What are Managed Transportation Services? The Old Model vs. The New Model
Today we begin our series on managed transportation services. Recently, the ARC group did a study on the ROI of managed transportation services compared to using a transportation management system. The conclusion was that the ROI was roughly the same if you used either or. The article from Steve Banker states:
"When a shipper decides it needs to improve its transportation performance, it typically attempts to achieve this by either buying a transportation management system (TMS) or outsourcing transportation planning and execution to a managed transportation services (MTS) provider."
According to ARC Advisory Group research, among those shippers that successfully achieve significant reductions in freight savings, TMS and managed transportation services perform roughly the same. However, when you look at the proportion of respondents that achieved negative results (increased freight costs) or no improvement in their freight spend; TMS appears to be the less-risky investment. Further, when it comes to net savings (after all fees are paid to the service provider), TMS appears to perform somewhat better. On the other hand, when it comes to service improvements, managed transportation services is the clear winner.
So, with that said, why can't a shipper have both and can both be provided from the same company? Most think the answer is no, but typically, most shippers and the industry seem to think managed transportation services involve cutting out the decision making ability from the shipper and putting it in the hands of the third party logistics provider. But, why does that have to be the model?
In our series, we will go on to define a new business model. For transparency, it is the model that Cerasis has always followed: provide a proprietary web-based transportation management system AND included managed transportation services such as freight claims management, negotiating rates with carriers on your behalf, freight payment, freight auditing, and special programs such as inbound freight management, pool point distribution and more.
In defining this new business model, this series will start out first like all of our special blog series, by doing our best to define the general scope of what we mean by managed transportation services. We will then take a deep dive into the types of managed transportation services that providers provide, what are the benefits and ROI of managed transportation services, how managed transportation services work hand in hand with technology, such as a transportation management system, and conclude with how enterprises use a combination of technology and services to achieve overall cost savings and improved customer service.
Complex Challenges in Transportation Management Call for Managed Transportation Services by Experts
Transportation leaders today are faced with wildly fluctuating fuel costs, driver shortages, increasing carrier costs, customer service demands and global supply chain complexities. They are also pressured with managing day-to-day transportation processes, usually without specialized staff or internal resources, as well as controlling or cutting related costs. It’s no wonder that many companies grossly overspend on transportation and shipping expenses each year. Many leaders are now turning to companies who offer managed transportation services to quickly scale as the resources are not in place at the company to do so and to stay competitive. But, what exactly is managed transportation and what is involved in the process?
What is Managed Transportation?
Old and Traditional Definition
Typically the industry has viewed the model of managed transportation differently than the traditional brokerage non-asset model. Freight brokers get paid by shippers for arranging their transportation of freight but the freight broker owns no trucks, ships, etc.
The difference between brokering a load and providing managed transportation services is that brokerage is focused on execution – a planner at the shipper tells the broker the mode, the lane, and details about the shipment, and then the broker executes that shipment. In a managed services arrangement, the shipper’s planners are employed by the logistics services provider. The logistics service provider gets downloads of shipments from a shipper’s enterprise systems, does high level planning – load consolidation, multi-stop optimization opportunities, etc. – and then executes the loads.
Seemingly, in this definition of managed transportation, the strategy is removed from the shipper and given over to the logistics service provider. It also hints at that there is no use of technology to use by the shipper as it pertains to transportation. We then assume that the logistics service provider will use some sort of technology to execute the shipment.
New Definition of Managed Transportation Services
In today's shipping and economic environment, we fully believe that the new model of managed transportation services is all about empowering the shipper with choice and creating true partnerships between a logistics service provider and the shipper using a combination of strategic planning, execution, technology, and managed services. It's really a blur between execution and planning and delivering managed transportation excellence within the context of the shipper's transportation performance metrics.
This leads into a holistic approach of “best practice” managed transportation services and leading-edge technology which are designed to reduce unnecessary expenses and provide greater visibility to cost savings opportunities.
Essentially, what we are saying is that managed transportation services is not the absence of control by the shipper or technology use by the shipper, it's actually putting the shipper in the driver's seat. The shipper knows their freight better than anyone but the logistics service provider has the technology and expertise to empower the shipper with the best practices to drive the most cost out of transportation expenses. When we say managed transportation, we mean a logistics service provider taking full ownership of the pre-determined goals of savings, transportation accounting, claims, carrier performance, and continuous improvement. You can no longer separate out a managed transportation services firm from a transportation management system software provider. In today's environment, a shipper needs both to stay cost effective and competitive in the market place.
Key Categories of Offerings in the Managed Transportation Services Model
Below are some of the key categories of categories and service offerings from a logistics services provider (LSP) that are included in the managed transportation services model. Notice how it is all about working with the shipper to achieve goals, even if it means empowering the shipper or doing it on their behalf.
Daily Transportation Planning Choice
- Either the shipper or the logistics services provider receive purchase, sales, transfer & return orders and ready-to-ship information.
- The shipper can communicate to the logistics services provider to plan orders or the shipper can use the provided transportation management system for all modes; select routing and carriers based on optimization and routing guides.
- For the best shipment, again using the TMS provided by the logistics services provider, consider multi-pick, multi-drop, pooling, cross-docking, continuous moves and backhauls for greater efficiency and savings.
- On behalf of a shipper a LSP will manage carrier relations to include rates, freight claims, and freight invoice variances; but, the shipper may also retain their own relationships and rates, loading those rates into the provided TMS
- Oversee moves end-to-end; coordinate origin/carrier/destination; set appointments and dock scheduling or using the TMS, allow the shipper to process their own shipments
- The LSP will also help in compliance across the enterprise when there are multiple locations shipping and using managed transportation services. This is also known as process enforcement. An example would be setting a rule in the TMS to only select the "least-cost" carrier no matter what, or a specific carrier for a specific lane. Working together, the shipper and LSP then set the rules and use automation technology to enforce it within the TMS.
Visibility and Event Management
- Provide connectivity with carriers through EDI and notifications stemming from the transportation management system
- Alert events or lack of expected events.
- Maintain visibility portals for all stakeholders.
Freight Audit/Accounting & Payment
- Obtain carrier invoices; match items and identify unmatched loads.
- Audit invoices against customer load files and contract rates.
- Allocate costs to customer’s GL codes; manage claims and produce cost and payment files.
Reporting and Analysis
- Furnish extensive operational reporting within the TMS so the shipper can make informed decisions in the future based on data, such as a report that shows carrier performance over time.
- Offer ad hoc or scheduled report distribution and other analytic reporting so the logistics service provider can consult with the shipper on future shipping activities for continuous improvement.
Managed transportation services is an outsourced Transportation Management Solution that leverages sophisticated TMS applications, experienced logistics professionals with exceptional insight into the transportation market and an extensive carrier network.
This approach of integrating transportation technology and managed transportation services delivers a more strategic approach to a shippers's transportation requirements. The combination of technology, people and carrier networks enables a logistics services provider to deliver exceptional value by reducing supply chain costs, increasing organizational flexibility and providing a level of visibility into operations not always possible to accomplish with the limited resources in-house.
How do you view or define managed transportation services? Let us know in the comments below.
Stay tuned for the next post as we cover in more detail various types of managed transportation services that are offered.