What blew your freight budget-the people or the process?
Initially Published in Logistics Management on August 20, 2018
It’s that time when transportation professionals begin preparing their freight budgets for the upcoming year. With all that’s occurred in 2018, I’ve had some very interesting conversations, especially with shippers.
The leading candidate for my “Favorite Conversation of the Year Award” came from a loyal follower of our “Two Minute Warnings.” He asked when we would be releasing our “Crystal Ball” publication, because he has found our materials to be invaluable when creating his freight budget. He closed the conversation by (half-jokingly) saying, “Mike, next year’s budget better be a whole lot better than this year’s or else I’ll need your help in preparing my resume and providing a great reference.”
I said, “You’ve got lots of company!” In fact, I told him that I have talked to hundreds of shippers, and the number of organizations that accurately forecast their freight costs for 2018 could be counted on one hand—with some fingers left over.
Let’s address the proverbial “elephant in the room.” A whole bunch of shippers are living with blown freight budgets for this year. And as we have highlighted in our recent “Perfect Storm” presentations to C-Level executives, almost one third of CEOs in the S&P 500 cited transportation and freight issues as having a material, negative impact on their corporate earnings through April.
These C-Level presentations have been well received because they address the unspoken, but very real, undercurrent that is running through several C-Suites in corporate America. This undercurrent was best expressed by one senior level transportation executive as he shared his disappointment about his freight costs that are running 21% over budget and lamented his need for a more accurate freight budget: “When I see these results, they make me wonder—do I have a people problem or a process problem?”
It’s a question that should concern every transportation and logistics professional living with a blown budget. So if you, or someone you know (wink, wink), has input into, or responsibility for, creating your company’s transportation budget for 2019, and you want to avoid having to update your resume, here is some practical advice: Make sure that everyone (who matters) within your organization:
- Signs off on the projected sales forecast and the fact that changes in economic growth (i.e. changes in GDP) will impact the freight budget;
- Understands that sales and procurement decisions, and operational efficiencies/inefficiencies will have a direct bearing on freight costs. For example, things like a precipitous drop in your order fill rate, a change in sales discounting practices, or changes in your supplier/customer base will impact your freight costs;
- Has at least a rudimentary awareness of issues in the transportation marketplace and how these affect freight costs; and
- Accepts the need for C-Level support and transparency in order to improve efficiencies and reduce freight costs. Even the greatest and most committed transportation professionals need this support
Let’s close with two thoughts.
First, in this environment, if you’re tempted to be the Lone Ranger, remember, even the Lone Ranger had Tonto! Take advantage of outside resources that can help you prepare more accurate freight budgets. For example, why not check out our C-Level Perfect Storm presentation?
Hundreds of executives have participated, and their feedback confirms that these presentations have been extraordinarily helpful in providing executives from different departments with a greater understanding of what is happening in the freight markets and how it impacts their company’s freight costs. With a more informed perspective, the executives from sales, procurement, finance and IT can get a better appreciation for how their decisions impact each other and their supply chain.
These presentations also facilitate dialogues that help departments identify changes that can reduce their freight costs. As one executive noted, “This presentation resulted in a much-needed discussion about the imperative for a collaborative effort in controlling our freight costs.”
Second, at this year’s annual CSCMP conference I will be giving a presentation that addresses how transportation professionals often sabotage their careers. What does this have to do with a blog about budgeting?
Well, one important way individuals hurt their careers is by being associated with unpleasant “surprises.” To be candid, many C-Level executives have been unpleasantly surprised by what happened in the freight markets in 2018 and the resulting impact upon their company. As one CEO told me, “We should have seen this coming. We will take our medicine in 2018, but we better do a much better job of forecasting and budgeting our freight costs in 2019!”
So if you want to avoid having to work on your resume, heed these comments and prepare an accurate freight budget for 2019. And if you’re looking for your Tonto, attend the CSCMP session or give me a call to line up a meeting for your C-Suite.