In business there are trade-offs to be made at every juncture. Some are worthy, others not so much. Shippers opting to use a third party logistics (3PL) provider’s TMS solution as opposed to implementing and managing TMS internally the almost always lose more than they gain. While it may seem easier on the surface to outsource TMS to a 3PL, here are some hard truths about what a shipper stands to lose.
Benjamin Franklin once said, “Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.” We say, “Those who would give up essential spend visibility and control to purchase a little temporary convenience deserve neither.” Sure, outsourcing logistics IT eases the burden of performing laborious tasks, but the freedom surrendered outsourcing TMS to a 3PL comes at a steep price. Here are the ways which TMS via 3PL represents an unacceptable trade off.
Very Limited Proprietary Tool Sets – Many 3PLs have invested in development to field rudimentary automation tools they claim are “as good as a TMS”. These simple tools are essentially tendering automation portals allowing shippers to log in and tender loads which the 3PL will broker.
For a small (low volume) shipper, this is often enough. But for larger volume players, there are many functions included in full feature TMS platforms that simply are not addressed. There are typically no rating and routing capabilities (the 3PL addresses these critical functions supposedly on the customer’s behalf). Shipping and receiving scheduling is limited at best. Status updates are limited if offered at all. Worst of all, there are usually no scorecards or other performance metrics to help the shipper measure and improve on performance. Moreover, these solutions are opaque in terms of data security and redundancy in the event of system disruptions.
“Lite” Versions of Commercial TMS Software – Some 3PLs have partnered with large commercial TMS providers to provide stripped down versions of the TMS solutions these providers sell directly to shippers managing transportation internally. This gives the 3PL the imprimatur of TMS depth, when in reality, these scaled back versions are anything but deep. Want a TMS configured to address the specifics of your network design and business rules? Sorry, one size fits all. Want freight and route optimization? Nope! Yard management and dock door scheduling? ‘Fraid not; and you can all but forget about any truly instructive reporting. Why? Because…
Visibility is Intentionally Obscured – Yes, you know that you’re not going to get a low a rate from the carriers brokered through your 3PL engagement. That’s the price you pay for the convenience of using a 3PL. However, you might be shocked to learn just how high are the markups your 3PL adds to your freight. In some cases, the markup can reach as high as 20%! But you’ll never know using the TMS they provide because deep visibility into these areas are intentionally disabled or otherwise obscured so that the customer doesn’t get the full picture with regard to freight rates.
Erosion of Accountability – One of the most important benefits of managing TMS internally comes via the ability to establish and enforce business rules. The purpose of codifying rules in a TMS for all users is to ensure business rules are observed providing the basis for metrics and continuous improvement. As noted, the lack of visibility and control when using a 3PL TMS solution keeps a shipper from ever fully understanding whether they are improving month over month, year over year, etc. Plus abdicating some of the functional aspects of transportation management to the 3PL provides your employees with a convenient scapegoat when deficiencies are identified by management.
Remember this: you can manage TMS in house and still leverage the convenience of a 3PL. Then you’ll be able to maintain appropriate control over transportation costs and program performance. You can even ensure your 3PL is performing according to the standards you establish in your internal TMS program!