White Paper - The Shippers Guide to Transportation Management … · THE SHIPPERS GUIDE TO TRANSPORTATION MANAGEMENT SYSTEM ROI 4 | WHITE PAPER SITUATION OVERVIEW Transportation represents

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THE SHIPPERS GUIDE TO TRANSPORTATION MANAGEMENT SYSTEM ROIHOW TO CALCULATE THE MAXIMUM RETURN ON TECHNOLOGY INVESTMENTS

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THE SHIPPERS GUIDE TO TRANSPORTATION MANAGEMENT SYSTEM ROI

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EXECUTIVE SUMMARYIt’s a well-established fact in the supply chain field that Transportation Management Systems (TMSs) have a good track record of delivering significant value to companies that need to move freight from point of origin to point of destination. Through industry studies and first-hand accounts, companies that have deployed a TMS for their transportation operations achieve significant savings and other benefits. Whether cloud or traditional on-premise architecture, the TMS is no longer a ‘nice-to-have,’ but a necessity for increasing visibility and managing complex transportation networks.

In 2011, and then again in 2016, the ARC Advisory Group studied the return on investment (ROI) for a TMS. In 2011, ARC analysts discovered the ROI of a TMS was consistent and strong. Five years later, they found that not only did ROI continue to be strong, it was growing. And while reasons for the growth in ROI vary, all indications are the advancements in the technology capabilities, ease of use, user training, better implementations, and planning all play a part in how shippers are extracting greater value from their transportation technology.

Taking a deeper look at the technology needs of transportation departments, Ohio State University Logistics Professor Jim Hendrickson conducted research into the value that supply chain execution systems provide. In his 2016 report, Hendrickson examined the time to break even for some of the most common transportation technologies, including, Warehouse Management Systems (WMS), TMS, and others. For TMS, Hendrickson found that it had a significantly lower break-even than other technology. More than 40 percent of respondents reached break-even for their TMS within 6 months to 1 year, and another 25 percent reached break-even by 18 months.

And, as Hendrickson states in his report, despite the need of companies to leverage modern technology to drive cost savings, new business models, and global management, many still struggle to achieve the full value of such initiatives. The takeaway here is that technology alone does not drive value. It requires buy-in, a dedication of time, and direct management.

The core issue facing transportation professionals is not whether a TMS can add value to an organization. The question that shippers need to address for themselves is under what circumstances are they able to achieve maximum return on their TMS investment.

TMS BUSINESS VALUE HIGHLIGHTS • 5-10% freight cost reductions for

shippers

• 6-18 months to break-even

• < 10% of net savings absorbed by

TMS costs

• 40% TMS adoption rate among

shippers



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CONTENTS

Executive Summary 2

Situation Overview 4

Market Dynamics Impacting TMS Growth and ROI 5

An ROI Success Story: Hibbett Sports Scores $1 Million in Savings 7

Achieving ROI Begins With a Good Plan 8

Conduct a Full ROI Analysis 9

Conclusion 14

About MercuryGate 16



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SITUATION OVERVIEWTransportation represents a significant amount of the overall logistics budget for many businesses in the shipper segment. It often is the single largest cost component. The Logistics Management Annual Study of Logistics and Transportation Trends highlights that an average transportation spend for companies with less than $250 million in sales is approximately 10 to 11 percent of revenue. For companies with revenues of more than $9 billion, transportation represents 2 to 3 percent of revenue. Managed well, companies can drive significant savings through transportation. To do so, many companies have or are deploying TMS technology in growing numbers to support control tower visibility.

In looking at the overall shipper segment, not all companies are adopting TMS at the same rate or with the same level of success. Typically, companies with a larger freight spend are more likely to use technology to manage transportation planning and execution.

IT Analyst firm Gartner has segmented the shipper market into three tiers:

• Tier 1 (over $100 million in annual freight spend) TMS Adoption rate of 50%

• Tier 2 ($25 to 100 million) TMS Adoption rate of 25%

• Tier 3 (under $25 million) TMS Adoption rate of approximately 10%

Blended together, the adoption rate for all shippers indicates that about 35 to 40 percent of logistics operations are using a TMS solution as part of their overall supply chain strategy. But some question that level of adoption, and it really comes down to how a TMS is defined.

“That 40 percent who have a TMS sounds high to me,” says Steve Banker, Vice President of Supply Chain Management at ARC Advisory Group. “My definition of a TMS includes some level of optimization. If you were to dive deeper into that 40 percent, you might find that some are just using a transportation execution provider.”

If a shipper is not using a TMS, what are they using? At the Tier 3 level, smaller companies are likely to be using manual processes to manage freight, working in spreadsheets, and arranging carriers through phone, fax, and email. Banker says that larger shippers that don’t have a TMS of their own are likely using a managed transportation provider that has a robust TMS, while smaller shippers might also be using brokers.

5 KEY TAKEAWAYS 1. ROI for TMS is strong and

growing, according to ARC

Advisory research.

2. ROI impact is dependent

upon specific supply chain characteristics and what

components of the TMS are

chosen for deployment.3. Not everyone is starting from the

same place. Companies migrating from manual processes to a TMS have a greater ceiling of opportunity for ROI.

4. There is a sea change toward

cloud-based TMS, with shippers valuing configuration more than customization.

5. Technology alone cannot drive ROI. It requires a plan, buy-in, and hands-on management every step

of the way.



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“It’s not the best way to get good savings, but if they have shipments that are small and not complex, they might be able to get by with it,” says Banker. “The less complex the shipments, the lower the ROI of a TMS would be. The value of a TMS is managing the complex shipments that require network optimization.”

Looking back at the two ARC studies, ROI corresponds to how much the TMS can reduce the company’s freight spend. Survey respondents were asked how much they believe they save on freight costs by using a TMS rather than manual process. That savings figure is then balanced against costs such as software licenses, implementation, and other costs involved in deploying a TMS, whether it be cloud or a traditional client-based solution.

The most recent survey (2016) indicates that a TMS reduced freight spend by 6 percent or more for 63 percent of companies with 65 percent of companies also showing service level improvements. The report doesn’t provide a detailed ROI calculation, but it does indicate that less than 10 percent of the net savings were absorbed by the TMS. Based on the ARC study results, freight savings clearly outweigh the costs associated with a TMS.

MARKET DYNAMICS IMPACTING TMS GROWTH AND ROIShippers in every industry face unprecedented pressures to reduce supply chain costs, navigate an ever-evolving global trade regulatory landscape, and deliver shipments on-time while meeting the highest customer service standards. To survive, modern transportation organizations must continue to stay on top of industry trends, adapt to new advancements, and evolve to better manage the complexities and disruptions in their transportation networks.

The role of technology in supply chain and logistics continues to grow as the need to manage data and extract insights to support decisions increases. The industry is experiencing a digital transformation, and shippers are moving to a new digital ecosystem that will help them maximize supply chain efficiencies and grow profitability. The TMS will be a central piece of the new ecosystem. With the looming talent shortage in the supply chain field, companies will be investing in training to prepare their workforces to manage transportation technology, and do more with less.



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Other disruptors that are driving the adoption of TMS include:

• Tight Capacity – Freight savings will continue to be impacted by the growing capacity issues that are driven by the driver shortage and super storms.

• Higher Transportation Costs – Shippers need more insight into their transportation network to make faster decisions on carriers and optimization. The analytics capabilities of a TMS can provide that insight.

• Increasing Regulatory Issues – With more regulations, costs are driven up. A TMS can help shippers find savings. The best TMS solutions have integrated fleet management that allows users to manage equipment, drivers and operations all from a single TMS platform.

• Software Design – Software vendors are focusing more on the customer experience and are designing their interfaces to be easier and more intuitive to use, creating more efficiency and faster user adoption.

A Sea Change Toward Cloud

Software-as-a-Service (SaaS) technologies have exploded in the last 10 to 15 years. While the idea for cloud software was first proposed in the 1960s, it was the late 1990s and early 2000s when we saw enterprise applications that could be delivered via a web site. Today, many companies conduct business through shared, collaborative apps. And, the cloud is making TMS solutions more accessible, which means more shippers can take advantage of the tools a TMS provides.

“What we see today is that the market is moving away from customization, and that means a move away from more traditional systems,” says ARC’s Banker. “There has truly been a sea change toward the cloud, as more people are opting for configuration, not customization.”

Banker explains that some companies will initially adopt a traditional on-premise solution, so they can customize the tool to their workflow. They then discover that the cost to upgrade is as much or more than it is to implement a new system, which leads them back to evaluating new systems.

Another driver of cloud is that some companies are looking to solve just a particular portion of their larger transportation challenges. Those shippers want to start small, show success and expand the tool over time. For them, a cloud-



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based provider is often faster and better for making a business impact and supporting a case for expanded use.

A cloud-based TMS allows for quick implementation, often in a matter of a few weeks. It is accessible by multiple groups who can be anywhere, and it gives companies the advantage of automatic feature updates without disrupting workflow for an extended period to add enhancements.

AN ROI SUCCESS STORY: HIBBETT SPORTS SCORES $1 MILLION IN SAVINGS

Hibbett Sports, Inc. is a full-line sporting goods retailer headquartered in Birmingham, AL., operating stores in small and mid-sized markets, predominantly in the South, Southwest, Mid-Atlantic, and Midwest. As of October 2017, the company operated a total of 1,082 retail stores comprised of Hibbett Sports stores and Sports Additions athletic shoe stores in 33 states.

Hibbett works with a variety of vendors that supply its stores with a wide array of name brand sporting goods apparel. Managing the shipments of merchandise to stock its growing number of stores can be a complex and challenging task, which led Hibbett to begin researching a Transportation Management System (TMS) in 2012. As part of the research phase, Hibbett identified a need to capture all transportation and logistics data in one system. The company also required better visibility for consolidating and optimizing its inbound shipments, ultimately with a goal of realizing cost reductions.

“Before we implemented the MercuryGate TMS, we were mostly relying on manual processes and a homegrown TMS to a small extent,” said Wanda Duvel, Director of Logistics for Hibbett Sports. “We would direct vendors to a web site where they could request routing through our traffic department, and our IT department had created an interface between the web page and our merchandise management system. But that process – along with our reliance on Excel spreadsheets for much of our data – created a number of inefficiencies and challenges.”

After evaluating five TMS solutions in 2012, Hibbett selected MercuryGate TMS, which provides the logistics team with information and analytics they need to make decisions. They can now conduct quick rate comparisons and in-house audits of invoices, rather than relying on outside resources. Additionally, Hibbett has been able to add its suppliers into the TMS which makes scheduling of shipments much easier. And, they are leveraging the transportation optimization solution MercuryGate Mojo, to analyze shipments, rates, and constraints to produce realistic load plans.



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“The MercuryGate TMS has greatly helped us manage and consolidate these LTL shipments, and has also given us the visibility to see where we did or didn’t save money on our loads,” says Duvel.

Hibbett is continually looking for new ways to make the TMS work for their business goals. The company estimates that it has already saved more than $1 million, and expects that savings to grow consistently as the business adds new stores. Additionally, in the last year Hibbett began using the Bid Board option within the TMS, enabling them to cut inbound freight costs by more than 30 percent.

ACHIEVING ROI BEGINS WITH A GOOD PLANWhile it’s clear that technology can drive significant financial benefits for a transportation department, technology is only one part of the equation for achieving maximum ROI. Software implementations rarely fail or succeed because of the capabilities of the software itself. Success is most often determined by the plan for implementation and the readiness of the business to take advantage of the new capabilities.

“It always comes down to people, process and technology, and people is always the hardest part,” says Steve Banker. “Culturally, many companies have not unified the transportation department. If it is fractured and one group goes to a TMS, there is not as much ROI to be gained as there would be if all functions were unified.”

One established approach that shippers can use to implement a TMS is to focus on the areas where they can maximize their investment and show early progress. Most successful implementations are led by a project manager who knows where they are headed and they build the tool around the challenges that they are trying to solve for. Banker explains that people come into a project with different pain points – focusing on inbound, looking at outbound, increasing overall visibility, reducing accessorials, and making sure carriers are not overcharging. Whatever the pain point, project leaders need to establish a clear plan for implementation and prepare for post-implementation.

“Change management is a big hindrance to ROI,” says Banker. “And one thing that makes change management so difficult is that if you centralize the transportation function, people worry they will lose their jobs. It creates that ‘Who Moved My Cheese’ moment, where it affects jobs, or they are going to be doing something new.”



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5 Steps for a Successful TMS Implementation

1. Begin with a goal. It’s critical that everyone shares a common vision of what success looks like.

2. Secure executive buy-in. Executive involvement can’t end with signing the contract. Success is difficult to attain without internal leadership and direction.

3. Define a clear plan. Identify roles and milestones and hold routine meetings to ensure accountability through the end of the project.

4. Prepare for change. Change in logistics is normal, but change in job skills and processes takes a much bigger effort.

5. Measure success. Create a dashboard or some other way to communicate the tangible business value the TMS is delivering at every stage.

CONDUCT A FULL ROI ANALYSISWhen starting an ROI project, it can be overwhelming to decide where to begin. There are many ways to look at the numbers. In its simplest form, it is best to start by evaluating all potential costs associated with adding a TMS and weigh those against the projected savings.

One place organizations can start with an ROI analysis is to break down the functions of their transportation department into smaller buckets that they can impact through technology. In the 2011 ARC Advisory study, Return on Investment for Transportation Management Systems, ARC’s Banker identified several savings buckets, including:

• Increased usage of preferred carriers

• Better procurement negotiations

• Lower cost mode selections

• More fully loaded equipment

• Better routing

• Reduction in carrier overcharges

“ [MercuryGate] is recognized for its superior technology platform and faster returns on investment (ROI) with highly configurable solutions adaptable to customer requirements and budgets.”

— Anamika Shenoy, Senior Analyst, Quadrant Knowledge Solutions



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The MercuryGate ROI Framework

MercuryGate has helped hundreds of organizations implement a cloud-based TMS, including within some of the most successful shippers across manufacturers, food and beverage, retail and wholesale distribution. The company has taken its years of experience and knowledge and it has developed an ROI Analysis framework that can be used as an initial guide. It’s important to note that ROI will vary by organization. Not everyone is starting from the same point. More mature organizations might see positive, but lower ROI, while organizations using manual processes will see greater ROI because they have a much bigger ceiling for improvement.

The following areas are a starting point and a suggested structure for starting an ROI analysis, providing dedicated buckets for specific functions within an organization.

1. Plan/Optimize The best TMSs include the ability to consolidate shipments and create multiple stop truckload moves as well as the construction and utilization of pools and mode skipping. Optimization can occur for all locations from a single management point. Shipment consolidation from single origins or to single destinations provides ROI, but combined with the ability to optimize routes will result in substantial ROI. The combined ability to route freight to and from multiple facilities and incorporate the use of pooling and cross docking results in a truly cost-effective supply chain.

This bucket can be broken up into rate and mode optimization, multi-stop optimization, outbound consolidation, inbound consolidation, network optimization.

Data inputs will include:

• Annual freight spend

• Projected percent of loads where additional consolidation opportunity exists

• Annual outbound freight spend

• Annual inbound freight spend



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2. Procure/Execute Typical transportation processes are traditionally manual, labor intensive and reactive in nature. Look for a TMS that is designed to support optimal transportation processes and provides a proactive, manage-by-exceptions environment. The improvements in operations and administration allow resources to be allocated to productive cost-reducing and revenue-generating activities.

Components within this function include RFP savings with optimal contract negotiation, RFP administration savings, ongoing contracts administration savings, outbound routing guide compliance, inbound routing guide compliance, load execution administration savings and reduction in penalties.

Data inputs needed:


• Number of transportation bid events per year

• Number of FTEs managing bid events

• Number of FTEs managing contracts

• Annual outbound freight spend

• % of loads covered by carriers not following route guide

• Annual inbound freight spend

• % of loads covered by carriers not following route guide

• Number of FTE executing loads (tendering, booking, tracking, and customer service)

• Average number of penalties per year

• Average cost per penalty



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3. Settlement TMS streamlines invoicing and payment processes and accelerates time to settle with carriers and logistics service providers. This earns the providers’ trust and they are willing to do more business with companies that have better processes. Typically, the audit and pay process is a very manual and tedious routine. Often organizations turn to external payment companies to audit and pay their freight invoices, adding incremental costs to the transportation budget. The best TMS enables automatic freight audits based on defined business rules, enables identification of discrepancies, and facilitates dispute resolution. The savings are in avoidance of overpaying carriers and improving accounting department productivity.

Areas to look at here include accounting department productivity gains and freight audit savings.

Data inputs needed include:

• Number of FTEs in accounts payable for transportation

• Annual invoice count

• Average dollar value per invoice

• Percent of invoices with a discrepancy

4. Manage Fleet Leading fleet management solutions allow shippers to manage all three - drivers, equipment, and operations, realizing benefits in each area as well as streamlining the entire fleet management process. In this section, we will assume we are working with a tool that is tailored for asset-based carriers, asset light carriers, and private shipper fleets.

Within fleet management, evaluate the following phases: asset utilization, administrative savings, fleet equipment management, and driver management.

Data inputs will include:


• Percent of freight covered by private fleet

• Number of FTEs managing fleeting information

• Number of fleet equipment (tractors, trailers, and containers)



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• Annual equipment maintenance cost

• Number of drivers

• Average revenue per shipment

• Annual shipment volumes

5. Manage Carriers Carrier management solutions, like MercuryGate’s Carma, collect data, approve carriers, analyze carrier capabilities, and create alerts when conditions require attention

Areas to look at include carrier management administration savings and carrier onboarding administration savings.

Inputs include:

• Number of carriers in carrier base

• Number of FTEs managing carrier base

• Number of carriers onboarded annually

• Number of FTEs who onboard new carriers

This is just one approach to calculating ROI on a TMS for a shipper organization, and can help guide decision makers on where they want to focus their efforts. And, while not every data input might be known, it provides a starting point for building a business case. Note that actual returns may vary due to the unique characteristics of each business. Using this model, companies can determine how different capabilities can add value to their businesses.

MYTHS ABOUT TMS IMPLEMENTATIONS MYTH: A TMS requires a substantial

capital investment. FACT: A cloud-based TMS can

be expensed as a subscription

or transaction fee. With limited expense, this approach allows companies to prove rapid ROI.

MYTH: A TMS Implementation is long and complex.

FACT: A TMS can be implemented in weeks. Most MercuryGate TMS

implementations are operational in 4-6 weeks.



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CONCLUSIONIn general, TMS solutions put power, efficiency, visibility, and scalability into the hands of any company that is seeking to reduce freight costs, improve end-to-end visibility, enhance service levels, as well as optimize their logistics network. There is no longer a question about whether a TMS can deliver ROI, that’s been clearly established through multiple reports and success stories from different industry segments. The challenge is ensuring there is a plan in place to maximize the investment and capitalize on the powerful functionality that a TMS delivers. Looking ahead, as more shippers move to cloud-based solutions, it’s likely that the average ROI realized by companies will be even greater.



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References

[1] Banker, Steve. Return on Investments for Transportation Management Systems. ARC Advisory Group. November 2011.

[2] Banker, Steve and Cunnane, Chris. The ROI of TMS is Improving. ARC Insights. ARC Advisory Group. June 2016.

[3] Hendrickson, Jim. Supply Chain Executive Research Report: Primary Research in Evaluating the Business Case and Approval Process for Supply Chain Execution Systems Acquisition. Fisher College of Business, Ohio State University. December 2016.


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ABOUT MERCURYGATEMercuryGate provides powerful transportation management solutions proven to be a competitive advantage for today’s most successful shippers, 3PLs, freight forwarders, brokers, and carriers. MercuryGate’s solutions are unique in their native support of all modes of transportation on a single platform including Parcel, LTL, Truckload, Air, Ocean, Rail, and Intermodal. Through the continued release of innovative, results-driven technology and a commitment to making customers successful, MercuryGate delivers exceptional value for TMS users through improved productivity and operational efficiency. MercuryGate offers business intelligence to improve transportation processes, increase customer satisfaction, and reduce costs.

Find out why MercuryGate has set the industry standard for the most adaptable, comprehensive transportation solutions suite in the industry at www.mercurygate.com.

To learn more, [email protected]

CALL +1 919.469.8057 / VISIT mercurygate.comMercuryGate International, Inc.200 Regency Forest Dr, Suite 400 / Cary, NC 27518 USA

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White Paper - The Shippers Guide to Transportation Management … · THE SHIPPERS GUIDE TO TRANSPORTATION MANAGEMENT SYSTEM ROI 4 | WHITE PAPER SITUATION OVERVIEW Transportation represents