Practical Guide to SAP Transportation Management (TM)

2.2 Transportation capacity management

The transportation capacity management module supports you in professionally managing your own or your carriers’ transportation capacities.

The objectives of capacity management are to:

• Provide sufficient transportation capacity and thus avoid capacity shortage
• Reduce transportation costs by avoiding expensive ad hoc orders
• Establish trusting long-term relationships with carriers and customers

Figure 2.30 outlines the high level capacity management process and the business documents involved in SAP TM. Strategic capacity management deals with negotiating and managing long-term contracts — called agreements in SAP TM — with carriers (freight procurement) or customers (freight selling). For tactical capacity planning, different kinds of schedules with embedded capacity allocations are used. Operational capacity handling is done via booking documents which can be created automatically based on planned mid-term capacities.

Figure 2.30: Capacity management process

In the following sections, we take a closer look at each of the three capacity planning perspectives and how they interact.

2.2.1 Strategic freight management

Strategic freight procurement

The strategic freight procurement module of SAP TM supports shippers and logistics service providers in planning and securing carriers’ transportation capacities over a long-term time horizon. The goal is to negotiate long-term contracts, called freight agreements in SAP TM, with the best suited carriers for all relevant trade lanes and transportation modes.

The strategic freight procurement process supports you both in managing your existing freight agreements (via a guided process for renewing expiring contracts), and negotiating completely new contracts with new carriers or for new trade lanes, transportation modes, shipping types, or other attributes. In a complex setup covering international trade lanes in particular, it helps you to decide which contracts to conclude and whether it is more profitable to subcontract on a door-to-door level or to separately procure each stage.

Figure 2.31 outlines the general process flow.

Figure 2.31: Strategic freight procurement process

First, you can analyze relevant historical data regarding trade lanes, capacities, and costs and check on past performance of your carriers. This is possible in SAP BW based on pre-defined key performance indicators (KPIs) such as percentage of delayed pick-up and delivery or percentage of invoice discrepancies (see Figure 2.32).

Figure 2.32: Carrier performance analysis

Based on past data, you can forecast future transportation requirements and perform what-if analyses.

In the second process step, the request for quotation is prepared and published to all relevant carriers via B2B, e-mail, or on the collaboration portal. After receipt of the carriers’ responses, the system helps you to evaluate and compare them. Two comparison methods are supported.

1.   Manual comparison of responses for rate minimization   
Responses are compared at charge type level and visualized in several charts for easier evaluation (see Figure 2.33). You can propose business shares at the carrier level, perform different kinds of solution spend simulations, and decide on the best solution.

Figure 2.33: Comparison of carriers’ quotes

2.   Automated comparison of responses via the optimizer   
Responses are compared at the charge type level for various strategies and constraints which can be flexibly configured. The optimizer proposes the most ideal target share distribution to produce the most cost-effective solution. You can run the optimizer repeatedly with different target share strategies and strategy versions if desired and finally pick the best solution.

The details of the solution that was chosen in the previous step are summarized in an award summary for a final check (see Figure 2.34).

Figure 2.34: Award summary

The last process step is now to create a coresponding freight agreement. Allocations are automatically generated for the business shares awarded between the subcontracted carriers.

Figure 2.35 shows a freight agreement document with embedded freight rates. For further information on freight rates, please see Section 2.9.

Figure 2.35: Freight agreement with freight rates

Allocations are used to strategically plan and reserve capacities per trade lane, carrier, and time period (see Figure 2.36). The capacities to be reserved can be defined in various dimensions (e.g., weight, volume, TEUs, or pallets), time periods, time buckets (e.g., yearly, monthly, weekly), and additional attributes (e.g., shipping type, contract basis, service level, or handling code).

Figure 2.36: Allocation

Not only can allocations be used to plan capacities, but they can also be used to track their consumption to date. The amount of capacities already used by freight documents is displayed directly for each dimension in the allocation.

Business shares define how your total transportation demand should be split between your carriers for a specific trade lane.

Strategic freight selling

The strategic freight selling module supports carriers and logistics service providers in managing bids and resulting contracts across complex networks based on customer requirements, margin, resource, cost, and capacity constraints. The goal is to market their service offerings, manage customer relationships, and conclude long-term contracts with customers, called forwarding agreements in SAP TM.

The strategic freight selling process supports you both in managing your existing forwarding agreements (via a guided process for renewing expiring contracts) and negotiating completely new contracts with new customers, or for new trade lanes, services, or other attributes. In a complex setup covering international trade lanes in particular, it helps carriers and logistics service providers to decide on what customer contracts to conclude, which services to offer, and which rates to assign.

Figure 2.37 outlines the general process flow.

The starting point for strategic freight selling can either be a shipper’s freight request for quotation, or a shipper’s buying interest in the form of an opportunity in SAP CRM. Furthermore, the carrier/logistics service provider can trigger the process themselves in order to renew an expiring contract or to initiate a marketing campaign.

The carrier’s or logistics service provider’s sales department can use analyses of historical customer data that are provided in SAP Business Warehouse (SAP BW) or directly embedded in the relevant context in SAP TM (see Figure 2.38) in order to identify and design suitable future service offerings.

Figure 2.37: Strategic freight selling process

Figure 2.38: Analyze historical customer data

To start the quote-to-contract process a forwarding agreement quotation is created. This document represents the tender quote or bid. The forwarding agreement quotation can be created automatically based on a shipper’s freight request for quotation, an opportunity in SAP CRM, an existing agreement, a service catalog, or a template. From an opportunity in SAP CRM, a forwarding quotation can be created as a direct follow-up action, thereby inheriting all relevant data from SAP CRM (see Figure 2.39). The link to the opportunity is registered in the forwarding quotation’s document flow in SAP TM.

Figure 2.40 shows a forwarding agreement quotation document. It can consist of multiple items, each with assigned rates in an individual transportation charge calculation sheet. For details on rates and charge calculations, please see Section 2.9.

Figure 2.39: SAP CRM opportunity as the trigger for a bid process

Rates can be determined either manually with the help of the rate builder cockpit, or automatically by the system. In the rate builder cockpit, you can edit a forwarding agreement quotation while the system is providing relevant context information from similar agreements, such as suitable services and matching rates. For automatic rate determination, a context-specific search is used that proposes best matching rates based on existing agreements or service product catalogs. You can configure how the system searches for matching rates in a corresponding selection profile.

Figure 2.40: Forwarding agreement quotation

Once all relevant information has been included in the quotation, it is sent to the customer via a B2B interface or e-mail with an Excel attachment. As soon as the customer has responded, the information is updated automatically in the freight agreement quotation. If the customer has accepted the quotation, a forwarding agreement is created which represents the corresponding contract.

2.2.2 Tactical capacity planning

For tactical capacity planning, different kinds of schedules with embedded capacity allocations are used.

The regular travels and serviced transportation connections for your carriers can be uploaded to SAP TM to automatically create carrier schedules.

Based on these, gateway schedules are created which also include information regarding corresponding gateways, cut-off times, and planned capacity allocations for each departure. Figure 2.41 depicts a gateway schedule for air freight.

Figure 2.41: Gateway schedule for air freight

Carriers often make changes to their schedules (e.g., shifting the date and time of a departure, canceling departures, or adding new departures). The changed schedule data can be uploaded as carrier schedules, whereupon the existing carrier schedules are updated automatically.

After adjusting schedule master data we need to take a look at how these changes affect the related successor business documents. Depending on the extent of the changes, you may or may not make changes to your gateway schedules, allocations, and freight documents. The system automatically sets the statuses of the successor business documents so that you can identify all business documents for which the carrier schedules have changed. You can use a POWL query to manually check and, if required, change the corresponding documents. Alternatively, you can implement your own change controller strategy to perform automatic follow-up actions according to your requirements.

2.2.3 Operational capacity management

For operational capacity handling, booking documents are used which bindingly reserve capacity from a carrier, for example on an ocean vessel or airplane. Bookings are sent electronically to the carrier for confirmation of the requested cargo space. As soon as the carrier has confirmed the booking, freight units can be assigned to it consuming the reserved capacities.

Figure 2.42 shows an ocean freight booking that represents the transport from a port of loading to a port of discharge and optionally, also includes container freight stations for consolidating and deconsolidating freight before and after the main leg. The booking document contains detailed information about locations, dates, and times, business partners involved, terms and conditions, such as the incoterm, document flow, cargo to be shipped, and capacity requirements. Dependencies to other freight documents, such as the road or rail freight orders for the pre-carriage and on-carriage, are also displayed and help you to assess the impacts of issues and delays during the transport.

Bookings are subcontracted to carriers. The carrier can be taken from the underlying schedule, inserted manually into the booking, or determined automatically via the carrier selection or tendering process (for details on subcontracting, please see Section 2.4).

Figure 2.42: Ocean freight booking

In the case of multi-stop voyages, which transport goods along a sequence of ports, the main leg consists of multiple stages.

Bookings can be created automatically based on the schedules that were set up during tactical capacity planning via report /SCMTMS/MP_SCHED _CREATE_TOR. First, you have to specify which documents should be created (air bookings, ocean bookings, road freight orders, or rail freight orders). For each document type, you can then fill in the detailed selection criteria for the schedules and departures to be used. Figure 2.43 shows the selection criteria for creating ocean freight bookings.

In addition to automatically generating bookings via this report, you can also create bookings manually or via automatic planning.

Figure 2.43: Automatically creating schedule-based freight documents