Jos Raaymakers Nov 23, 2021 6:00:37 PM 7 min read

How to Calculate the ROI for a TMS

How to calculate the roi for a TMS

 

Maximize the ‘R’ in your ROI, and watch it go from “cost” to “cost savings”. Here’s how.

At Cargobase, we are proud to have actively helped shippers in over 70 countries analyze their logistics spend to gauge the potential cost and time benefits that a Transportation Management System can bring. In this blog post, we share our approach to calculating the ROI for a TMS so you can glean the potential cost savings the right TMS can bring to the table.

“You are leaving money on the table” – so says the salesperson. Every day that you delay implementing their solution would cost your company money; lots of money. But how much? And how quickly would you get the payback on your investment? Are there hidden costs? runaway costs? Is it going to be worth it? You have seen some of the CAPEX business cases prepared within your company and are slightly daunted by their complexity. How best to approach this? What is the financial impact of the decision you are about to make? These are all valid questions and concerns when choosing a TMS. See how we at Cargobase help shippers analyze their logistics spend and gauge the potential cost and time benefits in our signature no-nonsense approach.

 

Our No-Nonsense Approach

Cargobase takes a pragmatic and transparent approach to calculating the ROI for a TMS. In line with this philosophy, we do not charge any upfront implementation fees, nor support fees or any other costs that catch you off-guard. You are only charged monthly running fees and therefore have an immediate payback.

Let’s have a look at below picture as a framework on how we approach this, and first look at the left side, i.e. your cost base.

ROI Framework

The typical cost base of your logistics operation has three main components: (i) spend with LSP’s, (ii) internal team cost, and (iii) cost of failure

Firstly the ‘out-of-pocket’ spend you have with your Logistics Service Providers (LSPs), which is either contracted or non-contracted (spot-buy). Then you have the cost of your internal team, which includes salaries, employer’s cost, and overheads (i.e. the ‘fully-loaded cost). And finally the (consequential) cost of failure (delays, lost shipments, damages) in terms of lost sales, customer satisfaction, etc.

A common challenge is that many logistics teams do not have full visibility on their spend with the LSP’s (which is a reason to implement a TMS in the first place: you become in control of the data again instead of having to rely on your LSPs). Also for cost of failure, we help companies with assumptions based on industry benchmarks.

 

How does Cargobase TMS contribute to cost savings? What are our ROI levers?

A competitive bidding process ensures that you get more quotes and faster response times for your spot-buy shipments. On average, companies achieve an 18% cost saving on spot-buy by using our platform. Improved tender management and invoice audit are further levers to reduce your spend with LSP’s.  

As Cargobase TMS provides a single platform for the complete end-to-end workflow for all your shipments, your team will benefit from (right image) improved visibility, efficiency, and – ultimately - higher productivity. Time & motion studies during pilots with our customers have shown that up to 80% can be saved by working from our platform and eliminating all email, WhatsApp and phone. Also, you will spend less time on producing reports and new staff will be effective much faster as onboarding time will be reduced.

And finally, there is the control over your LSP’s leading to a higher quality of service. Having all operational data real-time in one system vastly improves your reviews with the LSP’s through better root cause analyses and corrective action planning. You can easily benchmark a LSP against their peers and have a pool of providers that truly add value to your business.

The ‘I’ in ROI

 

So now we have looked at the returns of a TMS, however we have not discussed the ‘I’ of ROI yet, i.e. what is the Investment required?

Typically TMS providers have the following price components:

  • implementation
  • customization (API’s)
  • module license
  • user licenses
  • transaction fees
  • support

At Cargobase we like to keep things simple and no-nonsense, as showcased in our ZERO-FEE implementation. We do not charge for implementation, API’s, separate module fees, or for support. No upfront investments mean you can start saving from DAY ONE.

 

Nobody (except us) wants to talk about the failed cost

There is an elephant in the room and that is the cost of a failed implementation. Many TMS solutions are so complex that there is a wide gap between what these systems can do, and what your team actually needs (the ‘consumption gap’) This complexity not only increases the cost of the product, it also adds to the chance of failure. Just think about how much it will cost to your organization if you have to decide after a year to terminate the implementation. At Cargobase, we have seen countless cases where multi-year, multi-million TMS implementations were ultimately abandoned, the pain is real. A good topic for a future blog, watch this space!

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Interested in a detailed ROI calculation for Cargobase TMS based on industry benchmarks? Or any experiences you would like to share on TMS ROI calculations? Please contact us on support@cargobase.com.

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Jos Raaymakers

Jos leads Marketing, Sales and Customer Success at Cargobase. Connect with him on Linkedin.

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