When I was the VP of Transportation Management Solutions, for a large trucking company I competed against providers offering JDA and other platforms. I sold Oracle and MercuryGate solutions to mid-market manufacturers and distributors. While I was a major proponent for these platforms, I learned that TMS platforms have not evolved to support LTL and parcel needs.
Manufacturing supply chain leaders are putting manual processes in place to band-aid the “efficiency” gaps in their TMS platform. This is exposing manufacturers to higher shipping rates, increased chances of supply chain disruption, charge backs from customers like Walmart, profit margin squeezes and customer service issues. Below, you’ll find gaps that can be found in the TMS platforms that manufacturers are using and their impacts.
Most TMS Platforms Treat LTL and Parcel Like FTL
Since most platforms have no window into carrier capacity changes, they are reliant on rules based on the nature of capacity at the time of the last RFP. This lack of synchronization causes delays and missed windows, which turn into extra administrative follow up, as well as charge backs and lost sales.Ultimately, the reliance on hundreds of standardized routing rules which are built only for lanes, commodities or customers but not on capacity is preventing manufacturers from getting closer to their clients. By treating all transportation modes the same, manufacturers are not given the flexibility they need to consistently meet both the customer and their own profit margin needs. Each network has a different flow, and while “static rules” work for many matured FTL supply chains who consistently deliver into national DCs, they fail to optimize time & cost in the gray areas between parcel and LTL – such as 100 weight or GFP.
Most TMS Solutions Fail to Provide Manufacturers with the Right Real-Time Data
A recent GT Nexus study shows that today only 23% of the largest retailers and manufacturers are getting access to, analyzing and using the majority of data from the extended supply chain for making improvements in their network and for smart supply chain decision making. When it comes to the mid-market, I’d say that number is less than 10% as a 2017 Supply Chain Analytics Study by American Shipper shows that most companies engage with the simplest and least useful form of analytics. They are using descriptive analytics, which involves just using historical data to understand what happened in the past versus a forward-looking view that involves both predictive and prescriptive.
Most TMS Solutions Do Not Enable Manufacturers to Connect Outbound with Their Inbound to Lower Inventory Costs and Avoid Paying for Supplier Shipping Mistakes
In working with manufacturers I’ve learned that traditional TMS platforms are forcing manufacturers to keep all warehouses stocked at high levels because they don’t have visibility into production, the warehouse or the distribution and carrier capacity levels. With a TMS solution that buys on capacity and rates and gives you visibility at the PO and SKU levels, you can reduce inventory costs 10% and lower shipping spend 18%. Since purchasing has a more direct line of sight and finance can more accurately view product flow-through, they are able to synchronize inbound to outbound with a Just-in-Time model built to contain costs while protecting customer delivery date needs. This is especially crucial to larger networks who operate multiple DC’s or warehouses because each region tends to operate differently unless provided a standardized set of best practice tools. This is the only way manufacturer will gain control over costs while ensuring their DC’s and their customers get the products they need when they need them.One of my clients, a furniture manufacturer that offers thousands of SKUs, would not be able to have a just in time supply chain that keeps inventory costs at a minimum if they did not connect their inbound with their outbound supply chains. Most TMS platforms put inbound and outbound chains into separate silos. There is no connecting the two, which means you do not have the visibility and information and information you need to perform just in time SCM and to reduce buffer inventories by 15% to 25%.
This lack of visibility and disconnect between inbound and outbound is also creating supplier compliance issues for manufacturers. They are just looking at if shipments were delivered on time. They’re not able to see if the whole purchase order was shipped by the expected mode. They’re looking at one performance metric – just one piece of the puzzle. They’re getting a partial snapshot and losing the ability to hold suppliers accountable because they do not have a custom vendor portal that provides real time visibility into their vendors shipping behavior. Manufacturers need built-in lead metrics to hold vendors accountable so they don’t continue to absorb the costs of supplier shipping mistakes.
Most TMS Platforms Do Not Protect Growing Manufacturers From Million Dollar Cost Inefficiencies
I’ve learned that a manufacturer, who was using a top 25 LTL carrier, knew they were overpaying but was unable to prove it for lack of transparency. Because many manufacturers have little visibility and ability to audit freight bills, they are paying hundreds of thousands to millions of dollars in excess charges each year as discrepancies can occur 20% to 25% of the time. This is why there are hundreds of audit firms whose focus is to “recover” these profit losses. And, they even have challenges because of the lack of transparency and visibility. Instead of “recovering” profit losses, TMS platforms should be protecting manufacturers from paying the overcharges in the first place.
In addition to limited visibility into what manufacturers should be paying, I’ve learned that TMS platforms are unable to capture the data that’s needed for more accurate LTL pricing. For example, in speaking to the CEO of a next gen TMS company, I learned that:
- The TMS for a top 5 US broker, forwarder, and carrier based in MN was not able to capture the right dimensions, class, or NMFC code data because it treated LTL the same as FTL. As a result, they weren’t able to get the best discounted pricing. Upon review of previous invoices, $2M in additional profits were uncovered.
- When a large manufacturer in Wisconsin implemented a CUSTOMER-based (not “rule” based), live TMS in order to dynamically decide the best carrier option for each shipment and the optimal shipping mode across all parcel and LTL options, they gained more than $360,000 in annual savings without any further process changes. More importantly, the time saved allows the team to focus on improving customer experience for growth.
- Table or rule-based platforms with a static routing guide will never be able to account for new lanes and service areas this, nor can they account for areas which have been reduced or limited in service. While the more modern TMS platforms are looking beyond EDI to connect manufacturers with carriers using API which allows systems to speak to each other in near real time, it doesn’t ensure accurate data. Maximizing savings and growth requires building logic on top of APIs. For example, by building logic to ping the carrier’s API with dimensional weight instead of actual weight, one manufacturer received quotes which were 70% more accurate to their invoices!
Most TMS Platforms Will Not Help Manufacturers Meet the Customers’ On Time, In Full Expectations
As I share in my on time, in full article, retailers like Walmart are losing an estimated $1B due to product unavailability as products are not being shipped on-time, in full (OTIF). Customers are fleeing to Amazon and this is why Walmart will now fine suppliers up to 3% of the cost of goods, if OTIF deliveries for LTL do not meet the 50% threshold for compliance (up from a 33% set only one year ago). In addition, the must-arrive-by-date (MABD) window for delivery has decreased from four days down to one or two.
Walmart is not the only retailer placing greater requirements on manufacturers and suppliers. Target has a "single day arrival" initiative and Kroger has an original request for arrival initiative with a $500 penalty if missed in excess of 2 days. This growing trend of stricter requirements prompts me to predict a ripple effect impacting all companies, whether they ship to retailers like Walmart and Target or not. Because of their size and scale, a change to their delivery requirements impacts all carriers - and therefore all shippers who use those carriers, regardless of a direct relationship to Walmart.
Increased customer demands are happening alongside the tightest capacity levels yet seen, leading to spikes in transportation costs and increased delays. Those manufacturers who continue to use traditional rules that buy only on rates will experience continued deterioration of profit margins, as they won’t be able to provide their customers with the perfect order which gives them:
- The right product
- The right quantity
- The right delivery
- The predictable cost
This is why routing by delivery windows and promised dates by purchasing on capacity and rates is critical for manufacturers looking to scale .
Now, take a look at your supply chain and the capabilities of your TMS solution. Are you being served right by your logistics provider and the technologies they’re using or are the technologies only making your provider efficient?
If not, connect with me on LinkedIn – and I’ll invite you to join my “On Time, In Full Logistics Group” where you’ll find discussions on the technologies and processes that are needed to meet higher customer expectations.