There is excitement surrounding the decision to implement a new transportation management system (TMS). Opportunities for modernizing through automation of transportation processes, executing in a new UI and an overall “reset” for the transportation organization are all possibilities in a TMS-enabled environment. Before the agreement can be set and TMS implementation can begin, the ultimate approvers in the organization will need answers to the following questions: “what is this going to cost?” and “how much is this going to benefit our organization?” Answering these questions provides the economic basis needed for moving forward with the selection and implementation stages.
Enter the business case. There is no strict definition for what constitutes a business case, but its ultimate output should have credible financial measures for deeming the worthiness of potential software deployment. Organizations may rely on a myriad of measures and calculations to understand and prioritize investment opportunities, such as the one a TMS implementation represents; the most common ones used are internal rate of return, payback period and return on investment. Though their outputs may differ, the most useful measures will rely on benefits and costs as inputs to the equation.
Transportation Management System Benefits
The benefits side of the business case equation should only include the hard dollars that the TMS can provide. Some of the most common are:
- Structuring strategic rate RFPs
- Executing tactically sourced rates
- Order to shipment consolidation
- Mode shift
- Pick/drop sequencing
- Mode, carrier and service optimization
The business case should not expect to capture every dollar identified during the study. “Stuff happens” and not every shipment can be optimized with 100 percent efficiency usually due to upstream or downstream constraints. It’s best practice to expect to capture only a portion of the hard dollar calculation, though that portion varies significantly depending on the benefit area and the transportation organization in question. For example, if an organization is constrained by customer-preferred carriers, it may only expect to capture 80 percent of the “least cost selection” benefit area.
Trying to bolster a TMS business case calculation can be tempting by considering and including soft benefits. Planning and executing transportation quicker than before, for example, is certainly an improvement. The difficulty lies in translating that gain into a dollar amount. Be wary of trying to fold in some of the below soft benefits into a TMS business case:
- Visibility to shipments in transit
- Reporting and BI
- Process automation
The soft benefits should not be ignored when considering selecting a TMS, but they do not belong in the business case.
Cost Considerations
The cost portion of the business case commands more attention from the executive sponsors who ultimately must sign off on the business case. Recent years have shown a trend away from on-premises software towards SaaS solutions. From a cost perspective, this translates to both one-time and ongoing costs.
One-Time Costs
One-time costs cover the services fees related to TMS implementation: design, gathering requirements, configuring the software, testing, training users and providing hypercare support. One-time costs can also include the investment related to evaluating and selecting the tool. Organizations frequently look to external consultants who are familiar with the market of TMS software providers for some degree of outsourcing. Depending on when the business case is created, the implementation costs may already be in hand from a prospective solution provider. Even with firm numbers available, implementations are fluid and it would be wise to build in contingency costs. It is also worth understanding whether the organization tracks the cost of internal resources accordingly.
Ongoing Costs
Ongoing costs account for the service of providing SaaS-based software. Line items such as server space and upkeep, help desk support and developing future functionality for releases all contribute to recurring costs. How should the business case estimate the ongoing costs? It is a difficult question to answer as the prices will change depending on the software providers’ needs for additional customers. The most frequently used pricing factor is freight under management (FUM) which represents the dollar value of all controlled freight of the organization. Some TMS software providers can be flexible and can offer other models such as transactional pricing if that is more attractive.
A net positive when subtracting costs from benefits alone does not make a business case attractive. A sound business case considers the time component as well. As with many software deployments, the costs are incurred well before any benefits are experienced. In fact, no benefits directly caused from the TMS should be realized until the implementation is completed with users in the production instance of the system. Using a spreadsheet to model benefits, discounted capture, costs and the experience of these over time can help structure the business case while providing the flexibility to make changes as they occur. A well-constructed business case will directly and accurately answer the questions posed initially that the executive level must answer when considering a TMS implementation: “What are the benefits?” and “How much is this going to cost?”
There are numerous questions to answer when it comes to creating a cohesive and achievable business case for TMS. Do you know the best way to model your transportation spend data? What benefits apply best to your transportation organization? Can you accurately estimate implementation costs and timelines? What’s the realistic expectation for benefit capture? These are likely to appear in the line of questioning when presenting the business case to the ultimate decision-makers.
The Transportation Consulting team at enVista is well experienced in creating and reviewing business cases for implementing TMS. We can share our perspective on what areas are worth exploring in greater detail and which pitfalls to avoid. We know presenting the business case is as much of a task as putting it together, and our shipping and 3PL clients may need more help in one area than another. Allow us to collaborate with your team today.
