What is the ROI of my SAP TM Implementation?
According to Arc Advisory Group’s brief, Return on Investment (ROI) is driving next generation TMS adoption, “…a transportation management system helps companies efficiently, reliably, and cost effectively move freight from origin to destination. Failure to transfer goods to and from a destination on time can lead to significant losses in revenues, as well as customers.” However, as SAP TM is an important investment for the company, both from a financial and organisational point of view, the follow-up question “What is the ROI of a SAP TM?” is a natural one.
Quantitative and Qualitative elements
It is a question that is not easy to answer, because the ROI of SAP TM is composed of both quantitative and qualitative elements.With SAP TM, you can not only achieve a reduction in costs and higher revenues, but you can also improve the service level to your customers, with better visibility. According to SAP’s benchmark, the average savings for a company implementing SAP TM is between 5 and 20 % of the yearly freight spend.
A. Qualitative Benefits of SAP TM
- Complete visibility to transportation demand
- Improve the efficiency of order and process management
- Enhance customer service
- Manage large quantities of shipment and logistics data for detailed analysis and planning
- Helps in faster planning – By consolidating all processes and suggesting executable plans, SAP TM has significantly sped up transportation planning.
- Improve resource utilization
- On the fly drag and drop planning
- It gathers and optimizes all shipment whether local, international, inbound, or outbound
- Carrier Selection – SAP TM helps shipment companies make systematic decisions
- The process is more streamlined and you have better collaboration with the carriers
- Improve cargo handling
- Achieve faster, more dynamic, and responsive logistic execution
- Greater Control over Transportation Cost –SAP TM system provides more clarity to the planning process, hence giving businesses better control over their expenses.
- Integrate transportation management and billing.
- High Invoice accuracy achieved
- Visibility into the settlement process
B. Quantitative Benefits of SAP TM
- Reduced costs and improved operational performance
- Improved carrier collaboration and resource utilization
- Efficient end-to-end order and process management
- Efficient logistics and fulfilment processes
- Improved execution visibility and responsiveness
What to consider when calculating ROI?
Apart from Qualitative and Quantitative factors, one of the major factors based on which ROI is being calculated is the ‘Scope of the Project’. Based on Scope, other very important factor is being identified is the ‘Cost’ which is going to be involved for ROI of SAP transportation management. Once scope and Cost is evaluated, it sets the base to perfectly analysis what all benefits (Qualitative and Quantitative) SAP TM will bring to achieve higher revenues and lower costs.
A.The scope of the SAP TM
A well-defined scope for the SAP TM is essential for the success of the investment. To achieve this, it is important to answer some questions:
What modes of transport should be included? Each mode of transport (air, sea, land) has different dynamics, procedures, and cost drivers that the SAP TM solution must be capable of supporting.
What flows (inbound, outbound, intercompany) should be included? Import and export have needs and requirements that in some cases cannot be combined. A good understanding of the processes can help to identify eventual gaps in the TMS.
How complex is the transportation network? A company can have linear transports from A to B or a more intricate design which demands a solution that can support multi-mode and multi-leg routings.
- How volume is being split between modes? (Ex: Road 50%, Rail 20%, Ocean 20%, Air 10%).
- How much is transportation volume in terms of number of trips and in tonnage?
How can the loads be optimised? Good load planning helps to avoid empty trucks and unnecessary travel.
How can the procurement and the rate selection be improved? According to Prime log’s white paper “Purchasing guide”, it is important to take control of transport contracts and invoices in order to achieve a significant reduction in freight spend;
How can the procedures be standardised to reduce manual work? Very often, most activities linked to transports are still undertaken manually, which leads to major personnel costs.
B.The cost of the SAP TM
The second factor in determining the ROI of a SAP TM is the cost: Once the Scope has been evaluated based on the above factors, below are the highlighted areas which will help to choose a vendor with a clear and transparent cost structure. Moreover, we need to bear in mind that non-user-friendly solutions may generate extra and unexpected consultancy costs (and a delay in the implementation).
Using the Preferred Carriers (process enforcement to make sure the best carriers on a lane are selected for moves)
Contract Negotiations – Optimization and Bidding (ability to collect and analyse data for better business decision making)
Using the cheapest Mode (hard costs freight savings having the ability to choose the lowest cost if you want)
Optimized Loading – Utilization (More Fully Loaded Equipment)
Payment Accuracy (Data available in the system, but also integrated services for things such as freight payment & audit, as well as freight claims)
Visibility and Follow-up (Execution Traceability and Event management for both expected and Unexpected events)
SAMPLE ROI CALCULATION