What Is a Transportation Management System? TMS Explained

The global economy is filled with incredible opportunities. But with it comes the difficulty of moving products. A single load can cross multiple countries, using a combination of truck, train, and rail, each handled by different transport companies. Many businesses use a transportation management system (TMS) to handle and automate all those moving pieces.

Businesses lean on the TMS platform to keep tabs on shipments and optimize every aspect of their logistic operations. It is a sophisticated tool that strategizes, automates, and fine-tunes the entire supply chain. Yet, knowing what a TMS is is not enough to reap its full benefits.

To truly make the most out of TMS, you have to understand what it is capable of and what it can do for your business. That is exactly what we will discuss in this article. Here’s a quick rundown of what we will cover:

• Understanding what a TMS is and its 3 types
• How does TMS work
• What kind of businesses can benefit from it
• Benefits it can bring to your business

What Is a Transportation Management System?

A transportation management system (TMS) is software that helps plan, execute, and monitor the movement of goods from the point of origin to destination. It handles everything – from planning routes and tracking shipments to managing carriers and handling related paperwork.

TMS ensures smooth logistics operations and coordinates different aspects like shipping modes, warehouse management, and freight billing and auditing. It provides real-time visibility into shipments and streamlines processes so that companies can efficiently manage their supply chain planning for better control and cost savings.

3 Types Of Transport Management System

TMS has 3 major types and understanding these diverse systems will help you find the right fit for efficient logistical operations. Let’s discuss them in detail.

01

On-Premises TMS

On-premises TMS are the transportation management systems that are installed and operated from the client’s physical location. The software and its data are stored on the company’s servers or data centers.

This setup gives organizations full control over their system and provides customization and integration with other in-house systems like a warehouse management system (WMS) or enterprise resource planning (ERP) software. However, it requires significant initial investment in hardware, software, and maintenance, along with dedicated IT resources for upkeep and updates.

02

Cloud-Based TMS

Cloud-based TMS operates on remote servers accessed via the internet. It offers scalability, flexibility, and accessibility from anywhere with an internet connection. You pay for the services you use on a subscription basis which eliminates the need for substantial upfront costs.

This type of transportation management software is known for quicker implementation, easy upgrades, and reduced reliance on in-house IT support. It facilitates collaboration among various teams and provides real-time data sharing among stakeholders within the supply chain.

03

Hybrid TMS

A hybrid TMS combines elements of both on-premises and cloud-based systems. It allows you to benefit from both setups by keeping some critical functions on-premises while using cloud-based services for others.

This approach suits businesses that require the control and security of an on-premises system for certain operations but also need the flexibility and accessibility offered by the cloud for other aspects.

Hybrid TMS can help integrate different parts of a supply chain and accommodate specific needs or regulatory requirements while using the advantages of cloud computing.

How Does Transport Management System Work?

We know that TMS organizes, tracks, and optimizes the entire journey of shipments. But how does this system operate and streamline the complex web of transportation? Let’s take a look into its workings and understand the fundamental mechanisms.

01

Order Receiving

The process starts when a customer places the order and the TMS receives its details. This includes the type and quantity of products, delivery destination, timeline, and any specific instructions.

The TMS gathers this information, often via integrated software or manual input from eCommerce platforms, EDI (Electronic Data Interchange), or even direct input from sales representatives.

Once the order details are within the TMS, the system initiates a series of actions. It validates the order for accuracy and feasibility, cross-referencing it with available inventory levels and delivery capacities. For instance, the system checks if the requested delivery date aligns with the logistics capabilities.

Additionally, the TMS might optimize the order, considering factors like delivery routes, transportation modes, and any special requirements.

02

Order Consolidation

After receiving multiple orders, the TMS moves into the order consolidation phase. Here, the system intelligently combines or consolidates individual orders to optimize transportation efficiency. It looks for opportunities to group orders heading in similar directions or those with compatible delivery schedules.

The TMS considers many factors during this process, like delivery locations, shipment sizes, available carriers, and delivery timelines. Order consolidation reduces transportation costs, minimizes empty cargo space, and improves overall logistics efficiency.

For instance, if multiple orders are going to nearby locations or share a common delivery route, the TMS bundles them together for shipment. This consolidation could involve reorganizing delivery schedules or adjusting transportation modes to accommodate multiple orders within a single shipment.

Some advanced TMS also optimize the packaging and loading process for safe and space-efficient transportation of the consolidated orders. This can include rearranging products within containers or trucks to maximize space utilization while maintaining product integrity. We will discuss this in detail a little later in the article.

03

Carrier Management & Selection

During this step, TMS chooses the most suitable logistics service providers to transport goods. It considers cost, service level agreements, carrier performance history, capacity, and specific shipment requirements.

The system gathers information about available carriers, considering their capabilities, geographic coverage, and specialization. It has a database containing carrier profiles with their rates, equipment, transit times, and past performance data.

Next, using predefined algorithms or user-defined criteria, the TMS evaluates and ranks carriers based on set parameters. This evaluation considers cost-effectiveness, reliability, compliance with regulations, and other crucial metrics.

After the evaluation, the TMS presents a list of recommended carriers for a particular shipment or set of shipments. The system allows manual selection based on the recommendations or automates the process entirely, choosing the carrier that aligns best with the predefined criteria.

04

Route Planning

The TMS system collects data on various potential routes, considering multiple variables like distance, traffic patterns, tolls, restrictions, and delivery time windows. It integrates with external mapping or routing services to access real-time traffic information for better decision-making.

The TMS then analyzes this data, applying optimization algorithms to suggest the most efficient route or a set of routes. These routes are designed to minimize transportation costs, reduce transit time, and ensure timely delivery while adhering to customer requirements and operational constraints.

TMS can dynamically adjust routes in response to real-time changes like unexpected traffic congestion or weather disruptions. This flexibility helps in efficient rerouting to maintain delivery schedules and optimize the overall transportation operations within the supply chain management framework.

05

Load Planning

The TMS receives information about available transportation assets, their capacities, and the characteristics of the shipments to be loaded. Using specialized algorithms, the TMS optimizes the loading process.

It considers factors like maximizing vehicle capacity utilization, ensuring even weight distribution, minimizing the number of vehicles needed, and complying with transportation regulations.

Based on the optimization results, the system assigns shipments to specific transportation vehicles or containers. It creates load plans that detail how each item should be arranged within the vehicle for safe transportation and efficient unloading at the destination.

Some advanced TMS provide visual representations of the load plans that help in verifying that the loads are properly organized and compliant with safety and operational standards.

06

Shipment Execution

The TMS then generates instructions for the execution of shipments, including pick-up schedules, delivery instructions, and any special handling requirements. It communicates these instructions to carriers and other stakeholders involved.

The software system continuously tracks shipments in transit, using integration with tracking devices, GPS, or carrier systems. This real-time visibility allows for monitoring the progress of shipments and promptly addressing any deviations or issues that may arise.

If any unexpected events occur during transportation, like delays, route changes, or disruptions, the TMS identifies these exceptions. It triggers alerts or notifications to relevant parties and initiates alternative plans to mitigate the impact on delivery schedules and business operations.

07

Carrier Communication

The TMS provides a centralized platform where carriers can access relevant information about assigned shipments, delivery schedules, special instructions, and any updates or changes in transportation plans. This communication occurs through integrated portals, email notifications, or even direct system-to-system interfaces.

Through TMS, carriers can confirm receipt of shipment assignments, provide updates on shipment status (like pickup, transit, and delivery), and communicate any potential issues or delays. Likewise, it allows shippers or logistics managers to track carrier responses and gather real-time information about the progress of shipments.

TMS can send alerts or notifications to carriers based on predefined triggers or events. This automation helps streamline communication, reduce manual intervention, and ensure timely responses to any changes or contingencies in transportation processes.

08

Performance Monitoring

The TMS tracks KPIs related to carrier performance, like on-time delivery rates, transit times, compliance with agreed-upon service levels, and overall reliability. It compares these metrics against predefined benchmarks or targets.

The system analyzes data to evaluate carrier performance trends and identifies areas of strength and areas needing improvement. This analysis also involves examining historical data to identify patterns or recurring issues.

09

Exception Management

The TMS has advanced algorithms and rules that continuously monitor transportation activities and compare them against predefined criteria or thresholds. When a deviation or exception from the standard transportation plan occurs, the system flags it as an exception.

These exceptions could include:

• Delays in transit
• Inventory shortages
• Issues with carrier availability
• Changes in delivery schedules
• Route deviations because of unforeseen circumstances like road closures or accidents
• Any other unexpected events affecting the smooth flow of transportation

Once an exception is identified, the TMS triggers alerts or notifications to relevant people, like logistics managers, carriers, or customers, informing them about the issue. Some advanced systems can also suggest alternative courses of action or resolutions to mitigate the impact of the exception on the transportation process.

10

Reporting & Analysis

The TMS gathers and consolidates data throughout the transportation lifecycle from various sources, including:

• Transit times
• Inventory levels
• Delivery accuracy
• Customer feedback
• Transportation costs
• Carrier performance metrics

Using this data, the system generates comprehensive reports, dashboards, or visual representations that provide insights into KPIs, trends, and patterns within transportation operations. These reports can be customized to focus on specific metrics or areas of interest for different stakeholders within the organization.

TMS can also provide comparisons between different time periods, geographical regions, carriers, or specific criteria. Reporting and analysis within the TMS support continuous improvement initiatives.

It provides actionable insights for optimizing transportation processes, enhancing carrier management strategies, and improving overall supply chain performance.

Who Uses A Transportation Management System?

Any business that needs to move goods from one place to another quickly and accurately uses a TMS. Examples include:

01

Brick-And-Mortar Retailers

Think about your local stores, supermarkets, or even large chains. They all need products on their shelves, right? Brick-and-mortar retailers use TMS to ensure they get their goods from suppliers or warehouses to their stores efficiently.

These systems help them plan deliveries, optimize routes, and keep track of inventory so they can restock their shelves in time without overstocking.

02

eCommerce Sites

When you shop online and eagerly wait for your order to arrive, that is where eCommerce businesses leverage TMS. These systems manage the complex logistics of getting your purchase from a warehouse or distribution center to your doorstep.

They handle everything from choosing the best shipping method to tracking packages and managing returns, ensuring a smooth delivery process for online shoppers.

03

Manufacturers

Manufacturers are another big player benefiting from TMS. They use it for inbound logistics to bring in raw materials and outbound logistics to deliver finished products to customers or retailers.

TMS helps in scheduling pickups, optimizing transport routes, and coordinating different modes of transportation, ensuring that manufacturing operations run smoothly and products reach their destinations on time.

04

Businesses That Provide Outsourced Logistics Services

Companies specializing in logistics services – like freight forwarders or third-party logistics providers – rely heavily on TMS. These businesses manage transportation for multiple clients, handling various shipments across different routes and carriers.

TMS helps them efficiently plan, track, and execute shipments for their clients while ensuring cost-effectiveness and timely deliveries.

8 Proven Benefits Of Using A Transportation Management System

TMSs analyze many variables and provide insights. They help organizations streamline and even automate the complex process of moving goods from one place to another.

That is a general description of a TMS but let’s take a look at some specific ways transportation management systems add value.

01

Building The Perfect Load

Building the perfect load is the holy grail of transportation and logistics and that is exactly what a TMS is designed to do. Shipping a single load may mean switching back and forth between trucks, container ships, and trains. One vendor may handle the whole thing, or a different provider may be in charge of each mode of transport.

A transportation management system uses algorithms to weigh all those variables. Then the TMS comes up with a plan that identifies the best shipper or shippers and modes of transportation. It can even consider factors like a carrier’s history of on-time deliveries, accidents, and niche specialties (like providing temperature-controlled shipping options).

02

Choosing The Best Route

Choosing the best route is important for cost control and on-time delivery. Transportation management systems use algorithms based on real-time data to choose the best route for a particular delivery.

Often the shortest route is the best one. But a TMS also looks at many factors, including traffic, weather delays, and construction delays. This capability is especially important when the route includes hand-offs from one carrier to another. It also matters when crossing international borders and it is vital when moving from one mode of transportation to another.

03

Providing Real-Time Tracking Of Your Shipments

Saving money isn’t the only benefit of a TMS. It also gives you real-time tracking of all your shipments.

Let’s say you see that a shipment is running ahead of schedule. You can notify the receivers.

What if you see that a shipment is delayed? You can identify and solve the bottlenecks. This is especially important when a shipment has to be temperature-controlled. Knowing that there is a delay and having the opportunity to take action can make the difference between an on-time delivery and a truck full of wasted goods.

Knowing when to expect a delivery allows for more accurate scheduling. It frees employees to complete other tasks rather than waiting for a truck that is running behind.

04

Managing Back-Office Processes

Shipping generates so much paperwork. However, transportation management systems can take that paperwork into the cloud and make it work for you. Let’s look at some examples of this.

Providing A Home For Important Documents

All the shippers you work with will require bids, contracts, compliance documents, and other important paperwork. A TMS stores these documents in a searchable database. If you ever need to show proof of compliance with one of the many regulations you have to deal with, you will get that proof quickly and easily.

Managing Invoice Processing and Payment

Transportation management systems can automatically audit invoices that are outside of expected parameters. Once the TMS has flagged an invoice, it can look for mistakes. These can include erroneous charges for lift-gate fees (which is when the recipient charges the carrier for using the recipient’s lift gate to move heavy loads).

Even better from a time management perspective, a TMS can automatically pay invoices that pass its audit. It can also generate reports that clearly show each carrier’s performance rate. You can then use that data to negotiate better rates with carriers.

05

Providing In-Depth Visibility Through Custom Dashboards & Mobile Apps

It is important to see where every shipment is in real-time. But that is just the start of what you can do with a TMS. Robust transportation management systems use multiple layers and types of data. Through a custom dashboard, each user can see the information they rely on the most at a glance.

Custom apps can extend that capability – and more – to anyone in the organization. They make communication a snap. Drivers can customize their profiles to show whether they are on track to make their arrival time. They can also track their fuel consumption.

06

Cost Saving

Perhaps the biggest advantage of a TMS is the cost savings it offers. One big way it does this is by optimizing routes and consolidating shipments. As discussed earlier, it analyzes various factors like shipment size, destination, and mode of transport, to suggest the most efficient routes and ways to combine shipments.

This means fewer empty trucks on the road and more goods moved with fewer resources. Also, it helps in reducing manual errors in planning, like selecting inefficient routes or overpaying for certain shipments. Ultimately, this efficiency translates into cost savings on fuel, labor, and even reduced shipping rates negotiated with carriers.

07

Improving Inventory Management

A TMS also helps in managing inventory effectively. It integrates with inventory management systems to provide real-time visibility into inventory levels and locations. This visibility is crucial for maintaining optimal stock levels, preventing stockouts, and avoiding overstock situations.

With this data, businesses can make informed decisions about inventory replenishment, storage, and distribution, reducing carrying costs and minimizing the risk of stock obsolescence.

08

Better Vendor & Carrier Management

A TMS acts as a centralized platform for managing relationships with vendors and carriers. It enables businesses to streamline communication, track performance metrics, and enforce compliance standards.

For vendors, this means improved coordination with shipment pickups and deliveries. For carriers, it allows for better negotiation of rates and service levels based on historical performance data.

Moreover, it helps in ensuring that carriers adhere to agreed-upon terms which enhances accountability and reduces the likelihood of disputes or delays. Overall, this aspect of the TMS contributes to smoother operations and fosters stronger partnerships within the supply chain.

Vector’s YMS & Its Synergy With TMS For Maximizing Transportation Efficiency

Vector’s yard management system is designed to work in conjunction with any TMS. It provides real-time visibility into yard operations that can be used by the TMS to optimize freight planning and route optimization.

Let’s discuss in more detail how Vector compliments TMS to provide businesses with a comprehensive solution for managing their transportation operations.

01

Real-Time Collaboration

• Enhances communication between partners for efficient operations.
• Enables JIT manufacturing with production and replenishment planning.
• Adds and assigns tasks, tracks progress, and enhances visibility from a unified workspace.

02

Reduced Shipping Costs

• Minimizes dwell time and detention fees by optimizing processes.
• Maximizes capacity, expedites driver flow in and out of facilities, and reduces operational bottlenecks.

03

Elimination Of Paper & Manual Processes

• Reduces data entry, reconciliation efforts, and manual support for accuracy and efficiency.
• Minimizes environmental impact by cutting paper waste and supporting sustainability initiatives.

04

Digital Check-In

• Eliminates gate congestion and speeds up the check-in process by at least 30%.
• Provides a seamless and safer experience for drivers while improving overall productivity.

05

Yard Insights & Analytics

• Provides performance metrics to measure dwell time, detention fees, and optimize operational efficiency.
• Offers comprehensive insights into trailer inventory, location, and status across configurable yard zones.

06

Solutions For Carriers

• Provides easy integration, real-time updates, and a frictionless experience for carriers.
• Prioritizes the driver experience, reduces delays and paperwork, and enhances safety and traceability.

07

Digital Transformation

• Provides drivers with relevant trip details, simplifies paperwork, and enhances visibility.
• Integrates seamlessly with existing systems (TMS and WMS) to enhance functionalities.

Conclusion

Choosing the right TMS can make or break a company’s logistics operations. A well-selected system brings order, efficiency, and cost savings, allowing businesses to scale and grow. When choosing a TMS, make sure it aligns with your specific logistical needs. Prioritize scalability, robust reporting capabilities, and seamless integration with existing systems.

In this pursuit, Vector’s yard management system stands out as it can seamlessly integrate with any TMS to provide a holistic approach to logistics optimization. As your TMS streamlines transportation, Vector’s YMS extends that efficiency to your yard – optimizing space, managing inventory, and coordinating arrivals and departures.

Curious to see how it all works? Let’s set up a consultation and see how Vector can help you through the incredible transformation.

This post was written by Patti Podnar. Patti is a Copyblogger-certified content marketer experienced in writing for a variety of industries: logistics and supply chain, industrial internet of things, IoT, digital transformation, sourcing and procurement, retail, etc. The thing that enables her to write about such a wide variety of topics is a deep understanding of how content should drive business goals.