What Does TSM Stand For? And Other Freight Terms to Know
Supply chain management has evolved significantly over the years. Some of the most notable developments are related to technology, including the advancement of data science and artificial intelligence, which have revolutionized how companies manage their transportation spend and optimize their supply chains.
As the field of transportation spend management continues to progress, the terminology serving as the foundation of the freight and logistics industry also changes. Keeping up with the latest acronyms and technical jargon can be challenging. This guide will help you understand what TSM stands for and other essential freight terms, enabling you to navigate the complex world of transportation spend management and operations more effectively.
Trax is a leading logistics IT provider that aims to help businesses of all sizes gain visibility over their supply chain. With a proven track record in driving efficiency and helping companies reduce transportation costs,Trax offers insight into freight audit and payment systems and the technology necessary to achieve transportation spend management maturity.
TSM Acronym
One acronym that has made its way into mainstream supply chain management is TSM, which stands for transportation spend management. To better understand what transportation spend management entails, it helps to focus on the impact of transportation costs on the supply chain.
Supply chain management encompasses everything from sourcing, manufacturing, transporting, storing, and selling. The area of the supply chain that deals with the movement and storage of items is known as logistics. According to the US Department of Transportation, 63% of total logistics costs are driven by transportation.
Transportation spend management is a data-driven approach to analyzing the performance of a logistics network, which involves reducing transportation costs, optimizing parcel and freight costs, and increasing transportation-related revenue. Effective transportation spend management can help companies identify cost-saving opportunities and significantly reduce their overall supply chain costs.
Trax Transportation Spend Management Maturity Model
Trax empowers enterprises to strive for transportation spend management maturity. The Trax transportation maturity model focuses on bringing a company from a reactive approach to managing transportation spend towards a more proactive, optimizing, and eventually leading role in the industry.
The proactive stage involves enhancing freight data management, data compliance, and freight audit and payment (FAP). Next, to further optimize logistics processes, companies improve visibility by integrating data from what were once disparate sources. The goal is to streamline operations and allow them to become risk-averse in the face of fluctuating fuel costs and shipping costs.
Finally, when a company reaches the highest stage of transportation spend management maturity, enterprises can control supply chain operations and stay ahead of the competition by continuously producing innovative solutions to reduce transportation costs and optimize their freight spend management.
Transportation Spend Management is crucial in supply chain management but isn't necessarily the first step toward transportation maturity. The next section reviews other freight terms to build your knowledge around freight management, transportation, and supply chain.
Other Freight Terms to Know
Procurement: Includes all aspects of sourcing and obtaining the goods needed for a company to function. For instance, companies conduct a needs analysis in procurement logistics to understand the type and amount of raw materials required. When procurement is mismanaged, companies face critical issues like shortages and dead stock, which can significantly impact transportation spend.
Warehouse Management System (WMS): Comprehensive software that enables companies to track materials in the warehouse, track merchandise, and streamline processes related to picking products and packing orders. The benefits of a reliable WMS include reduced labor costs, more efficient operations, and more accurate inventory tracking, all of which contribute to effective transportation spend management.
3PL vs. 4PL (Third-Party Logistics Provider, Fourth-Party logistics provider): A 3PL partners with a company to handle all aspects of logistics, while a 4PL focuses on the entire supply chain. The main difference between a 3PL and 4PL is the amount of control and accountability the provider undertakes. For instance, a 3PL focuses on fulfillment, including warehousing and shipping, while a 4PL is considered a complete solution to all things related to the supply chain, including daily operations and transportation spend management.
Inbound logistics vs. Outbound logistics: Inbound logistics includes everything related to supplies and materials coming into a business. In contrast, outbound logistics takes care of the processes required to move products to the customers. Both aspects significantly impact transportation costs and overall supply chain costs.
Demand Planning: Supply chains need to forecast and predict product demand. Demand planning involves finding the balance between having enough inventory to fulfill orders without having a surplus. Accurate demand planning is crucial for managing spend effectively, as it helps optimize shipping costs and reduce excess inventory.
Reverse Logistics: Sometimes goods need to be moved from the customer back to the supplier or manufacturer. This is important when handling customer returns or even customer disposal of products. The goal of reverse logistics is to retain value from the product or dispose of it efficiently, ultimately improving customer loyalty and reducing losses related to returns. Effective reverse logistics can also help reduce transportation costs associated with returns.
Transportation Jargon
Bill of lading (BOL): A carrier issues the bill of lading as the receipt for the shipped cargo. The document contains information relevant to the shipment, including product type, quantity, and destination. It must accompany the shipped goods, regardless of the mode of transportation, and be signed by authorized representatives from the carrier, shipper, and receiver.
EDI (Electronic Data Interchange): Handles the electronic exchange of business documents between the carrier, shipper, and other parties involved in the logistics process. The goal of EDI is to transfer data quickly, efficiently, and accurately, which is crucial for effective transportation spend management.
Landed Cost: To calculate the landed cost of a product, a company must sum all expenses incurred to create the product, transport it, and have the customer receive it. This includes things beyond manufacturing and shipping costs, such as customs and import duties, insurance and compliance, and payment processing fees. Understanding landed costs is essential for managing transportation spend and optimizing global supply chains.
Waybill: Similar to a bill of lading, a waybill includes key information about a product, shipper, sender, and destination. However, a waybill is not a legally binding contract. Rather this non-negotiable document is intended to inform, not act as an official receipt for goods.
Intermodal Transportation (INT): This involves moving freight by two or more modes of transportation, allowing shipments to move seamlessly between trucks, trains, and cargo ships. Intermodal transportation can be an effective way to reduce transportation costs in certain supply chain scenarios.
FCL/LCL: Full container load (FCL) involves purchasing the entire container for a shipment. In contrast, less than container load (LCL) uses only a portion of a container for a particular shipment. Choosing between FCL and LCL can significantly impact shipping costs and overall transportation spend.
TL or FTL (Truckload or Full Truckload): Generally, this refers to the quantity of freight required to fill a trailer to its maximum capacity. That can mean the total weight allowed for the trailer (10,000 pounds), or the total amount of cargo that will physically fit on a trailer. FTL shipments can be more cost-effective for large volumes, impacting overall transportation spend.
LTL (Less Than Truckload): This is a shipment of freight that requires less than an entire trailer. Generally, this method of shipping can be used when freight weighs between 150 and 15,000 pounds. When shipping LTL, the shipper usually pays for the portion of the trailer that their freight occupies, and other shipments will fill the unoccupied space. LTL can be a cost-effective option for smaller shipments, helping to optimize transportation spend.
OTR (Over the Road): Over the road refers to the transportation mode for shipping materials over long distances. This means that transportation will use highway systems, rather than local routes. OTR shipping can significantly impact transportation costs, especially when fuel costs fluctuate.
ETA (Estimated Time of Arrival): Estimated time of arrival is exactly what it sounds like – the approximate time a freight shipment is expected to arrive at its destination. Accurate ETAs are crucial for meeting customer demand and optimizing supply chain operations.
POD (Proof of Delivery): As it sounds, this is a document to establish that the full shipment was received at its destination. PODs are essential for verifying successful deliveries and managing transportation spend effectively.
FOB (Free on Board or Freight on Board): According to the Uniform Commercial Code, FOB officially stands for Free on Board, but you may also hear that it means Freight on Board. FOB is commonly used to indicate who pays for the loading and transportation costs of the shipment. It also indicates at what point the responsibility transfers from the shipper to the buyer. Understanding FOB terms is crucial for managing transportation spend and allocating shipping costs correctly.
Broaden the Scope of Related Terms
While we've covered many essential freight terms, the world of supply chain management and logistics is vast. Let's explore some additional terms and concepts that are closely related to transportation spend management:
Additional Freight Terms
Accessorial Charges: These are fees for additional services provided by carriers beyond standard pickup and delivery. Examples include lift gate service, inside delivery, or residential delivery. Understanding and managing these charges is crucial for effective transportation spend management.
Detention: This refers to the time a carrier's vehicle is held up at a shipping or receiving facility beyond the agreed-upon free time for loading or unloading. Detention charges can significantly impact transportation costs if not managed properly.
Demurrage: Similar to detention, but specifically related to the use of containers or equipment beyond the allotted free time. Proper management of demurrage can lead to substantial cost savings in international shipping.
Freight Class: A standardized method for categorizing freight based on its density, stowability, handling, and liability. Understanding freight class is crucial for accurate pricing and can significantly impact transportation spend.
NMFC (National Motor Freight Classification): A standard that provides a comparison of commodities moving in interstate, intrastate, and foreign commerce. It's essential for determining freight classes and, consequently, shipping rates.
Comparison of Different Logistics Models
Different logistics models can significantly impact transportation spend management. Let's compare some popular models:
Just-In-Time (JIT): This model aims to reduce inventory costs by scheduling materials to arrive exactly when needed in the production process. While it can reduce inventory holding costs, it may increase transportation costs due to the need for more frequent, smaller shipments.
Lean Logistics: Focused on eliminating waste in the supply chain, lean logistics can lead to reduced transportation costs through optimized routes, consolidated shipments, and improved forecasting.
Agile Logistics: This model prioritizes flexibility and responsiveness to changing market conditions. While it can lead to improved customer satisfaction, it may result in higher transportation costs due to the need for rapid, sometimes unplanned shipments.
Green Logistics: Emphasizing sustainability, this model can lead to long-term cost savings through fuel efficiency, optimized routes, and reduced waste, although initial implementation costs may be higher.
Understanding these models and their impact on transportation spend can help companies choose the most appropriate strategy for their needs.
FAQs Section
Here are some frequently asked questions about transportation spend management and related concepts:
Q1: What is the difference between transportation spend management and freight spend management?
A: While often used interchangeably, transportation spend management is a broader term that encompasses all modes of transportation (including air, sea, rail, and road), while freight spend management typically focuses on the movement of goods by truck or rail. Transportation spend management may also include elements like fleet management and fuel costs.
Q2: How can transportation spend management impact my company's bottom line?
A: Transportation spend management can significantly reduce costs through various means, including optimizing routes, consolidating shipments, negotiating better carrier rates, and reducing errors in freight bills. These savings can directly impact your company's profitability.
Q3: What role does technology play in transportation spend management?
A: Technology is crucial in modern transportation spend management. Advanced software solutions can provide real-time visibility into shipments, automate freight audit and payment processes, analyze big data to identify cost-saving opportunities, and help with predictive analytics for better decision-making.
Q4: How often should I review my transportation spend management strategy?
A: It's recommended to review your strategy at least annually, but more frequent reviews may be necessary in industries with volatile shipping rates or rapidly changing market conditions. Regular audits and continuous monitoring can help identify areas for improvement.
Q5: Can small businesses benefit from transportation spend management?
A: Absolutely. While the scale might be different, small businesses can significantly benefit from transportation spend management. It can help them compete more effectively by reducing costs, improving delivery times, and enhancing customer satisfaction.
Q6: How does transportation spend management relate to sustainability efforts?
A: Transportation spend management often aligns with sustainability goals. By optimizing routes, consolidating shipments, and choosing more efficient transportation modes, companies can reduce their carbon footprint while also cutting costs.
Q7: What are some common challenges in implementing a transportation spend management strategy?
A: Common challenges include data quality issues, resistance to change within the organization, integrating new systems with existing infrastructure, and keeping up with rapidly evolving technology and industry trends. Working with experienced partners like Trax can help overcome these challenges.
TSM Masters - Find a Logistics Partner in Trax
Trax understands the difficulties associated with remaining up-to-date on the appropriate terms related to the supply chain. As a well-established leader in transportation and logistics, Trax works with its partners to comprehend all aspects of supply chain management, including transportation spend management.
By partnering with Trax, companies can gain valuable insights into their transportation spend, identify cost-saving opportunities, and optimize their global supply chains. Whether you're looking to reduce transportation costs, improve freight spend management, or enhance your overall supply chain operations, Trax has the expertise and tools to help you succeed.
Contact Trax today to begin the journey toward transportation spend management maturity and unlock the potential for significant cost savings in your supply chain.