You start the year with what you thought was a realistic transportation budget. Yet, by year end, it’s all gone wrong. Why do transportation budgets fail? While there can be many contributing factors, it really boils down to your approaches to transportation procurement or transportation management (sometimes both). If either element is less than optimal, your budget could fail.
We all know there are external influences beyond your control that will affect your budget—market volatility, forecasts that are off, and changes to product mix and order size, to name a few. But what I’m talking about are the internal forces you can control.
For instance, transportation procurement:
- You have identified specific lanes and potential service providers for them.
- You’ve ranked the providers by lane, usually with the lowest cost provider at number one, and ensured every provider has the capacity for each lane.
- You’ve built your transportation budget on the assumption that your top-choice service providers will accept the loads they are offered.
But how well are you really aligned with your providers?
- Were you frank about seasonal forecasts and volume volatility?
- Did you use a transportation procurement tool, using constraints beyond the lane level?
- When you finished your procurement event, was your network aligned with your carriers’?
When your awards meet a carrier’s needs, your service network and the carrier’s are aligned. Conversely, lack of alignment and possible demand variance give you nothing but paper rates—two main contributors to failed routing guides and missed budgets. Research shows that if it’s been more than a year since you’ve conducted a constraint based bid, you’re probably not optimally aligned.
Moving on to the second factor you can control, ask yourself, “Are my service providers executing according to my plan?” This is where a transportation management system (TMS) comes into play:
- A TMS will track whether providers are doing what they should.
- A high-quality TMS allows service providers to see how their actions compare to their commitments.
- Both parties get the information they need to stay on course or take corrective action.
If you maximize your TMS, you can obtain business intelligence that will tell you when changes occur within your company and negatively impact your budget. Sometimes, production and sourcing plans shift in ways that cannot be supported by current transportation relationships, planning, and awards:
- Product launches and deletions
- Supply vendor and customer changes, additions, and deletions
- Even very successful marketing campaigns
If you don’t have a TMS, you’re probably working manually, and could be deviating from your intended strategy. A TMS will help you manage against that strategy for more effective transportation budgeting.