A Revolution Amid a Recession: Why You Should Rethink About TMS in 2023

Procuring or switching a TMS amid recession sounds painful? It shouldn't be, if you're with the right TMS that #GetShipDone during any economic climate. In this article, we share why and how to assess your TMS.

With a global recession on the horizon for 2023, most enterprises are tightening their belts. These companies are instituting hiring freezes, spending less on service providers, and buying only the materials absolutely necessary for core business activities. Businesses understandably want to stay afloat.

This cost-cutting extends to the supply chain as well. Most businesses will cling to their legacy systems, refusing to entertain the possibility of switching to a new transportation management system, even when #ShipHappens due to the TMS.

This stance is short-sighted. In times of economic crisis, enterprises should search high and low for every possible source of competitive advantage, not fall into a standstill. Since a TMS serves as the backbone for an organization’s supply chain, the right solution can provide competitive advantages across the business, including everything from cost management to operational efficiency.

Organizations should use the current economic climate as a turning point: Ditch the legacy TMS and move on. Your new TMS should be one that actually accelerates business growth, rather than merely add another layer of complexity to your tech stack. Now is the time to make this change because every business in a recession is in a make-or-break moment, whether they want to realize it or not.

Organizations unable to overcome what MIT lecturer Donald Sull calls “active inertia” - the tendency to continue doing things that may have worked before - will fall behind in the market or go bust. Active inertia applies as much to software usage as it does any other business activity. Long story short: Your TMS may be your downfall.

That said, changing to a new TMS may require a lot of finesse and charm: Business leaders need to convince all relevant stakeholders that a move is necessary. To help with this task, here are some key points you may want to share.

The right TMS will have low switch-over costs and high flexibility, while providing exponential value to businesses in need of a competitive edge

A major reason that enterprises in the supply chain stick to their legacy systems is indeed active inertia. In other words, it’s easier to stick to the status quo of what the business has been using, rather than adopt a new solution. The latter requires a whole bunch of organization-wide activities, such as project management of the deployment, internal alignment and resourcing, and testing and planning. Switch-over costs, on the average, are high. Based on one study highlighted in Forbes, vendors may charge anywhere from US$200 to US$300 an hour for a TMS implementation, bill thousands of man-hours, and take anywhere from four to twelve months to fully complete. A TMS is indeed quite the commitment.

Because switching over to a new TMS is hard work, the value that the system brings to an organization must be exponential rather than just incremental. Only when a TMS is exponentially better than the system the business currently uses does it become worth it for an organization to switch over. Otherwise, why bother?

Unfortunately, many older TMS providers do not stand behind the value proposition of their product. Instead of acquiring and retaining clients through this kind of exponential value-add, these TMS providers try to lock them in through financial strong-arming. Their contracts may have high upfront investments, so organizations become more prone to the sunk cost fallacy, where they continue with the initiative simply because they’ve already poured so many resources into it, even though the costs have started to outweigh the benefits. These contracts may also require long-term durations of up to several years or more, so it becomes difficult if not impossible to leave without incurring significant penalties. They handcuff your business by the fine print.

The right TMS focuses on product, not penalization.

Through flexible terms, such as no upfront costs and fast deployment, businesses can more easily experience the exponential value that the TMS provides. These enterprises stay because the TMS actually drives business growth, and not just because they need to adhere to the terms and conditions. If your TMS provider is punitive rather than collaborative, it’s a sign you should leave.

The right TMS helps manage costs at a time when every dollar should be carefully managed

In response to the coming (or possible) recession, many businesses can be highly reactive, cutting costs indiscriminately in preparation for the challenging times ahead. But this strategy is off the mark. Enterprises in the supply chain should be concerned with cost management, rather than simply cost-cutting. In other words, the priority should be better optimizing costs necessary to business instead of just halting the consumption of certain products or services altogether. According to Gartner, this type of blanket cuts are one of the most common mistakes that enterprises make when cost-cutting.

The right TMS can help in this regard, beginning with a rate management module. This feature should allow logistics professionals to document negotiated rates from existing providers, which enables them to get quotes much more quickly - with most coming in under an hour. Spot buy procurement should also be facilitated by the TMS, so that businesses get quotes when they need it the most - and at prices that do not take undue advantage of their urgency.

This feature should enable enterprises to work with a diversity of logistics service providers to ensure business continuity. As Samsung experienced in 2016, there is high risk when working with limited vendors in a supply chain. At that time, they worked with only one supplier for the batteries of its Galaxy Note 7, which were found to occasionally catch fire. Following the recall, the return of production was made more difficult due to having just one original supplier, with some placing the total bill of fixing the fiasco at US$5.3 billion. In much the same way, a diversity of supply chain partners, including logistics services providers, effectively disrupt-proofs an organization.

The same ease of business should apply to freight tendering.

After inviting an organization’s chosen pool of logistics providers across all freight modes (air, ocean, road, rail, and parcel), logistics professionals should be able to compare suppliers on multiple variables, such as price, schedule, and even historical performance.

A capable TMS can also address problems that arise more frequently in times of economic crisis. One such example is over-charging. When their own costs rise, logistics providers may try to pass on these costs to clients, even going beyond the agreed upon price, in a bid to make up for increasingly slim margins. Such is the natural result of confusion. In a survey of over 400 companies, Bain & Company found that companies with under $5 billion in revenue were unsure how to adjust pricing amid rising inflation.

Some overcharges may be intentional, while others may be genuine errors. No matter the cause, a TMS should have an invoice auditing function that automatically cross-references a given invoice with the original quote or contract, so that businesses only pay the correct amount. By doing this auditing automatically, enterprises are spared of the equally costly expense of complex vendor management, which many demand manual data tracking and monitoring and even legal action when the offense has become particularly egregious. Each dollar saved through automated invoice auditing is capital that can be redeployed to much better use, a crucial need in any recession.

The right TMS extends an organization’s data-driven approach to real-world assets, providing the insights necessary to cater to business and consumer expectations

When organizations refer to themselves as “data-driven,” they are most commonly referring to their digital assets: They’ll use data to make better decisions about social media marketing on Facebook, search engine optimization on Google, or email marketing via Mailchimp. Rarely does the “data-driven” approach refer to how an organization treats its physical assets, which is a shame: Thinking analytically about the movement of goods in a supply chain can improve operational efficiency, and in turn, generate greater business value.

Taking this data-driven approach is of course easier said than done. Most legacy systems offer a delayed or inaccurate view to an organization’s supply chain, which makes them poor at best and moot at worst to use for decision-making. Thankfully, the right TMS will provide real-time, birds-eye view of shipments, along with a means of communicating with all the logistics services providers involved in their movement. Logistics professionals gain a central hub from which they can study relevant data and make appropriate decisions. Having accurate real-time location data of shipments will enhance productivity because enterprises can more quickly identify disruptions and take necessary action.

The level of agility that a TMS brings is especially important for bad economic times, as the world recently saw during the COVID-19 pandemic. Even as millions of people lost their jobs, experienced furloughs, or were forced to work from home, consumer expectations did not adjust in step. Both consumers and businesses demanded products in a timely manner, especially for products related to new consumer behaviors, such as remote education, home nesting, and e-grocery, despite the fact that the global economy, including the supply chain, was highly strained.

The enterprises that cater to the high expectations from both consumers and businesses with the aid of a TMS are those most likely to succeed: They can be counted on in good times and in bad. Such execution will inspire brand loyalty.

Our team at Cargobase experienced this first-hand. During the pandemic, our product evolved into a full-fledged TMS on account of businesses in need of a powerful, customizable solution that unlocks more value from their supply chain. Let's chat if your business wants to #GetShipDone during any economic climate!

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