Understanding TMS, TSM and their Roles in Building Better Supply Chain Control TowersPosted by: Steve Beda
When Tech Stack Companies May Seem Similar but Play Specific Roles in Logistics Management Success
FAP. 3PL. MDM, TMS, and now TSM.
The transportation logistics industry loves a good acronym, right? But while terms may look and sound similar on the surface, the sophisticated technologies they summarize are actually very different and should never be viewed as interchangeable. In the case of TMS (Transportation Management Systems) and TSM (Transportation Spend Management), both are essential components of the “tech stack” – along with the other processes, technologies and capabilities that all combine together to create a Control Tower approach resulting in a mature, highly-efficient supply chain. Understanding the roles of TMS and TSM – how they work specifically, individually and what happens when they work together – is, therefore, a foundational step in building a Control Tower that can deliver greater operational efficiencies, manage transportation spend and create best-in-class supply chain processes.
It’s far-fetched to think that one piece of technology can seamlessly manage all aspects of any, let alone global, supply chain operation with thousands of variables and complexities. But together TMS – which focuses on shipment execution, and, TSM which is focused on post-execution activity – can get a large part of the job done exceptionally well. When working efficiently together, TMS and TSM are the two-part backbone of any mature and successful logistics operation, enabling efficient execution of plan but then, using sophisticated master data management practices, answering the big questions that matter most: how well did we do? What was the actual cost, how much did it vary from plan and what factors contributed to that? What changes would drive better results? Let’s take a closer look at both TMS and TSM and the invaluable benefits they bring to the table together as we all look for ways to optimize efficiency and reduce spend.
PART ONE: Executional Success with TMS
TMS Components - What to Expect
Most mature enterprises realize that controlling how well you execute on the ground is the key to not just running a successful business, and maintaining good relationships with customers, it’s also essential to managing transportation spend, which can escalate quickly. An enormous part of that executional success comes down to the carriers you select, how well they perform and also how closely they adhere to, or comply with, your operational standards and plan. Compliance, of course, becomes increasingly complex and challenging when the average supply chain operation today can involve hundreds of carriers, a global supply network and many geographical market variables. An effective TMS will bring all of these operations into a single-source tech platform for improved operational efficiencies, but doing so will also enable more effective TSM data collection and critical spend analysis downstream.
When selecting a TMS solution, it should meet nine important functional needs, as well as include dynamic routing capabilities that can help your operation adjust to rapidly shifting variables and market conditions. Functionality includes:
- Transportation Management (building shipments from orders)
- Load Configuration/Optimization
- Shipment Cost Estimation
- Logistics Inventory Visibility
- Fleet Management
- Routing Optimization (cost/time in transit)
- Shipment Execution/Tendering
- Appointment Scheduling
- Shipment Visibility (in transit)
Many TMS systems exist as physical on-site installations, which require up-front capital investment for system installation and data warehousing – as well as of course, the inbound inventory traffic to warrant this kind of expenditure. The rise of SaaS products is now making TMS products more affordable for all sizes of company looking to become more operationally efficient. When considering which is right for your business, look for systems with high marks for easy integration with other platforms, particularly ERP and WMS, as well as seamless interaction with large, multi-modal carrier networks.
ROI - What TMS Delivers
TMS’ are primarily designed with one important objective in mind – shipping goods in an optimal manner in terms of time and money – but they deliver other ROI too. Shipment consolidation capabilities can help lower the individual and overall costs of shipping as well as permit appropriate selection of mode: (e.g. selecting LTL, Less than Truckload for certain products that don’t require FTL shipment). TMS platforms will also help shippers choose the right Logistics Service Provider (LSP) for their route(s), as well as offer more efficient electronic tendering, eliminating manual processes, labor costs and potential inaccuracies in a Bill of Lading that can result in rejected loads and shipping delays.
PART TWO: Post Executional Understanding with Transportation Spend Management (TSM)
If TMS is the doing part of transportation logistics, then TSM systems as the seeing process. A process that results in complete and comprehensive, end-to-end visibility across your entire supply chain operation. The complex suite of technology solutions and services within the best TSM solution will offer a multi-modal and global ability to manage both transportation and related spend. That can translate to managing the most complex, volatile, and demanding logistics situations with data-backed confidence and lower financial risk exposure. Given most shippers fail to deploy appropriate TMS capabilities across all their shipping regions and for all transportation spend, TSM also becomes where the “rubber hits the road” – the governance platform that must, and is capable of, capturing all spend to provide visibility to all costs (including post-execution accessorial charges) for transportation spend across every mode, channel and geography.
TSM Components - What to Expect
Best-in-class TSM platforms incorporate a master data management approach to collecting, standardizing, curating and analyzing tens of thousands of data points across the entire supply chain. A key component of the suite of solutions within every TSM is Freight Audit & Payment (FAP), the process of examining a company’s freight bills and verifying for accuracy against errors, duplicate billing, mileage and accessorial charges as well as compliance with standards. The FAP process is becoming increasingly valuable if not critical as freight rates and pricing become more complex in the transportation logistics industry. Beyond FAP, TSM systems are really the only true and single-source provider of actual costs and actual execution of transportation spend.
When selecting a TSM product, consider ten capabilities:
- Billing Data Capture, Management & Enrichment
- Invoice Audit & Carrier Exception Resolution
- Transportation Spend Allocation
- Payment Management
- Contract/Rate Management
- Accrual Management
- Loss & Damage Claims Management
- Execution Compliance
- Transportation Spend Intelligence – Business Intelligence & Reporting
- Transportation Spend Optimization
Deployment - Global, Multimodal, Inbound/Outbound
TSM programs are deployed almost exclusively as a SaaS solution combining the best of cloud-based technologies. They require no on-site technology support and frequently come with carrier management solutions (exception management, rate management) as part of the agreement. Make sure your prospective TSM partner not only has the technology to handle global, multi-modal spend profiles, but also that the managed services that accompany the technology are staffed in regional locations throughout your key network points.
The best TSM products fulfill a data capture role that TMS does not, incorporating global capabilities to manage multiple currencies, units of measure, tax compliance implications across nations and the appropriate payment functionality to meet every requirement. Data capture is particularly important for enforcing compliant billing practices from carriers, managing exceptions and handling image conversion for total efficiency.
As the objective is to capture all spend in one central repository, it is critical that the TSM platform can accommodate all modes of transportation and also manage both inbound supply and outbound spend to track all activity for a fully comprehensive view of all activity as well as both budgeted spend and unexpected accruals.
ROI - What TSM Delivers
A Transportation Spend Management system enables a shipper to gain visibility to actual execution and actual costs. Having access to this information as part of an overall master data management approach can provide the insights to guide strategy shifts and optimization tactics that will deliver even greater ROI. Things like enforcing billing compliance can save 2-5% or higher of overall transportation spend. Enforcing more general compliance against standards can add an additional 5-10% saving, while optimizing transportation operations can make as much as a 20% impact on spend.
TMS + TSM - Working in Harmony
You can’t control, or optimize, what you can’t see. In other words you can build your plan, bring carriers on board that you believe match your standards and have appropriate expertise, but without the data point checks and balances along the way to benchmark performance and monitor compliance, you will never know where opportunities lie for improvement or spot the nuances that can affect spend. TMS platforms focus on (and rightly so) getting goods out of the door as efficiently as possible in a long line of endless and complex outbound job numbers. In best-in-class operations, it’s then up to the sophisticated data capture and analysis capabilities of TSM systems to provide an understanding of what actually was executed by the carrier - both service and cost and to spotlight any problems or opportunities for improvement along the way.
While TMS will help manage operations efficiently, the integration of TSM gives complete end-to-end visibility over the supply chain, matching what was shipped (over multiple modes, channels, geographic regions and with, often, many carrier partners) to what has been invoiced, while identifying any outstanding charges. It’s essential too for matching for liabilities. Knowing what the intent was when goods were shipped is one thing, but it’s critical to monitor any problems, variance and accrued costs or accessorial charges between points A and B to know if those are increased costs your carriers must cover for non-compliance, or if any third party is liable. Without this fail safe analysis, it would be like handing a credit card statement to a third party for processing. They’d assume every charge was legitimate and pay them all for you as they’d lack the knowledge of the goods and services you initially ordered.
TSM provides executional data that can create a continuous feedback loop, enabling you to better understand the factors that affect overall performance as well as answering important questions that can lead to improvement and lower costs. Does my estimated spend match my actual spend? What are the reasons for variance? Is the reason more about carrier performance or other unexpected influencers? How far off is planned activity from actual outcome and what can be done to achieve optimal state? These answers, and the meticulously collated, analyzed and reported master data from TSM systems are the foundation of the strategic shifts, budget adjustments and other course corrections that will drive optimization of every operational line item across the supply chain. Things like managing and enforcing carrier compliance; order, carrier and service route alignment; better management of assets; network and routing efficiencies and consolidating or making changes to packaging to improve cost per charges across the board.
If you’re a supply chain executive steering your company toward an increasingly mature operational model, if you’re looking for the building blocks to best-in-class processes and cost efficiencies, look no further than the dual partnership of TMS and TSM systems. They may sound the same, and they may look similar, but the distinct value and impact that each can bring to your company and bottom line are distinct and unmistakable.