The major transportation and logistics providers like Americold and C.H. Robinson use a whole set of technologies to improve the management of their supply chain operations. Logistics automation helps these companies lead the market applying logistics best practices and leaving no chance for others to give up automation and digital transformation.
You can definitely find plenty of solutions for ensuring digitization processes, optimizing transportation operations, and providing network optimization. And one of the most frequently used is a transportation management system or TMS. Without automated IT systems, you need an extensive team of employees to monitor and manage deliveries. TMSs are solutions to manage logistics operations (inbound and outbound logistics).
Every logistics company has its own operational peculiarities that sometimes aren’t fully covered by existing TMS solutions. That’s why you can have a hard choice as a transportation or logistics provider — or as the owner of a business with a logistics department. Should you bring on a TMS tailored to your specific needs or take up a commercial solution?
In this article, we help you make this hard choice and compare all the possible options. We also shed light on the set of functions you can find handy in your logistics optimization software.
What options do you have?
As you start automating your transportation management processes, you have three main options: buy an on-premises TMS, use a cloud-based TMS, or invest in a custom TMS development.
Buy an on-premises TMS
This option was the most popular in the past but was uncrowned by cloud-based TMSs. On-premises systems are installed and run locally on your hardware. A hosted TMS provider physically installs the TMS at your company's headquarters.
Security. This option gives you full control over all the data you have, and third parties have no access to it. Knowledge of systems and data resides solely in-house. With an on-premises solution, the company's data is stored locally which means that a disaster might result in the complete loss of data if you don’t back it up properly.
Functionality. On-premises optimization software offers a certain set of features for a fixed price. Sometimes the functionality is a bit excessive making the product way too complex. Also, on-premises software is highly customised, but the customization may lead to reliability and support issues that should be handled by the outside experts from the company you bought it from.
Scalability. Scaling an on-premises TMS requires purchasing additional hardware. And, if you open offices in another location, you’ll also have to purchase new hardware and software for them.
Data exchange. Enabling the exchange of data between departments or offices in different locations is a tough cookie and requires additional setup or the use of additional software for remote access. Also, it may not be easy for your employees to access an on-premises TMS from outside the office to, say, work remotely.
Cost. On the one hand, this option doesn’t require you to pay monthly for using software — you buy it once and use it forever. But on the other hand, there’s a significant upfront cost for hardware and ongoing costs for software maintenance. To get an on-premises TMS, you first need to pay for installation. You’ll also have to pay each time for upgrading the system to new versions as these are not normally included in the initial price.
Use a cloud-based TMS
Nowadays, you can find dozens of feature-rich TMS solutions hosted in the cloud.
Security. Most cloud providers put security first, so all security concerns, including data encryption and regulatory compliance, lie on your provider’s shoulders. But in this case, control over your data actually depends on a third party. Also, you’ll have to use the latest version of the provider’s software application and can’t defer upgrades or feature changes.
Functionality. TMSs available on the market are stuffed with a plethora of features. So you can cover almost all your business needs, but sometimes vital features go hand in hand with the ones you don’t need. And understanding what features you'll use becomes a real challenge.
Also, this variety of features coupled with a poor UX can make an application complicated, requiring businesses to spend lots of time teaching staff how to use the system. Customization is possible, but it requires additional money spent.
Scalability. The great advantage offered by SaaS is that scaling an application is as easy as possible — it’s handled by the SaaS provider, while transportation companies only need to upgrade to the next payment plan. But mind that the costs may ramp up dramatically together with scaling the app.
Data exchange. Most cloud-based TMS platforms can integrate with external Warehouse Management Systems (WMSs), invoicing systems, and proprietary solutions, enabling fast data exchange. But your stakeholders and internal departments may use some kind of different software. For instance, your finance department may be on an invoicing app that stores data in a different format than your TMS. Due to this, you may need to spend time reformatting data.
Cost. Most companies providing third-party logistics software offer a subscription-based business model, meaning you pay a fixed monthly price instead of purchasing software upfront. Often, TMS providers offer several payment plans based on the functionality you need. And the good thing is that cloud-hosted TMS tools free you from the necessity to pay for hardware maintenance.
Custom logistics app development
Though there are a great deal of ready-made solutions for third-party logistics (3PL), lots of companies build their own TMS solutions. For example, one of Yalantis clients asked us to create a SaaS transportation management system specifically for their business needs. Why is that?
Despite the fact that choosing existing tools seems cheaper and easier, there are some pitfalls to this option (we've mentioned them above). A custom TMS software development, on the contrary, brings a whole set of benefits:
Functionality. With transportation management system development, you can choose only the features you need and create a simple interface with built-in onboarding and hints. If you want to extend your functionality, you can ask your technology vendor to implement new modules and quickly integrate them into your existing solution.
Data exchange. By building transportation management software with custom APIs, you can exchange information in a standardized data format with stakeholders’ warehouse management, enterprise resource planning, and other software solutions within your organization.
Security. With the custom TMS solution, you become the owner of your product and can be sure that no third parties get access to your data. The security of your application is the responsibility of your technical partner, so you should choose the development team very carefully. In our article, we’ve already shed the light on the core elements of secure application development.
Scalability. From the very start of building a custom TMS software, you should highlight the necessity of building a scalable application. And scalability should be put in the architecture of your software, otherwise, scaling your solution will become a real challenge.
Qualified technology providers apply best practices for making software for logistics scalable. For instance, for making a delivery and logistics system easy to scale, we adopted the microservices approach instead of using the traditional monolithic one. Also, we made this solution cloud-based, so now we can add the required capacity by simply configuring AWS services.
Cost. The initial investment for building your own system is higher than the cost of a monthly subscription. But in the long run, expenses on a monthly subscription will surpass the cost of ready-made solutions.
We recommend making the list of features you need for your TMS and then checking if third-party software covers your needs. If so, calculate how much it will cost to use the software for a number of years. Also, reach out to some trustworthy technology partners to get an estimate of your custom logistics management software. For example, we've found a third-party TMS with the very basic functionality and calculated the cost of using this solution for five years. After that, we estimated the cost of building a custom app with the same functionality.
As you can see, the custom TMS solution will cost you less in the longer term. Also, we don't take into consideration the cost of customization a third-party solution, so the cost of using it may grow in case you need additional features. If you need to build a TMS with another functionality, you can drop us a line. We will provide you an estimate of an app with features you need.
You can go beyond simply building a solution for your needs by offering your software product to other logistics service providers. Licensing your shipping software will help you recoup your investment by becoming a managed third-party logistics firm. And your game-changing software can be used by multiple shippers to lower costs and facilitate service.
For instance, such leading logistics service providers as C.H. Robinson, XPO Logistics, and J.B. Hunt provide their own TMSs for their clients.
What a sophisticated TMS should offer its users
Start with creating a requirements document listing all features by importance. This will simplify your decision-making. In addition, make sure the solution you choose addresses these five challenges faced by any logistics business:
Price calculations. You’ll need to calculate fuel costs, drivers’ wages, vehicle costs, and vehicle depreciation (if you own the vehicle or a fleet). The total delivery price will also include a fixed margin. Prices are typically higher on certain days of the week or month, so your system should also be able to account for that. After a user chooses a day and add-on services, your system should be able to calculate the price of delivery.
For the Smart Logistics project, Yalantis built a TMS solution that automatically provides rough delivery estimates based on current fuel costs, drivers’ hourly rates, and amortized vehicle costs.
Load building and optimization. Load planning takes many hours a day for a company with more than a hundred shipments annually. A TMS can minimize this process to a few minutes using algorithms. Filtering by parameters like route, warehouse, order type, commodity group, delivery date, account, and order source allows users to build optimized loads.
A TMS should enable users to drag and drop orders into trucks and then update a truck’s specifications. Load optimization helps with cargo distribution among cartage agents based on shipment requirements. As a result, truck space is used more efficiently and transportation costs are lower.
Also, users should be able to add less-than-truckload (LTL) constraints such as single stops, pickups, and delivery dates. As they’re added, the system should be able to optimize all orders.
Route planning. Poor routing leads to higher mileage and higher fleet costs. Route optimization builds efficient truck loads and multi-stop schedules. In Smart Logistics, we made a system that suggests alternative vehicles meeting the required delivery timeframe and other requirements such as refrigeration. The system also sets routes based on the optimal price/speed ratio. A user can manually prioritize between cheaper and faster.
Shipment tracking. The ability to track shipments helps you identify and solve problems that occur during delivery before they affect customers or raise your costs. For this reason, transportation and logistics software should have offline capabilities. Trucks often enter areas with poor connections, and offline mode allows drivers to report the delivery status even if they’re offline. The TMS we built allows managers to receive notifications if problems happen and choose solutions to them. For example, if a delivery point is unexpectedly closed, a driver can notify the system via the driver application. A manager can then see the problem and choose a solution right in the system. For example, the manager can instruct the driver to wait or skip the delivery point.
Integration with other software. Your TMS might need to integrate with other software products to ensure business continuity. You might integrate it with a customer relationship management system (CRM), warehouse and accounting software, and payment gateways. Yalantis generally integrates such services via REST APIs. Read our article on how to create a great RESTful API if you’re interested in this topic.
In addition to all of this, make sure the TMS you choose can track documents and meet the needs of a wide range of users. If you operate globally, your system must handle both metric and imperial units: kilometers/miles and kilograms/pounds. A TMS should also support a variety of languages to facilitate cooperation between users in different countries and on different continents.
For instance, risk management software can be integrated into a TMS to handle risks including security, financial, governance, legal, and reputational as well as natural disasters. And supply chain risk management tools are powered by big data, machine learning, and artificial intelligence.
The following development solutions help businesses reduce the likelihood of uncertain events and provide effective solutions to manage situations that might result in higher costs and wasted materials.
- IBM and Achilles offer solutions that apply artificial intelligence to allow businesses to map their global supply chains and get automated insights about possible risks.
- CA Veracode solves the problem of vulnerabilities introduced by third-party code integrated into proprietary systems. This solution scans all third-party code for integrity before it’s allowed anywhere near internal systems or data.
- GeoQuant collects and processes information from social networks, news outlets, and other sources. Then it analyzes this data using natural language processing and machine learning algorithms to deliver near real time indicators of geopolitical risks.
- DHL has built its own supply chain risk management platform, Resilience360. This platform lets businesses predict, measure, and minimize the risk of all potential supply chain disruptions. DHL supports the platform with an app to give businesses constant access to supply chain data.
Advanced modules to improve your TMS
Besides basic functionality your logistics management system cannot live without, there are some complex modules that will greatly optimize logistics management.
Distributed order management (DOM)
The shift to omnichannel logistics makes traditional order management systems (OMSs) ineffective for managing inventory. Basic OMSs perfectly deal with order fulfillment from a limited number of channels, both online and off. But when supply chain operations are scaled to several storefronts and warehouses, a single system won't cope with all the orders. This results in inaccurate delivery dates, bad customer service, and fleet idle time.
To overcome these challenges, most companies shift to a distributed order management (DOM) system that can effectively manage order fulfillment, allocation, and distribution across various systems. Typically, a DOM system brings the following benefits to companies:
- Aggregates orders from multiple order capture channels and brings them into one place
- Gives a holistic view on inventory for companies with diverse order management or ERP systems
- Gives an instant update on order status (in progress, fulfilled, delayed, etc.)
- Automatically orchestrates order fulfillment, taking into account shipping costs for items held at different fulfillment centers with different levels of inventory
- Helps to effectively manage complex customer requirements (i.e. temperatures during transportation)
Management by exception
According to the management-by-exception approach, normal situations are handled automatically, but if something exceptional or unexpected takes place, it requires a specific action or decision from a responsible employee.
In small companies, when exceptions pop up, managers in charge can handle them. It takes some effort, but it isn’t a colossal burden on their time. But when we’re talking about a company with more than a hundred shipments in one day, managing unexpected cases can require a significant amount of time.
Exception management software can save a significant amount of a manager’s time in several ways:
- Thanks to the visibility logistics CRM software offers, logistics managers can instantly see the status of each shipment and sort all problem shipments with a few clicks.
- Reporting functionality sends logistics managers notifications about issues during transportation immediately after something unexpected takes place.
- Predefined rules for managing exceptions can ensure efficient logistics processes by suggesting context-based solutions.
While TMS development for our US client, we implemented a smart dashboard that shows the status of shipments in real time and instantly notifies managers about shipments that require manual problem-solving.
This helped our client quickly and efficiently solve problems, facilitating order delivery.
As you can see, the decisions you make for your business process optimization should be based on research and careful consideration. We hope this post on the rules for optimizing logistics was informative enough to help you simplify a tough choice.
Keep in mind that you can always lean on a partner experienced in mobile and web app development as well as software architecture design. They’ll help you make better software than what’s widely available on the market, as it will be tailored to your needs. Yalantis has vast experience creating optimization solutions for the logistics industry. Let us know if you would like to take advantage of our services or get an estimate of your TMS with the functionality you need.
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