Why Should You Care About Transportation Forecasting?
Brian Hoey - October 08, 2020
According to Gartner, every technology goes through a Hype Cycle: “Gartner Hype Cycles provide a graphic representation of the maturity and adoption of technologies and applications, and how they are potentially relevant to solving real business problems and exploiting new opportunities. Gartner Hype Cycle methodology gives you a view of how a technology or application will evolve over time, providing a sound source of insight to manage its deployment within the context of your specific business goals.” In some ways, the technologies in the early phases of the cycle are often the most interesting, since they’re the ones whose full potential is possibly still on the horizon.
One such technology right now is transportation forecasting—i.e. solutions that use demand-sensing to develop lane- and mode-specific shipping-demand projections to help shippers secure the right freight capacity at the right price. Given the difficulties involved in secure favorable cargo rates in the current supply chain, it shouldn’t be hard to imagine why this technology has the power to be transformative.
Because this is such a crucial area for improving our clients’ transport efficiency, flexis has developed transportation forecasting technology that can be operationalized in just that way. We were recognized as a Sample Vendor of Transportation Forecasting in the Gartner Hype Cycle for Supply Chain Execution Technologies, 2020. They noted in their analysis that market penetration of this technology is less than 1% of the target audience and it is has an “emerging” maturity. In this blog post, we’ll outline why we believe this technology has the power to be transformative to those who adopt it.
Challenges in Managing Transport Efficiency
Historically, transport planners didn’t start securing freight capacity until there were actual orders that required transportation. This made sense—on a gut level, you don’t want to reserve capacity for a shipment that doesn’t exist and might not materialize. The result of this way of doing things is that there’s really only a few-day window in which to get the capacity you need across your required modes in order to get the right goods to the right customer at the right time. As competition for freight capacity increases and carriers get more selective about what they’re willing to carry, however, this minuscule planning horizon is already becoming untenable. In short, shippers need to become much more proactive about their transportation planning if they’re going to stave off the delays, disruption, and cost increases that increasingly come with last-minute transportation planning.
Unfortunately, not all planners have the right tools and processes in place to truly get proactive about these workflows. For one thing, your average TMS isn’t likely to support planning flows for shipments that don’t actually exist yet—just as your typical forecasting module doesn't offer transport-specific structures. Planners need to find a way to estimate their freight needs in advance and then operationalize those needs in a smart, efficiency-minded way that accounts for a variety of constraints, parameters, and cost considerations.
This is where transportation forecasting comes in.
Why Do Supply Chain Planners Need Transportation Forecasting?
In order to deal with the challenges described in the section above, planners in all varieties of supply chain business need to forecast future freight and shipping requirements in a mode-specific way well in advance of the typical window for securing capacity. If, for instance, you’re a large automotive company or logistics services provider, this means that from a few weeks to a few months out you need to be able to translate data from a wide variety of sources—from carrier pricing data to customer-side demand information to production forecasts—into at least a rough estimate of what your needs will be on a particular day. These forecasts then need to be integrated into existing transport management systems in such a way as to enable you to secure capacity at a favorable rate, well in advance of the actual orders coming down the pike.
Part of the value here is that advanced analytics algorithms can take in all of the data you’ve integrated in order to create smart predictions about future pricing—meaning that you can avoid using nothing but past historical data to inform your decisions about when to lock in rates. In this way, you position yourself to effectively expect the unexpected, a skill that is especially crucial when you’re trying to be as proactive as possible. Compare this to the alternative scenario: You’re not proactively working to secure the best rates on the right modes and carriers ahead of time; when there’s an unexpected capacity shortage for a particular lane, you’re stuck using more expensive premium freight or potentially failing to deliver on-time. I.e. this is going to cost you immediately in terms of actual logistics costs, or it may cost you in the future in terms of customer loyalty.
In this way, the direct answer to the question we posed above (“why do supply chain planners need transportation forecasting”) is pretty simple: because it offers unique opportunities to reduce costs, increase efficiency, and ultimately become more competitive.
Powering Planning and Execution Transformation
Like we said above, this technology has the power to be transformational. But how do you make it a reality within your supply chain? First things first, you need to ditch the spreadsheet if you’re still tracking your transport needs in Excel or something similar—while spreadsheets might be convenient, they offer low visibility, they don’t offer complex data integrations, and they don’t really scale. Instead, you need a transportation forecasting module that can integrate with your existing TMS. From there, you need to integrate transportation forecasting into your business processes as well. You might, for instance, start incorporating freight capacity planning into your sales planning sessions in order to strategically align it with your business goals. In this way, you treat transport planning the same as you treat production planning—with a careful eye towards matching supply to demand months before that demand actually materializes.
While the catalyst for this change can be as simple as adopting a new piece of software, the impact on your business processes has the power to be truly significant. Combine transport-integrated forecasting and planning with execution workflows that help smooth out daily and weekly variations from predictions, and you’re looking at a highly-visible, highly-connected, and highly-flexible supply chain that can be continually optimized over time. Instead of doing things the same way over and over again and hoping for better results, you can future-proof your transport planning and fight cost pressures in the process.
Gartner Methodologies, “Gartner Hype Cycle,” 2020. https://www.gartner.com/en/research/methodologies/gartner-hype-cycle
Gartner “Hype Cycle for Supply Chain Execution Technologies, 2020,” Dwight Klappich, 7 July 2020 (Gartner subscription required).
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