Originally published - May 30, 2008
Supply chains are becoming increasingly complex, and as manufacturers create a “value chain” that spans many countries, transportation of final goods or raw materials is a critical component to their business. If goods do not arrive at their destination on time, the manufacturing process will come to a halt and links within the supply chain will break, causing problems for other entities down the chain.
Along with this, the import and export of products is increasing, leading to greater movement of goods through distribution centers (DCs) and to a higher volume of products that need to be moved.
And then there is the issue of how companies deal with ever-increasing fuel costs.
It’s hard to imagine how companies can deal with the difficulties described above, but transportation management systems (TMSs) can do plenty to help manage the complexities of manufacturing today.
A Solution for the Complexities of Manufacturing
Given the growing need to move products inland and the increase in fuel prices, TMS software is a vital tool for today’s logistics industry, and the need for this enterprise application will only increase in the next five years.
As manufacturers’ supply chains continue to expand, developing networks and using different modes of transportation (truck, rail, air, and boat) can be quite a challenge. Networks and the use of these transportation modes need to be optimized. Otherwise, the following basic questions will be exceedingly difficult to answer, leading to serious visibility problems for the manufacturer:
- Where are the goods now?
- When and where are the goods to be shipped?
- What mode(s) of transport should be used to ship the goods?
So, what exactly is a TMS?
A TMS is designed to manage the different modes of transportation used to move products, whether finished or semi-finished. Transportation modes consist of ground, air, rail, and sea transport. A TMS determines the optimal path to transport products based on distance, location, and route.
The Anatomy of a TMS
A TMS’s basic functionality is comprised of the following:
Lane set-up: This has to do with multimode types of transportation. If moving a certain product requires three types of transportation methods (for example, rail, truck, then rail again), the system will be able to schedule all three of these means of transport.
Geographic set-up: This will link geographic locations together, as well as set up the service levels between different parties along the logistics chain.
Carrier and contract details: Whether the company using a TMS solution is outsourcing some of its transportation needs or managing transportation methods itself, the system will research the best rate of each carrier (transportation or logistics company), and select the carrier with the best price. Sometimes however, if a carrier has received three strikes against it (for example) for not delivering product on time, the system will not consider it an option, even if it offers the best price; the TMS solution will select another carrier that will fit the needs of the client, even if it’s more pricey to deliver. As well, sometimes the carrier with the best price is not in the appropriate range of location; thus, the TMS will not select it.
Transportation network optimization: This is one of the most critical components of a TMS. The TMS will define the following three aspects, each of which helps to manage the manufacturer’s “private fleet” (its fleet of transportation vehicles):
- Strategic and master route design: This gives managers in charge of delivery the ability to decide the optimal route the driver of each vehicle can take, allowing expedient delivery of the product.
- Territory design: This allows manufacturers to establish a standard route for regular, recurrent deliveries.
- Routing and scheduling: This gives manufacturers the ability to optimize the schedules of all the modes of transportation it needs to use, as well as define the best routes possible. If a route is unavailable, the system, using global positioning system (GPS) technology, can determine another route.
A TMS can also offer advanced functionality, which does even more than the above. For example, a logistics company or a third party logistics (3PL) provider may have some stock to move out; the company loads the stock onto a truck and sends it off. This simple process may be good enough, but optimization has not been achieved at this point.
A TMS with advanced functionality is able to perform the following:
Cubing: This enables logistics managers to 1) maximize the amount of pallets or boxes that can be put into an enclosed space, be it a truck or an airplane, and 2) take into consideration heavy and light items. The data that is pulled from the warehouse management system (WMS) or enterprise resource planning (ERP) system gives managers the information on which pallets to load at the bottom so as not to damage any inventory.
These two capabilities allow logistics managers to assess how to save on fuel costs. The manager can compare if a load is better sent as one full truckload (i.e., at the maximum weight) with a discount, or sent as two less-than-truckload (LTL) shipments, which would save on fuel costs because the loads are lighter and require less fuel.
Advanced scheduling: Cubing ties into advanced scheduling and routing optimization. Advanced scheduling will take into account the above variables, and set out a path for the driver to take to deliver shipments 1) on time, and 2) in sequence, allowing the strategic placement of goods onto the vehicle.
Consolidation: This enables logistics providers to combine multiple loads, whether they come from one location or from multiple locations. It works with what is known as cross-docking and multi-stop pickups. If a logistics company wants to either cross-dock (the process where a shipment is unloaded at one DC and redistributed to other locations, whether retail locations, manufacturers, or other DCs), the system will figure out which items to consolidate with what load, and optimize the routing and cubing at the same time.
With the above functionality, each module within the TMS can be combined with any permutation so that different pickup and delivery models can be designed by the logistics company, and can be incorporated into the TMS. From this, the organization is able to optimize logistics processes, which are often very complex.
How a TMS Can Help Manufacturers: An Example
Let’s look at a concrete example to see how a TMS can help organizations optimize their entire value chain. Because the manufacturing environment is now global, this example will involve China, Canada, and Spain as parts of a manufacturer’s complete value chain. Consider the following scenario:
A manufacturer of cellular telephones has one DC in China, another DC in Vancouver, two manufacturing plants in China, one retail location in Vancouver, and another retail outlet in Spain. Thus, this manufacturer’s supply chain is highly complex for many of its suppliers and distributors to navigate. Figure 1 depicts the process, or flow, for moving product throughout this supply chain.
Figure 1. A value chain model.
Because products must be moved across many countries and via several transportation systems, three scenarios are possible:
- The manufacturer will send the cell phones directly from the DC in China to the retail location in Spain. In this case, planes and trucks (air and ground methods) will be the chosen modes of transportation.
- The manufacturer will have the cell phones moved through the DC in China to Canada (either by ocean or air), transported to the DC in Vancouver, and on to the retail location.
- The cell phones are moved from China to the DC in Canada, but they are sent back to the China DC because of product defects. In this case, the DC in China sends the cell phones back to the manufacturer in China, which either repairs the defects or sends the phones back through its supply chain.
All three of these scenarios involve heavy TMS functionality. The scheduling and routing, cubing for the cell phone boxes, consolidation for cross-docking in different loading zones, dealing with geographic setups, and scheduling all types of transportation modes are critical to this process. If one of the DCs or manufacturing plants does not deliver its products on time, the TMS will adjust the scheduling or find an alternative route.
Because TMS solutions can optimize the loads put onto different vehicles or other modes of transportation, managers in this example can determine how much the fuel to deliver product to the different DCs will cost, and they can know when product is to be delivered and the optimal amount of goods to deliver to the appropriate location. The TMS incorporates the appropriate information into the routing optimization tool. This gives individuals within the supply chain the best information on how to save money and time by knowing what products to send and how to send them. This knowledge saves a company money on fuel and time, and ultimately increases the manufacturer’s bottom line.
The Final Word
A TMS is an indispensable enterprise application, and it will become more so over the next five years for a number of reasons. One reason is the fast pace at which countries like China continue to produce and ship goods to developed and developing nations. Another is the problem that DCs in countries like the United States and Canada are currently facing: the increasing volume of products coming into ports, necessitating these countries to build larger internal distribution networks.
TMSs will continue to help firms manage the movement of products within their own countries, as well as deal with the complexities of international business. The example above was a simple one, but the issues described are far more complicated in the real world of manufacturing. Thus, the functionality a TMS can provide logistics managers is, and will continue to be, critical to their business.