Determining the greater priority in shipping - cost or service quality - presents a complex challenge, and achieving a good balance between the two is essential. More often than not, however, service requirements determine how a shipment gets routed.
At the same time, it is imperative for logistics operations to carefully consider costs alongside service quality. Overlooking financial aspects for the exclusive pursuit of service excellence is unwise, given the significant role costs play in organizational budgeting and strategic decision making. But costs are about more than just day-to-day routing decisions. They are impacted by broader corporate dynamics and trends that are happening at the company and all around the shipping market.
Budgeting in a Changing Market
Since transportation costs are a big part of many companies' operating expenses, they’re also an important consideration when it comes to budget management. There’s an inherent problem with logistics budgeting, however. It’s that budgets are usually static while market conditions are almost always changing.
So, how can the logistics department keep its operations on budget while dealing with so many other things affecting cost?
Not surprisingly, logistics technology needs to play a key role, and we’ll get to that in a moment.
A lot of factors can impact logistics costs as they change, with the most obvious being rates. Freight rates are generally a function of supply and demand which means it’s natural for companies to see their rates change over time. Whether this means rates are going up or down depends on the market cycle. The rate of change will often be the result of how much the shipper relies on contracts or spot market rates.
Business and market changes can affect shipping budgets, too. Different products, delivery requirements, supplier locations, and customers will all impact the cost of freight. Carriers and partners come and go which can also make it more challenging to stay on budget.
Here are five tips to assist your business in adapting to business and market fluctuations, with the aim of mitigating their impact on your budget, while maintaining leadership satisfaction.
Tip 1 – Use AI for more data-driven decision-making
The overall costs your logistics operation incurs are the result of the countless decisions made over time. Hitting your budget can be a matter of making the best strategic choices using the information you already have in your shipping operations.
The good news is that the integration of AI into Transportation Management Systems (TMS) is already yielding tangible results for logistics operations of all sizes. For example, CoPilot from ShipperGuide can turn natural language queries into actionable insights and analysis that shippers can use to support better decision-making in the day-to-day and long term. Integrated into the ShipperGuide tool, companies are utilizing the application to help improve the execution of their shipping operations.
Tip 2 - Scenario planning: expect the unexpected
The choices shippers make when it comes to carrier and mode selection directly impact budgets. There are almost always multiple ways to route a given shipment, and often it has to be done on short notice or with limited information. Sometimes in these scenarios, it’s best to let history be your guide.
ShipperGuide enables logistics departments to view and understand shipment histories to build cost scenarios based on real shipment data. This information allows load planners to discuss options and develop solutions that help mitigate risks – and ensure each scenario can stay within your transportation budget.
Tip 3 - Better manage carrier relationships
It bears repeating: it is not advisable for any organization to regularly exceed their budget in pursuit of enhanced delivery performance. Striking a balance is key, as opting for low cost at the expense of service quality can be detrimental to business success. One way to find an equilibrium is through managing their carrier relationships based on facts, not feelings.
Under the Reports tab in ShipperGuide companies can view the Carrier’s reports where they can monitor performance such as On Time Pickup, On Time Delivery, and insights developed by AI to give quick analysis on each of the carriers. Under the "Price Monitor" reports, shippers can also view the booking spend compared to benchmarks of the same period. These reports help shippers to build better carrier partnerships and develop useful feedback.
Gathering data and feedback isn’t just about building a case to reconsider a carrier. It’s a valuable way to help them improve in ways they may not be aware are needed. It’s important to remember that carriers who feel valued and see a customer as a partner will offer lower rates.
Tip 4 - Be adaptable and flexible
We’ve established rates change, your needs change, and even the service your carriers provide will change over time. But will your logistics operation change, too? Getting locked into specific providers and ways of thinking is a mistake shippers often make. Managing a budget can require companies to constantly challenge their own assumptions.
Having access to rate query tools and the performance data in ShipperGuide gives companies information to look at their operation and how it’s doing in objective ways. Understanding what can be done better and what other options can be is the key to being flexible when change is needed.
Tip 5 - Get alerts
Setting up alerts in a TMS is crucial for effective budgeting as it enables real-time tracking of key financial metrics such as booking spend, rates per mile, and rate per pound. These alerts allow for proactive management, ensuring that any deviations from the budget are immediately noticed and addressed, preventing cost overruns. Additionally, by comparing current booking spends against industry benchmarks, these alerts help businesses stay competitive and make informed decisions about their logistics and supply chain strategies. See below how easy you can set-up alerts in ShipperGuide.
The daily work the shipping department does is not just a budget line item even though that is how it's often treated. As rates and business needs change, shipping departments need the tools to handle it.
ShipperGuide makes it possible for logistics teams to improve how they operate as well as “manage up”, and provide their leadership the assurance they can stay within budget while maintaining the necessary service performance.
ShipperGuide is a next generation TMS that excels at high-volume, low-complexity freight procurement and execution, which can be a great fit for many mid-market shippers. It enables shippers to benchmark and compare different lanes, loads, and carriers to see exactly how shipping costs shape up, removing all the guesswork associated with typical shipping operations, and reducing not-needed costs. Unlike a digital freight platform, with ShipperGuide, you can use your own network of carriers, and its flexibility makes it a great solution for shippers and 3PLs alike.