Editor’s Note: The following is an excerpt from “Putting Community in TMS: Enabling the Network Effect in Transportation Management,” a research e-book produced by Adelante SCM and published by Kuebix (a Talking Logistics sponsor).
Transportation management is inherently a network-based business process. It involves an ecosystem of different parties — a community, if you will, of shippers, carriers, consignees, brokers, and others that need to communicate and collaborate with each other in order to transport products and utilize assets and labor as efficiently as possible.
This transportation community is analogous to the connections and relationships enabled by social networks like Facebook and LinkedIn. A big difference, however, is that unlike Facebook and LinkedIn, which are powered by network-native software, the transportation community has historically been been powered by enterprise-centric software — that is, transportation management systems (TMS) that were designed for, and used primarily by, the transportation function within the four walls of a company.
This fragmented, “inside the four walls” approach makes it challenging to quickly and efficiently match transportation demand with available capacity, as companies of all sizes experienced in 2018. This growing need in the market for better matching of supply and demand, coupled with the rise of cloud computing, software-as-a-service (SaaS), application programming interfaces (APIs), and other emerging technologies, is driving the next evolution of transportation management systems.
Simply put, transportation management systems are transitioning from being “inside the four walls” applications to becoming operating systems that power transportation communities and enable network effects.
Defining the Network Effect in Transportation
In a November 2014 video for UPS, MIT Professor Yossi Sheffi described the power and value of the network effect as follows:
“The network effect exists when the addition of another element [to the network] makes all the existing elements in the [network] better off,” explains Sheffi, citing cell phone networks and Facebook as examples. “It’s a positive feedback loop. As the network grows, the more value it provides. The more value [the network] provides, it grows even bigger. It’s the economics of having an extra point on the network, and the fact that you can build a lot more services on the existing network, that’s the power of the network.”
Therefore, to paraphrase Professor Sheffi, the network effect exists in transportation when the addition of another shipper, carrier, freight broker, or other participant to the network makes all the existing members of the network better off — by more quickly and efficiently matching demand with supply; by executing transactions in a more streamlined and automated way; and by providing everyone with network-based business intelligence and analytics about capacity, rates, on-time delivery, and other metrics.
Historically, the network effect in transportation has been limited by the fact that many (if not most) small and midsized shippers and carriers have been left out of the network.
The good news is that advancements in technology — most notably, cloud computing, software-as-a-service, application programming interfaces, and mobile computing — are making it easier for shippers, carriers, and brokers of all sizes, as well as private fleets and others in the transportation ecosystem, to more easily integrate and transact with one another.
And network-based transportation management systems are serving as the operating systems of these communities.
For additional details about network-based transportation management systems, along with examples of the value created by the network effect in transportation, please download the research e-book, “Putting Community in TMS: Enabling the Network Effect in Transportation Management.”