Transportation management system


A Transportation Management System is a subset of supply chain management concerning transportation operations, which may be part of an enterprise resource planning system.
A TMS typically acts as an intermediary between an ERP or legacy order processing and warehouse/distribution module. In this setup, the TMS Planning Module evaluates both inbound and outbound orders, providing the user with suggested routing solutions. The user reviews these suggestions and selects the most reasonable option, which is then passed to the transportation provider analysis module. This module determines the best mode of transportation and the most cost-effective solution. Once the optimal option is chosen, an electronic load tendering and track/trace system is used to execute the shipment through the selected carrier. The TMS also supports freight audit and payment processes. Integration with ERP systems and sometimes with Warehouse Management System programs are also commonly linked to ERP.

Licensing

These systems have been offered with different types of licensing arrangements. The four main offerings are:
  1. On-premises licensing
  2. Hosted licensing
  3. On-premises hosted licensing
  4. Hosted – TMS free of licensing
Additionally, some software providers were either acquired or merged with supply chain management consultancies and started offering shippers "blended" managed and software services as an outsourced process. Primary Tier 1 TMS providers are still independent, carrier and 3PL neutral, and ERP neutral. While ERP providers are moving to improve their on-premises transportation management offerings by adding TMS modules to their existing, implemented base, the advent of Software-as-a-Service or "SaaS" delivery resulted in a surge of emerging TMS providers.

Functionalities

Transportation management systems manage four key processes of transportation management:
  1. Planning and decision making – TMS will define the most efficient transport schemes, according to the given parameters, which have a lower or higher importance of various factors according to the user policy: transport cost, shorter lead-time, fewer stops possible to ensure quality, flow's regrouping coefficient, etc.
  2. Transportation Execution – TMS will allow for the execution of the transportation plan, such as carrier rate acceptance, carrier dispatching, and EDI.
  3. Transport follow-up – TMS will allow the following any physical or administrative operation regarding transportation: traceability of transport events by event, editing of reception, customs clearance, invoicing and booking documents, sending of transport alerts such as delay, accident, non-forecast stops.
  4. Measurement – TMS have or need to have a logistics key performance indicator reporting function for transport.
Various functions of a TMS include:
  • Planning and optimizing terrestrial transport rounds
  • Inbound and outbound transportation mode and transportation provider selection
  • Management of motor carrier, rail, air, and maritime transport
  • Real-time transportation tracking
  • Service quality control in the form of KPIs
  • Vehicle Load and Route optimization
  • Transport costs and scheme simulation
  • Shipment batching of orders
  • Freight Negotiation
  • Cost control, KPI reporting and statistics
  • Freight Audit
  • * Typical KPIs include, but are not limited to:
  • *# % of On-Time Pick-Up or Delivery Performance relative to requested
  • *# Cost Per Metric – mile; km; weight; cube; pallet
  • *# Productivity in monetary terms, e.g., cost per unit weight or shipping unit
  • *# Productivity in operational terms, e.g., shipping units/order or weight/load
However, all the above logistical functions need to be scrutinized as to how each parameter functions.

Market

predicted the global transportation management system market to grow 60% from $1.3 billion in 2019 to $2.1 billion in 2024.

Integrated freight orchestration

Some transportation management systems support a layered freight procurement strategy sometimes described as integrated freight orchestration. In this hybrid logistics approach, freight is managed across three levels:
  • Contracted base freight – long-term agreements covering stable, predictable volumes.
  • Pre-negotiated spot capacity – optional agreements that provide flexibility without relying on open market spot prices.
  • On-demand spot freight – urgent, short-notice shipments where speed is prioritized.
By coordinating these layers within a single platform, companies aim to balance cost efficiency with service reliability. The method has been applied in sectors such as automotive manufacturing to reduce emergency shipments, improve on-time delivery, and optimize overall transport capacity.
This concept emphasizes incorporating and restructuring resources, skills and functional competencies inside the company to address external issues. These capabilities significantly impact a firm's total efficiency and capacity.