Over the past 25 years, I have had the good fortune to work with some of the largest and most sophisticated shippers and transportation service providers in the world. Many of these shippers and 3/4PLs have first-rate transportation operations that drive savings and value to their businesses and customers.
However, far too many shippers that have acquired and implemented TMS technology sound much like a diner rating an expensive, but somewhat disappointing meal on Yelp. They would give it 2.5 out of 5 stars. They tell me that while they believe that their logistics technology initiative was “technically” successful, the benefits were harder to achieve and came at a higher price than they should have.
In many instances, the grand vision, which often includes the unification of all logistics processes under a single system, was never realized as the reality of just how hard it is to transform one’s operations became apparent. Ultimately, the project team is disbanded before all phases are implemented and the system is turned over to a less than enthusiastic user community. Over time, the system degrades into a large, unwieldy electronic clipboard where daily operations can be managed, but the value that drove the initial investment is largely incremental and not truly transformative, as had been envisioned.
A recent ARC Advisory Group study bears this out. The study buckets shippers into how much of their freight savings were consumed by the cost of the TMS. On the positive side, 86 percent of the shippers surveyed stated that they their TMS project paid for itself. However, the costs for TMS software/subscription, services and on-going maintenance of the solution are anything but trivial. Over 40 percent of respondents stated that those costs ate up more than 25 percent of the total savings generated by their TMS. I would guess that that number is higher than what was budgeted for the majority of these shippers.
Defining the “To-Be” State
So how do we avoid spending time, treasure and talent on a technology and process refresh that fails to deliver the value that drove investment in the initiative? The first step necessary in reducing the odds of a middling TMS experience is to define the Desired End State (DES). Before embarking on a TMS project, organizations must first have a crystal clear vision of what they want to be when they grow up. The DES documents and prioritizes the needs of the transportation organization. Each transportation sub-process area is ranked in terms of the organization’s current competency and the potential value that can be unlocked within that process through technology or process investments. By quantifying the value for each sub-process, we identify if there is a compelling business case for the initiative, provide a framework for project phase definition and also serve as the basis for detailed requirements documentation.
The DES also identifies logistics capabilities that, while not currently needed, will be required to support the long-term growth strategies of the organization, be they geographic expansion, acquisitions or a focus on exploiting new sales channels.
After the DES is completed, the next process is to evaluate and assess technology and/or managed service providers vis-à-vis your specific requirements.
There are three common pitfalls that companies should avoid when selecting their transportation technology partner. The first is that organizations have a natural predilection to sole-source technology from a single provider. I call this “Relationship Bias.” However, just because you are using Company X for ERP (or CRM or Demand Planning, etc.), does not necessarily mean that they are the best choice with regards to supporting your transportation needs. While there are certainly benefits to sole-sourcing, they must be weighed against the efficacy of the provider’s capabilities to solve the specific needs of the organization as laid out in the DES.
A second common mistake is over-reliance on analyst reports. I find Gartner’s widely read TMS Magic Quadrant to be invaluable, but it can also be subject to misinterpretation. It ranks TMS providers against one another in a single chart. However, each shipper will have different needs and each technology provider has different strengths and weaknesses. Simply selecting a provider because they are highly ranked in the MQ or other generic analyst reports will likely result in disappointment.
“The first step necessary in reducing the odds of a middling TMS experience is to define the Desired End State (DES)”
The last big mistake I see is that even sophisticated buyers fall for the Logo Slide. Each technology provider has this slide as part of their sales deck and it shows all the companies that are using their software. The implicit message is “These companies have all done their due diligence and selected us. You should too!” Don’t fall for it. Look over the logos and focus on those organizations that look like you. Ask pointed questions as to what extent they are using the provider’s solution as well as their willingness to do reference calls, or better yet, site visits.
So, how do successful organizations manage this process? First, shippers need to ensure that there is a fundamental alignment between the business needs of your organization and the strategic direction of the potential partner. Like any relationship, you are looking for one that is both long-term and mutually beneficial. For publicly traded technology companies, I recommend reviewing their financial documents, specifically their 10Qs and 10Ks. These lay out management’s vision for how the company expects to grow and will provide you a sense as how much the company will invest in the areas that you deem important. For non-public companies, seek to fully understand their financial health and business strategies by speaking with their CEO or CFO.
I also recommend meeting with other constituents within the technology provider’s organization during the sales cycle. This includes product management, R&D, operations research and customer support. These meetings are often enlightening as they provide a less guarded and more honest perspective than you get when speaking with polished sales professionals.
Most importantly however, the organizations that are successful have taken the time to perform an honest assessment of their own strengths and weaknesses. They know whether they have the competency, budget and patience to support and maintain large-scale transformative change, or instead should focus on tactical improvements and/or outsourcing. Either path is valid, but for each shipper, there is only one “best” path.
Transportation typically represents 3-6 percent of total sales for a large shipper; higher if the shipper has a substantial B2C sales channel or moves bulky products. This is a substantial expense to the business and is often an area ripe for savings. Identifying the levers that drive realizable value to the business, and then thoughtfully selecting the right technology and/or managed service providers will help to ensure your organization’s freight operations stand out in a world of mediocrity.