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We wanted to get the views of an industry veteran on the transportation management systems market, so we recently sat down with Joe Lombardo to discuss the current state of TMS technologies and where the industry is headed.
Lombardo, founder and president of Ege Avenue Associates, spent 40 years in the transportation industry. Holding leadership positions over the last 30 years at Nabisco Companies, and most recently, Nestle USA, Lombardo also served as president and chairman of the board of the Food Shippers of America from 2009 to 2012. He served as adjunct instructor at Elmhurst College's graduate program in supply chain management from 2005 to 2007. He is a member of the Council of Supply Chain Management Professionals and the Midwest Association of Rail Shippers.
Q: Let's talk about TMS in general first. A new study of more than 400 logistics managers conducted by Peerless Research Group found 43 percent were either already using or planning to implement a TMS. Why do you think more organizations haven't taken steps to utilize these technologies to improve on-time delivery, reduce transportation costs and improve visibility into the moving pieces of their supply chains?
A: Lombardo: For some companies, size is a primary issue. Organizations doing less than $8m to $10m in sales will have a hard time justifying the costs of a TMS. Many small companies may not even be aware of the existence of TMS since their transportation needs are well-met with manual processes. But for larger companies, it is the structure of their operations that may be the impediment. A lot of organizations are decentralized, with their carrier management and rate negotiation functions spread across a wide field of operations, with each site using a limited (and frequently disparate) set of tools to accomplish the same kinds of transportation goals. In these cases, companies may not feel like there is an advantage to centralizing transportation management with a TMS. Or perhaps they feel like the benefits of doing so wouldn't outweigh the disruption they imagine it would cause to implement a TMS.
Then of course, there are a whole host of companies who already have some kind of TMS in use, typically through their relationships with 3PLs or 4PLs who bring a technology to the table. Many shippers use the TMS tools provided by their logistics service provider, and in some cases, they simply outsource the process entirely to the 3PL. In these cases, they may not even be thinking about what benefit is to be gained by bringing the TMS under their own, full control.
Q: What challenges have you encountered over the years when seeking buy-in from key decision-makers regarding engaging and implementing transportation process automation technologies like TMS? A related question might be, what are some of the most common reservations you hear from within other quarters of the organization when considering a large system integration project like TMS?
A: Lombardo: Well, beyond the companies where I have worked, I have also heard from numerous colleagues in other companies. The consensus is that executive leadership in many organizations has a dated functional view of transportation. Some regard this increasingly strategic facet of the supply chain as little more than the "shipping department." The question transportation hears frequently when pitching the idea of investment into a TMS program is, "Why would you need a system with all these bells and whistles for a tactical function like shipping?" It's unfortunate, but many still fail to see the value transportation can drive across the enterprise and all the touch points it involves.
Luckily, I can report that this viewpoint continues to grow less and less prevalent as supply chain management continues to grow more integral to business. We see its rising influence in all the popular literature and even the universities offer business degrees with focus on supply chain education. So while there is still the "old guard" who consider anyone in transportation "box kickers and label lickers," there are several entire generations of younger professionals who give this discipline the respect it deserves.
It's also worth considering that people are fairly spoiled by the success of transportation in modern life. They go to the supermarket and 99 times out of 100, the product they're looking for is there on the shelf where they expect it to be. This makes it pretty easy to take transportation and logistics for granted, without thinking much about what goes on behind the scenes to make this happen. We have the best practitioners in the world here in the USA, so in this respect, we can be our own worst enemy.
The most common reservation I hear though, as you may expect, is the cost of purchase and maintenance for a TMS solution. Many fail to see the direct payback or ROI into such a system.
For more sophisticated companies, a common point of resistance to engaging a third-party TMS is a bias against "bolt-ons" or software tools or solutions that are not produced by their implemented ERP provider. In many cases, organizations prefer to have anything related to their supply chain management - even their transportation management - built as core functionality within their ERP systems. This is a typical mindset at a larger organization. "Bolt-ons" may be perceived as requiring IT resources that the organization isn't prepared to allocate to such projects. IT leadership worries about new systems and how much support they'll require both to integrate and to protect from a security standpoint.
Q: The same PRG study found that load optimization/consolidation, electronic communications, settlement, reporting and integration with other enterprise applications were each identified as prime objectives by a near plurality of respondents. With each of these things being far more effectively achieved through a TMS system, could it simply be IT constraints that dissuade would-be buyers from making the decision to engage a technology like this?
A: Lombardo: Well, I definitely wouldn't underestimate or minimize the reality of IT constraints. Everyone, especially the largest organizations, can relate to having to make significant IT cutbacks. IT budgets tend to grow larger as they go through the process of adding systems. Then, one day, the comptroller, CFO or CIO is given to finding savings, especially in a down economy. They look at a large IT organization and it seems ripe for cutting. In fact, in this last downturn, many large organizations took the step of outsourcing their IT altogether. I have heard from many of my transportation colleagues that IT limitations are the top concern when deciding on a new TMS engagement.
Q: To what degree has the advent of SaaS or on-demand, on-line TMS changed the perception of what is involved in engaging TMS? Does this help mitigate IT resource allocation concerns when deciding?
A: Lombardo: The relatively low level of effort required of IT to implement and maintain a SaaS or cloud-based TMS has certainly been one of the main drivers behind the rise in new TMS implementations over the last few years. The proof is out there, easy to find. When you look at some of the largest providers of on-demand TMS, like Lean Logistics and others, you find they have a "who's-who" list of significant businesses as clients. Most of the largest companies in the world are already using these applications. But I think it is starting to change for the mid-sized business too. The cost of a SaaS-based TMS versus an ERP-provided transportation management solution is like the difference between night and day. The SaaS solutions are so much less expensive and quicker to deploy. Further, the user training is far simpler with the SaaS solution. The front-end of the modern TMS is far more intuitive than the clunky offerings from server-based ERP/TMS application providers. Today, users are already hip to the slick user experience they encounter when visiting sites like Amazon.com and others. The ERP-based solutions lack the elegant front end offered by SaaS TMS solutions such as those fielded by UltraShipTMS, Lean Logistics and even some 3PL tools.
Overall, I think the change is happening, albeit slowly. The internet continues to pervade all areas of users' lives, especially those of younger professionals: the Gen Xers and Gen Yers. As these users grow further into leadership roles in business, we'll begin to see the final phase-out of server-based TMS. Twenty years from now, the server-based model will be regarded the same way mainframe computing is regarded today. It'll be a dinosaur.
Q: Have you found in your experience that SaaS TMS frees IT resources enough to persuade decision makers to approve the application of IT resources to make integrations with other supply chain management systems?
A: Lombardo: I think that the relatively low IT burden involved with SaaS TMS is one persuasion point. But I think the acceptance of this newer, on-demand delivery model will continue to grow overall in correlation to business's adoption of outsourcing. The companies that are adopting outsourcing have already overcome resistance to reliance on third-parties for some pretty complex business processes. The companies that realize they no longer wish to focus on non-core processes - the ones that outsource call center activity, don't own their own factories, outsource everything but their core competencies - will be the ones most likely to adopt supply chain management solutions like the online TMS. This is the way the business world is moving so it's only a matter of time.
Ege Avenue Associates
Keywords: transportation management, supply chain management, SaaS-based TMS, TMS, transportation spend, transportation audit, logistics services, online TMS
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