Logistics management’s goal of moving product in the most efficient and secure manner from point A to point B at the least cost and best service is what originally drove the importance of having a strong logistics strategy that could be executed flawlessly for its customers. Under this thought process, companies looked at logistics as an outbound cost center to fulfill customer orders.
Over the past decade, the view on logistics has changed from the cost center mentality to a key strategic component that can drive a competitive advantage in its industry.
With the change in how logistics is viewed, companies often confused the terms supply chain and logistics. Logistics is a subset of process that fall under supply chain management that include planning, executing, communicating and coordinating the movement of goods within an organization’s network of stakeholders. This network includes:
- Production & Manufacturing
A supply chain, on the other hand, is the coordination, management and strategy that drives the flow of data, information and logistics to deliver the best product and service to all stakeholders in the process of converting raw goods to the end salable product.
Components of Logistics Include:
- Inbound Freight
- Outbound Freight
- Materials Management
- Order Fulfillment
- Inventory Planning
- Demand Planning
Logistics is managed by companies through a transportation management system (TMS) that allows users to optimize and manage its logistics flows in a control tower fashion giving all stakeholders full visibility to future, current and past freight movements of goods through its supply chain.
The TMS platform also allows users to report, model, analyze and optimize a shipper’s freight movements for continuous performance improvement.
As transactions increase, so does the complexity and the sophistication of the logistics talent, technology and processes. Companies can opt to either manage their logistics functions internally or outsource the work to a third party logistics companies (3PLs).
Often times a company’s logistics strategy begins with their outbound freight, then it will bring its inbound vendor freight into its logistics strategy.
Managing inbound freight allows companies to better monitor and control its inventory levels and vendors, gain control of its inbound dock management, give its material management resource group full visibility for production builds and customer order processing.
The combination of managing both inbound and outbound brings efficiencies, scale and full visibility of all materials flowing through a company’s supply chain to allow it to more effectively manage its resources, provide a higher level of service and improve its order-to-cash cycle.
All said, the elevation of logistics from a cost center to a strategic pillar requires all companies, whether small or a enterprise, to excel in logistics for success.
Small to medium sized companies tend to be less sophisticated in their approach to logistics because they either do not have the budget to support or they are in rapid growth mode making it difficult to keep up with the needs. Either way, if a company does not invest in its logistics requirements, it could costs the company in overpaying for freight, struggling to maintain a consistent level of high service, market share and a sub-optimized order-to-cash cycle.
A cost effective way to dramatically improve logistics competence is to employ a third-party logistics company. An endorsement to the outsourcing model is that 90% of Fortune 500 companies engage in third-party logistics providers (3PL’s) to help them in their drive to excellence.
There are several options to engage a third-party logistics company (3PL) ranging from partial to full outsourcing of warehousing, freight, logistics or full supply chain efforts.
For the purposes of this guide, we will focus on outsourcing freight & logistics managed TMS service solutions.
Before jumping into the managed transportation services option, let’s walk through a quick review of what falls under the umbrella of managed TMS or as some call it managed transportation services because it is much different than incorporating an LSP into a company’s freight strategy, as was outlined earlier.
LSP’s offer both the service of being a freight service provider and a full managed logistics service solution and often a company will start using an LSP to operate within its current mix of freight carriers and in time move to the full outsourced model.
Managed TMS and the LSP freight model is different in five key areas:
- LSP: Operates as a freight provider, within a shipper’s overall freight strategy.
- Managed TMS: The shipper sends all its orders to the LSP to optimize, route, tender and manage through to delivery.
- Ownership of Carrier Relationships and Contracts
- LSP: LSP owns the carrier relationships they use on the shipper’s freight and makes money on the buy-sell spread.
- Managed TMS: The shipper owns the carrier agreements and the LSP makes its money on a monthly service fee based on transactions and services.
- LSP: The LSP uses its technology to manage and optimize its service and cost.
- Managed TMS: The LSP provides the shipper with the technology it utilizes to manage their freight transaction. The LSP sets up multiple communication and reporting portals for the shipper and its customers to have full visibility into the flow of product.
- LSP: While the LSP shares some of the knowledge, it typically holds it within as there really is not a mechanism to disperse to a shipper to add value in the relationship.
- Managed TMS: The LSP brings all its talent and resources to be a strategic partner in the shipper’s business.
- LSP: Transactional relationship, with the LSP making its money on the buy-sell spread.
- Managed TMS: Fully transparent strategic relationship where the LSP passe through the logistics costs, then adds a monthly fee based on volumes and service.
As a reminder, the below chart outlines all the functions performed by a 3PL in their full managed logistics program. As you read through the chart, know services can be added and subtracted to fit a shipper’s exact requirements.
Shippers, not only have options to choose from to create a customized outsourced service solution, they also have a multitude of options of outsourced freight and logistics 3PL’s.
Top 10 Largest Managed Transportation Companies we tend to see most often include:
- TMC - A CH Robinson Company
- Ryder Logistics
- Penske Logistics
- BluJay Solutions
- XPO Logistics
- Schneider Logistics
Each of the above companies have their strengths in the industry, which is why they and so many others have service offerings in the managed transportation space.
Transplace and TMC are the best known 800-pound gorillas in the managed TMS space and are found to be vying for any opportunity that is at least $25 million or more in freight spend. Both operate an internally developed TMS that comes with all the bells & whistles.
BluJay Solutions are often found in the same RFP circles as TransPlace and TMC because they are vying for the same type of customer. BluJay also has an internally developed TMS.
XPO, Ryder, Penske and Ruan are also big operators in the managed logistics space, but would say they tend to focus only on the largest of opportunities and therefore not a great fit for small to medium sized shippers. The solutions all three bring to the table often include their own assets for dedicated fleets used on the shippers largest two-way lanes.
Globiz and GEODIS have come into the outsourced managed transportation space via continued acquisitions. GEODIS tends to work the angle of both managed TMS with their millions of square feet of DC space to tie their shippers in tight for a total outsourced DC and transportation service solution.
While Globiz and GEODIS have come into the space similarly, Globiz, unlike GEODIS, stays strictly focused on managed transportation solutions. There is some question on their strength and how well it is all tied together because of the rapid growth it has come into via acquisition, but also because it is across a freight agent model where the agent offices are independently owned and operated.
The top ten largest are often not the best fit for the small to mid-tier market, although as the TMS technology gets cheaper and the above are looking for ways to increase their size are starting to move down the chain to the mid-tier market.
As we have repeatedly said in this guide, it is important there is a fit between the 3PL and the shipper. With that in mind, there are five other LSP’s that need a call out. These five use the MercuryGate cloud TMS platform, which is one of the top TMS packages, as outlined by Gartner in their Magic Quadrant study every year.
Other 3PL’s in the managed transportation services solutions include:
- InTek Freight & Logistics
- Transportation Insight
- Trinity Logistics
Transportation Insight is a formidable competitor that is lessor known, but often in the mix for medium to large shippers looking for a full outsourced freight logistics solution. They along with the next four operate their managed services through the MercuryGate TMS software platform.
Redwood, Rockfarm and Trinity Logistics can be found on many managed logistics services in the mid-sized market RFP’s. Redwood and Rockfarm bring with them a strong relationship with MercuryGate allows them to offer great value for the mid-sized market
InTek Freight & Logistics is also a strong presence in the small to mid-tier shippers. As mentioned earlier, InTek also utilizes the MercuryGate cloud-based TMS software platform to deliver its services and like, Redwood and Rockfarm, has a unique relationship to leverage the best solution for the small to mid-tier market.
The reason why so many of the top outsourced service solutions providers utilize MercuryGate is because of its flexibility, technology, breadth of functionality and value. Knowing that 450,000 users log into MercuryGate everyday is one metric that affirms the strength of the MercuryGate platform, but so does its consistent top 5 ranking within the Gartner Magic Quadrant review every year.
To add to its strength, the MercuryGate transportation management software platform has itself tied into the major market databases to allow it users to easily access capacity and provide reporting against billions of dollars of freight spend to provide the best benchmarking analytics in the industry.