In this post I want to look at the strengths and weaknesses of using a TMS or using an outsourcing provider for Freight Audit. As many companies are more and more making a decision to have Freight Audit done via a TMS I have written a little comparison.
The TMS solution is always a Do-It-Yourself solution based on software of a TMS vendor where Freight Audit outsourcing provides a managed service.
Round 1: review services
- TMS ticks many boxes across the logistics spectrum and of course also Freight Audit
- FAP outsourcing ticks mainly the box of Freight Audit
Result: TMS wins here, Although it is easy to tick a box, on paper a TMS may look way more attractive as it seems to do it all.
Round 2: Tender and acquisition process
- FAP sits at the end of an activity that sits on the tail of a company, transportation. Typically this area does not always get the right strategic focus and although logistics is mostly a quite commoditized service, FAP definitely should not be but is regarded, in the same way.
- With TMS you can be a hero! Company managers like big projects, especially as they can put their name on it. Implementing a system or software companywide scores higher than implementing FAP as most people further on in the company are not even aware of what it is.
- As such a TMS is an easier sell internally as more people will understand it as they would relate it to an ERP implementation
- People often fail to look beyond the typical cost savings benefits of FAP. Also, the data out of the FAP process can be used much wider than just for Logistics or Finance
- TMS costs seem to be only one-off and simple: buying the software and a maintenance fee, as such more attractive than on-going costs with a FAP provider
Result: Again a clear winner, TMS seems a straightforward with clear costs and people get what it is about.
Round 3: Implementation
With both TMS and FAP outsourcing timelines are difficult to keep and the horizon is often unclear. As FAP outsourcing provides a managed service costs of implementation can generally be kept lower as part of it can be retrieved via monthly fees. This is not the case for TMS so you would look at high fees that could become much higher than foreseen.
- FAP outsourcing providers do implementation themselves whereas TMS vendors could outsource this task to specialized firms which could provide a disconnect.
- As things change on an ongoing basis in the dynamic transportation world: change of carriers, adding new sites, acquisitions, change of GL code one may find that there is a constant state of some work to be done which can be seen as implementation. The FAP outsourcer will have people to address this while with a TMS you would need to either acquire specific skill sets yourself or hire again expensive third party consultants. This is less flexible and expensive
Result: FAP outsourcing is a winner here. Less expensive, more flexible and always skills at hand to support the customer.
Round 4: In practice
This is where the managed service approach of the FAP outsourcer clashes the most with the DIY approach of the TMS
- Rates, master data changes, updates of GL coding, fuel surcharges, currency rates,…need to be kept in order by staff internally while the FAP outsourcer takes full care of this
- Contact with carriers about payments, issues, trainings, system usage,..yes that is you as well with the TMS while a FAP outsourcer also takes care of that.
- Handling of extra costs, late data receipt, exceptions, credit notes,…With a TMS this is often done on the basis of a great concept: the work-around. While FAP outsourcers do this work every day by default and have systems and processes in place to deal with this
- Your experience with TMS before your staff rotates into another function? How do you keep people current and trained at a good level? The FAP outsourcer does not make that your problem, they just take care of that.
- Last but not least, the ownership question, who owns the process, the software, and the costs associated within a large multinational for the TMS? Very difficult question. With the FAP outsourcer, it is simple. They need to make things easy, efficient, cost effective and on time and will make sure they do so as it is their core business!
In practice, a TMS has many hidden costs and takes a big effort to manage properly and is under continuous risk by skills, knowledge and experience leaving potentially the company. Next to that the work involved with a TMS needs to compete with other work as people are typically not full time dedicated to a TMS. Which can create delays and errors.
TMS loses here clearly. Apart from the fact that a TMS is not per se made for Freight Audit, your staff is not made to handle TMS in the best way.
FAP outsourcing takes care of many things that are often not noticed as it takes place at the premises of the FAP outsourcer, but there is more work involved than most companies think. It is for that reason that it is often an unvalued service. However, with many people gaining experience with TMS I am sure we will see in the next coming years a big boost in companies looking for FAP outsourcers or providers who can support large TMS users with onboarding of carriers, managing the TMS and keeping things in order as that is what the FAP outsourcer is used to and the TMS user not.
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