A major disruption in a company’s supply chain is enough to keep the CEO of a global company up at night with fear of lost profits, brand equity and shareholder value. Peak periods such as the holiday season or after a natural disaster are causes for concern to any executive but particularly to those responsible for a business’s bottom line.
Growing pressure on retailers to shift their business models to fulfill last-minute orders, combined with the ongoing increase in e-commerce amid a slow-growing economy, make it critical for companies to have a flexible supply chain that can handle fast shipments seamlessly.
Using information from the Business Continuity Institute and Swiss Re, Capgemini Consulting’s recently published “2013 Third-Party Logistics Study” indicated supply chain disruptions increased 465 percent from 2009 to 2011, totaling $350 billion in economic losses.
With supply chain disruptions directly impacting financial performance, transportation management systems must be a top priority for CEOs.
According to Capgemini’s study, four main factors — including natural disasters and geopolitics — account for the majority of supply chain disruptions. To mitigate risk, companies must prepare months in advance. To ensure service levels are met, they must maintain a strategic view of their transportation network, accurate forecasting and supply chain visibility or event management during high-volume periods. Using a transportation management system is critical to achieving these goals.
Yet only one in three companies are using a TMS for such operations, according to Mark Nix, CEO of Cloud Logistics. But there’s room for hope: A recent survey shows that buying or upgrading an existing TMS is a priority for future IT investment by global companies.
A TMS serves as the logistics hub in a collaborative network of shippers, carriers and customers. By focusing on inbound and outbound shipments, a TMS provides significant benefits and helps manage four key aspects: planning, execution, support and performance.
The business value of a fully deployed system can reduce costs through better route planning, load optimization, carrier mix and mode selection. A TMS also can provide improved accountability, better visibility and flexibility to make real-time decisions.
Ralph Lauren, for example, recently co-developed an air freight TMS to manage goods worldwide in an expedited manner. The company has approximately 400 vendors supplying its business. Goods are manufactured in Asian countries such as China, the Philippines and Sri Lanka, and the company contracts with niche suppliers in Italy and Morocco. In addition, 10 to 15 percent of its North American volume is expedited using a network of ocean and air freight forwarders. Consequently, the ability to immediately track a shipment to another global location is critical to the business.
The recent business shift toward same-day shipments makes a TMS especially important. Several wholesale and retail distribution networks are redesigning their networks to improve service times for customers, which a TMS can help manage. Wal-Mart, for example, is testing same-day deliveries in select markets to make approximately 5,000 general merchandise items, including flat-panel TVs, toys and Apple iPads, available for same-day delivery.
Previously, companies have cited various reasons for not using a TMS: cost of implementation, network complexity and low volume, for example. In some cases, the cost to implement a TMS can be extensive. Software, system integrator fees, licensing, internal resource costs and additional hardware are factored into a business case prior to purchasing a specific product. Unforeseen costs associated with the purchase of a TMS requiring modifications or customizations that aren’t originally calculated in the return on investment also can impact financial performance.
More recently, however, employing a TMS has become less expensive. Third-party companies that already possess a software license can manage the freight for a company on a fee basis. This option allows an organization the benefits of a TMS without the cost of implementation.
Furthermore, from a financial or shareholder value perspective, organizations that already have implemented a TMS are realizing a high return on investment. Companies such as Lean Logistics indicate payback for their SaaS-based on-demand TMS solution is six to nine months. Benefits include a reduction in transportation spend (3 to 20 percent), expedited shipments (5 to 25 percent) and an increase in capacity (5 to 15 percent).
Other significant benefits include an improvement in revenue (0.5 to 5 percent) because of improved customer service and a reduction in inventory (one to 10 days), statistics a CEO would be hard-pressed to ignore.
Global organizations are constantly looking for ways to improve their performance and increase market share. Implementing an efficient, sound supply chain is a core part of this strategy. Industry competition, natural disasters, global crime, shifts in consumer purchasing habits and pressure to succeed from shareholders are all issues CEOs and other business leaders face daily. A company’s ability to limit risk or react to these events in a timely manner to avoid a serious disruption in their supply chain will limit damage to their brand image and sales.
An effective TMS system is a supply chain tool CEOs literally can’t afford to overlook.
Charles T. Trimarco is senior manager of Capgemini’s North American Supply Chain Technologies. Stephanie Combs is a senior consultant for the group. Contact them at email@example.com and firstname.lastname@example.org.