Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

Are You on Speaking Terms with S&OP?

Sales and operations planning and transportation

As a transportation manager, what do you typically contribute to Sales & Operations Planning (S&OP) group discussions? If you don’t have a seat at this particular table (the more likely case) what would you like to say at these meetings?

In general terms, the function of S&OP groups is to set manufacturing volumes to meet the company’s sales targets and overall business goals. Representatives from finance, manufacturing, marketing, sales and supply chain thrash out consensus demand forecasts and try to match these with supply as closely as possible.

Transportation is notably absent from this scenario. And while it is true that if too many interests are represented the S&OP process is hopelessly unwieldy, there are strong arguments in favor of inviting transportation managers to these meetings. Here’s why.

Sales order volumes change constantly for a number of reasons, but high on the list is the need to meet monthly or quarterly quotas. It is not untypical for pallets of product to be added late in the cycle as sales reps step up their efforts to meet or surpass their target for that period.

When the flow of orders is out of synch with the forecasts handed down by the S&OP group, there are basically three possible outcomes. First, there is a surplus of product as manufacturing goes into overdrive to meet the increased demand. Second, stock outs result because not enough product was shipped to meet the upsurge in orders. Lastly, manufacturing somehow manages to keep up with the order changes and supply is roughly in line with demand.

The latter case is not as outlandish as might first appear. Savvy planners can learn how to anticipate sales activity from month to month. Often they will compensate by adjusting the “official” forecast to their on-the-ground estimate of what will actually emerge from the sales pipeline. The key here is consistency. If the S&OP forecasts are consistently wrong then production planners can figure out how to make the necessary adjustments in advance. If the inaccuracies are erratic then it is much more difficult to anticipate what the margin of error might be, and hence to dampen the bullwhip effect.

The impact on transportation can be considerable. It is possible for the volume of change orders at the end of a quarter to be as high as 50% to 80% of all the loads managed. Multi-drop shipments suddenly morph into full truck loads. Short leads and extreme order changes add cost and hurt customer service quality levels. More specifically, expedited freight costs rise and load optimization opportunities are lost as planners struggle to secure the most cost-effective routes and modal combinations for the company’s shipments. Such disruptions play havoc with delivery appointment schedules causing much frustration for consignees.

These problems can be avoided or significantly reduced if transportation provided an input to S&OP deliberations. For example, the transportation manager can advise on the cost penalties incurred when unscheduled pallets are added in any given period, and he or she can enlighten the other disciplines on how faulty forecasting ripples though distribution networks.

In reality, this seldom happens because it seems that in most companies there is no direct link between the transportation department and the S&OP process. So, if such a link does exist in your organization we would love to hear how you use it. If there is no such link, imagine that there is and tell us how you would use such a conduit to the S&OP process.