TMS vs. 3PL: Your questions answered

Trying to decide between implementing a TMS or making use of 3PL services? We’ll help you make the right decision for your business. 

In managing supply chain operations, organizations find themselves standing at a crucial crossroads. The dilemma, often underestimated yet profoundly impactful, revolves around the choice between leveraging a Transportation Management Systems (TMS) and outsourcing to a Third-Party Logistics service provider (3PL/4PLs). This decision, central to optimizing supply chain and logistics, involves striking a balance between maintaining control through in-house TMS or leveraging external expertise for streamlined operations via Logistics Service Providers (LSPs). The primary challenge here is that both options offer advantages and disadvantages. As you navigate this decision, several key hurdles will come into play:   

• Cost considerations: TMS implementation requires an upfront investment, while LSPs typically involve ongoing service fees. 
• Control vs. delegation: A TMS would provide you with control over your logistics operations, whereas outsourcing to a 3PL/4PL would mean relinquishing some control.  
• Flexibility: Your TMS can be tailored to your specific needs, while 3PLs cannot adapt quickly to market changes. 

In this blog, we’ll explore the pros and cons of these two distinct approaches, and help you make an informed choice that best suits your organization's unique needs. 

The ups and downs of choosing a TMS 

Implementing a TMS can be a strategic move to enhance control and efficiency. Below are key considerations, both pros and cons, that shed light on the impact of adopting a TMS for your organization: 

Benefits: 

• Cost control and optimization: Gain precise visibility into your logistics operations, pinpointing opportunities for cost savings and streamlining & automating transportation processes from source to payment. With advanced TMS features such as AI & ML, you can derive intelligence from your logistics data, driving insightful decisions.
• Customization for your needs: A TMS allows you to address your specific requirements, adding value in areas such as compliance, document management, and safety. You can also create automated workflows that align with your business processes.
• In-house control: Keep direct control over your logistics operations by enabling swift adjustments and customization to adapt to evolving needs. This level of control is vital, especially in the wake of recent disruptions like COVID-19, FedEx and UPS strikes, the Suez Canal blockage, and fluctuating ocean freight costs. You also have complete control over data security & confidentiality. 
• Scalability: TMS solutions are highly scalable, making them a fit for both your current operations and future growth. Most TMS vendors offer plug-and-play integrations with ERP, WMS, OMS, and carrier systems to ensure seamless data flow. 
• Best practices and network: Bring specialized knowledge of logistics, sourcing, and sales processes in your industry, along with established carrier relationships. This expertise can potentially lead to cost savings and the implementation of industry best practices and also managing your carriers effectively with onboarding, rating & performance benchmarking, etc. 
• Freight Spend Visibility: Gain 100% visibility to freight spend across products/carriers/regions including freight accruals based on shipment milestones or freight provisioning for budgeting based on historical precedence 

Points of consideration: 

• Implementation time: Implementing a TMS may require a significant initial investment of time and resources. Depending on the chosen solution, the implementation process can take anywhere from 3 to 9 months. 
• Skill  requirements: Effectively using a TMS may necessitate training for your team and you would need to plan for the implementation of user training and robust support. 
• Integration: Seamlessly incorporating a TMS into existing systems is crucial for optimizing logistics. Ensuring compatibility and data flow between the TMS and other platforms in your IT landscape may involve coordination with IT teams and third-party providers. It’s important to assess this early to choose the right vendor. 

The pros and cons of enlisting a 3PL service provider 

Let's flip the coin and look at the option of outsourcing your supply chain operations to a logistics service provider (3PL/4PLs). Below, we outline the key pros and cons to help you make an informed choice: 

Benefits: 

• Expertise and resources: 3PLs bring specialized logistics knowledge and established carrier relationships, potentially leading to cost savings and improved service quality. 
• Focus on core competencies: Outsourcing logistics allows you to concentrate on your core competencies, like manufacturing and sales, streamlining your operations. 
• Access to technology: Some logistics service providers (LSPs) offer advanced technology solutions, providing access to features and analytics that can enhance your logistics operations. 

Points of consideration: 

• Costs: While 3PLs provide expertise, their services can be significantly more expensive than implementing an in-house TMS, impacting on your budget and your product margins with possible hidden costs and lack of transparency in pricing models 
• Less control and visibility: Outsourcing logistics means relinquishing control over your supply chain, including regulatory compliance and risk mitigation. You may also lose visibility into market freight costs, your own freight expenditure, and potential areas of optimization. 
• High dependency on external factors: Relying on a logistics service provider (I.e. 3PL or 4PL)  introduces a high level of dependency, and if they fail to meet expectations, it can adversely impact your customer experience and overall business agility.  

Making the right decision for your business 

Recognizing that not all organizations have the resources or expertise to handle logistics internally, the option of partnering with a third-party logistics service provider (3PL/4PL) becomes valuable. Particularly, if your organization is constrained by limited resources or lacks the expertise to effectively handle logistics in-house, a 3PL or 4PL can step in and fill this gap efficiently, allowing you to benefit from their experience and infrastructure. Moreover, for industries characterized by unpredictable demand fluctuations and rapidly changing market conditions, logistics service providers can offer the required capacity to adapt without necessitating significant upfront investments. 

On the other hand, if your organization deals with a large volume of shipments and complex logistics, a Transportation Management System (TMS) provides the necessary tools for control and customization, ensuring you can efficiently manage your transportation operations. For businesses where maintaining strategic control over the supply chain is paramount, a TMS offers the ability to have the final say in decision-making, allowing for greater adaptability and driving business agility. Moreover, if you are focused on envisioning a digital logistics operation driven by efficiency and growth in the long term, the initial investment in a TMS can be justified by the cost savings and optimization it brings to your operations. 

In conclusion, whether you choose a TMS or a 3PL depends on your organization's specific needs, resources, and priorities. If you're looking to delve deeper into the considerations for selecting a TMS, check out our other blogs that discuss the top 10 things to consider when choosing a TMS part 1 and part 2. Ultimately, the decision lies in what aligns best with your objectives and how you envision managing your logistics for optimal efficiency, control, and growth.