ROI is Driving TMS Growth

ARC Advisory Group conducts an annual analysis of the global transportation management systems (TMS) market. The research process includes the analysis of large amounts of information and interviews with executives from numerous TMS software companies. The process concludes with the publication of ARC’s TMS Global Market Research Study, which analyzes the market shares across numerous categories of the leading TMS suppliers. Aside from the market share analysis, the study looks at the trends that are driving and/or inhibiting growth in the TMS market. As simple as it sounds, this year’s study confirms that the ROI achieved from implementing a TMS is the biggest factor in the market’s growth.

When a shipper decides it needs to improve its transportation performance, it typically attempts to achieve this by either buying a transportation management system (TMS) or outsourcing transportation planning and execution to a managed transportation services (MTS) provider.

According to ARC Advisory Group research, among those shippers that successfully achieve significant reductions in freight savings, TMS and MTS perform roughly the same. However, when you look at the proportion of respondents that achieved negative results (increased freight costs) or no improvement in their freight spend; TMS appears to be the less-risky investment. Further, when it comes to net savings (after all fees are paid to the service provider), TMS appears to perform somewhat better. On the other hand, when it comes to service improvements, MTS is the clear winner.

So where do these net savings come from? Primarily, a TMS can save companies money by lowering their freight spend. Based on ARC TMS survey data, respondents indicated freight savings of approximately 6 percent with the use of a TMS application. Of these savings less than 25 percent of the net savings were absorbed by the TMS for the majority of respondents. These freight savings can be attributed to lower cost mode selections, better routing, and better procurement negotiations.

A contributing factor to these savings is the evolution of TMS products themselves. The TMS product set continues to improve with new forms of optimization, mobility enhancements, improved usability, and better analytics. Multitenant solutions continue to offer some distinctive capabilities that many companies find attractive. Aside from the freight savings, TMS products are providing numerous other benefits, including improved customer satisfaction, warehouse efficiencies, new delivery capabilities, inventory reductions, and cash flow improvements.

As the product sets of TMS providers have improved, so has the sophistication of MTS providers. In fact, until recently, one of the leading complaints about MTS providers was that their technology was not good enough. As these providers overcome that barrier, potential TMS customers may increasingly choose the managed services path. TMS and MTS providers will continue to make enhancements and improvements to their offerings. As the core product sets continue to become more sophisticated and offer better tools, shippers will be able to better optimize their routes and lower their freight spend. The end result is an improved ROI for shippers, which will continue to fuel the growth of the TMS market.


by Chris Cunnane
September 3rd, 2014

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