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Interest in on-demand transportation management systems (TMS) continues to grow, as do deployments of the Web-based systems. The benefits over traditional TMS solutions include rapid deployment, lower upfront costs, quick time to value and supply-chain network connectivity.

As companies search for solutions that increase efficiencies in the face of higher operational expenses-such as surging fuel prices-on-demand, or software as a service (SaaS), TMS appears to be meeting great expectations.

Essentially, the on-demand TMS model allows companies to access TMS functionality via the Internet. The system resides at a vendor's location and generally consists of single-instance, multi-tenant software; it is a shared solution allowing multiple companies to access the same application. Firewalls protect the respective databases of each company within the network.

Vendors report little change management is necessary once a solution is deployed. Savings in overall transportation spend can range from five percent to 20 percent, depending on the efficiency of transportation management before an on-demand system is deployed. Higher savings are common for companies manually managing transportation activities before deployment.

Instead of paying a big licensing or purchase fee, companies pay a rental fee for SaaS or on-demand TMS, says Steve Banker, director of supply chain management for ARC Advisory Group in Dedham, MA. Generally, companies can choose from the single-instance, multi-tenant software placed on a vendor-controlled server or they can have the vendor software reside on their own server, behind the company's firewall.

Analysts report that companies with a transportation spend of under $100 million are well suited for on-demand TMS, which can deliver a higher ROI than traditional, on-site and in-house solutions.

"Oftentimes logistics is at the bottom of the priority list when it comes to capital investments," notes Adrian Gonzalez, director, Logistics Executive Council at ARC Advisory Group. "So even though the cost of traditional TMS installations has decreased over the years, on-demand TMS is much easier for logistics executives to get approved because the purchase is an operating expense, rather than a capital investment as a traditional TMS would be."

Companies are discovering a more significant and longer-term value proposition with this model because of the logistics network that is created, connecting customers with multiple shippers, carriers, trucking companies, 3PLs and suppliers, adds Gonzalez.

Companies can exchange information with all their trading partners via one connection. "In the past, a manufacturer might have been working with 100 carriers, 100 suppliers and 100 customers and it would have had to connect one-on-one with each of those parties, making 300-plus separate connections," explains Gonzalez.

Matthew Menner, senior vice president of sales and alliances for Frisco, TX-based Transplace Inc., says a good portion of the decision to deploy on-demand relies on the comfort level of a company's IT department. "It's also a matter of economics and considering a shipper's volume, what the economics look like in terms of an on-demand solution versus a traditional solution on their hardware and how they will treat the associated expenses."

Although on-demand TMS is growing faster than traditional and licensed TMS, this doesn't mean the in-house licensed products are going the way of the dinosaur, notes Patrick Connaughton, senior analyst, supply chain, at Cambridge, MA-based Forrester Research Inc.

"One shortcoming of the SaaS hosted solution is evident when it comes to global, multi-modal optimization. They just can't compete with the licensed installed products," says Connaughton. "This is why there will always be a place for licensed solutions for optimizing millions of shipments across multiple modes and across multiple geographies."

Connaughton notes a recent Forrester report naming nine top vendors of TMS. Seven offer licensed products, while the remaining two-LeanLogistics and Sterling Commerce-offer on-demand TMS services. The report, The Forrester Wave: Transportation Management Solutions, written by Connaughton, notes the vendors "share common characteristics in areas like carrier management, visibility and transportation procurement. However, there are significant differences among the solutions-most notably in product architecture, implementation services, fleet management, international capabilities and business intelligence."

The Forrester report included these two on-demand or SaaS vendors in its evaluation because some clients Forrester interviewed were looking for an alternative to licensed TMS that would allow them to move from paper-based systems.

"They wanted a TMS but were gun-shy because of the high-profile expensive projects that have gotten derailed for one reason or another with the licensed products," explains Connaughton. "So these solutions offer a great incremental step for them. They don't have to spend a lot on upfront licensing fees and then millions of dollars on implementation, only to wait a few years before they can really get going with the system."

Hidden Value Proposition

Although the two main attractions remain quick deployment and upfront lower costs, once customers are up and running they begin to recognize other areas generating value because of the power of the network, adds ARC's Gonzalez. "Certainly the analyst community has been writing about the potential of what I call the hidden value of on demand."

That hidden value is the information-rich environments in which these systems operate. Accessibility to the right data not only enhances your ability to be more efficient, but it also means you can monitor the efficiencies of your supply chain partners through benchmarking. For instance, the real story-the hidden story-in the March 2008 CHEP acquisition of LeanLogistics is the extraordinary value created in combining the respective networks of each company's data and information, notes Gonzalez.

The data collected within the network of the origins and destinations of thousands of shipments every day delivers network visibility resulting in network efficiencies. For example, say LeanLogistics has two clients, one with a shipment going from Boston to Chicago. The other client has a shipment going from Chicago to Boston. Neither of these companies talks with the other because they are competitors. From the standpoint of LeanLogistics, who sits in the middle and sees everyone's data, it makes network sense to use the same trucking company for both moves so the trucking company does not have an empty backhaul.

"It's this kind of situation that can be created from a network level because a provider like LeanLogistics sits in the middle and sees what is happening across thousands of shippers and thousands of moves every day," explains Gonzalez, adding that LeanLogistics manages upwards of $4 billion of freight annually across its shipper network.

"If each of these companies had relied on their respective TMS programs, there would be no network visibility overall. The combined information creates a more efficient and collaborative business process, in effect supercharging the amount of information available," he says. "This opens the door to resolve some issues that have been long-standing problems in the transportation industry such as how to eliminate empty backhauls and improve asset utilization."

The two shippers are sharing an asset at a lower cost than they would have to pay if each were to send out its own truck.

Here are examples of services vendors are offering their customers.

LeanLogistics: Reducing Empty Miles

LeanLogistics oversees about 20 million shipments flowing through its system annually. It knows where the freight is moving, at what price it is moving, if it is moving on time, which carriers are serving which lanes and when freight is moving according to plan, says Pete Stiles, vice president of marketing and strategy for the Holland, MI-based company with about 20,000 users. "It's fundamentally priced on a per-shipment model, with discounts for volume. We can offer fixed pricing for companies with fixed volumes."

Stiles notes that for years the key issue in transportation has been talk around technology-enabled reduction of empty miles. But nobody has been able to pull this off primarily because there hasn't been a large enough base of information on existing movements, he explains.

"Realistically, you can't construct a continuous move from a plan and expect it to be actualized. What you can do, however, is look at where there are repetitive volumes of movement in the network and hook them together when there is a large enough volume to justify what is in essence dedicated carriage. It's not a continuous movement, but you can use dedicated carriage to lower the cost for all the shippers while lowering the cost for the carriers," says Stiles.

"In this way, you are effectively taking empty miles out of the system. This is good news for everyone because when you are considering how to reduce costs for everyone in the face of out-of-control fuel increases, you can do this using excellent data, which increases your efficiencies."

Stiles claims some customers netted as much as 19 percent in savings off their annual freight bill, even before the CHEP acquisition. "At that time, we had about 5 million shipments a year going through our system. With CHEP we have a much larger base of information to work from and the larger the base, the better the information."

This rich information means benchmarking delivers decreases in freight simply by examining an individual network against the holistic network and taking out cost where anomalies exist. Visibility is now holistic and not limited to that of an individual company. Stiles says the CHEP partnership will allow LeanLogistics to expand its existing product base around benchmarking capabilities, providing quality information to shippers so they can evaluate their own networks.

The company is considering allowing carriers to apply to the network. Stiles admits the company has not conceived the how of this yet, since that is still in development. "But the ‘what' of this is a marketing information tool for carriers. They might want to know how to solicit volumes in certain lanes and how to participate with certain shippers when they issue a procurement. They are also looking for ways to bid for dedicated round-trip movements when they become available."

So these carrier services will allow carriers to view the network to see where their route patterns overlap and where freight is available-and which shippers they can service at favorable rates.

HighJump: Planning And Optimization

The 3M acquisition of Pinnacle Distribution Concepts Inc. in 2006 will merge Pinnacle's synergies with those of HighJump, says Bill Johns, director of transportation solutions sales for Eden Prairie, MN-based HighJump. "Pinnacle was a strategic target because of its existing customer base and because its transportation logic is a market differentiator because it is designed by industry professionals. Additionally, their on-demand solution had best-of-breed functionality in a hosted environment."

HighJump touts the business logic driving its solution. "All the algorithms of our transportation optimizer have been built into our product (and not by third parties), including our industry expertise," says Johns, noting some TMS solutions are being developed by engineers and mathematicians who have no background in transportation. "Customers like our planning and optimization logic in our algorithms because it is intuitive to a transportation planner."

The solution also includes freight bill management and auditing functionality, saving companies money and effort by not having to outsource to a third party.

Enterprise integration varies according to customers' operations. Johns says the solution can easily integrate into an ERP application or into a WMS, or a hybrid of both. "Every company has a different way of handling internal operations. Our solution doesn't require a company's IT department to be involved at all, except at the very beginning."

Understanding a customer's unique requirements is necessary to set parameters and to establish data points, known as business rules, for the algorithms driving an on-demand TMS. For example, a customer might want to deliver only on three particular days of the week during certain time windows and using certain carriers. "These data points become part of the algorithm," explains Johns.

"Companies using our TMS solution have four snapshots in load planning," Johns says. First, they can let the TMS program develop the transportation plan, using all the business rules and logic of a particular company.

Or, second, a company can activate what Johns refers to as "tribal knowledge" that is based on the transportation planner's intimate understanding of the unique preferences of a shipper's customer. "We can help a customer make those little corrections for their customer so they can release a plan that includes these preferences right into the warehouse," Johns says.

Third, the warehouse makes any necessary adjustments to the transportation plan prior to shipping. The original parameters used to design the system's algorithms help identify anomalies-whether the TMS plan or the planner's plan is put into action. For instance, if a carrier's charges are outside a certain percentage, the system will issue an alert.

"Lastly, our system can assess these plans to see how orders were shipped from the warehouse and how customers were billed by the carrier," explains Johns. "This gives companies a tremendous amount of data they can use for rating carriers and helping negotiate carrier contracts. It also gives you justifiable cost metrics throughout your organization."

Transplace: Establishing Operational Economies

Menner at Transplace talks about the "meat and potatoes" of on-demand TMS this way: "The primary value proposition for investing in one of these systems includes moding up and establishing the operational economies that the TMS will work from day in and day out."

The first step of moding up includes using the most cost-effective and service appropriate mode of transportation. The second step is to define expected demand for transportation service by mode on an annual basis. "We help companies define those requirements so they can secure rates and capacity commitments from the appropriate carriers," explains Menner. "Those rates then become the everyday operational economies upon which the TMS works."