If you already have experience with TMS and other assorted SCM systems this blogpost is not for you.
But a lot of my readers do not have such experience. They fall in one of the three categories below:
- They are novices who do not know much about anything in SCM and are trying to learn about the various terms and techniques from an assorted set of sources on the internet.
- They are from outside the field of SCM and got their start in sales, marketing, finance, HR, or other areas of corporate life. Irrespective of what level they are in the corporate world now, they feel the need to know more about the common tools and techniques in SCM.
- They got into SCM from procurement, warehousing or inventory management and never got much formal training in proper SCM tools and techniques. Transportation management is one area in which they want deeper and wider knowledge base.
If you want to learn more about the role of TMS among the universe of SCM systems, let us go back to the first principles.
Every time your company buys or sells goods, they have to be transported. The party responsible for transportation is specified in the contract of sale of goods itself. Your company will be responsible for transportation if it buys goods FOB and sells good CIF (for details of FOB, CIF and other similar assorted terms see our blogs on ICC code).
If your company is responsible for transportation, you will have to carry them using your own trucks, trains or ships, or engage the services of a carrier to do so. Your company may also use an intermediary such as a broker, a freight forwarder, or an agent to do so on your behalf.
In either case your company will be responsible for transportation management. TMS (Transportation management systems) come handy in management of the transportation task.
Your carriers (trucking company, railway company, shipping company, airlines etc), as well as your intermediaries may use their own TMS for carrying out their part of the tasks.
It is useful if your TMS is compatible with the TMS of the carrier and the intermediaries as well as the MRP or ERP (Manufacturing or Enterprise Resource Planning) system of the buyer or seller of the goods.
So what does a TMS do?
There are a number of other complicated articles on this website that will cover the functionality of the TMS in proper detail.
The purpose of this article is to make it all very simple, and then take it to just the right level of complexity.
As a start TMS helps you generate all the paperwork that you need to send off your shipment in proper order.
An air shipment needs AWB (airway bill), and a sea shipment needs a BL (bill of lading). Other shipments need a shipment note too. Sometimes you need to give an advance shipment notice and even book a slot with the receiver. But that is not the only paperwork that accompanies a shipment. There are a multitude of papers that are required by law, by custom and by the counterparties. Your TMS (or your carriers or your agents) should be capable of generating all these papers in good order. This is the 'execution' part of the transportation management. There is more to execution, but for the time being we will keep it simple and move on to the next level up - scheduling.
You can only send off a truck if you had booked one well in time.
If you call a trucking company today asking for a truck as soon as possible, they will look at their backlog, driver schedule etc and give you a trucking slot sometimes in future - say in 2-5 days in future if there are no big backlogs.
It is a scheduling issue. A truck, or a ship or a railwagon cannot be made available on call. Even an uber or taxi takes time to arrive from its last fare to where you are.
In other words, if you want to be sure you do not miss the delivery slot you will have to schedule your shipment with the carrier accordingly. And, you have to do this scheduling for every shipment you are sending out, or receiving. Your TMS (or TMS of one of your contractors) should be capable of scheduling shipments on your behalf.
Scheduling is a fine art and keeps moving till the last minute in order to optimise the outcomes, but again, for this article we will keep it relatively simple and move on the the next level - planning and optimization.
Having scheduled a shipment it has to be allocated to a vehicle - a truck, ship, aircraft, container, railway wagon etc. That vehicle load must be optimised to fill it as much as possible, to load and discharge in shortest period of time and to arrive by the quickest, cheapest or most effective route. All those are planning functions - load planning, route planning, stops planning, loading sequence planning, discharge sequence planning etc.
Very few, in any, TMS are capable of doing all the planning that is necessary. There is a lot of room for human ingenuity and experience in planning.
In practice a plan drives a schedule which drive a shipment.
TMS helps in planning, scheduling and execution of the shipment. TMS suites often include all activities and functions related to transportation in the company.
These include professed capability to optimise across multiple modes of transportation, paperless execution, freight accounting with auditing or self-pay functionality, tactical modelling, strategic planning, procurement and sourcing.
With supply chains becoming increasingly globalised, transportation management solutions must grow to include global logistics capabilities, which are essential factors in understanding your cost-to-serve metrics.
Optimising transportation management has become essential for companies in today's more fluid, global, omnichannel world.
Reduction in freight costs continues to be a primary driving force for investing in Transportation Management Systems (TMS), but securing capacity and upscaling the overall transportation operating efficiency are becoming strong motivators in a growing volatile marketplace.
At a strategic planning level someone has to plan when to get more ships, aircrafts trucks etc.
Similarly they have to plan disposal of these units, availability and utilisation of these units, and ongoing maintenance of the fleet.
Marketing, segmentation, targeting and positioning must be carried out to achieve target profitability.
All these management functions inside a transportation company are not carried out by a TMS but will be greatly aided by the data generated by a good TMS.