Transport Management Systems

Global shippers (BCOs) and logistics companies face mounting pressure in 2024, with three compounding challenges standing out among the rest. These include global supply chain disruptions, capacity shortages, and changing expectations.

‍

On the one hand, global supply chain disruptions have been intensified by ongoing conflict and geopolitical tensions. Instances like the Suez Canal Blockage in 2021 and the invasion of Ukraine revealed the knock-on impact of such disruptions, particularly in terms of delays and shipping costs.

‍

‍Capacity shortages have also become unignorable, European truck freight being a prime example. Capacity is being booked by competitors further in advance than ever before, and rates for truckload, less than truckload (LTL), and specialized transportation have increased by 25%.^[1]  

‍

In today’s rapidly evolving world, changing customer and market expectations form the third key challenge. The demand for real-time shipment visibility has skyrocketed, and sustainability is now a growing concern for customers and shippers alike with Net Zero commitments increasing shippers’ costs and impacting business processes.

‍

Addressing these three pressures simultaneously is complex but essential, and BCG has extensive experience in helping both shippers and logistics service providers navigate this landscape. Organizations need to enhance their operational excellence, re-work supply chains to increase their resilience and flexibility, while also developing new capabilities.

‍

The cost Conundrum

Supply chain management costs represent between 4.5% and 7.2% of a company’s annual revenue on average, depending on the industry (Figure 1). Amidst the three challenges described above, supply chain cost has become one of the central areas for investigation for many shippers.

‍

Decreasing supply chain costs have a significant effect on the bottom line, for example, a 10% improvement in supply chain costs for a retailer with $1B of revenue will result in an annual profit uplift of $7.2M.

‍

Addressing the challenges described above requires shippers and logistics companies to work on the following 3 key areas:

‍

1. Developing operational excellence by rigorously focusing on delivering value in a cost-efficient manner, improving predictability, and managing risks.
2. Making supply chains more flexible and resilient by reducing the number of global dependencies and minimizing single points of failure (e.g., unique suppliers).
3. Developing new capabilities, such as real-time transport location visibility, reliable ETA calculation, and route optimization algorithms.

‍

Addressing these challenges requires a cross-functional approach with strong buy-in from both business and IT functions, together with robust change management processes.

In order to achieve operational excellence and supply chain resilience, it is crucial for companies to make use of best-in-class software, transport management systems (TMS) in particular. Many large shippers and logistics companies are using multiple disjointed TMS solutions, or legacy systems developed in-house that no longer support today’s business requirements.

‍

A modern, fit-for-purpose TMS can be a key enabler in addressing the three main industry challenges by:

• Increasing process harmonization and reducing costs related to transportation.
• Boosting flexibility via configurable rules and improved access to transport marketplaces.
• Enabling new capabilities with standard products and configuration, depending on business needs.

‍

A new TMS is a great opportunity to improve existing processes and capabilities, as opposed to just copying current functionality. Features like route optimization, carrier selection enhancements, resolving surcharge-related conflicts, and real-time transport visibility can generate significant savings and revenue. For example, new TMS solutions deliver higher levels of automation and reduce the amount of manual effort required when implemented correctly They also enable new product types and use cases, equipping the user to target completely new customer groups.

‍

Transportation Management System: Keep, build, or buy

‍

When upgrading a TMS, the first decision is whether to keep an existing system, to develop a TMS with enhanced capabilities internally, or to buy a new one entirely. To determine the best route, four key areas should be assessed:

‍

1. Competitive potential is the first key criterion, which involves assessing whether the functionality provided by the TMS can provide at least a temporary edge over the competition. It is important to determine whether this functionality can be accessed by configuring a commercially available product, or whether in-house development is required. It makes sense to keep highly specialized functionality in-house.
2. Assessing one-off and running costs is the second key consideration. For example, when opting to buy a new TMS, initial one-off costs are usually significantly lower than the costs associated with in-house development. Keeping a legacy solution on the other hand does not require any upfront investments, but developing new functionality is typically slow and expensive.
3. Technology and integration are the next, with each route offering different benefits. A ‘buy’ solution will often come with out-of-the-box functionality and APIs, which can be used to accelerate work and integration with internal and external systems. In some cases, adaptations will still need to be made for this approach to be effective, and long-term development of the ‘buy’ solution is usually the responsibility of the vendor. The ‘build’ option allows the user to tailor their selection of integrations, but this approach typically takes longer and costs more. Long-term development of the custom solution is typically an in-house responsibility.
4. Deployment speed is the fourth key criterion. The ‘buy’ option offers a relatively quick time to market since the system itself already exists, and the critical path is typically in integrations or customization. The lengthier system development process that comes with the ‘build’ route can incur capacity constraints and a higher level of risk.

Other important factors to consider include process simplification potential, adherence to industry standards, support and upgrade model, as well as data ownership. While the buy option offers industry standards to lean on for process simplification, building a solution from scratch provides full authority over how the solution works. It is also important to mention that the ‘build’ route is typically 1.5 to 2 times more expensive on average than the ready-made solutions we have assessed (5-year TCO).

Selecting the best Vendor and Implementation Partner

If the decision is to buy an existing TMS solution, a vendor selection process should be conducted. This typically includes Request for Information (RFI) and Request for Proposal (RFP) stages. Depending on the system scope, the number of stages involved, available market knowledge, and the vendors’ promptness, final selection is typically achieved in three to seven months.

‍

The RFI involves the compiling of potential vendors and screening them for RFI participation. This process usually takes about a month of actively researching different solutions but can be accelerated by utilizing existing TMS vendor market knowledge. BCG provides this support by quickly delivering a structured comparison of different vendors relevant to a specific situation, based on tailored screening criteria (sample output shown in the diagram below).
‍

The RFI process is then conducted to narrow the initial list of 10 to 15 vendors down to between 3 and 5 for the next phase. Ultimately, selection depends on the specific business and technical requirements of a particular company.  

‍

Next, the RFP process is used to select a single solution from the RFI shortlist. System Integrator (SI) or implementation partner selection can also be included at this stage if required. The evaluation framework for this phase includes the following four key areas:

‍

1. Product fit is the first, as not all solutions will meet the specific requirements of every logistics company or shipper. In addition to a solution’s compatibility with key functional requirements, it is important to factor in the vendor’s profile and credentials, live demonstrations of key features, future product development roadmaps, and the buyer’s ability to influence it.
2. Contractual and commercial terms are a crucial consideration, as part of which, potential TMS buyers should consider the costs associated with the solution holistically (e.g., total cost of ownership for five years). Pricing levels as well as pricing models vary significantly among software vendors. There are three main pricing models we have observed on the market with the following criteria used as the main basis for pricing:
   - Freight under management (FUM)
   - Number of users
   - Number of transactions

Having a clear understanding of how transportation volumes convert from one pricing model to another will help solution buyers identify the best model from a commercial standpoint.
‍

3. Project delivery relates to the proposed implementation approach, timeline, risks and previous experience of an SI with a particular TMS product.
4. Technical fit pertains to ease of integration, performance, architecture strategy, localization, data security, and SLA conditions. A thorough assessment of these characteristics will also help to ensure successful TMS selection and implementation.

‍

The Right Requirements

‍

Evaluating product fit is a critical part of the assessment, which usually calls for 150 to 250 high-level functional requirements to be prepared for the RFP. The number of requirements can be significantly larger, increasing to over 1,000 if they are particularly detailed.

‍

BCG uses an internally developed capability model for structuring requirements collection, which divides the entire TMS scope into five areas:

1. Planning
2. Transport execution and monitoring
3. Payments
4. Carrier management and communication
5. Analytics and reporting

Each area is divided into sub-areas, which are then filled with requirements applicable to a specific company. To ensure fair comparison between vendors and avoid implementing a new solution that is essentially a copy of the old one, it is important to use the right level of abstraction when detailing functional requirements.

‍

We have observed the best results when functional requirements are listed by focusing on what the new system should do, without being overly prescriptive in terms of how to do it.

This approach allows vendors to provide their perspectives and industry best practices on the most efficient ways to fulfil a specific requirement.

‍

Functional and non-functional requirements must also fully support future business strategy, which can be done by first breaking down your overarching strategic goals into specific business capabilities. An example is provided below (these requirements will vary significantly between different companies):

‍

‍

Plotting a path Through the Process

BCOs and logistics companies looking to upgrade their TMS face several key decisions from selecting the right approach to the right vendor and SI to deliver on it. This not only requires existing capability gaps and future needs to be pinpointed, but also a deep understanding of vendors and their specific offerings.

‍

BCG is equipped to provide expert guidance on both fronts when transforming your solution. We have developed a comprehensive capability model to assess transportation management functionality in a granular way, rapidly map out gaps, and predict future requirements. We also have a detailed and intimate knowledge of more than 20 TMS vendors and the functional capabilities of each system.

‍

Client case

We have enabled many shipping leaders to successfully transform their TMS approach. In one instance, we enabled a global container shipping company to source and onboard a new TMS solution as part of a large-scale IT transformation. This involved collecting 150+ requirements, identifying potential software providers, and conducting an intensive RFI process on the client’s behalf.  Highly collaborate approach was adopted during the procurement process with pitches, demos and a proof of concept serving as regular touchpoints with the vendors. After a thorough and multi-phased RFP process, the best TMS solution and implementation partner were selected gaining full board approval.