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A Guide to Understanding and Selecting TMS and Shipping Software.

click1One of the fastest growing sectors within the software industry is TMS software. TMS stands for Transportation Management Software. It is sometimes referred to as Shipping Software or Logistics Management Software (LMS). While there may be distinctions between them, the differences are subtle. A Warehouse Management System (WMS) is completely different and will be discussed at a later date.

Once considered cost effective only for large companies, they have become increasing popular for small and medium size firms. So much so that a leading technology consulting firm states that the adoption rate is growing by more than 10% per year, and predicts that eventually 80% of all companies that ship products will be using some kind of software that helps them facilitate their shipping and other logistics processes.

There is good reason for this. They can save a company time and money by improving processes, allowing them to manage a larger group of carriers better, get information faster, and help speed up and make better decisions. Some companies claim their systems can help provide 40-50% savings on transportation costs, and as much as a 70% reduction in time spent on logistics related functions. The time savings is consistent with software that has taken hold in other functional areas, such as accounting. Transportation savings vary greatly by company, but it would not be unrealistic for a company to reduce transportation costs by at least 10% for even the most efficient companies.

What is Shipping Software?

In a very basic format, shipping software has all the functionality of a good LTL carrier website, only you can use it with multiple carriers. The most comprehensive systems have more features such as order consolidation, can automate your processes and integrate with your other software. They can also create cohesiveness to your logistics related functions across multiple departments, such as purchasing, sales, customer service, shipping and accounts payable.

With 50+ companies offering some sort of shipping software, there are plenty of options for almost any company. However many of them are designed around a specific industry or a specific functional area, or mode. The key is selecting the one that best meets your needs, and makes sense financially.

We have put together this guide to help you navigate through the process of selecting which companies to ask for demonstrations of their shipping software.

The first question to ask yourself is whether you need Shipping Software. The answer to this comes by asking yourself a series of sub-questions.

  • How many carriers do I work with (and should I have more)?
    • Many companies assign carrier routings by area, or use discounts to choose the lowest cost carriers. They limit the number of carriers to a manageable number (how many they want to contact, how many they can keep track of, etc.). A TMS gives you the option to expand the number of carriers you use, try new carriers and evaluate them more effectively. A well rounded carrier portfolio drives savings and increased organizational flexibility.

  • How many shipments do I work with per month?
    • Start with the number of shipments you work with per month (include outbound, inbound and drop shipments). Now check closely around your office and determine how many times, per month your company typically touches shipping related documents (such as creating and filing Bills of Lading and processing freight invoices), and how many times it seeks out information (eg. getting freight cost estimates, comparing carrier rates, actual freight charges, tracking, billing customers etc.). Typically a company does about 3-4 touches per shipment. If you have 100 or more touches per month, your company is a good candidate for shipping software.

  • What are my goals?
    • If your goal is cost savings, process improvement, error reduction, improved customer service response times, in area related to shipping, you most certainly should consider a TMS.

  • How much time will I save?
    • Actually a better question is, "What will be the impact of doing things faster, being able to provide more timely and accurate information, and responding more quickly mean to me and my company." Quantifying this is difficult. Doing so without actually implementing the software is even more difficult. Most studies show that shipping software can cut the amount of time you spend on logistics by 70% or more. Doing a before and after comparison is a better strategy. Those that have tried a TMS clearly understand just how much it can help your company in ways they could not have identified otherwise.

What Type of Software Should I Consider?

When it comes determining which software to consider, we recommend you narrow your choices by first determining which type of provider best fit your requirements. There are basically three different types of companies offering shipping software.

  • Carrier Neutral Software Providers

    This is software offered by a company that does not participate in the arrangement of the transportation. They make their money by charging for the software. Examples of software systems include Oracle, and JDA. These systems generally have the greatest amount of features, including functionality in logistics areas other than shipping.

  • Freight Brokerage Firms

    This is software that offers preset shipping options consisting of carriers with whom the broker has negotiated rates. They offer the software for free, and make their money by marking up the cost of the transportation. Freightquote started out as an electronic freight brokerage. Other companies, such as CH Robinson and Echo Global are brokers that have adopted a web based electronic freight brokerage strategy. Functionality for systems offered by these companies can be quite limited. They are best suited for companies that have less than 30 shipments and less than 100 information touches per month. While these transportation brokers may offer technology solution as well, companies that have this many or more shipments or information touches per month should first consider the other two options, as these types of companies all are focused on moving as much of your freight through their negotiated contracts, and use software as a tool to market this.

  • Technology Based Logistics Management Firms

    Very different from a freight broker, these companies provide you with a viable carrier neutral software system, but can help you develop and maintain a portfolio of carriers, and will provide you with other logistics related services that you might need. However they don't make money by selling you freight services. They make their money on a combination of software subscriptions and transaction fees that can be based on upon transaction counts or a percentage of your overall freight expenditure. Examples of companies that provide this highbred service include Lean Logistics on the higher end and ShippersEdge on the affordable end. Some freight brokers like CH Robinson and Echo Global offer a TMS only services, but more often than not their goal is to steer you to their portfolio of carriers, where they maximize profitability.

The next step towards narrowing your list is to determine which type of Architecture best suits your needs. Within this area you need to consider both the interoperability with your company's other software, as well as the format in which the software is hosted.

  • ERP Based vs. Bolt-On vs. Stand Alone

    ERP Modules used to be the only viable option for TMS software. The problem is they were generally very expensive, and until recently their functionality was not as robust as Bolt-On systems. With the acquisition of previously independent Bolt-On system by the ERP giants (like Oracle's purchase of J2), limited functionality is less of an issue. However price does remain a huge issue.

    Bolt-On systems is offered by independent companies specializing in supply chain functionality. They require integration with your ERP, order management or WMS systems. There is a wide range of price and functionality. It used to be that Bolt-On systems always had a functionality advantage over ERP based systems, but had limitations in regards to passing and utilizing data. The setup was proportionally a large part of the cost.

    Today, integration is much easier and less expensive thanks to advances in technology such as XML. And over the years providers of many Bolt-On systems have pre-programmed their systems to easily integrate with a variety of other systems. We recommend you include your IT personnel in any integration discussions.

    All systems are offered on a one-time Software license basis, with up-front and annual maintenance fees, similar to your ERP systems. You are now beginning to see many of these bolt-on systems provided in a cloud configuration, which do not require you to purchase a server. JDA, Mercury Gate, Lean Logistics and ShippersEdge are all bolt on systems.

    Stand Alone systems are the most economical way into software. Originally they were provided on a disk for use on a single computer. Today you are most likely to find them in the "cloud". While originally stand alone systems had a single or narrow focus of functionality, you are increasingly see stand alone systems with functionality as robust as many Bolt-On systems.

    In addition to price, their advantage is that you can get up and running very quickly. While this is generally the most affordable option, a stand-alone system is not ideally suited for companies with more than 150 shipments per month. We recommend you examine bolt on systems first. Some systems, like ShippersEdge, can be used as either bolt-on or stand-alone application.

  • Server Based vs. Hosted (Cloud) Application

    If you've done any research on software, you have likely heard and understand what "cloud software" means. We define it as software that is resident on a provider's server and you access it via a web connection. Other terms commonly used for this configuration include Hosted Application, SaaS (Software as a Service), and Web-Based software.

    As eluded to earlier, cloud systems used to be synonymous with limited, stand-alone functionality, and low cost. They were considered slow and not very secure. Today, technology has made them quicker and with security on par with server based systems, there is wide scale acceptance among the IT professionals. In fact, the leading IT consulting firms predict that in ten years they will be the norm, and server based systems will become the exception.

    Within the shipping software sector there are many bolt-on systems offered in a cloud configuration that rival their server based competitors in terms of functionality, speed and security. And they have a clear price advantage. They require less up front investment (sometimes none) often no long-term commitment, and a lower operating cost. ShippersEdge, Lean Logistics and Mercury Gate are three systems developed from their beginnings as cloud based systems. Oracle and Manhattan Associates are two systems that were developed originally as server based systems.

What Features Do I Need?

And now we come to operational functionality. As we said earlier, there are more than 50 companies providing some sort of shipping software, each with its own strong suits. Except for a few large (and expensive) systems, most were designed to service one or two functional areas quite deeply, leaving much to be desired in other functional areas. So unless you are a Fortune 500 company, chances are you won't be able to find one that affordably provides everything you need. It is also difficult to prioritize them until you see what each system can do, so we recommend that you identify and rank how important each area is to you, and then see how each system addresses the areas.

Below is a list of Functional areas for shipping for you to consider. The emphasis here is on the Shipping aspects of logistics:

  • Modes:
    • Parcel
    • LTL/Truckload
    • Air
    • International
    • Fleet Management
    • Local Courier
  • Functionality
    • Transportation Management:
      • Rating
      • Routing
      • Consolidation
      • Shipping Document Creation
      • Tracking
      • Claims management
      • Reports
    • Other Areas
      • Export Documentation
      • Import & Customs Clearance
      • Inventory Control/Management
      • Safety
    • Integration
      • Full Integration
      • EDI
      • XML
      • Import / Export

Where do I Start Looking for Shipping Software?

We suggest you start with your favorite search engine. Just typing "shipping software" will not help you narrow your focus. We recommend using specific terms built around specific priorities (eg. "affordable shipping software" if you are concerned about price point). Another very good website is www.capterra.com. They maintain a software directory that can help you identify options much more effectively than Google, Bing or Yahoo.

Other sources include trade-publications specific to your industry, and referrals from others in your industry. Reviews by magazines can also be helpful.

Conclusion

The case is pretty clear for most companies. Shipping software will save most every company time, provide them with information faster and allow them to work with more carriers. It will save most companies that ship LTL or truckload at least 10%. The most cost effective options tend to be cloud based/hosted application systems.

Twenty years ago, only about 30% of all companies had accounting software . Today it stands at 98%. Five years ago shipping software was only found in the largest companies. Today many midsize companies have it, and it is quickly being adopted by mid and small companies as well. It will likely find its way into your industry and your competitors (if it is not already there). And as technology advances the cost will continue to go down and functionality will increase.

The following is a short list of shipping software options to consider:

Cloud/Hosted Systems:

Server Based Systems: