How a Transportation Management System (TMS) supports supply chain cost reduction
From fuel and freight savings to smarter automation and adaptive optimization, discover how a modern TMS helps shippers and 3PLs lower costs and strengthen performance.
- Blog
Transportation and logistics leaders around the globe focus on supply chain cost reduction. The best approaches limit freight operation expenses while avoiding other costs that jeopardize profit margins.
Controlling and reducing transportation spend in a sustainable way requires an adaptable strategy for managing supply chain cost drivers, especially those emerging in the current environment:
- Tariffs: Global trade volatility impacts costs for raw materials and transportation, with the potential to alter source decisions
- Fuel: Gasoline and diesel fuel costs are a significant component of transportation expenses
- Transportation: Fluctuations in direct and indirect expenses associated with managing freight drive wider operational costs
By choosing the right transportation management system (TMS), shippers and third-party logistics providers (3PLs) can often reduce annual transportation spend by 2- 5% and limit cost elsewhere across their supply chain networks. Importantly, TMS users can also adapt when conditions change to reduce risk and protect service.
This blog focuses on how a TMS supports supply chain cost reduction. It will:
- Identify transportation costs within the supply chain
- Explain how technology solutions support sustained cost reduction
- Quantify the return-on-investment (ROI) accessible with a TMS
- Reveal the cost of inaction
We’ll also cover the emerging role of AI in the future of supply chain execution.
What is supply chain cost and why is cost reduction important?
Shippers and 3PLs face cost pressure across their supply chain network, from transporting raw materials into production through the final delivery to end customers. Procurement, production, inventory management, transportation and administration - it all creates operational expenses without generating additional revenue.
Add to those costs, things like disruption or market volatility and projected margins quickly erode for even the most successful businesses.
Although cost drivers like tariffs and fuel prices are often outside the control of shippers and 3PLs, executing effective transportation strategies can reduce expenses and create opportunities for new service and revenue growth.
Likewise, when other operational expenses jeopardize the balance sheet, optimized transportation networks and streamlined supply chain management help offset the impact.
How much can a TMS reduce supply chain costs?
A transportation management system (TMS) empowers organizations to optimize their transportation spend while realizing important technology ROI through supply chain cost reduction.
TMS users interviewed by a third-party research firm quantify the potential for cost reductions within their organization based on real-world experience and observations:
- 2% reduction in annual transportation spend
- 7% reduction in annual outbound freight and fuel costs
- 5% reduction in annual freight costs for less-than-truckload shipments
- 5% reduction in annual freight costs
Which TMS benefits support supply chain cost reduction?
Shippers and 3PLs benefit from TMS capabilities that support increased efficiency and improved transportation cost control.
Shippers: Benefit from optimization, rate management and adaptability to reduce overall spend and outbound freight costs. They can also control inbound freight costs by collaborating with vendors on activities like mode and carrier selection.
3PLs: Benefit from mode and route optimization, "what if" analysis and the ability to co-mingle freight, when permitted, to reduce costs and improve efficiency. The value of TMS is magnified for 3PLs due to their complex environment.
Where does a TMS help reduce transportation costs?
At a baseline, a transportation management system (TMS) supports supply chain cost reductions in:
- Overall transportation spend
- Outbound freight and fuel costs
- Inbound freight cost
Optimization of transportation planning and execution reduces freight costs and decreases time spent on administrative tasks.
Reduce annual transportation spend
A transportation management system (TMS) builds automations mapped to business rules and operations to help shippers and 3PLs improve execution, reduce operational spend and avoid costs. A TMS provides an average ROI of 5-10% savings using:
- Optimization: Securing the best capacity at the best price by dynamically checking contracted capacity against the spot market and different modes
- Rate Management: Rating individual shipments separately based on freight characteristics and aligning with the right transportation cost and service
- Adaptability: Adjusting to changes in tariffs, fuel costs and other macroeconomic factors to optimize transportation operations
Combining adaptability with transportation optimization, a TMS empowers users to operate more efficiently based on conditions now and in the future.
Annual Outbound Freight and Fuel Cost
Track, rate and optimize each transportation move, from booking and planning through executing capacity from road, rail, ocean, air, intermodal and parcel options.
- Carrier selection: Automate carrier selection for each leg of a transportation move based on rates, mode and other guardrails. Limit human intervention to exceptions.
- Mode and route optimization: Identify the right route and mode – or mix of modes, adjust to avoid disruption and reduce costs without impacting service
Infios TM users realize an average 7% reduction in outbound freight and fuel costs.
Reduce LTL cost with optimal pooling strategies
Pool distribution in freight transportation consolidates shipments from multiple sources into larger loads. A TMS makes the process repeatable using technology capable of:
- Analyzing freight patterns: Understanding where the majority of freight is going and planning intermediate points for consolidation
- Supporting "What If" Analysis: Test pooling strategy options and determine the best way to adjust to new customers or changes in freight patterns
For 3PLs, the ability to quickly onboard new customers into carrier capacity commitments and co-mingle freight, when permitted, supports greater efficiency and growth potential.
Infios TM users who optimize pooling strategies typically reduce annual less-than-truckload (LTL) costs 5%.
Annual Inbound Freight Cost
A TMS facilitates better cost management for inbound shipments, while allowing customers more control over shipping options.
- Portal collaboration: Allow vendors and customers to manage service using pre-defined shipping options that control costs and service expectations.
- Visibility: Optimize vendors across multiple facilities, establish consolidation points, improve capacity utilization and fill backhaul miles in private fleets.
Supply chain cost reduction for many Infios TM users averages 5%.
Cost of inaction in transportation management
A transportation management system provides quantifiable ROI. When considering a technology solution, understanding the cost of inaction is also insightful.
- Competitive Disadvantage: A shipper paying 2% more for transportation than a competitor faces a significant competitive disadvantage over time.
- Inflated Expenses: Lack of awareness about savings possible with alternative modes and routes keeps freight costs higher than they should be.
- Enhanced Depreciation: Failure to optimize routes and shipments results in enhanced depreciation on vehicles for companies owning a private fleet.
- Inability to Pass on Costs: Shippers with rising transportation costs may struggle to account for those increases in their overall pricing strategy. Protect price points by reducing costs in transportation operations, including freight audit and payment.
Evolving AI and machine learning support supply chain cost reduction
Artificial intelligence (AI) and machine learning continue advancing streamlined transportation management by alleviating burdens caused by manual processes, freight shipment decisions and customer communications.
- Analyzing performance data: Identify patterns in shipping data to optimize shipping schedules.
- Supporting customer service: AI-based customer service tools to handle track-and-trace inquiries.
- Automation: Automate tasks like tendering loads and tracking shipments.
Leveraging AI and machine learning, shippers and 3PLs can more easily make data-driven decisions that reduce costs and improve efficiency.
How shippers are reducing supply chain cost using a TMS
Shippers reduce supply chain cost by using a TMS to automate execution for transportation moves, manage rates and consolidate shipments.
- Read this case study to learn how Facil achieved 12% annual freight cost avoidance by integrating LTL rating information and using a TMS to automate tendering. Real-time location data and market-relevant rates help Facil make data-driven decisions that reduce costs, improve supplier and internal workflows and increase operational efficiency.
- Billerud transformed outbound operations through automated execution and transportation optimization. Using the TMS, the paper and packaging manufacturing company reduced labor hours 60% and tender loads 80% faster. Find out how in this case study.
Additional TMS knowledge resources
Our Infios Savings Calculator shows shippers the financial impact of fewer errors, lower freight costs and streamlined transportation management processes.
Read these blogs to learn more about how TMS capabilities provide ROI:
Build or buy a TMS?
Learn key factors to consider when deciding whether to build or buy a TMS and how each option impacts your supply chain efficiency and cost-effectiveness. Download the infographic.
Adaptability: How a TMS helps reduce supply chain costs
Supply chain volatility isn’t slowing down. Traditional cost pressures persist and ever-evolving challenges complicate transportation management and consume resources that can be invested elsewhere.
When shippers and 3PLs navigate changes in tariffs, regulations, trade lanes or fuel costs, a TMS helps control disruption by:
- Using automation to execute transportation operations
- Maximizing transportation spend by selecting best rate, mode and carrier
- Adapting to maintain cost efficiency in a dynamic market environment
As AI and machine learning capabilities advance in supply chain execution, leading shippers and 3PLs will continue leveraging a TMS for more than cost reduction. Supply chain operations that are ready to support growth increasingly rely on cloud-based ecosystems that streamline orchestration across TMS, WMS and OMS.
