Sage Advice: Plan your work and then work your plan
October 11, 2010
You finished your budget almost a year ago. At that time you forecasted what your volumes were going to be, you determined your origin and destination city pairs, and then set the levels of service that you’re going to provide internal customers and partners. You rolled it all up into the overall supply chain budget and then presented it to management.
You and your team were glad that cumbersome process was complete for another year. It was now time to operate within the parameters set by the new process. In fact, your KPI’s, your bonus, and your reputation as a fiscally responsible manager pretty much depend on it. And, hopefully, you then developed a strategic operating plan that will deliver the value proposition associated with the numbers that your team crunched.
Every year about this time I hear about the manager who didn’t think that the market conditions would actually change that much since the budget was put into place. Could that manager have predicted that transportation rates would now be moving steadily into the higher ranges? Well, he should have.
Could he have forecast that equipment capacity would suddenly evaporate like water on your lawn on an August afternoon. Did that manager follow the carrier industry’s economic reports and analyses that have been prepared for them by the likes of Logistics Management. If he had, he would have learned that the carrier’s worsening financial condition was brought on by years of low rates and higher expenses.
The tough questions
Quite a few events have already occurred over the past 12 months that will have a considerable negative impact on your budget. So, it’s time to ask a few tough questions: How good was that plan that you created directly after your budget process? Did you consider that you might encounter a capacity issue when the economy takes an upturn? How about the laws of actions and reactions? Keep in mind that as capacity tightens up the rates go up appreciably on all non-committed equipment.
Even if you planned for higher rates to occur, did you think it also might portend an absolute shortage of tractor/driver availability? All indications I have seen and heard suggest that this is going to be a great holiday season—maybe not world class, but very good despite the recession. And that can mean only one thing: You’d better have a plan.
Carriers have not added any capacity in the past two years; in fact, many of the larger carriers have actually taken capacity out of their system to stem their losses on fixed expenses. Less equipment in the pool (supply) coupled with higher inventory volumes (demand) will push equipment shortages to very tight limits, particularly on disproportionate markets like the major ports of the U.S.
Rates will be higher as a result, and you can bet that transit times will be a bit slower as carriers with outlying capacity need to reposition their equipment for your pick-ups. Those repositioned drivers will not necessarily arrive at your location fresh and ready to roll. Considering the hours of service rules today, some, if not all will have to regenerate their driving hours before they depart or shortly thereafter, further slowing down typical transit times.
Look, everyone knows the old inventory adage about having the right product at the right place at the right time. However, in the past 10 years I learned that the old adage is fiscally incomplete. It should state: The right product, at the right place, at the right time, in the right quantity, and at the right price. If you can hit the last two performance indicators in that new list you’ll have a solid chance of achieving the objectives surrounding your budgets and your service level agreements.
And while you can’t predict the future, you can certainly develop a few “what-if” scenarios and prepare solutions in the event that they occur. They should cover, as a hedge against costs and performance, everything that can set you off course.
If your plan is insufficiently prepared and you are swimming against the tide, go to finance and ask them to re-forecast the remainder of the year for your department—and be prepared to explain why. Then take my advice and plan your work, then work your plan.
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