A Retail Transportation Forecasting Guide: Challenges, Best Practices, and How to Optimize
The importance of transportation forecasting, and its shortcomings, were highlighted in 2020. In a pandemic-ravaged year, the world witnessed an unprecedented global lockdown that shook supply chains worldwide. And as international trade saw a year-over-year 18.5% drop, followed by an unprecedented surge in e-commerce demand and a very capacity constrained freight market, companies had to rethink their transportation forecasting methods.
Retail was one of the most affected sectors when it came to transportation forecasting, as consumer behavior shifted suddenly and drastically, and companies scrambled to create innovative and accurate forecasting models to keep up with the fluctuating demand. No one saw the pandemic and subsequent global lockdown coming, leaving everyone to play catch-up. Forecasting models were in disarray, creating the problem of under-forecasting for many companies.
Retail transportation forecasting is a prediction of your spend relative to volume and service from a go-forward timeframe, based on consumer behavior. It shouldn’t be conflated with transportation planning, as the former deals with spend on the shipping mode, lane, and class level, while the latter deals with planning based on finished goods and demand levels only.
The year 2021, thus far, has seen many core supply chain principles changed due to the pandemic's effect. Pre-COVID forecasting models don’t work anymore, but using forecasting models created during the pandemic could lead to underutilization, lost revenue and market share, or otherwise. The old way of forecasting is no longer valid. Supply chain management and transportation forecasting will remain challenging in 2021 as we return to a new normal, as it will take time for import constraints, transportation capability, and other factors to stabilize. In order to successfully forecast and execute to a plan while building a more nimble and resilient supply chain, it’s important to take a more nuanced approach. Let’s look at retail transportation forecasting challenges, best practices, and how to optimize the process.
Challenges with Retail Transportation Forecasting
Retail transportation forecasting does have its fair share of challenges. The sheer number of variables that affect the process include: frantic consumer behavior, fluctuating shipping rates, an abundance of shipping modes and lanes, omnichannel sales, heightened customer expectations, and more.
Omnichannel sales are one of the pandemic's most significant lingering effects, as now companies must estimate how much of their sales will come from e-commerce, in-store sales, or even buy online, pick up in store (BOPUS). For example, the 2020 holiday season was the first time that more customers planned to shop online (61%) rather than in-store (54%) on Black Friday.
While the reliance on online shopping has decreased a bit in 2021 with looser lockdown policies, predicting consumer behavior remains challenging. Factor in the customer experience and expectations, and forecasting becomes even more elaborate as you have to consider expedited deliveries, product return processes, and more.
Another obstacle is forecasting delivery costs for varying modes, classes, and lanes while simultaneously cross-checking seasonal patterns, capacity issues, and marketing promotions to keep your transportation spend within budget.
Unlike production forecasting, for example, retail transportation forecasting is affected by many more external factors. Holiday seasons put a strain on carriers and could lead to capacity issues or hikes in shipping prices—we’ve seen this ‘holiday season’ effect continue year-round since the pandemic. Furthermore, 2021 has seen significant issues with imports, given the container shortages, dock congestion, limited vessel capacity, and so on, which has caused product stockouts and other issues. Inventory planning and supplier rationalization are key. Adding in the altered customer behavior, and it’s critical to get your forecast right. We saw more consumers planning to do their holiday shopping early to avoid stock-outs in 2020, and while that figure may go down in 2021, it still highlights the unpredictability in consumer behavior that can drastically affect your transportation spend.
The good news is there’s a roadmap to optimizing retail transportation forecasting through a mixture of quality data, enhanced visibility, and astute cost reduction analysis.
How Do I Forecast for Retail Transportation Spend
To successfully forecast retail transportation spend, you need control over your cost centers and higher visibility into your retail transportation setup. Once you have the unhindered insight, you can start forecasting accurately. But in order to gain that insight, you need to address these critical points.
Improve data quality
High-quality data is the cornerstone of robust forecasting. While senior executives' intuition may have served companies well pre-COVID, that’s no longer the case. Reliance on historical, real-time, internal, and external data has become vital for forecasting.
By normalizing and centralizing data, you can constantly review it, create high-quality reports, and eliminate data silos that may harm your decision-making. Having that centralized data also allows all of your teams to participate. For example, marketing and sales can work with logistics and supply chain to schedule promotions in advance to make retail transportation forecasting more accurate and comprehensive.
At Trax, we understand the importance of high-quality, normalized data, which is why we’re dedicated to enhancing the overall quality of data and information that our clients receive. Whether it be through elevating data management processes or optimizing activities of data streams, such as freight audit and payment or carrier management, we ensure our clients have unhindered access to the best data available.
Understanding the how, where, when, and why of your transportation spend delivers a remarkable ability to mitigate risk. The complexity of forecasting spend for multi-modal transportation in the confines of retail shipping parameters makes visibility into the processes that affect your spend—such as route optimization, carrier selection, contract management, and more—critical to avoiding errors and enhancing visibility. Furthermore, having all that information in one place and making sense of the cobweb of information helps you highlight gaps in need of fixing and opportunities ripe for the taking.
By regularly reviewing your data, you can implement quick course corrections regarding carrier rates, consumer behavior, carrier capacity, and beyond. Our Rate Manager and Match Manager tools give you enhanced visibility into rates and early visibility for accrual management, cost allocation, and improved data visibility. Our freight audit and payment services hone and optimize your data management processes. We set you up to have the business intelligence you need to make informed decisions and forecasting models that will grow your market.
Gaining visibility is imperative to forecasting so you can maintain transportation spend within your budget and stay ahead of market trends, leaving you to go after new opportunities when the competition is just trying to survive.
Optimize cost reductions
High-quality data and enhanced visibility shed light on your cost centers. This is when you can optimize cost reductions by tackling gaps in order to maintain a healthy profit margin.
Inventory management is a key cost center to keep an eye on. For example, holding costs are a major concern post-COVID, as some companies increased inventory by more than 50% during the pandemic. But it doesn't stop there. Inventory location plays a massive role in costs—the farther away, the more costly it is to move it, and the longer it takes to get to the customer, thereby affecting customer experience in the process.
Another factor to consider is more mature shippers now ship from local stores to customers, offering faster shipping at lower costs. Trax grants you unparalleled visibility into shipper rates and performance so that you can choose the best shipper for the best rate every time.
Significant cost reductions are also present in freight audit and payment and carrier management processes, as eliminating errors, streamlining processes, and reducing the number of resources through outsourcing leads to significant savings, decreases errors, saves time, and more.
Adopting the right technology helps enhance the resiliency and agility of your global logistics network by giving you greater efficiency, quality, and visibility. Successful companies realize the value of a globally connected supply chain that allows them to access new markets seamlessly or enhance their market share instantly when the opportunity arises. Using technology to standardize processes and normalize global data makes optimizing your global logistics network much more straightforward for all parties involved.
Technology also allows for more accurate, data-reliant forecasting using scenario-based models to fit different needs during varying circumstances. The right technology boosts your business intelligence and mitigates errors to take your retail transportation forecasting to the next level.
Trax's supply chain prowess and technological expertise have made us the world's leading Transportation Spend Management experts, offering a suite of solutions that help you optimize Transportation Spend Management while simultaneously bolstering your supply chain operations.
Understand market shifts
The granularity of retail transportation is another essential matter to consider. Micro markets, such as subregions or customer segments, may not follow the same trends set by macro markets. Recognizing that delicate variation is the difference between successful and devastating forecasting.
Successful companies model various reactions from their optimization strategy and customer service perspectives instead of solely relying on operational costs to produce more elaborate forecasts. To do so, however, you need the visibility, control, and capability of a fully optimized Transportation Spend Management strategy.
Trax's Transportation Spend Management Maturity Model is a framework that provides a roadmap for large, global enterprises to shift from a lack of visibility and control to a fully optimized and accurate data-based transportation supply chain for all modes and geographies. As you mature through the model, you gain the abilities to eliminate error, control cost centers, increase savings, enhance efficiency, and become the leader within your market. You'll be prepared to handle the unexpected and use dire times to widen the gap between you and the competition.
Forecast Accurately and Efficiently
Retail transportation forecasting remains a complex matter that needs delicate handling. It has challenges, from sudden market shifts, carrier issues, and more, but with the right approach, you can overcome them to produce accurate forecasts that drive your profit margins.
Enhanced data management, greater visibility, sharp cost-reductions, adopting proficient software, and understanding market shifts all go a long way in elevating retail transportation spend forecasts. But to fully optimize the process, you need to optimize your retail Transportation Spend Management, and as the leading global authority in that field, we’re ready to help. Contact Trax today.
Trax is the global leader in Transportation Spend Management solutions. We partner with the most global and complex brands to drive meaningful optimizations and savings through industry-leading technology solutions and world-class advisory services. With the largest global footprint spanning North America, Latin America, Asia, and Europe, we enable our clients to have greater control over their transportation performance and spend. Our focus is on your success.