Transport management is an essential part of a logistics system. It is the activity responsible for the flow of raw materials and finished products between all links in the logistics chain. It uses a large number of assets, which are geographically dispersed, which makes transport management even more complex. The high managerial complexity, intense use of assets and the management of a large physical flow of products makes transport the largest single account of logistics costs, which varies between 1/3 (one third) and 2/3 (two thirds) of the total companies' logistical costs (see figure 1). In this way, good transport management can guarantee better margins for the company, through cost reductions and/or more rational use of assets, and a good level of service for customers, through increased product availability, reductions in delivery times, among other benefits.
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To clarify how information technology has been helping transport management, we will present the main functionalities available in Transport Management Systems – the TMSs (Transportation Management System).
Before describing the main features of TMS, the main decisions in transport management will be presented, divided into three decision levels: Strategic, Tactical or Operational. The adopted parameter, to classify each one of the transport decisions in one of the three levels mentioned above, is the frequency with which the decisions need to be revised. To improve the understanding of this approach, figure 2 schematically shows some of the transport management decisions grouped into the three different levels.
The purpose of the description mentioned above is to be able to contextualize at which decision-making levels a TMS software can be used (strategic, tactical and/or operational), based on which transport decisions it can support.
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THE MAIN DECISIONS IN TRANSPORTATION
- Strategic Level
This level of planning is related to long-term decisions, including:
Definition of the Logistics Network – The need to move materials from one point to another culminates in carrying out a transport activity. Thinking strategically, transport management has a strong influence on the design of the logistics network, which will determine the location of factories, DCs depending on the location of their suppliers, customers and material flows. This decision is based on the lowest total logistics cost, maintaining some service level assumptions, defined by the company.
Decision to Use Modalities – The choice between alternative modalities – road, rail, air, waterway and pipeline – must be based on the impacts of services and costs on the logistics network. The service level aspect should tangible “door to door” transport time, consistency in delivery time, frequency and availability/flexibility. Table 1 presents in a comparative way some characteristics of the modes. For example, in the first column we can observe the air modal as the most expensive and the waterway as the cheapest.
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Fleet Ownership Decision – Cost, service quality and profitability factors must be considered as determinants to support this decision. It is advisable to carry out an accurate financial assessment of the impacts on the company's cash flow in any decision, in addition to calculating the rate of return on investments or divestments (cases in which you have your own fleet and want to outsource it).
Other variables are important to make the decision about fleet ownership, such as: size of the operation, internal managerial competence, competence and competitiveness of the sector, investment volumes and modal used. However, as important as the criteria that help define fleet ownership is that the decision is based on a structured, well-defined and transparent process.
- Tactical Level
At the tactical level are decisions related to medium-term transport management planning. The following decisions stand out:
Transportation Planning – This planning will establish rules and assumptions for the generation of itineraries that must be followed in transportation scheduling. These rules aim to adjust the size of the fleet used in order to maintain service and reduce costs.
Selection and Hiring of Carriers – Despite being a decision that requires the definition of structured parameters for the decision making of which carriers to hire, this is not what is observed in practice. It is common for transport selection and contracting to be a poorly structured process, based on fragile parameters, generally focused only on price. The reflection of this unstructured transport contracting model makes the search for good carriers a long process and in some cases with serious consequences, such as losses due to late deliveries and loss of market share.
Inbound Transport Management – The decision to manage supply transport has become a target to be achieved by companies. Many companies buy through the FOB (Free on Board) modality, which means that suppliers are including the cost of freight, insurance and other associated expenses in the sale price. In this way, you may be paying a high amount for this transport, if the supplier is not managing the transport satisfactorily or even placing margins on this management. Another aspect that must be considered when assuming inbound transport is being able to take advantage of any synergies between the company's inbound and outbound flows.
Return Freight Analysis – By observing the structure of the logistics network and how transport flows between the links in this chain are occurring, opportunities can be identified to use vehicles in return transit to avoid sending another vehicle in the same direction. This situation usually occurs when the inbound and outbound flow administrations are not under the same coordination.
- Operational Level
At the operational level are the so-called “day to day” activities. In this way, we can group most of these activities into a specific operational decision, namely:
Transport Scheduling – This decision is related to routing activities, cargo consolidation, choice of vehicle type, document issuance, tracking and loading and unloading scheduling.
In addition to the activities directly related to transport scheduling, there are others that are supported by the information made available by scheduling, such as: freight auditing and monitoring of service levels and costs of these activities.
TMS – TRANSPORTATION MANAGEMENT SYSTEM: DEFINITION AND FUNCTIONALITIES
A TMS can be defined as software that assists in the planning, execution, monitoring and control of activities related to cargo consolidation, shipping, document issuance, product deliveries and collections, fleet and product tracking, freight auditing, support negotiation, route and modal planning, cost and service level monitoring, and fleet maintenance planning and execution.
In order to structure the description of the main functionalities of TMSs, they will be divided into three groups:
- Monitoring and control;
- Support for Freight Negotiation and Audit and;
- Planning and Execution
At the end of this description, a table will be presented that lists the main functionalities with the decision level to which they are referenced. This table will serve as a basis for contextualizing TMS software according to the decision levels at which they operate.
In addition to the three groups of functionalities mentioned above, we could mention one more: Fleet Maintenance. As this functionality is very specific it will not be discussed.
FIRST GROUP OF FUNCTIONALITIES: MONITORING AND CONTROL
The software has the functionality to monitor costs and services through available information about the performance of carriers, modes of transport, use of premium freight, return freight, shipped loads, number of vehicles used, delivery performance, breakdowns, etc. Cost controls can be used to create budgets, monitor the evolution of transport costs (budgeted X realized) and costs per ton kilometer (R$ / ton * km), the amounts paid for each route (in the case of fixed routes ) or even by customer and/or product. It is also possible to view the occurrence of additional costs due to hiring extra vehicles or deliveries at special times.
Service Control can be seen from two perspectives. The first is the view of those who do not own a fleet and are concerned with monitoring delivery performance. The second point of view is that of those who own a fleet and aim to monitor the level of fleet utilization, seeking to optimize the use of their assets. TMSs provide both functionalities: both to measure the performance of deliveries and the level of fleet utilization.
Another very widespread monitoring and control feature is Tracking. Used to monitor fleet and products, it can add value by providing information to customers about the status and location of their orders. Another benefit generated by tracking is the support for risk management of the cargo and the vehicle.
TMSs can monitor and control other variables, such as loading and unloading times. To do this, just generate the mass of data and define exactly what and how you want to monitor. The level of veracity and robustness of the controls that are carried out is directly influenced by the quality of the stored data.
SECOND GROUP OF FUNCTIONALITIES: PLANNING AND EXECUTION
There are solutions capable of determining the routes and modes to be used, sequencing vehicle stops and the estimated time of each one of them, preparing the necessary documents for dispatching vehicles and checking their availability. Below, these features will be detailed.
Routing functionality involves defining routes and scheduling vehicles. Some of the TMSs that have these well-developed functionalities even support a series of restrictions, such as:
- Pre-determination of departure and arrival time of vehicles;
- Special hours for delivery of orders;
- Differences in vehicle capacities (weight and cubage);
- “Time windows” that define whether a vehicle performs deliveries until a certain time and then performs collections, or if it performs both activities simultaneously;
- Volumes of each delivery and collection;
- Different speeds by location (central and periphery areas), and in different types of transport (distribution and long distance);
- Better route execution sequence to minimize the use of the number of vehicles and;
- Route transit time based on maximum hours continuously worked by a driver3.
It is important to emphasize that optimization usually occurs with the objective of minimizing the total cost of the operation.
These software operate based on advanced optimization algorithms and very robust models, with a good level of adherence with the complex operations of the supply chain.
Figure 3 schematically shows the basic operating principle of an optimization software applied to transport.
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3 – There are laws restricting the maximum number of hours truck drivers can work in the US.
Although several TMSs already use robust flow optimization tools, it is still common for carriers and shippers to use fixed routes to route collections and deliveries. There are some reasons for this: simplicity of operation, specialization in that script and lack of knowledge of the potential of scriptwriters. The problem with fixed routes is that they are not adjusted according to variations in demand, or at least at the same speed. For this reason, the use of fixed routes can make the use of resources deficient, contributing to the increase in costs.
Determining the size of the fleet is another feature available in TMSs as a daily management tool for transport needs. Depending on the increase or decrease in demand, the TMS may indicate a greater or lesser need for vehicles, respectively. However, there is no tool that indicates the size of the fleet that should be maintained and its mix (own, third-party and spot). Generally, the results of the various executions of routing are used in order to identify whether there are more situations of idleness in the fleet or constant hiring of spots. This is a good indicator to help the decision to reduce or increase the fixed fleet.
THIRD GROUP OF FUNCTIONALITIES: SUPPORT FOR FREIGHT NEGOTIATION AND AUDIT
These systems maintain a database of freight rates used to remunerate the service provided and for the auditing process. The software compares the amount charged by the transport service provider against what was calculated and displays any differences. The registration of all commercial conditions, by volume, load fractionation, different costs by modal, freight per trip, among other particularities, in addition to all the information on the transport carried out (volumes shipped by modal, types of vehicles, routes, size of loads and destinations) are the database for carrying out the Freight Audit.
Another important functionality is the negotiation support. The software allows the registration of new freight tables or new commercial conditions to identify the impact of this new condition on the freight cost. The great advantage of this tool is that all impact assessments are carried out on a real database that contains information on all transport movements carried out in a given period.
TMS – TRANSPORTATION MANAGEMENT SYSTEM: POSITIONING AT DECISION-MAKING LEVELS
As previously mentioned, one of the objectives of this article is to define the position of the TMS according to the decision-making levels served by its functionalities. To support this definition, a table will be presented that lists the main functionalities with the decision-making levels (See Table 2).
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As observed in Table 2, the relationship between a TMS and the tactical and operational levels is clear. Figure 4 schematically represents the positioning of this software category.
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The positioning of TMS at the tactical/operational levels demonstrates that there is still development potential for this tool. For this reason, the very concept of TMS may undergo changes throughout the development of new functionalities.
Although there is still room for the development of TMS tools, the benefits of implementation are very significant. Below we highlight the main ones:
- Reduction in transport costs and improvement in the level of service;
- Better use of transport resources;
- Improvement in the composition of loads (consolidation) and routes;
- Less time needed to plan the distribution and assembly of loads;
- Availability of accurate freight cost data shown in various ways, for example, by customer or by product;
- Monitoring the evolution of transport costs;
- Availability of information online;
- Support for performance indicators to assess transport management;
A successful implementation is based on several correct decisions, such as choosing the right software and the appropriate functionalities for each type of business. Therefore, the choice of TMS must be based on a structured selection process, ensuring that the criteria are accurate and the solution brings the desired benefits.
CONCLUSION
Transport Management Systems – TMSs – have functionalities that help in transport decisions at the operational level and partially at the tactical level, but a series of information used for other tactical and strategic decisions can be stored in TMSs and depending only on treatment.
This fact makes the field of development for TMSs very fertile, despite the fact that current solutions generate many benefits in their implementation.
Technological development is also allowing the use of TMS through providers that make the software available via the WEB. This technique is called ASP – Application Service Provider. There are already successful implementations of TMSs by this means and some implementations in progress. Some providers of this service in the US even keep it free of charge for a certain period, for user evaluation.
The reduction of transport costs can significantly improve the results of companies, since this is the largest single account of logistics costs. In this way, productivity gains in transport can be achieved through the use of the various functionalities available by TMSs.
BIBLIOGRAPHY
BALLOU, Ronald H.; Business Logistics Management. New Jersey, 1998, Chap 6 p135-242.
SWENSETH, Scott R.; GODFREY, Michael R. Estimating Freight Rates for Logistics Decisions. Journal of Business Logistics, Volume 17, Number 1, 1996.
SAVELSBERGH, MWP; GOETSCHALKX. A Comparison of the Efficiency of Fixed Versus Variable Vehicle Routes. Journal of Business Logistics, Volume 16, Number 1, 1995.
LAMBERT, Douglas M.; STOCK, Janes R. Strategic Logistics Management. Homewood, 1993. Ch.6 p. 214-260.
