In a past episode of Talking Logistics, Nicholas Carretta, President at UltraShipTMS (a Talking Logistics sponsor), discussed some of the barriers companies face in implementing a transportation management system (TMS), and “building the business case” was one of the main challenges he talked about. Considering that TMS solutions have been around for so long and there are plenty case studies out there, why do many companies still have a hard time building the business case for a TMS?
Nicholas answered that question in a follow-up conversation we had recently:
I think the biggest reason is because companies are very unique. Every supply chain is unique, everybody’s transportation model is a little bit unique, so for someone to go out there and say, “Well, the average savings for installing a TMS is 9 percent, 12 percent,” people don’t want to know what the average is, they want to know what [they’re] going to save…If you’re going to build the business case, you want to take a look at your specific network and you want to figure out savings that are unique to you and not go off average savings, and I think that’s one of the barriers people face, it’s finding out specifically for them, “How much am I going to save?”
So how does a company get started in overcoming that challenge, what’s the first step?
The first step is to do an accurate self-assessment of your supply chain and transportation network. In order to do that self-assessment, you have to look at factors such as [your] transportation spend, [your] staffing costs to execute [your] shipments every week, month, and year, and then you really have to do an exercise where you map existing business processes, come up with a solid baseline of your network, and come up with a current state process map that explains what you’re doing on a day-to-day basis, what are the challenges you’re facing on a day-to-day basis, and really understand your network so you can then go out there and say, “Okay, based on what I know about [my current processes and network], what can I expect to obtain as far as savings from [a TMS]?”
Of course, for companies that aren’t using a TMS, that are still using spreadsheets and manual processes to manage their transportation operations, determining their transportation costs is not so easy, which is why taking that first step is so difficult for many companies. Nicholas shared some ideas on how can companies get over that hump to create their baseline, along with where they can expect to find savings, which he grouped into eight categories:
- Routing effectiveness
- Load building utilization
- Mode selection
- Use of preferred carriers
- Intelligent procurement
- Freight payment accuracy
- Collaborative automated communication with sales, customers, and carriers
- Business Intelligence capabilities and practices
Some of those savings are driven by optimization capabilities, others by execution. Which tends to drive greater savings, optimization or execution? Watch the short clip below for Nicholas’ response, but here’s a snippet: “Every [company] is very unique. You look at a specific organization, and based on their transportation network, [a company] with a higher order frequency and a smaller order size is generally going to benefit more from an optimizer, whereas [a company] that has a lower volume of shipments and larger average order sizes might benefit less. One of the things we found with the optimizer is that it’s easier to quantify the benefits.”
So does that mean that companies should always implement optimization first? How do you calculate payback and ROI? What’s the best way to present the business case to upper management?
I encourage you to watch the rest of my conversation with Nicholas for insights on those questions and more. Then post a comment and share your perspective on this topic!