What is a Transportation Management System? A Complete Guide

Without a clear, consolidated view, its impossible to see what is working well and where they need to address poor performance.

The most effective (and common) way that shippers gather crucial data and gain network visibility is by using a transportation management system, commonly referred to as a TMS.

Well cover all the basics about this core logistics and transportation technology, including the difference between a TMS and WMS, the core functions of a TMS and how to choose the right one for your business.

In today’s complex global supply chains, transportation management is more critical than ever But what exactly are transportation management systems, and how can they benefit your business? This comprehensive guide will explain everything you need to know about transportation management systems

What is a TMS?

A transportation management system (TMS) is software that helps companies efficiently manage and optimize their daily transportation operations A TMS serves as a logistics platform that streamlines and automates processes like

Planning and executing shipments
Selecting carriers and modes
Managing freight billing
Tracking shipments in real-time
Measuring performance metrics
Providing visibility across the supply chain

In short, a TMS is mission-critical logistics technology that connects a company’s entire transportation ecosystem to enhance efficiency, collaboration, and freight cost management.

A TMS may exist as an on-premise software system, but today most companies use TMS solutions delivered via the cloud as software-as-a-service (SaaS). Cloud-based systems offer greater scalability, flexibility, and mobile accessibility.

Key Capabilities of Transportation Management Systems

While TMS solutions vary, most provide some combination of the following core capabilities:

Multi-modal shipment planning – Optimizes daily routing and consolidates LTL shipments across modes like truck, rail, air, and ocean.
Load planning and optimization – Maximizes trailer space utilization and builds efficient loads.
Automated routing – Identifies optimal routes and carriers based on factors like cost, service level, and capacity.
Carrier selection – Automates the tendering process to contract the best carriers at the lowest cost.
** Transportation procurement** – Centralizes procurement data for better carrier and rate analysis.
Shipment tracking – Provides real-time visibility into shipment location and status through the supply chain.
Freight audit and payment – Automates freight bill auditing, rate verification, and carrier payment processing.
Analytics and reporting – Delivers insights into transportation KPIs like spend, on-time performance, and utilization.
EDI integration – Seamlessly integrates with partners through EDI for error-free transactions.
API connectivity – Connects with internal systems like WMS, ERP, and order management through APIs.

Who Uses Transportation Management Systems?

Nearly any company that deals with shipping goods can benefit from a TMS platform. Typical users include:

Manufacturers – Optimize outbound shipments from plants to distribution centers, retailers, or directly to consumers.
Distributors – Manage inbound and outbound freight across their distribution network.
Retailers – Improve store replenishment and direct-to-consumer delivery.
Third-party logistics providers (3PLs) – Manage transportation for multiple clients from a central TMS.
Freight brokers – Automate matching shippers and carriers and arranging freight moves.
Carriers – Manage fleet planning and execution for their assets and drivers.

Even small companies with a few trucks can benefit from basic transportation management capabilities. The solutions scale to support operations of any size.

Benefits of Using a TMS

Implementing a robust TMS solution offers a wealth of benefits:

Lower freight costs – Identify opportunities to consolidate LTL shipments, optimize routes, improve carrier procurement, and audit freight bills. Companies can expect 10-25% freight savings.
Higher shipment visibility – Gain real-time tracking of all inbound and outbound shipments across modes and carriers. Address issues proactively before they disrupt operations.
Improved supplier collaboration – Share TMS data with supply chain partners for greater coordination across the logistics network.
Enhanced customer service – Boost order accuracy and on-time delivery by having a single source of truth for transportation.
Increased agility – Respond faster to customer orders, production changes, and market demands with optimized, data-driven shipping.
Better analytics – Gain detailed analytics and reporting on transport KPIs to drive continuous improvement.
Improved compliance – Automate processes related to transportation regulations, security filings, customs clearance, and more.
Higher productivity – Eliminate manual work so planners can focus on higher value strategic projects.

For most companies, a TMS delivers rapid ROI through freight savings, new efficiency gains, and improved customer service.

Key TMS System Components

Modern cloud-based TMS platforms contain a suite of capabilities that can be activated based on each company’s unique needs:

Core TMS – Foundational transportation management, planning, execution, and Freight Audit & Pay modules.

Control Tower – Real-time visibility dashboard with track and trace, predictive ETAs, and exception management.

Procurement – Automates carrier sourcing, contract management, and online transportation procurement.

Modeling & Optimization – Sophisticated algorithms for network design, load planning, route optimization and more.

Analytics – Robust reporting and interactive dashboards for transportation analysis.

Integration Hub – Seamlessly connects to ERPs, WMS, order management and other systems.

Mobile Apps – Provides transportation visibility and managing workflows on-the-go.

The most agile TMS solutions allow you to activate the capabilities you need today and scale up as business needs evolve.

Challenges of Transportation Management

While a TMS delivers immense value, migrating to a new system does present some challenges that must be carefully managed:

Change management – Getting internal teams to adopt new transportation processes requires education and leadership.
Legacy system migration – Moving data and integrations from old systems takes time and technical expertise.
Ongoing TMS administration – The TMS needs continuous configuration and optimization to maximize value.
Carrier adoption – Getting carriers configured and consistently using the TMS takes concerted effort.
Data quality – Cleansing bad transportation data from legacy systems can slow TMS performance.

With the right TMS implementation partner, these hurdles can be overcome to drive maximum benefit from the new transportation management system.

Steps for Selecting a TMS

Follow these best practices when researching and selecting a new TMS:

Document requirements – Outline must-have TMS capabilities based on pain points, objectives, and growth roadmap.

Develop RFP – Create a detailed RFP outlining your functional needs, technical landscape, and implementation expectations.

Evaluate solutions – Review TMS vendors on functionality fit, cloud architecture, configurability, and carrier network.

Check references – Talk to peers currently using the TMS about their experience.

Assess services – Review implementation, support, training, and integration services.

Compare TCO – Factor both software and service costs over a 5-year timescale.

Sign contract – Negotiate agreement terms and service levels to protect your interests.

By following a structured selection process, you can find the ideal transportation management partner to support your current and future business needs.

Transportation Management Systems Offerings

How Much Does a TMS Cost?

Transportation management system costs include:

Software license/subscription – For a SaaS model, plan on $100-$500 per month per active user. On-premise licenses often have an upfront cost.

Implementation services – $100,000-$500,000+ depending on scope, integrations, and optimizations required.

Support & maintenance – Around 20% of software license costs per year.

Hosting fees – For cloud solutions, hosting and infrastructure fees apply.

Third-party services – Added costs for external integrations, customization, managed services, etc.

Internal training & admin – Plan for at least one full-time equivalent employee for ongoing TMS optimization.

While not cheap, the ROI from enhanced freight and labor efficiency usually offsets the costs within 12-18 months. For high-volume shippers,

what is transportation management system

Need More Than Just a Platform? Consider an Outsourced Solution

In addition to providing a digital solution, many TMS providers offer outsourced transportation management services (also known as managed TMS solutions).

Managed TMS solutions typically include:

Dedicated support team
KPI creation, monitoring and reporting
RFP management
Continuous improvement implementations
Network optimization
Forecasting and cost reduction strategies

Shippers choose to outsource their transportation management either due to a lack of internal supply chain expertise or difficulty in recruiting supply chain talent.

Typically, shippers will have a small internal team that works closely with a dedicated team from the TMS provider.

The TMS team will take care of the day-to-day operations, carrier management, and network analysis, while the shipper’s team will focus on big picture strategy.

Related: See how this food & beverage shipper avoided a 12% increase in transportation costs by relying on an outsourced solution with Coyote Transportation Management (CTM).

Why You Should Invest in a TMS

While implementing and maintaining a TMS requires an investment, both financial and human resources, having a TMS is not a luxury for most businesses — its a necessity.

Robust digital solutions are an essential component of nearly every shippers overall supply chain strategy.

According to our original research study, Technology + Humanity, this is not only true for larger shippers (98% of which have a TMS), 89% of small shippers use one too.

How does a Transportation Management System (TMS) Work?

What are the benefits of a transportation management system?

Transportation management systems include several benefits that can help all types of organizations across the supply chain better collaborate and manage their processes. Cost savings: By optimizing shipping routes and destinations, companies can reduce costs and drive efficiencies.

What is transportation management?

Transportation management controls the process of shipping physical goods or supplies from one location to another. This could be raw materials being delivered to a warehouse, intermediate stops in the supply chain or a good’s final delivery directly to a customer. What is transport logistics?

What is a transportation management system (TMS)?

Read the transportation management systems report A transportation management system (TMS) is a logistics platform that uses technology to help businesses plan, execute, and optimize the physical movement of goods, both incoming and outgoing, and making sure the shipment is compliant, proper documentation is available.

What is a transport management system?

A transport management system is essential for logistics and supply chain professionals working for manufacturers, and distributors who must manage their inbound and outbound shipments.