The What, Why, And How Of Transportation Forecasting
Many companies have collaborative planning and forecasting processes with suppliers and manufacturing partners, but very few translate demand and production forecasts into transportation capacity requirements. Why is this becoming more important? What factors are driving the need for transportation forecasting? And how is technology helping to enable this process?
Transportation planning vs. forecasting
Companies do transportation planning every day, but may not recognize the difference between this effort and transportation forecasting. Therefore, I began our discussion by asking Gary to explain transportation forecasting.
Gary notes that companies have gotten very good at using demand sensing and demand planning tools to forecast their production requirements. He says they can use the same processes to forecast their transportation capacity needs. “This allows them to forecast their transportation requirements by lane, by mode and by class with the same sophistication as they’re forecasting their finished goods,” says Gary. “With the variability of demand, seasonality and even tariffs, this enables companies to reduce their freight spend while ultimately improving on-time delivery and customer satisfaction. Greater productivity is the result.”
Removing the silos
One of the hurdles to transportation forecasting is that companies largely still work in silos. For example, in consumer goods (CPG) companies, the transportation department is often the last to know about promotions that will significantly impact capacity requirements, putting tremendous strain on transportation planning and costs.
Gary points out that most transportation planners don’t know what their capacity needs will be next week, next month or the next 12 months because of the disconnect between the transportation department and the Sales & Operations Planning (S&OP) team. “Each team is working separately instead of collaboratively,” he says. “Since transportation is often one of the biggest expense items in the supply chain, there is tremendous opportunity for cost reduction by understanding future capacity needs so it can be secured at the best rates and avoid higher cost modes or the spot market.”
Gary goes on to explain that transportation forecasting requires collaboration not only with the S&OP team, but also across production planning and sourcing, marketing and promotions planning and other departments because transportation planners need to know where materials and goods are coming from, where production or assembly will take place and where the end products will be consumed. This may involve goods coming from Asia to the U.S. and ultimately sold in Europe, for example.
Gary suggests that collaboration with carriers is also critical in order to secure capacity when you need it. He cites the example of looming tariffs. Companies may want to build up inventory in advance of new tariffs to avoid the added expense. By collaborating with carriers, they can ensure the needed capacity to accomplish this will be available at acceptable rates. And sharing capacity projections over the longer term can help to secure favorable rates during the bid process as well.
Collaboration across various parts of the business often involves the sharing of data between multiple systems. I asked Gary if this is done by the transportation management system (TMS) or if other technologies are involved. Gary says, “Certainly, collaboration with the TMS is part of it, but it requires a platform to pull together data from across the enterprise such as demand planning, production planning, sourcing, and orders from the ERP system. That demand and order data is then provided to the TMS on our platform to match with capacity, as well as to collaborate with other parts of the business, other product lines and with suppliers to forecast total needs,” says Gary.
“The synchronization with other teams yields incredible benefits in on-time delivery, improved customer service and reduced costs. The transportation department is happy because they don’t have to scramble for capacity or blow their budgets with higher-priced modes or expedited shipments. The commercial teams are happy because the goods are in place to support their promotions, which can have a significant impact on revenue. This also allows them to alert the warehouses and third-party distributors so they can plan the right staffing to receive or load the products.”
Getting started with transportation forecasting
How should companies approach transportation forecasting? What are the first steps and biggest hurdles? What additional benefits are available? I encourage you to watch the full episode for all of Gary’s insights and advice on these questions and more, including his predictions for transportation forecasting in 2020. Then keep the conversation going by posting your own perspective or experience with transportation forecasting.