Why Do Transportation Budgets Fail?
Why do transportation budgets fail? It’s a thorny topic, even for transportation professionals trying to trace an increase back to its source. Imagine what it’s like for senior executives who have no background in transportation as they try to understand it.
At a CSCMP conference session, participants offered case after case of how business decisions—both unintentional and intentional—can wreak havoc on transportation spend.
Some increased costs could be traced to the launch of a new product, and some to the characteristics of a product that were markedly different than expected, making it more expensive to ship. Even having an unexpectedly successful product raised transportation costs, compared with the plan.
Jim Stevens, one of the panelists and director of Customer Logistics at Continental Mills, related one story. He described how his company expected to lose a customer that was in their longest, most expensive lane and represented a significant portion of transportation spend. However, after the transportation group removed the costs associated with that customer from the budget, the company not only retained that customer, but grew business with them significantly. Needless to say, it wasn’t the most successful budgeting experience—but a welcome outcome.
It reminded me of an experience early in my career. I worked for a company that manufactured granola bars. Then, R&D introduced chocolate covered granola treat (more a candy bar, really). They thought this was a simple line extension and that transportation costs would be similar to other granola bars, not realizing what would ensue. Once an outer chocolate coating was added, the dynamics of the product’s transportation needs changed. The granola bars had to be protected from melting and freezing, and on top of that, customers wanted to order in pallet quantities instead of full truckloads. Suddenly, transportation costs increased ten-fold—and exceeded the revenue for the product.
These are just two examples of a theme that surfaced again and again: transportation must communicate and collaborate more effectively with other areas of the company. Doing so makes it far more likely that a business decision can be weighed against its associated transportation costs before the decision is actually made.
Rebeca Wlazlo, director, supply chain at Ulta Beauty, our second distinguished panelist, gave an example of how this should work. During one Father’s Day season, Ulta Beauty rewarded consumers of specific products by offering an additional gift with purchase. This gift, due to its size and weight, was costly to ship. During a subsequent holiday planning, before selecting a new gift with purchase, transportation got involved. They were able to explain that these particular items would have been very costly to transport and handle. So the company reexamined the issue and made adjustments to the gift offer before those transportation costs were incurred.
You can find many other examples of why transportation budgets go astray in a new CSCMP Explores article written by Steve Raetz, C.H. Robinson director, research and market intelligence, and me. It’s called “How to Talk Transportation Budgets to Non-transportation Professionals,” and it is available on chrobinson.com.
- Looking to improve predictability and flexibility of available capacity, read Strategies for Transportation Spend: Understanding the Dynamics of Carrier Pricing, Service, and Commitment
- Your truckload procurement strategy can lead to excellent customer service and significant savings—if you can avoid common pitfalls. Read this paper to discover what dynamics influence the truckload market.