Should You Use an In-House TMS or Outsource to a 3PL?
If your organization handles all logistics planning, execution, tracking, and optimization in-house, you may be looking for efficiencies that help save time and money.
Even though it may be overwhelming to consider next steps, you essentially have two options:
- Secure your own transportation management system (TMS).
- Start working with a third-party logistics provider (3PL).
As you can imagine, this decision is a big one. Whichever option you choose will transform how you do business. That's why it's essential you fully understand what to expect should you choose to secure a TMS or work with a 3PL.
Understanding Today's TMS Software
A modern TMS will serve as your supply chain's backbone. It's no longer "trucking software." It's a complex system that moves your goods and streamlines the execution, planning, and optimization of your organization's transportation needs.
Five to 10 years ago, it was possible to purchase an out-of-the-box TMS solution and mostly understand what you're getting. It's not like that anymore. Understanding the TMS software of today is to understand that definitions are fluid.
There are thousands of highly specialized, niche software providers out there marketing themselves as TMS providers. This is misleading. Many of these providers may only offer one piece of the puzzle, like visibility and tracking or be hyper-focused on a particular transportation mode that may not be relevant to your needs. Others may provide niche capabilities that weren't possible until recently thanks to advancements in technology and machine learning. Many other providers may say that they have capabilities but require “bolt-ons” or additional software that may reduce the efficacy of their offerings. Be critical when vetting vendors, as their TMS software may be extremely limited in its capabilities.
If you're looking to handle the entirety of your logistics planning, execution, tracking, and optimization in-house, you should only consider looking at a leading enterprise-level TMS technology that will often include these core modules:
- Rating and Contracts: Includes carrier freight rating and contract management, freight sourcing, and bid RFP optimization tools.
- Order Planning: Generate routing plans, optimize delivery processes, integrate delivery data, manage changes, and get a granular view of all stages in the order lifecycle.
- Optimization: Includes more sophisticated load-building tools that can identify opportunities to reduce costs based on your business rules and marketplace capacity. This can include PO consolidation, multi-stop truckloads, zone skipping, pool distribution and other specialized planning methods.
- Load Tendering and Sourcing: Automate tendering, manage carriers, and turn quotes into loads. Digital freight matching can be added using a bolt-on application to connect trucks to loads in real-time.
- Tracking: Get end-to-end, real-time visibility into shipments.
- Reporting: Collect and analyze operational data to make it actionable. Report on essentials like expenses, carrier performance, invoices, and personnel.
- Financials: Automate critical financial operations, including financial reconciliation and billing, customer costing and integrations with ERP ecosystem.
There Are Endless Ways to Customize Your TMS
Securing your own enterprise-level TMS can help you create inherent efficiencies in how you manage your supply chain—if you have the in-house team and budget to support it.
If you're looking for a highly custom system that can address your unique needs, many of the niche systems and capabilities mentioned above can be bolted on to your TMS.
Without Established Relationships and Vast In-House Expertise, a TMS May Not Be Worth the Investment
You're going to need a team of core experts and a dedicated budget to make your TMS worth its initial (and perpetual) cost. Just like onboarding QuickBooks doesn't make you an accountant, onboarding a TMS without a team of experts able to take action is unlikely to lead to success.
And you won't just need IT experts. You're going to need to build out a team of transportation supply chain specialists who can support each core functionality with niche expertise. These individuals will also need to rely on their established industry connections to use the system to its full potential.
This amount of expertise and support is both difficult to find and tough to maintain. Every time an employee leaves, for example, training and disruptions also need to be budgeted for.
At ODW Logistics, we've had customers who purchased leading transportation management systems only to continue to struggle years down the road because they don't have the in-house experts and IT staff to properly implement and use the tool.
Some of the common challenges we see include customers being unable to:
- Fully integrate their TMS into existing enterprise-level systems (often due to a lack of in-house IT expertise and TMS implementation skills).
- Get complex rates into the TMS and effectively find and negotiate with the right carriers.
- Train staff to manage appointment setting, load building, contract management tools, the tender process and other key functionalities.
- Use key functionalities altogether – many systems can include so many options that core functionality that can benefit your business can be overlooked.
- Access TMS product expertise from an IT transportation perspective.
- Receive timely data related to benchmarking and market conditions.
All of these common challenges are the direct results of companies not having the in-house expertise and education they need to properly use the system.
A TMS is basically an elaborate execution tool—if your organization has the right in-house skills and resources.
The Case for Outsourcing to a 3PL
Working with a 3PL is like working with an intermediary that has all of the logistics expertise, industry connections, and technologies you likely don't have in-house.
3PL teams are comprised of supply chain experts who have seen it all. They have worked with companies of various sizes in multiple industries and they have approached challenges in multiple ways to fit a situation. As a shipper, it will be nearly impossible to source this type of (often consultative) expertise directly. Additionally, each 3PL will have access to an immense amount of real-time and historical industry data—which is continually being compiled in their TMS as they work with customers over time. This will allow them to do things like benchmark pricing data against the rest of the marketplace to assess the competitiveness of your pricing.
The more custom your needs, the more diverse your ecosystem of service providers will need to be. It's likely that even your 3PL will need to rely on their network of niche service providers who are experts in a particular space.
And some of those niche providers have hundreds of their own providers they work with to source the data that will ultimately be provided to you. In this way, there are multiple levels of streamlining that happen when you partner with a 3PL.
Not working with a 3PL will result in having to manage more relationships with multiple vendors, which could result in poor vendor selection, inefficiencies, a lack of control, or an inability to provide a service or functionality.
3PLs generally use a robust TMS that they know inside and out. They will also understand how all ancillary tools can be integrated, how to access shipper networks, and how to best leverage technologies. Some of those ancillary bolt-on tools may be custom-built by the 3PL provider itself, adding to the specialization of their offering.
A 3PL will combine all three of these elements and provide a total package to you, the shipper, whereas a TMS provider cannot.
However, this may not be immediately apparent when vetting TMS providers.
For example, a TMS provider may include "benchmark pricing" within a lengthy list of benefits. This would indicate that the provider's TMS has a place to put the benchmark price in the system, not that they're necessarily able to provide the service or contextualize the data like a 3PL would.
This is why it's common for shippers to expect more than they actually get from a TMS provider.
How to Choose an Outsourced 3PL
Before speaking with any 3PL, it's important to self-evaluate to figure out how your current operations work collectively and align on what you need as an organization.
Answer internal questions like:
- Do we tender loads today?
- Do we have our own carriers?
- Do we use brokers?
- Do we work with carriers directly?
- Do we value robust tracking?
- What other modules and functionalities are "must-haves"?
- How big is our transportation spend annually?
Once you've done a self-evaluation, you can start asking the right questions to a TMS software provider.
Some Crucial Questions You Should Ask 3PL Providers
The specific questions you need to answer will be influenced by your self-evaluation. But it's important to be direct and comprehensive. Instead of asking a yes/no question like, "Does your TMS have claims management functionality?," you should instead ask, "Can you explain your claims management?" You need to know that you have more than just a place to store the claim. You need to know that you'll be able to log a claim and automatically email it out to the carrier.
However, these are the core, crucial questions that you should ask all 3PLs you're vetting, regardless of your exact needs:
- Will I have a dedicated account manager?
- What does your account management structure look like and at what hours of the day will support be accessible?
- What TMS tools do you use?
- Why do you use this TMS?
- What services can you provide and what technologies do you use to provide them?
- Will I have access to an online portal system? If so, what tools and data will I be able to access within it?
Do You Have an Annual Transportation Spend up to $50 Million? We May Be the 3PL Partner You're Looking For.
If you're a medium-size shipper spending up to $50 million, we can give you access to the technologies, solutions, and visibility that are typically only available to large enterprise companies. And you can get all of this without having to invest in, continually update, and manage your own TMS.
We also offer the consultative support that won't be available to you when you work with the largest 3PLs. This means you get the flexibility, expertise, and customization you need to make your supply chain more efficient.
At the end of the day, bringing efficiencies to your supply chain is about being as transparent, low cost, and fast as possible. Contact us today or reach out to request a quote to see how we can deliver these efficiencies.