What is a transportation management system?

A transportation management system (TMS) is a software solution designed to optimize the planning, execution, and tracking of the movement of goods. It streamlines key processes like freight planning, carrier selection, route optimization, and shipment tracking. Acting as a central hub for transportation data, a TMS ensures businesses can cut costs, improve delivery efficiency, and gain better control over their supply chain.

How does the transportation management system work

A TMS connects various components of the logistics chain, from order creation to delivery, providing end-to-end visibility and automation. Here’s how it typically functions:

Order integration — Orders are fed into the TMS, detailing shipping requirements like destination, timelines, and product specifications.
Planning — The system creates detailed shipment plans, assigning loads to carriers and coordinating pickup schedules to ensure timely execution.
Optimization — The system calculates the best shipping routes, carriers, and modes to balance cost and delivery efficiency.
Execution — TMS communicates directly with carriers to book shipments, generate labels, and manage documentation.
Monitoring — Real-time tracking provides updates on shipment progress, allowing businesses to address issues like delays or disruptions instantly.
Performance insights — Post-delivery reporting highlights trends, costs, and areas for improvement in logistics operations.

What are the 4 main types of transportation

Transportation plays a vital role in the logistics chain, and there are four primary modes of transport:

Road transportation

This mode includes trucks, vans, and other vehicles. It offers flexibility and is suitable for short to medium distances, especially for door-to-door delivery.

Rail transportation

Rail is ideal for moving bulk goods over long distances. It is cost-effective and reliable for heavy loads but less flexible than road transport.

Air transportation

Air transport is the fastest option, commonly used for high-value or time-sensitive goods like electronics and perishables. It is, however, the most expensive mode of transport.

Sea (or ocean) transportation

Sea transport is cost-effective for moving large quantities of goods internationally. It is slower than other modes but ideal for heavy and bulk items like raw materials and machinery.

How much does a transportation management system cost

Smaller businesses might invest $10,000 to $50,000 per year, while larger companies often spend $100,000 or more on advanced systems. The cost of a TMS varies based on several factors:

◻️ Deployment model:

⠀⠀◽️ Cloud-based TMS: Typically involves subscription fees, which can range from $1 to $5 per shipment or a monthly fee based on transaction volume. This model often has lower upfront costs and includes maintenance and updates.

⠀⠀◽️ On-premise TMS: Involves a significant initial investment, potentially costing tens of thousands of dollars, but may offer long-term savings. This model requires in-house IT resources for maintenance and updates.

◻️ Number of users and carriers: As the number of users and carrier integrations increases, the system’s complexity grows, potentially raising costs.

◻️ Customization and additional features: Tailoring the TMS to specific business needs, such as incorporating real-time analytics, advanced integrations, or automated planning modules, can increase the overall cost but provide significant efficiency gains.

To make an informed choice and maximize your investment, check out our detailed guide "How to Choose Transportation Management Software".

Key Takeaways

A transportation management system (TMS) is software that optimizes the planning, execution, and tracking of goods movement, reducing costs and improving supply chain efficiency.
There are 4 types of transportation: road, rail, air and sea transportation.
It automates processes like freight planning, carrier selection, and route optimization while providing real-time tracking and insights.
TMS costs vary based on size, deployment, and features. Small businesses may spend $10,000–$50,000 annually, while larger companies often invest over $100,000. Cloud-based systems offer lower upfront costs with subscription fees, while on-premise solutions require higher initial investments. Custom features and more users or carriers can increase costs but improve efficiency.