Why investing in TMS is always worth it for logistics service providers

Why investing in TMS is always worth it for logistics service providers

Private companies strive to increase their profits. For a few years now, more and more companies have been setting themselves the following goal: sustainable entrepreneurial action. In a survey conducted by the German Logistics Association (BVL) in 2018, three-quarters of the freight forwarders and logistics service providers surveyed said they wanted to reduce their carbon footprint. One way to increase profitability and sustainability is to optimize processes with the help of digital systems. In case of transport in particular, there is often great potential for reducing costs and environmental impact. Accordingly, it makes sense to invest in a Transport Management System (TMS). We show why and what requirements must be met for a company to achieve its economic and ecological goals through digitization.

Companies neglect the optimization of transport management

In day-to-day business, transportation management optimization often gets lost as freight forwarders and logistics service providers typically focus on delivering shipments on time instead of setting additional priorities.

In addition, many companies are reluctant to invest in a TMS, especially small and medium-sized companies. As the main reasons, they cite the high acquisition costs, the effort involved in converting internal processes, and an unclear cost-benefit ratio. It is much easier for them to make changes, for example in the materials used or their own energy concept.

A TMS promises many positive effects

Replacing plastic packaging with paper packaging, for example, or converting the lighting in a warehouse to LED reduces a company’s ecological footprint and/or expenditure in the long term. However, these effects are significantly smaller than those which can be achieved through digital transport management.

In fact, transportation management is one of the most important factors for higher profitability and sustainability of freight forwarders and logistics service providers. According to BVL, the German Logistics Association, it leads to:

  • Cost reduction through improved vehicle utilization, more efficient routes and time savings
  • reduced environmental impact, as fewer vehicles need to be used and emissions decrease due to more efficient route planning
  • higher employee satisfaction, as both dispatchers and drivers gain time and therefore are less stressed
  • Increasing customer satisfaction, on the one hand, because sustainability is a key criterion for awarding contracts for more and more shippers, and on the other hand, because punctuality and transparency are on the rise

With regard to cost reduction, the research and consulting company Gartner states exact figures. According to these figures, the average savings to be expected from a TMS correspond to 5 to 15 percent of annual freight costs.

The efficiency gain from a TMS is more significant than the cost

There is no question that the purchase, operation and, if necessary, maintenance of a TMS costs money. How expensive this is in detail cannot be said in general terms. The following factors, in particular, result in strong price variations:

  • functions that the software offers: Modular solutions are often a cheaper and more flexible alternative to complete solutions.
  • Number of licenses a company needs: Scalable systems enable continuous adaptation to the size of the business and are therefore cost-efficient.
  • Hosting model: The cloud-based application of the software (Application Service Providing, or ASP for short) is a less cost-intensive alternative for freight forwarders and logistics service providers who do not necessarily want to host the TMS on their own server.
  • Payment model: In addition to purchasing, many TMS providers now offer software-as-a-service (SaaS) solutions that also allow renting or subscribing to the software.

In general, it is advisable to make the decision for or against a TMS dependent on more than just the costs. A look at the aforementioned positive effects of a software on profitability and sustainability is just as decisive – if not more so.