Creating an efficient LTL transportation budget drives business success and customer satisfaction. Learn how to build your shipping budget correctly.
How to Prepare an Efficient Transportation Budget
What’s in the article:
Why start with a demand forecast
How to define your transportation needs
Evaluating your carriers
Optimize for your needs
Taking the right steps to create your transportation budget can pay dividends for your business by boosting efficiency, increasing customer satisfaction, and helping your business survive and thrive.
Transportation budgeting can seem daunting at times. You wish you had a crystal ball to predict changes in the economy and buyer behavior. But knowing what factors to consider when preparing your shipping budget can make the process easier and more accurate. Let’s take a closer look at how you can approach your transportation budgeting process and avoid some common pitfalls along the way.
Starting Your Transportation Budget with a Demand Forecast
The budgeting process starts with a demand forecast of what you believe your company is going to do and how it may change throughout the upcoming year. Consider factors like:
- The seasonality of your business–when you do the bulk of your shipping volume.
- The economic forecast for the next six months and how it could potentially impact the amount of goods you need to ship during that period.
- How you’re expecting to exit the current year. This helps you anticipate your shipping needs for the beginning of the year. For example, if you’re a retailer and you’re exiting the year with bare shelves, that’s great! It means you had a good holiday season and need to do a tremendous amount of inventory replenishment early in the year. On the other hand, if your holiday season is slow and sluggish, you may not have to do much inventory replenishment moving into a seasonally slower time of the year.
Define Your Transportation Needs
Your demand forecast helps you start to see what your transportation budget is going to look like when combined with some other factors such as:
- How much shipping are you going to need?
- Approximately when are you going to need it?
- Where are you going to get the items that you’re shipping?
- How are you going to get these items where you need them to go? For example, if you’re bringing goods in from overseas, you need to build in more lead time versus if the goods are produced domestically, where transit time will be shorter.
These are important factors to consider as you think about next year’s freight transportation needs. The answers to these questions help guide your modal decisions like your mix of LTL versus truckload.
Then, when it comes to LTL budgeting you need to think about things relating to your service requirements for your customers like:
- Do you have some flexibility?
- Are you able to use slower methods of transportation, enabling you to mode shift?
- Can you use lower-cost carriers sometimes that aren’t quite as fast or reliable to gain some price savings by slowing your LTL a bit?
- Or do you need shipments to move as quickly as possible, where you could be forced to utilize only the fastest LTL carriers possible at the highest reliability?
How you answer those questions is incredibly relevant to your budgeting process for the next year. This will dictate your carrier mix, the different modes you can use, and your service level requirements and is essential to building an effective transportation budget for the upcoming year.
Clean Data = Better Transportation Budget Decision Making
It’s important to make sure your data says what you think it’s saying. We see a lot of shippers that have a lot of uncertainty around their data because it’s not clean enough or reliable enough to use for forecasting, which means they’re making decisions based on what they think it says. And that’s not typically a very good way to run your shipping network because that means you’re guessing at service decisions.
Evaluate Your Carriers
Assessing your carrier network is one of these decisions where data accuracy matters. You need a broad enough suite of carriers to protect you in case of outages and things of that nature. Some questions you should ask yourself include:
- Are my carriers consistent?
- Are they going to provide high-quality coverage and service levels—not routinely late or destroying your freight?
- Are they going to cover everything you need so you don’t have to switch out?
- Are they going to be consistent with how they treat me?
So, as you’re thinking about what your carrier portfolio is going to look like next year, you’ve got to match what you’re trying to do with carriers that are going to protect you and match your service level, coverage, and quality level that you need. Then, once you’ve assessed carriers based on your needs, you can look at them from a pricing standpoint.
Optimize for Your Needs First
Shippers often start these conversations at the opposite point and say they are looking for low-cost options. Well, that might fit your business and it might not, but that should be at the very end of the screening process.
First, you should clearly define your needs. That puts you on the map as to what sort of price points you’re playing in. Then there are ways to whittle it down and optimize for that. But you must understand what you’re trying to do and what you can and can’t utilize in your business first.
Only Pay for What You Need
Ultimately if your supply chain is working effectively, it’s helping your business run smoothly. So, if you’re optimizing your supply chain based on your needs and then looking at pricing, you’re paying what you need to pay to run a stable, attractive supply chain that’s fitted to your business and you’re not overbuying it. For example, if your customers don’t need fast and you’re paying for fast, you are incurring supply chain costs that you probably don’t need to incur. That drives your cost to serve up higher than it needs to be, which impacts your competitiveness in your given market.
Don’t overbuy if you don’t have to, but make sure you’re protected by carrying a few more carriers than you have historically. This gives you the ability to adjust or diversify modally between small pack, LTL, truckload, or intermodal as needed.
A Logistic Partner Can Help with Your Transportation Budget
Understanding what you’re trying to accomplish and clearly defining your needs is relatively simple, especially if you’re using a partner to help you match your problem to your solution. If you’ve defined your problem well, crafting the right solution becomes easier. It doesn’t mean it’s easy, it just becomes more solvable.
Not only can a well-informed and knowledgeable shipping partner help you understand your transportation goals and needs, but they can also help you have a broader perspective on what to expect. Logistic partners work with other shippers across many industries, and they’re equipped to help with economic modeling for the coming year. So, they can help you create an accurate demand forecast and transportation budget.
Build An Early Warning System
Creating a budget is not a “set it and forget it” process. Keep an eye out for trends in your data so you recognize where reality doesn’t match the assumptions you made as you created your budget. These are opportunities to adjust, driving increased efficiency in your supply chain for the balance of the year. Finding the right shipping partners helps you better take advantage of those opportunities as they present themselves and better control transportation costs.