The fastest-growing transportation and logistics providers, such as Americold and C.H. Robinson, use a variety of technologies to improve the management of their supply chain operations. Constant logistics automation helps these companies dominate by applying logistics best practices, leaving no chance for others to give up automation.
There are plenty of solutions for optimizing transportation. One of the most frequently used is a transportation management system, or TMS. Without an automated management system, keeping track of the transportation of goods requires an extensive team of employees. A TMS helps a company manage all inbound and outbound supply chain operations.
Each logistics company has its own operational peculiarities that sometimes aren’t fully covered by existing TMS solutions. That’s why you have a hard choice as a transportation or logistics provider — or as the owner of a business with a logistics department. Should you create a TMS tailored to your specific needs or adopt a commercial solution?
In this article, we help you make this choice and compare all possible options. We also shed light on the functionality you need in your transportation management software.
What options do you have?
When you start automating your transportation management, you have three main options: buy an on-premises TMS, use a cloud-based TMS, or build a custom TMS.
Buy an on-premises TMS
This option was the most popular in the past but was dethroned by cloud-based TMSs. On-premises systems are installed and run locally. A hosted TMS provider physically installs the TMS at your headquarters.
Security. This option gives you full control over your data, and third parties have no access to it. Knowledge of systems and data resides solely in-house. With an on-premises solution, all data is stored locally, but this also means 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 distinct set of features for a fixed price. Sometimes the functionality is excessive, however, making a product too complex. On-premises software is highly customised, but bear in mind that customization may lead to reliability and support issues.
Scalability. Scaling an on-premises TMS requires purchasing additional hardware. If you open offices in another location, you’ll also need to purchase new software.
Data exchange. Enabling the exchange of data between departments or offices in different locations is hard and requires additional setup or the use of additional software for remote access. It won’t be easy for your employees to access an on-premises TMS from outside the office.
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 for setup and for upgrading the system to new versions.
Use a cloud-based TMS
The emergence of cloud computing has influenced lots of industries, including logistics. 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 concerns about data encryption and regulatory compliance, lie on your provider’s shoulders. But bear in mind that in this case control over your data 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. This means you can cover almost all your business needs, but sometimes needed features go hand in hand with functionality you don’t need.
This variety of features coupled with a poor UX can make an application too complex, requiring companies to spend lots of time teaching new staff how to use the system. Customization is possible, but it requires additional investment.
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 business owners only need to upgrade to the next payment plan. The problem is that costs may ramp up dramatically when scaling your business.
Dataexchange. Most cloud-based TMS platforms can integrate with external Warehouse Management Systems (WMSs), invoicing systems, and proprietary solutions, making for fast data exchange. But your stakeholders or internal departments may use different software. For instance, your finance department may use invoicing software 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 cost instead of purchasing software up front. Often, TMS providers offer several payment plans based on the functionality you need. Cloud-hosted TMS tools free you from the necessity to pay for hardware maintenance.
Custom logistics app development
Though there are a plethora of ready-made solutions for third-party logistics (3PL), lots of companies build their own TMS solutions. For example, one of our clients asked us to create a SaaS transportation management system tailored to their business needs. Why is that?
Though choosing existing tools seems cheaper and easier, there are some pitfalls to this option. A custom TMS software development, on the contrary, brings a whole set of benefits:
Functionality. By 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 functionality, you can ask your technology partner to develop modules and quickly integrate them into your existing solution.
Data exchange. By building transportation management software with custom APIs, you’ll be able to exchange information in a standardized data format with stakeholders’ warehouse management, enterprise resource planning, and other software systems.
Security. With the custom TMS solution, you get the full ownership of your product and can be sure that no third parties have 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 recent article, we’ve shed the light on the core elements of data security.
Scalability. From the very beginning of building a custom TMS software, you should highlight the necessity of building a scalable app. Scalability should be tapped into the architecture of your app, otherwise, scaling your solution will become a problem.
Qualified technology providers apply best practices for making software for logistics scalable. For instance, for making a delivery and logistics system scalable, we followed the microservices approach instead of using traditional monolithic approach. Also, we made this solution cloud-based, so now we can add capacity by simply configuring AWS services.
Cost. The initial investment you’ll need to build your own system is much 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 check if third-party software covers your needs. If so, calculate how much it will cost to use the software for one or two years. Also, contact some trustworthy technology partners to get a rough estimate of your custom logistics management software. For instance, we've found a third-party TMS with the very basic functionality and calculated, how much will it cost to use this solution for five years. After that, we've estimated the cost of building a custom app with the same functionality.
As you can see, in the long run, the custom TMS solution will cost you less in a long run. 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 want additional functionality. If you want to build a TMS with another functionality, you can drop us a line. We can provide you an estimate of an app with features you need.
Moreover, you can go beyond simply building a solution for your needs by offering your solution to other logistics service providers. Licensing your shipping software will help you recoup your investment by becoming a managed third-party logistics firm. Your game-changing software can be used by multiple shippers to lower costs and facilitate service.
For instance, leading logistics service providers including C.H. Robinson, XPO Logistics, and J.B. Hunt offer their own TMSs for their clients.
What a sophisticated TMS should offer its users
Start by creating a requirements document listing all features by importance. This will help you simplify 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). 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 calculates rough delivery prices 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 should minimize this process to a few minutes thanks to algorithms. Filtering by parameters such as 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 solve the problem of cargo distribution among cartage agents based on shipment requirements. As a result, truck space is used more efficiently and transportation costs are reduced.
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 as needed.
Shipment tracking. The ability to track shipments helps you identify and solve issues 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 occur and choose solutions to them. For example, if a delivery point is unexpectedly closed, a driver can notify the system via the driver app. A manager can then see this problem and choose a solution right in the system. For instance, 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 to ensure the smooth operation of your business as a whole. You might integrate it with a customer relationship management system, warehouse and accounting software, and payment gateways. Yalantis generally integrates such services using 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 internationally, 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.
For instance, risk management software can be integrated into a TMS to manage a variety of risks including security, financial, governance, legal, and reputational as well as natural disasters. Supply chain risk management tools are powered by big data, machine learning, and artificial intelligence.
The following technology solutions help businesses reduce the likelihood of uncertain events and provide effective solutions to handle situations that might result in higher costs and wasted materials.
IBM AppScan and CA Veracode solve the problem of vulnerabilities introduced by third-party code integrated into proprietary systems by scanning all third-party code for integrity before it’s allowed anywhere near internal systems or data.
GeoQuant aggregates 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 risk.
DHL has built its own supply chain risk management platform, Resilience360. This platform allows businesses to 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 your logistics processes.
Distributed order management (DOM)
The shift to omnichannel logistics makes traditional order management systems (OMSs) ineffective for managing inventory. Basic OMSs perfectly handle 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 cannot 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 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 of 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 dutifully 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 take 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 automate the logistics process 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 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.