Dow Chemical's case study involved the application of executive sales and operations planning (ES&OP) to its logistics operation. Traditionally, says Schwenk, the company had been strong in using S&OP to forecast and make products. But it had not ventured into the area of logistics.
"There is an unspoken assumption that logistics capacity is essentially infinite," says Schwenk. "That's not the case. When we made that assumption, we ran into failure rates."
Dow came to understand that planning for its logistics requirements within a three- to 36-month window "is something that actually brings value." The S&OP mindset calls for a balancing of supply and demand in all areas in which the discipline is applied. "Either you do it proactively," says Schwenk, "or it balances you - usually with disastrous results."
Equally important is the need to collect input about logistics-related demands and compare that to available capacity. The process requires collecting unconstrained demand, looking for any gaps, then closing them through "conscious decisions" made with the help of key performance metrics.
The challenge lies in determining the level of "capable capacity." Manufacturing can draw on set capacity levels, but the task isn't so easy when it comes to logistics. Dow uses a wide variety of service providers. It needs to monitor numerous inputs related to business demand, then match them to that complex network of vendors.
Previously, Dow maintained a large supply of dedicated equipment, under the assumption that meeting customer needs should be its primary focus. While the sentiment was correct, the strategy wasn't sustainable. Dow was spending millions of dollars a year on equipment and providers to make up for a lack of transparency beyond a couple of months.
Carriers didn't like the setup, either. An S&OP process results in their realizing more value, in the form of additional turns for their limited pools of equipment. With the help of ES&OP, Dow's logistics needs became much more predictable. Its newfound clarity allowed the company to redesign supply-chain networks and save millions of dollars a year.
