ll add them to our website.
1. TMSs Were Invented Because Managing a Fleet is Challenging
TMS was created out of necessity. Running a fleet is complex: first, most of your staff work and need to be managed remotely as the trucks and drivers tend to not be productive in the yard (another word for truck parking area). Second, margins are thin - so small mistakes can have big impacts - even if you’re operating trucks solely for your business, meaning you deliver whatever you produce. also known as having a “private fleet” (see Deep Dive for more). Third, it’s fast-paced where minutes or often seconds can change what’s a right decision. Finally, it’s a service business that needs human intervention. As a fleet grows, so does the cost of managing this complexity - often exponentially. A TMS is the most “natural” software to deal with this complexity and keep chaos under control..
Deep Dive: What is a Private Fleet?
A private fleet is like your own personal delivery service. Imagine if your business had its own fleet of trucks, and those trucks were solely dedicated to delivering your products. That's a private fleet! Here’s the fun part: think of it as having your own pizza delivery team, but instead of pizzas, they're delivering whatever your business produces. Whether it's furniture, groceries, or widgets, your trucks are on the move, getting your products where they need to go
Why Have a Private Fleet?
Control:
You have total control over your delivery schedule. No waiting around for a third-party carrier to fit you into their timetable.
Branding:
Your trucks can serve as moving billboards, showcasing your brand wherever they go.
Customer Service:
With a private fleet, you can ensure the quality of service from start to finish, directly handling any issues that arise.
Challenges of a Private Fleet:
Cost:
Maintaining a fleet is expensive. Think about fuel, maintenance, driver wages, and insurance.
Management:
Coordinating routes, ensuring timely deliveries, and managing drivers can be a logistical headache.
Regulations:
Keeping up with transportation laws and regulations adds another layer of complexity.
In a nutshell, a private fleet gives you more control and can boost your brand image, but it also comes with its own set of challenges. And that's where a Transportation Management System (TMS) steps in to help manage these complexities smoothly!
Complexity Kills
Ever tried juggling flaming swords while riding a unicycle? That’s what managing a fleet without a TMS can feel like when things get complicated. If your drivers follow the same route every day, managing them might be easy. But throw in changing routes, new customers, or different cargo, and suddenly you need multiple whiteboards, sticky notes, and magnets. The more complex it gets, the more you need a TMS to keep things from spinning out of control.
Customer Needs: The Moving Target
Think of customer demands as a game of whack-a-mole. When you only have a few customers with simple needs, handling everything manually might work. But as your business grows, those moles start popping up faster and in more places. Picture juggling multiple interactions per customer—order placement, pickup arrangement, invoicing—across a growing customer base. Without a TMS, you’ll soon find yourself dropping the ball, and customer satisfaction will take a hit.
Profit Margins Under Pressure
Without a TMS, you might keep hiring more back-office staff to handle the growing workload. This works until you realize those salaries are eating into your profits. Your business growth stalls, and you’re stuck in a dangerous spot. Competitors with efficient systems swoop in, underbid you, or offer better service, leaving you scrambling to catch up.
Bottom Line
A TMS isn’t just a tool—it can be essential in managing the chaos of complexity, evolving customer needs, and shrinking profit margins. It helps keep your fleet running smoothly and your business growing without the need for a circus act.
Deep Dive: EDI and API Connections
In the world of Transportation Management Systems (TMS), seamless communication between systems is crucial. Two key technologies that facilitate this are Electronic Data Interchange (EDI) and Application Programming Interfaces (APIs). Let’s break down what these are and what they mean for your business. EDI: Electronic Data Interchange EDI is a standardized method for exchanging business documents between systems. Think of it as the digital version of sending and receiving paperwork, but much faster and without the risk of human error. Here are some common EDI transaction sets and what they mean: EDI 204: Motor Carrier Load Tender – This is used to request a shipment and specify the details of the freight. EDI 214: Transportation Carrier Shipment Status – This provides updates on the status of a shipment, such as when it has been picked up, is in transit, or has been delivered.
EDI: Electronic Data Interchange
EDI is a standardized method for exchanging business documents between systems. Think of it as the digital version of sending and receiving paperwork, but much faster and without the risk of human error. Here are some common EDI transaction sets and what they mean:
EDI 204: Motor Carrier Load Tender – This is used to request a shipment and specify the details of the freight.
EDI 214: Transportation Carrier Shipment Status – This provides updates on the status of a shipment, such as when it has been picked up, is in transit, or has been delivered.
EDI 210: Motor Carrier Freight Details and Invoice – Used by carriers to send invoices to shippers for the transportation services provided.
EDI 997: Functional Acknowledgment – Confirms receipt of an EDI message and indicates whether it was accepted or rejected.
Many carriers are required to use EDI by large shippers and are even scored on their adherence to these communication protocols. Think of it as getting graded on your ability to play well with others in the digital sandbox!
The key advantage of EDI is its standardization, which ensures that different systems can understand each other without customization. However, setting up EDI connections can be complex and often requires specialized knowledge.
API: Application Programming Interface
APIs are a more modern approach to system integration, allowing different software applications to communicate with each other in real-time. Think of APIs as the translators between different software systems, enabling them to "talk" to each other and exchange information seamlessly. Here’s how they work:
Real-Time Communication:
Unlike EDI, which is often batch-processed, APIs enable instant data exchange. This is crucial for time-sensitive operations where immediate updates are needed.
Flexibility and Scalability:
APIs can be more easily customized and scaled to fit the specific needs of a business. This makes them ideal for integrating with newer technologies and adapting to changing requirements.
Broader Connectivity:
APIs are not just for order communication. They can connect your TMS with accounting systems, payroll services, inventory management, and more, creating a seamless flow of information across your entire operation.
While APIs offer more flexibility and real-time capabilities, they require ongoing maintenance and can involve more initial development work to set up properly.
The Bottom Line
Both EDI and API connections play vital roles in modern TMS integrations. Understanding their differences and advantages can help ensure smooth and efficient communication across your transportation operations. Often, the choice between EDI and API is dictated by business partners or operational needs, so it's important to understand both technologies.
Who Uses TMS Software?
TMS software is used by a diverse group of players in the transportation and logistics industry. Shippers, third-party logistics providers (3PLs), brokers, and carriers all use some form of TMS, although their specific needs and functionalities may vary. In this guide, we'll focus on TMS solutions used by carriers and shippers.
From common carriers doing over-the-road deliveries across the United States to a local sand and gravel company making deliveries within a single county, TMS usage is widespread. While the team members at these companies might refer to their TMS simply as "dispatching," they're essentially using a streamlined version of the same technology.
For some businesses, a TMS is the backbone of their operations, akin to their operating system (OS). For others, it's an additional component that integrates with their enterprise resource planning (ERP) system. For common carriers or for-hire fleets, the TMS is the heart of their business, with everything else connecting to it. In contrast, for a manufacturing company, the ERP system takes center stage, with the TMS playing a supporting role.
In this document, we'll assume you're either a carrier or operate a private fleet. Narrowing our focus helps keep the guide concise and relevant. So buckle up as we dive into the world of TMS and how it can transform your fleet management!
What are 3PLs, 4PLs, and Beyond?
In the logistics world, you might come across terms like 3PL and 4PL. Here’s a quick breakdown:
3PL (Third-Party Logistics):
These are companies that handle logistics services for other businesses, such as warehousing, transportation, and distribution. Think of them as outsourced logistics providers.
4PL (Fourth-Party Logistics):
These providers take it a step further by managing the entire supply chain for a business. They coordinate with multiple 3PLs to provide a comprehensive logistics solution, acting as a single point of contact.
2PL (Second-Party Logistics):
This term is less common, but it refers to asset-based carriers that provide transportation services, like trucking companies or airlines.
1PL (First-Party Logistics):
This is when a business manages its own logistics and transportation internally, using its own resources and personnel.
All of the above use TMS to streamline their operations and enhance efficiency
What's on the Market for TMSs?
When it comes to Transportation Management Systems (TMS), the options are as varied as the businesses that use them. Here's a rundown of the different offerings you’ll encounter:
Basic Systems
At the entry level, there are bare-bones systems that are often add-ons to other software, like dispatching modules provided by ELD (Electronic Logging Devices) systems. These are suitable for very small fleets, typically from one to five trucks. While they cover basic needs, most businesses quickly outgrow them as their operations become more complex.
Mid-Tier Systems
Mid-tier TMS solutions handle more than just dispatching. They offer a broader range of functionalities to support growing businesses, such as:
Order Management: Handling order intake and processing efficiently.
Routing and Scheduling: Optimizing routes and schedules for better efficiency.
Tracking and Visibility: Providing real-time tracking of shipments and delivery status.
Billing and Invoicing: Automating the billing process to improve accuracy and speed up payments.
These systems offer a good balance of functionality and cost, making them suitable for fleets that have outgrown basic systems but aren't ready for the complexity of advanced solutions.
Advanced Systems
Advanced TMS solutions offer a comprehensive set of features designed to handle the most complex logistics operations. These systems go beyond the capabilities of mid-tier solutions, offering:
Complex Rate Tables: Handling sophisticated pricing structures and rate negotiations.
Workflow Configuration: Allowing users to customize workflows to match their specific business processes.
Advanced Analytics: Providing deep insights through data analysis and reporting tools.
In summary, small systems off the shelf can be cost-effective and tailored to specific needs, offering quick implementation. However, they may lack scalability and have fewer features, posing a risk if your business grows or your needs change. On the other hand, large players like McLeod and Trimble provide comprehensive features, reliable support, and scalability. But they come with higher costs, longer implementation times, and potential complexity, which can be overwhelming for some businesses.
It's also worth noting that embarking on a digital transformation with too much ambition can be career-limiting. Some companies have taken on massive digital transformations only to see them fail, often due to underestimating the complexity or overestimating their own readiness. Therefore, it's crucial to carefully assess your organization's needs, resources, and capabilities before diving into a TMS implementation.
Selecting the right TMS involves balancing your current needs with future scalability, ensuring that the system you choose can grow with your business without overwhelming your team or your budget.
How Some Companies Make Money Through Factoring
Factoring is a financial service where a business sells its invoices to a third party (the factor) at a discount. This provides immediate cash flow instead of waiting for customer payments. Some TMS providers offer factoring services as a revenue stream. By integrating factoring into their TMS, they can provide value added services to their clients while earning a profit from the transaction fees.
How Many TMSs Are Out There?
The TMS market is vast, with hundreds of different systems available to suit various needs and industries. In fact, the latest Gartner forecast on TMS worldwide estimates that the market is expected to grow from $1.32 billion in 2019 to $2.11 billion by 2024—a growth of 60% over five years! With over 200 TMS providers globally, many focus on specific niches, so you shouldn't be too overwhelmed by the options. Each TMS offers unique features tailored to different segments of the transportation and logistics industry
The Quick Version of the TMS Evolution Over the Last 35 Years
This section provides context for understanding the wide range of TMS solutions available today. While not required reading, it helps explain why there are so many varied approaches to providing TMS solutions across different segments of the market.
1980s: Early TMS Solutions on Mainframe Computers
In the 1980s, TMS systems were primarily hosted on mainframe computers, like IBM's AS400. These systems were used by medium and large trucking operations that had the resources to invest in and maintain this robust but inflexible and expensive technology.
Example: IBM AS400
1990s: Development of Client-Server TMS Solutions
The 1990s brought client-server architecture, making TMS more accessible and user-friendly. This setup allowed mid-sized companies to benefit from improved data processing capabilities and enhanced user interfaces.
2000s: Emergence of Web-Based TMS
The 2000s saw the rise of web-based TMS solutions. These systems increased accessibility by allowing access through web browsers, reducing the need for extensive IT infrastructure. They enabled real-time data sharing and better collaboration across the supply chain.
2010s: Rise of Cloud-Based TMS
Cloud-based TMS became prevalent in the 2010s, offering unprecedented flexibility and scalability. These systems provided real-time data access, mobile accessibility, and reduced the burden on internal IT departments with subscription-based pricing models.
2020s: Incorporation of AI, Machine Learning, and IoT
The 2020s have introduced advanced technologies like artificial intelligence (AI), machine learning (ML), and the Internet of Things (IoT) into TMS solutions. This period also saw the widespread adoption of Electronic Logging Devices (ELDs), which became mandatory in the US in 2017. These technologies enhance predictive analytics, automate decision-making processes, and improve overall efficiency in transportation management.
How the ELD Mandate Pushed Many to Get TMSs
The rise of cloud-based TMS systems has been supercharged by the Electronic Logging Device (ELD) mandate in the United States. Enacted by the Federal Motor Carrier Safety Administration (FMCSA), this regulation came into full effect in December 2017. The ELD mandate requires commercial motor vehicle drivers to use digital devices to record their hours of service (HOS), replacing old-school paper logbooks.
Why the ELD Mandate?
The ELD mandate aims to make the roads safer by ensuring drivers aren't overworked and fatigued. It also cuts down on paperwork and ensures accurate tracking of driving hours. Essentially, it’s about making the trucking industry safer and more efficient.
Cloud-Based TMS: Why They’re So Attractive
The ELD mandate coincided with a boom in cloud-based TMS systems, which come with a bunch of benefits:
No Bulky Hardware:
Forget about investing in expensive servers. With cloud TMS, you just need an internet connection and a device.
Shared Savings:
Cloud TMS uses a multi-tenant model, where many users share the same infrastructure. This means you get top-notch features without the hefty price tag.
Pay-As-You-Go:
Most cloud TMS solutions operate on a subscription basis. This means lower upfront costs and predictable monthly fees, making budgeting easier.
Hassle-Free Maintenance:
The cloud provider takes care of all updates, security patches, and maintenance. This means less hassle and more focus on your core business.
Scalability:
Whether you’re expanding or dealing with seasonal spikes, cloud TMS can easily scale up or down to match your needs.
Balancing Options
While cloud-based TMS solutions are popular for their flexibility and cost effectiveness, it's important to weigh all options. The key is to find the right fit for your operations, considering both compliance with the ELD mandate and your long-term business goals.
The ELD mandate has certainly pushed many companies to rethink their TMS solutions, leading to a greater appreciation of the benefits that cloud technology can offer.
Wrapping It Up: What We've Covered
We've journeyed through the evolution of Transportation Management Systems (TMS), explored how the ELD mandate turbocharged cloud TMS adoption, and examined the variety of TMS options available, from basic to advanced systems. Understanding the landscape and the reasons behind the myriad choices can help you make smarter decisions about your own TMS needs.
Well, that’s a lot to take in, so we’ll hit the brakes here for now. In the next edition, we’ll dive into the following:
The True Cost of Ownership:
What you’ll really pay for a TMS over time—and how to avoid hidden fees!
Upgrades? We Don’t Need No Stinking Upgrades:
Why upgrades matter and how they can benefit you.
Modules, Add-Ons, Customizations, and Other Odd Terms:
A fun glossary of key terms to help you sound like a TMS pro.
What to Watch Out For:
Seven hazards to avoid when checking out TMS pricing—consider this your buyer’s beware list.