Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

Why a TMS Should be in Your Risk Management Toolbox

Why a TMS Should be in Your Risk Management Toolbox

TMS Ports

The 2014 peak season supply chain disruptions caused by the U.S. West Coast ports negotiations and associated delays were unique in some ways, yet many logistics professionals experienced a sense of déjà vu as the events unfolded.

In past years, shippers have faced capacity constraints and freight delays caused by similar port negotiations on U.S. East Coast ports, and also by natural events like hurricanes and snowstorms. In an increasingly volatile world, disruptions like these have become part of the cost of doing business.

That doesn’t mean we should simply resign ourselves to being caught off guard every time a supply chain is thrown off track.

Although it can be argued that these are unpredictable events that offer few options for taking mitigating action, savvy shippers recognize potential risks like these and develop contingency plans ahead of time. They analyze industry trends and their freight patterns, create action plans for dealing with crisis situations, and collaborate with supply chain partners to increase resilience.

Key to these responses is an agile supply chain that enables shippers to react in a thoughtful way, rather than resorting to expensive and inefficient strategies, such as maintaining high inventory levels or using costly air transportation.

The foundation of agile supply chains is dependable information systems. A prime example of such a resource is a transportation management system (TMS). According to Logistic Management’s 11th Annual Software User Survey, TMS is among the top three software solutions that shippers plan to purchase or upgrade over next 12 months. [1]

In terms of planning for supply chain disruptions, TMS technology is no longer a “nice to have” tool but a critical component of logistics risk management strategies for large and medium-sized shippers.

Today’s TMS solutions deliver readily available information concerning shipment histories, demand/order forecasts, freight-in-transit, as well as carrier options and allocations. This information can be shared with designated supply chain partners in real time. Automatic alerts inform shippers of exceptions and help them to locate specific inventory in transit or plan the most cost effective mode of transportation in challenging market conditions. After actions have been taken, root cause analyses identify opportunities for improvement.

TMS capabilities have gained in importance as supply chains have become vulnerable to a wider range of disruptions and less tolerant of delays. Shippers also have to deal with the pressures of peak season demand, when they do not have the luxury of “wait and see” planning. For these businesses, it is vitally important to plan in advance and ensure that freight will be available before the next busy season.

How to prepare for a demand spike was one of the issues that shippers faced during the 2014 holiday period that was affected by West Coast ports slowdowns. Moreover, this situation was a perfect storm scenario involving many factors. The labor negotiations between the Pacific Maritime Association and International Longshore and Warehouse Union were not the only reason for the port delays. There were already port congestion problems, a surge of cargo prior to the holiday break, an increase in the number of larger container ships and associated cargo volumes, a chassis shortage, and decreased truck availability.

Navigating through this logistics perfect storm required the type of information that is part and parcel of a robust TMS solution.

Such a resource is also needed in the aftermath of a disruption when shippers face lengthy cargo backlogs and need to restore their freight networks to normalcy as soon as possible. That requires the right tools and information to be available at the right time, so shippers can make intelligent decisions based on the risk profile of their businesses and the time period in question.

An important element of contingency decision-making is evaluating options that can be considered “insurance options.” A shipper might elect to pay for contingency insurance, meaning paying incremental freight cost for using different ports or premium freight options. Alternatively, shippers can choose “self-insurance,” where the company would pay the cost of taking no action after a disruption has occurred.

In either case, it is necessary to quantify the cost of alternative routings (e.g. East Coast versus West Coast routes) and transportation modes (e.g. air versus rail or over the road transportation with team drivers), as well as the cost of advancing supplier orders to build inventories. These alternatives are compared to the cost of not taking any contingency actions (lost sales, customer penalties for delayed deliveries, etc.). The value of this exercise is to avoid over- or under-estimating the impact of a contingency event for a particular shipper in a specific period of time.

What types of contingency plans can help shippers to make decisions like these? Next week we will look at the planning options open to shippers as well as the benefits that enhanced or Managed TMS® solutions can bring to shippers.

[1] 11th Annual Software Users Survey: Caution Lingers, Bridget McCrea, Logistics Management magazine, June 1, 2014.

This blog was written by Maria Llamas with contributions from Danielle Shuey.