More than ever, a transportation management system (TMS) can be operated with software to generate significant cost savings. The appeal of this solution has been significantly boosted by the advent of hosted software licensing and innovative hardware such as ruggedized tablet PCs.
TMS software can suggest the best route, the best mode of shipment, and the least-expensive provider—for both inbound and outbound freight. The software can also execute and support load tendering, tracking, auditing, and payment.
TMS software has traditionally been available as a purchased license. But hosted software now allows for “pay-as-you-go” access through cloud computing and software-as-a-service (SaaS) technology. Hosted software (sometimes in conjunction with purchased software) can make cost justifications work for a TMS.
So can the latest hardware. For example, rugged tablet PCs save money by:
- Eliminating the need for multiple devices. (e.g., desktop PCs, laptops, barcode scanners, paper logs). This lowers expense for procurement, training, and maintenance.
- Reducing frequency of broken hardware. Unlike consumer electronics, ruggedized tablet PCs are built to withstand banging, dropping, excessive vibrations, moisture, and extreme temperatures. This saves on repair and replacement costs.
- Making integration of transportation functions easier. A ruggedized tablet PC can perform all the necessary tasks (e.g. barcode reading, credit card or smart card processing, radio frequency identification, inspection verification, receipt verification). This saves by eliminating the cost of integrating those functions across multiple devices.
MEASURING IMPACT ON THE BOTTOM LINE
When you consider whether to implement a software TMS—or whether to alter your existing system—you should carefully justify cost, always with a firm eye on return on investment. You can follow these steps to arrive at a solid ROI calculation:
Determine current transportation costs. Select a historical period (e.g., the past year) and determine freight payments, third-party costs, and private-fleet expenses, if any.
For inbound freight, you may have to use estimates from the purchasing department since transportation costs are often submerged in purchase orders. But it’s crucial not to underestimate or ignore this cost because vendors often do not minimize transportation costs. Nor do they usually work with companies to take advantage of coordination with outbound shipping. Transportation costs buried in purchase orders are a prime target for cost reduction using TMS software.
Appropriate administrative costs (e.g., shipment tracking, communication with carriers, accounting) also should be allocated.
Estimate cost savings. Be specific and detailed in determining cost savings for each area of your company’s transportation model. It’s important to be realistic—overly optimistic projections can lead to unrealizable expectations. Conversely, being too conservative can lead to the erroneous conclusion that things are better left as they are. Considering a range of possible savings can help in your decision making.
Identify additional advantages. A transportation management system isn’t only about reducing expense. It also can provide benefits such as increased customer satisfaction, marketing exposure, and improved employee morale. These benefits are hard to quantify, but they should be considered in any cost-benefit analysis.
Determine implementation cost. Investigate the market to determine which licensing option and which provider to select. Providers vary in how they charge and what they offer so your selection process needs to be thorough. It’s also important not to overlook the internal costs of implementation.
Determine ROI. Two methods you can use are: 1) to calculate how long it will take to “pay back” the implementation cost, and 2) to figure out the net present value of the cost savings and compare that figure to the implementation cost.
In an increasing number of cases, the estimated ROI will justify the cost of using TMS software.