How to Reconcile Budget Gaps in Material Handling

When the forecast misses the mark, how to reconcile budget gaps in material handling.

By Nicole Needles

A BUDGET ISN’T just numbers on a spreadsheet. A budget is a strategic plan that underpins decisions about inventory, hiring, capital expenditures and operations. But what happens when the forecast doesn’t align with the budget you set at the start of the year? That misalignment, if not addressed, can seriously strain cash flow, derail investments or leave growth opportunities on the table.

Here’s a practical guide for MHEDA members on what to do when your forecast diverges from your budget and how to make smart revisions throughout the year.

Why Forecasts and Budgets Diverge

In many industries, but especially in material handling, several factors commonly drive a gap between the forecast and the original budget, according to MB Group, a few reasons could include:

1. Supply‑chain disruption. Unexpected increases in freight costs, component shortages or supplier delays can drive costs higher than anticipated.
2. Demand swings. Forecasted demand may fall short due to macroeconomic pressure or spike higher than expected due to unexpected contracts.
3. Unplanned capital expenditure. Equipment breakdowns, maintenance issues or safety upgrades can force unbudgeted spending.
4. Labor and wage changes. Turnover, wage inflation or increased temporary staffing can push labor costs beyond what was planned.
5. Macro environment. Interest rate changes, tariff shifts or regulatory compliance costs can all throw off long-range plans.

When your forecast shows a significant variance, the consequences can be serious: reduced profitability, cash-flow stress or underfunded operational priorities.

The Importance of Reforecasting

This is where reforecasting comes in: updating your forecast (and, potentially, your budget) to reflect new realities. Reforecasting ensures that your plan stays relevant, gives management a realistic view of the year ahead and helps you make informed decisions.

Some companies make reforecasting a regular cadence, but others do it only when their numbers venture outside a certain threshold. Here’s a practical, seven-step reforecasting approach according to Finmark:

1. Review variances. Start with a variance analysis: Compare your actuals to the budget and to your previous forecast. Identify the largest deviations.
2. Diagnose root causes. For each major variance, ask “why?” Was revenue lower because demand dropped? Did freight costs rise because of fuel price spikes?
3. Evaluate trends. Determine which variances are likely to persist. For example, if freight costs rose 25% in one quarter, is that likely to continue?
4. Update cash-flow projections. Build a revised cash-flow model using your new assumptions to ensure you don’t run into liquidity issues.
5. Adjust revenue and expense assumptions. Based on updated trends, adjust your revenue forecast and then revise expense line items accordingly.
6. Modify the budget where needed. If deviations are material and persistent, it may make sense to adjust the original budget. This could mean scaling back discretionary spending, reallocating funds or revising capital expenditure plans.
7. Communicate and align. Share the revised forecast and any budget changes with leadership, operations, sales and other key stakeholders to align on priorities and expectations.

Reforecasting in Material Handling: Best Practices

What does all of this mean when it comes to material handling? Effective reforecasting in the material handling industry starts with establishing clear triggers for when a revision is needed. Setting a variance threshold – such as plus or minus 10% – helps determine when performance has deviated enough from the original plan to warrant a reforecast. Once that threshold is crossed for a sustained period, the process begins. This structured approach prevents overreacting to short-term fluctuations while ensuring meaningful changes are addressed promptly.

Accurate forecasting also depends on collaboration across departments. Bringing together finance, operations, sales and supply chain leaders ensures that updated assumptions reflect on-the-ground realities, from freight costs and demand trends to staffing levels and supplier lead times. Incorporating rolling forecasting practices can further strengthen this process; extending forecasts beyond the fiscal year and updating them quarterly helps maintain agility and keeps plans aligned with evolving market conditions.

Reliable reforecasting depends on consistently monitoring the right data. Tracking leading indicators such as incoming orders, freight quotes, labor headcount and supplier lead times can provide early warning signs that assumptions may be drifting off course. Maintaining a regular variance-reporting cadence, comparing actuals against both the original budget and the most recent forecast, gives leadership visibility into what has changed and how the business has responded so far. Transparent communication about revised assumptions and planned actions reinforces accountability across teams and strengthens organizational alignment.

Reforecasting is most effective when companies commit to learning from each cycle. Documenting which assumptions proved inaccurate, understanding why deviations occurred and identifying how to improve forecasting going forward creates a feedback loop that strengthens processes over time. By consistently applying these lessons, organizations build a more resilient, accurate and proactive approach to financial planning.

Common Pitfalls to Avoid

While reforecasting is powerful, it’s not without pitfalls. Here are a few to watch out for – especially in the fast moving world of material handling:

1. Overreacting to short-term noise. Not every bump in actuals warrants a budget change. Use your variance threshold to avoid knee-jerk reactions.
2. Blaming without diagnosing. It’s easy to blame under-performance on external shocks. But it’s more productive to understand root causes – and whether your modeling assumptions were flawed.
3. Revising without follow-through. Changing the forecast is only helpful if you also translate it into action – reallocating resources, cutting costs, or pivoting strategy.
4. Siloed reforecasting. Finance makes all the changes in a vacuum. You’ll miss operational insight. This leads to unrealistic assumptions or misaligned priorities.
5. Inconsistent communication. If people outside finance don’t understand why or how changes happen, you’ll lose buy-in. Make sure your revised plan is clearly communicated and socialized.

Applying This in Practice

Imagine a regional company that sells and installs conveyor systems. At the start of the year, they planned for a busy season with lots of new orders and set aside money to buy new equipment. By midyear, however, things aren’t going as expected. Orders are coming in slower than planned, shipping costs have jumped and profit margins are tighter.

The finance team takes a closer look at the numbers and sees that these trends will likely continue for a while. To stay on track, they update their forecast for the rest of the year, adjusting expectations for revenue and costs. They also recommend delaying any non-essential equipment purchases until later in the year.

By sharing this updated plan with leadership and explaining the reasoning, everyone is on the same page. The company avoids running short on cash, uses its money wisely and sets realistic expectations for the months ahead.

In fast-moving, capital-intensive industries like material handling, a misalignment between forecast and budget isn’t just a financial report issue; it’s a signal to re-evaluate strategy. Rather than waiting for the end of the year, the best companies build reforecasting into their DNA. They use variance insights to course correct, reallocate resources and ensure their plan stays relevant and aligned with reality.

When you treat the budget as a living document – not a one-time commitment – you give your business the flexibility to adapt, compete and thrive even when the unplanned happens.

Article Takeaways

1. Budgets and Forecasts Serve Different Purposes. – A budget is a financial plan, while a forecast is a dynamic projection that should be updated regularly as conditions change.
2. Reforecasting Protects Financial Stability. – Regularly revising your forecast helps prevent cash-flow issues, improves decision-making and keeps your business aligned with market realities.
3. Variance Analysis Drives Better Strategy. – Identifying and understanding the root causes of budget forecast gaps enables companies to course-correct early and allocate resources more effectively.