For the average shipper, the cost of freight transportation is second only to the cost of payroll. Consequently, when a shipper needs to increase its bottom line, reducing the cost of freight transportation is one of the first considerations. There are two keys to achieving a cost-effective shipping process: the correct selection and correct management of shipping arrangements, both of which require a logistics resource. There are three types of logistics resources for managing a shipping system:
In-house logistics department -A shipper that operates its own fleet typically uses this resource. Due to the capital required to maintain the department, implementing a logistics department is often unfeasible for small and midsize shippers.
Third Party Logistics (3PL)- Also known as freight brokers, 3PL providers negotiate shipping arrangements between shippers and carriers. 3PL can be less expensive than maintaining a logistics department, but it still involves paying logistics professionals.
Freight transportation software- Freight transportation software can supply the logistical solutions that are traditionally supplied by a logistics department or 3PL provider. From a cost perspective, freight transportation software is the most economical logistics resource.
With the emergence of Software as a Service (SaaS) solutions for the shipping industry, the popularity of logistics software has increased. The software can also be implemented on an in-house model, but implementing it on a SaaS model eliminates the costs of installing and maintaining in-house software.
The Goals of Transportation Management
Positioned between the Enterprise Resource Planning (ERP) system and the shipping process of a company, a Transportation Management System (TMS) has three goals:
Plan the shipping process, including carrier and transportation mode selection, rate selection, and load and route optimization.
Monitor the shipping process, including cost control, quality control, and tracking of vehicles along the shipping route.
Measure key performance indicators, including monetary productivity, cost per metric, and percentage of on time deliveries.
These goals can be accomplished by an in-house logistics department, a 3PL provider, or with freight transportation software. As it considers these options, the shipper must consider how much it needs to economize on the logistics resource, and whether it wishes to manage the shipping process, or have it managed by another party.