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Transportation Management Systems 101: How A TMS Works

Man working in-between his truck and trailer

When it comes to the transportation industry, transportation alone isn’t what creates revenue for businesses in this sector. It’s the optimization of transportation that can generate revenue.

Think about how much freight capacity is not being utilized whenever a truck or boat leaves with too much empty space. There can be a few reasons why this happens, but for the most part, it is due to poor efficiency and a total lack of automation in the transportation industry. By not using digital solutions to track information about truck load factors, it can be impossible to optimize the space available to transportation companies. This, in turn, can result in a serious loss of revenue for businesses of all sizes in this industry.

So what’s the solution? Luckily, it’s something both accessible and growing in the transportation industry. Transportation management systems are putting more power into the hands of truckers and transportation companies to create a more well-rounded and trackable industry.

Are you unsure if a transportation management system is right for your company? Are you stuck in the cycle of losing money and not running the most efficient transportation company? In this guide, we’ll break down everything you need to know about transportation management systems, how they work, and all of the benefits you could be reaping by making the switch. Let’s start by defining what a transportation management system actually is.

What is a Transportation Management System (TMS)?

Transportation management software, also known as Transportation Management Systems or TMS, are platforms that are specifically designed to speed up the shipping process along the entirety of the transportation journey, from loading and accounting for freight to transportation to tracking to unloading. Essentially, TMS platforms are supply chain management platforms that focus specifically on transportation processes, pain points, and solutions.

A TMS will make it possible for companies to automate their business processes, as well as gain valuable insights and reports that will help their staff save on valuable time and reduce overall spend on upcoming shipments.

Transportation management systems have been around for quite a few years now, but many mainstream companies and international businesses are starting to adopt them.

What are the Components of a Transportation Management System?

There are a number of functional and useful components of a transportation management system. A TMS platform is not a one-hit-wonder in terms of solutions-- rather, it is a whole all-in-one system of solutions that target the needs of the transportation industry and businesses that ship products.

Not all TMS platforms are the same and there are many different types of vendors out there. However, on a basic level, the components of a transportation management system include the following functions:

  • Carrier Management. This allows businesses to efficiently monitor and manage their carrier’s performance via scorecard and rate management. Claims can also be executed digitally and with ease.
  • Procurement Management. This is a specialized approach to the management and optimization of procurement processes. Finding the right high-quality goods and services from vendors can be complex and difficult, and procurement management solutions from a TMS is very helpful.
  • Route and Total Load Optimization. Truckers should be able to make use of the best tools they have available to get themselves from point A to point B as safely and quickly as possible. TMS platforms often feature integrations to applications that Dispatchers and Drivers can use to make sure that their mapped route is ideal and their truck load is going to the right place.
  • Freight Execution Platform. This in-system feature is great for improving one’s transportation network by using automated shipment execution processes. Where communication and collaboration throughout the supply chain can be difficult and complex, TMS platforms can offer an efficient and very scalable solution.
  • Visibility, Reporting, and Analytics Solutions. TMS platforms are excellent for adding transparency to your supply chain. It’s also an excellent solution to issues involving freight condition and temperature, specifically for perishable goods such as food or pharmaceuticals.
  • Supply Chain Communication Control Tower. Connect everyone involved in your supply chain from one simple app. The need for radio and other archaic forms of technology is long over.
  • Logistics and Supply Chain Data Repository. Gaining insight into the data of a shipping company’s logistics has historically been difficult to do, but this is changing as the industry continues to adopt TMS solutions and automation.
  • Freight Settlement for Audit and Pay. Reduce your spending on freight settlement issues by providing better transparency into your transportation processes and trucker behaviors. With an audit platform on hand for your company, you can easily settle disputes and pay out to the appropriate parties when needed.
  • Invoicing Functionalities. Invoicing is obviously a huge part of the transportation industry. Many people need to be paid regularly along the supply chain, which means that shipments need to be invoiced quickly so that the individuals that help keep your organization running can be compensated. Digital Invoicing functionalities not only make it easy to coordinate payments from your customers, but these invoicing functionalities can also help you get an accurate picture of the profit and loss for each trip your driver does.
  • Stay Up to Date on Industry Standards. The Transportation industry is changing rapidly and TMS platforms will help you stay on top of what is happening in the Industry. Intelligent TMS integrations with Fuel and Carbon Tax reporting and Driver ELD HOS requirements to track driver hours and fatigue will give your company the edge it needs to maintain optimum efficiency.
  • Analytics, Reporting, and Business Intelligence. Business intelligence is at the heart of any successful transportation company, and a TMS platform can make the integration and use of your business intelligence processes much easier.

Which Industries Use Transportation Management Systems?

So many different companies and industries use transportation management systems. Such industries and companies include distribution businesses, e-commerce companies, and any other organization that requires the movement of freight from one place to another, be it on a local or international level.

TMS platforms are used mostly by businesses that need to move and receive goods regularly, sometimes on a daily business. Many different links or entities in the supply chain use transportation management systems to reduce the amount of spending needed to ship their products.

Some common businesses that use TMS platforms include manufacturers, distributors, e-commerce platforms, retail companies, logistics companies, and service providers, construction businesses, life sciences organizations, and many more. All of these industries benefit from using cloud-based TMS platforms to aid in creating a more affordable shipping strategy in their supply chain.

Why is it Important to Have a Transportation Management System?

There are so many different elements of the delivery process, no matter what industry a company may operate in. There’s the need for delivery quotes, optimizing overall spend on truckers and vehicles, and transportation process optimization. With a transportation management system, companies will be able to tackle these needs efficiently.

Traditionally, the trucking industry has been very slow to adopt new technology. One would be shocked by how many companies, including large enterprises, still rely on pen and paper to track their truckers’ miles and hours. This is not only inefficient, but it’s also a great way to run one’s transportation company into the ground in an already unstable industry. As competitors and tech-savvy business owners begin to catch on to the benefits of TMS platforms, businesses that are not up to date on this new form of technology may suffer.

It’s also not entirely a matter of keeping up with the competition, either. TMS platforms, though they vary from vendor to vendor, have such a wealth of features and benefits that can help everyone along the supply chain. From warehouse management to the trucker workforce, transportation management software can have a big positive impact on how entities in this sector do their jobs.

How Transportation Management Systems Benefit Companies

There are so many benefits to transportation management systems for a wealth of different industries, supply chain links, and individual employees such as truckers. These benefits include the following:

  • Businesses can easily purchase TMS platforms that can be integrated with their own ERP and SCM solutions. This is excellent for the transportation and logistics industry, as many businesses and their staff tend to be resistant to complete and sudden change. By slowly integrating a TMS into one’s business, it becomes easier for businesses in this industry to adapt and start using TMS solutions on a regular basis.
  • Freight can be optimized, planned, and executed on an inbound and outbound product movement basis. You can easily analyze the cost and overall performance of your freight providers with a TMS platform as well.
  • You can gain valuable visibility into the materials needed for a manufacturing schedule that fits your business, both for manufacturing and distribution.
  • Procurement and purchasing become instantly easier through improved digital vendor management and overall performance reports.
  • The financial aspect of your business can become easier to manage. Many TMS platforms offer freight audit, payment, invoicing, accrual calculation, and cost-performance analysis solutions.
  • Your sales team will benefit from being able to track your customer orders and report accurately on their performance.
  • Your customer service team will benefit from being able to efficiently track and address different orders for your customer base. This is a lesser-known benefit of using a TMS platform, but it’s a substantial solution to the often old-school way of keeping customers in touch with their products. With this solution, customers will be able to enjoy more transparency and an overall customer service experience. By offering direct access to a customer’s order and shipment data, you’re already giving your company a leg up above other transportation companies.
  • Keep your vendors and licenses managed the right way by using digital scheduling and reporting software to track their shipments.
  • Plan your entire shipping process from start to finish by selecting the right shipment and carrier sources based on cost, overall efficiency, and distance per shipment. TMS platforms also make it possible to use optimized multi-leg carrier routes.
  • Improve your execution techniques by matching loads and communicating with your carriers via your TMS app. You can also use your TMS system for documentation and shipment tracking, as well as freight billing and settlements that may occur.
  • Particularly advanced TMS platforms also track and trace transportation services and freight in real-time for use among your carriers, distributors, customers, warehouses, management, and more. TMS platforms are designed to handle very complex and heavy-duty functionalities and data, making them ideal for both small businesses and large enterprises that ship internationally.
  • Reduce the overall costs to operate your business, as well as the end costs for your customer base.
  • Simplify your supply chain processes across many different routes, from geographical locations to modes to different carriers.
  • Automate your business operations and intelligence to create more accurate and speedy billing processes, in addition to documentation.
  • Improve your visibility, transparency, and security both on-premises and in transit.
  • Save time by implementing fewer steps in your shipping process, which will result in fewer complicated delays and significantly quicker delivery times for your customers and vendors.
  • Track your freight on local and international levels through one single easy-to-use platform.
  • Stay compliant for both imports and exports when shipping abroad. This will reduce your chance of dealing with penalties and long-winded shipment delays for your customers.
  • Gain improved business insights that you could not have gotten with traditional tracking methods or even with other types of software. TMS platforms offer better reporting tools that lead to quicker real-time actions and overall process improvement.
  • Scale and grow your business with ease by improving your customer experience and optimizing your shipping processes. Just as well, most TMS platforms are designed to scale, so small shipping companies can enjoy the benefits of growth without having to completely switch to a new enterprise-level TMS platform.

To put it simply, transportation management systems are the way of the future for the transportation industry. If there was ever a time to finally invest in a company-wide switch to a TMS platform or application, this would be it!

Read our TMS Buyer's Guide

Navigate the TMS software landscape with our comprehensive buyer's guide - find the perfect platform for your trucking business today.

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