The True Cost of a Transportation Management System: An Investment for Future Efficiency
In today's fast-paced, digital world, trucking companies or carriers must use a transportation management system (TMS) to run operations efficiently. As carriers grow their operations, adding trucks and handling more loads on a daily basis, tracking everything can become challenging.
A TMS allows carriers to operate more efficiently and cost-effectively, giving them a competitive edge against competitors who might not have adopted a system. It automates and centralizes various day-to-day tasks and processes, helping carriers track orders, dispatch drivers, and manage driver communications from a single screen.
By making smarter decisions and minimizing inefficiencies, carriers can significantly cut down on operational expenses. A TMS is truly an investment for future efficiency.
In this article, we'll discuss factors influencing a transportation management system's cost and how you can estimate the expected ROI on your investment into a TMS.
The Need for a TMS
An automated transportation management system has become a necessity to stay flexible and agile.
It builds efficiencies into your day-to-day trucking operations, frees your team from mundane administrative tasks, and eases your way for compliance-related tasks like IFTA and DOT audits.
Today, a TMS is primarily delivered as a cloud-based subscription service (also known as a software-as-a-service, or SaaS, product). According to a report by Gartner Digital Markets, only 46% of transportation organizations have adopted supply chain and transportation management solutions.
Carriers that are yet to adopt a TMS may increasingly face challenges such as:
Operational inefficiencies
Manual processes are time-consuming and error-prone. Without the automation (that a TMS affords), carriers struggle with manual processes, relying on spreadsheets, email, text and phone to manage the critical day-to-day.
These inefficiencies can prove to be expensive. An error or slip-up here can result in delays and decreased customer satisfaction, possibly even leading to losing a shipper relationship.
Missed opportunities to optimize & save costs
A TMS can pave the way for more cost-effective operations by highlighting opportunities to optimize processes and plug inefficient use of resources.
Carriers using Toro report that they are saving up to 3 business days a week just on the invoicing side of the house, and have been able to manage a doubling fleet without increasing their staff.
Visibility into your operations
When you run manual operations without a TMS, you don't have access to real-time data to make key business decisions. With business running at the speed of light (or, in this case, at least at the speed of a digital stroke!), it is nearly impossible to collate manual reports, analyze the data, and derive any helpful insights in time to take a course-changing decision.
Without the real-time data visibility and analytics that a TMS provides, you may miss valuable insights to optimize processes, save costs, identify trends, or address issues proactively.
Additional costs
Due to a lack of real-time data visibility and data-based insights, carriers that follow manual processes suffer from higher operational costs.
The absence of real-time data and access to analytical reports that identify optimization opportunities can lead to unnecessary expenditures. All of these lead to higher operational costs.
If your company is experiencing these issues, now might be a good time to implement a TMS.
Factors that Influence the Cost of a TMS
While many trucking companies are convinced about the benefits of implementing a TMS, the decision to invest in a new technology still poses many questions that revolve around the cost and expected return on investment.
The cost of a TMS varies significantly based on several factors you must consider before deploying a TMS.
Review the various factors that typically affect the cost of a transportation management system:
Size of the company
The larger your operations, the higher the cost of deploying a TMS - but the greater the benefits as well. You will need more licenses because you have more staff. You may also have a bigger existing tech stack that the TMS must integrate with, such as specialized accounting software solutions and ELD-related apps.
Complexity of operations
Trucking companies with simpler operations—that is, with fewer vehicles and drivers, plying on local routes (as opposed to nationall ones), will incur a lower transportation management system cost than a company with more complex operations.
If your operations are complex, you may need to build customized functionality or integrations, leading to a higher cost of TMS deployment.
Customization needs
Trucking companies with complex workflows, unique processes (that may not be standardized) or require integrations with several systems will incur a higher TMS implementation cost.
Customizations require more resources, efforts and testing, driving up the implementation costs.
For example, if you have complex approval processes, require any special documentation, or need customized reporting, you will incur higher implementation costs as compared to a more standardized TMS implementation.
Want to estimate the implementation costs of a transportation management system for your company?
Book a consultation with Toro TMS today!
Understanding Pricing Models
Most TMS software vendors of cloud-based TMS systems operate on a SaaS model, which involves predictable, recurring fees or subscription-based pricing, usually charged on a monthly or annual basis.
It has a lower upfront investment, and you pay as you go—so you can easily scale up (or down) yoursubscription based on your needs and there won’t be any sunk costs if the solution ultimately doesn’t work for you.
The SaaS model is flexible and scalable—ideal for small to medium trucking companies in a growth phase. SaaS TMS vendors normally charge you a fee that varies according to your business size, and might be charged either per truck, per load or per seat.
Legacy TMS vendors often work on a one-time perpetual license fee with yearly maintenance payments for continued updates. More commonly used for on-premises licenses, it involves an upfront payment, including a complete package for implementation, customization, and support.
Estimated Return on Investment (ROI)
Now that you have a general idea of what factors influence the cost of a transportation management system, it's also essential to understand how you can calculate the return on investment once your TMS is in action!
The key is to compare how much you have invested in the TMS to the cost savings and efficiencies you have gained from implementing the system.
The simplest way to look at it is to solve this basic equation!
ROI = [Net Profit/Investment] x 100
While we agree that calculating ROI is not as easy as it looks—here's a step-by-step approach to give you a starting point!
Begin by identifying all the costs associated with implementing and operating the TMS.
Quantify the cost reductions you have achieved after the TMS implementation by comparing historical data with KPIs achieved after implementation.
Now do the math! ROI = [Net Profit/Investment] x 100
A positive ROI shows you that your investment has yielded positive returns and shows you the value you have gained from implementing the TMS.
PRO TIP: Calculate ROI over a long period of time—at least a year as some benefits and cost reductions need an extended timeframe to show results after implementation.
Hidden Costs
Often TMS solution vendors split up their software pricing into various heads. They may have a basic licensing fee which may be charged monthly or yearly—but you may need to pay separately for professional or additional services.
Here's an easy checklist of questions to ask so you don't get hit by hidden charges you didn't know existed!
Training for all your staff to use the software: Does your TMS vendor offer only a 'Train the Trainer' service, with training for all other users being charged additionally?
What is the cost of implementation (if the vendor is implementing it) or hiring a third-party implementation services partner?
Support services: Many vendors charge separately for extended or customized support if you require it. Check what your vendor's SLA states.
Maintenance and upgrades: Will your vendor charge you separately for yearly maintenance or regular software upgrades and bug fixes?
Additional services: Does the TMS vendor recommend using extra services like data cleansing, custom integrations or customizations? These may cost extra!
Remember to consider all of these points to understand the true cost of implementing a transportation management system!
Or, simply try Toro TMS and benefit from our all-inclusive pricing!
Toro TMS is the Best Value for Money and Provided Support
Toro TMS is an easy-to-use, all-in-one TMS built for asset-based carriers.
It is a cloud-based TMS software with an affordable subscription-based pricing model with no hidden costs.
If you're looking for a best-value TMS, try Toro today!
Contact us for a demo of Toro TMS.
