“
Understanding the Relation between Sales
& Operations Planning and the Employees
at the Operational Level
”
A case study at a semi-production company
- Master Thesis Supply Chain Management -
University Of Groningen
Faculty of Economics and Business
August 17, 2014
Paulus Benjamin Gerestein
1684671
p.b.gerestein@student.rug.nl
Abstract
Acknowledgement
I would like to thank some people that have contributed to the successful finalization of my Master Thesis.
First of all, I would like to thank my supervisor em. prof. dr. Jacob Wijngaard for his encouragement and support throughout the Thesis process. His feedback was highly appreciated. Thank you for all the learning experiences.
Secondly, I would like to thank prof. dr. Jan de Vries for reviewing my Master Thesis and providing feedback as co-assessor.
Also, I would like to acknowledge the interviewees of Operating Company Y for their time, effort and information during my data collection for my Thesis. My special thanks go to Gijsjan Vermeer for his enthusiasm and effort to bring me in contact with the different interviewees.
Finally, I would like to greatly thank my parents for their endless support and belief in me, all the way of my study at the University of Groningen.
Table&of&Contents&
1.!Introduction!...!5!
2.!Literature!Review!...!8!
2.1 Background of Sales and Operations Planning!...!8!
2.2 Definitions of Sales and Operations Planning!...!9!
2.3 Process of Sales and Operations Planning (characterization)!...!9!
2.4 The Human roles in the Sales and Operations Planning process!...!11!
2.5 Reflection on the Literature Review and the Conceptual model!...!13!
3.!Methodology!...!18!
3.1 Using Case Studies!...!18!
3.2 Case selection!...!19!
3.3 Data!...!19!
4.!Description!of!Sales!and!Operations!Planning!...!22!
4.1 Description of the case!...!22!
4.2 Sales and Operations Planning characteristics within Operating Company Y!...!23!
4.3 The operational process!...!27!
4.4. Information Resources!...!28!
4.5 Employees and their activities!...!29!
5.!Diagnosis!of!the!relation!between!Sales!and!Operations!Planning!and!the!employees!at!the! operational!level!...!31!
5.1 Communication!...!31!
5.2 Decisions!...!33!
5.3 Rules and procedures!...!35!
5.4 Activities!...!35!
5.5 Relations within the S&OP process!...!36!
6.!Conclusion!...!42!
6.1 Recommendations!...!43!
6.2 Reflection of the Research!...!44!
6.3 Further Research!...!45!
7.!References!...!46!
8.!Appendices!...!49!
8.1 Appendix A: interview questions!...!49!
8.2 Appendix B: answers from the interviews.!...!50! !
1. Introduction
Companies try to achieve a good operational coordination for Production and Sales orders. They want to achieve that their coordination plan leads to a working environment that all employees can perform well within the company. Another challenge is to manage customer delivery requirements, because customer requirements and service requirements are growing and demand forecasts are constantly changing in every market.
The latest approach for planning and controlling the sales and production process is the Sales and Operations Planning (S&OP). S&OP is an essential management tool in this time of rapid changes. One of the indicators of interest within the S&OP approach is the amount of money that companies spent in supply chain planning application software (Lapide, 2004).
S&OP is a business process that links the corporate strategic plan to the daily operations plan and enables companies to balance demand and supply for their products (Grimson and Pyke, 2007). Many believe this is a process, to build a consensus based operations plan to meet the forecast demand (Olhager, Rudberg, and Wikner, 2001), while others suggest that it should be used as a real-time technique to adjust quickly to changing market and operating situations (Olhager, et al., 2001).
An approach like S&OP usually involves detailed evaluation, planning and execution at the strategic, tactical (management) and operational levels (Anthony, 1965; Gorry and Morton, 1971). The basic distinction between the tactical level and the operational level is that the operational level is concerned with tasks (such as manufacturing a specific part) whereas the tactical level is often concerned with people (Gorry and Morton, 1971). There is less autonomy to exercise in the operational level, because the tasks, goals, and resources have been carefully delineated through the tactical level (Gorry and Morton, 1971). In practice, managers at the operational level are limited by their decision-making capabilities compared to tactical managers, and may hold errors in their replenishment decisions (Sterman, 1989; Croson et al., 2004; Oliva and Watson, 2011).
and Pyke, 2007). Few studies address the effects at an operational level and human intervention in the S&OP process.
Before companies start with the implementation of the S&OP process, different functional departments within a company operate independently from each other, as each department (like Sales and Operations) have their own goals and objectives. Grimson and Pyke (2007) state, for achieving an optimal implementation of the S&OP process, the goals of each functional department must be clearly stated and they need to coincide on certain parts.
As mentioned above, the implementation of a S&OP process causes a compulsory collaboration between employees from the different functional levels. These functional levels usually have different needs and thoughts which can lead to conflicting issues, for example, the Sales department wishes for flexibility while the Operations department prefers efficiency (Wouters, 2009). Furthermore, a lot is known about the strategic and tactical operations in S&OP, but there is a gap in the literature what the effects of S&OP is on the employees of the operational level. Lead these effects to some consequences for the employees and their activities and are their new rules or procedures for the employees trough the implementation of S&OP?
Based on the observations stated above, the aim of my research is to provide an understanding of this gap by presenting a case study about the relation between S&OP and the employees at the operational level within a semi-production company. This leads to the following research question:
“How are the employees at the operational level affected by Sales and Operations Planning and what is the impact of Sales and Operations Planning at the employees activities?”
In order to answer this research question, a case study is performed at an operating company, which is part of a bigger corporate semi-production company. For confidentiality reasons in my research these will be called Operating Company Y and Company X, respectively.
2. Literature Review
In this chapter, the elaboration on the literature foundations of the Sales and Operations planning (S&OP) characteristics and the employee involvement will be discussed.
2.1 Background of Sales and Operations Planning
The development of S&OP probably started through process testing and by experimenting in different companies. Although not fully proven, some credits has to go to the late father of Material Requirements Planning (MRP), Oliver Wight, back in the 1980s and maybe even as early as the late 1970s (Sheldon, 2006; Grimson and Pyke, 2007). S&OP is a strategic weapon in a competitive world of companies of all sizes, ranging from 1million dollar to 10 billion. The S&OP process helps them in managing risks and enables managers to the table in the handshake decisions, resulting in better decisions overall (Sheldon, 2006).
Nowadays, many systems support the MRPII approach, i.e. manufacturing resource planning, where the term S&OP originated. In early MRPII terminology, the term production planning was used instead of S&OP, but today the latter is being used to a larger extent (Olhager, Rudberg and Wikner, 2001).
Another element for planning and control is Master Production Scheduling (MPS). This approach translates the S&OP into a fixed plan for producing specific products in the near future (Olhager, 2013).
The approaches mentioned above started in the time that the variability of the demand was much more restricted than it is currently. At the time, regular meetings were held in the organization between the sales and operations managers. These meetings were seen as a challenge, because both departments had their own goals. With the increase of complexity of demand and supply and the size of companies, S&OP becomes one of the most challenging approaches of this time (Grimson and Pyke, 2007; Olhager, 2013).
!
2.2 Definitions of Sales and Operations Planning
Many definitions regarding S&OP have passed in literature. A grasp from these varying definitions:
Definition by Olhager, Rudberg and Wikner (2001):
“Sales and operations planning (S&OP) is the long-term planning of production levels relative to sales within the framework of a Manufacturing Planning and Control (MPC) system.
Within the S&OP, resource planning is used for determining the appropriate capacity levels in order to support the production plan”.
Definition by Grimson and Pyke (2007):
“S&OP is a business process that links the corporate strategic plan to daily operations plans and enables companies to balance demand and supply for their products”.
Definition by Sheldon (2006): “The S&OP is a monthly planning cycle where plans for both customer expectations and internal operations are reviewed for accuracy, process accountability, lessons learned, and future risk management”.
The above definitions show a similarity concerning the fact that S&OP is about balancing supply and demand. However, for this research the definition of Grimson and Pyke (2007) is used, because of the aim of my research. This definition presents the relation between the strategic plan of S&OP and the daily operational activities of the Sales and Operational departments. Furthermore, this definition best fits towards the gap, which exists concerning the employee’s role and activities at an operational level in the S&OP process.
2.3 Process of Sales and Operations Planning (characterization)
operational control. Anthony (1965) recognize, as does Gorry and Morton (1971), that the boundaries between these three categories are often not clear.
Prior to S&OP, the detailed planning horizons and the descriptions of the strategic, tactical (managerial) and operational levels must be clear (Anthony, 1965; Gorry and Morton, 1971):
• First Level “strategic planning” is the process of deciding on goals of the organization, on changes in these goals, on the resources used attain these goals, and on the policies that are to govern the acquisition, use, and disposition of these resources.
• Second Level “managerial control (tactical)” is the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s goals.
• Third Level “operational control” is the process of assuring that specific tasks are carried out effectively and efficiently.
According to Grimson and Pyke (2007), the typical planning horizon for the S&OP process varies from 6 months to 3 years, but the most frequent horizons is from 6 to 18 months (tactical level) and 0 to 6 months (operational level). However, the authors emphasize that the horizon is different for each organization. Grimson and Pyke (2007), suggest that organizations that have long production lead times with high seasonality (automotive, pharmaceuticals products) have longer horizons compared with organizations with short lead times and low seasonality.
According to Grimson and Pyke (2007) and Wallace (2004), the S&OP process is a fixed, monthly process that follows the following five-step procedure:
Figure 1: The S&OP process
1. Data gathering and review: consists of an updated file with data from the last month and collecting sales data (e.g. customer orders) to use in developing the new forecast. 2. Demand planning: the employees from the Sales department create a demand forecast,
with the expected volume to be sold, to ensure the capacity of the production.
3. Supply planning: the employees from the Operations department collecting the information about inventory strategies, internal and supply chain capacity.
4. Pre-S&OP: managers from different departments required data for the S&OP meeting. Objectives for this meeting are: e.g. discussing the supply and demand plan and making decisions of balancing the supply and demand.
5. The S&OP team (managers from sales, marketing, operations and finance) will gather for a meeting and formulate a monthly based operation plan including planning decisions for the upcoming 18 months.
To describe the S&OP process briefly, Sheldon (2006) declares the following: “the S&OP process is top management’s “knobs” on the business. If one of the top-management teams in organization wants to turn up the marketing effort in some specific area, if they want to dial back inventory, or if they want any of these changes, the S&OP process is an important management system to ensure the decisions are implemented as top-management desires”.
2.4 The Human roles in the Sales and Operations Planning process
Without human roles being properly understood and staffed, it is difficult to bring consistency to this important S&OP process (Sheldon, 2006).
Functional departments in an organization, such as sales, marketing, finance, and production, are traditionally specialized in portions of the planning activities. This can lead into conflicts regarding expectations, preferences, and priorities between the employees of the different functional departments (Oliva and Watson, 2011). This implies that the division of the human roles should be clearly described (Oliva and Watson, 2011).
The right people need to be plugged in and attuned to the S&OP cycle and the opportunities (Sheldon, 2006).
In a larger organization, product managers are responsible for overall products success, including factors such as creation of demand, product cost, and overall profitability (Sheldon, 2006). Larger organizations often have a Demand manager position within either the sales or marketing leg of the business. The Demand manager typically reports directly to the Vice President (VP) of sales, the VP of marketing or in other companies the VP of sales and marketing, but this depends on the size and scope of an organization (Sheldon, 2006). Figure 2 shows the different roles and hierarchical structure in a S&OP process meeting of a larger organization.
Figure 2: Roles and hierarchical structure in a larger organization (Sheldon, 2006).
Figure 3: Roles and hierarchical structure in a S&OP process of smaller organizations (Sheldon, 2006) 2.5 Reflection on the Literature Review and the Conceptual model
In the literature review section of this research, only a focus on the coordination of the tactical process of S&OP was found. The coordination between the tactical and operational levels was not mentioned and the role that the functionality of the employees on the operational level plays was also not included. The literature review states that at the end of the S&OP process, different managers will gather to formulate a monthly operation plan and to make certain planning decisions. Those decisions will be made on the tactical level, but the interdependency that those decisions have with the employees at the operational level is not discussed in the S&OP literature. Furthermore, the communication concerning the information and decisions of S&OP between managers at the tactical level and the employees at the operational level is also not covered in the S&OP literature.
Grimson and Pyke (2007) argued that S&OP is a decision making process that connects the corporate strategy to day-to-day operations. Therefore, with that in mind, S&OP must have a relation to the operational level, because the day-to-day operations are related to the employee's activities.
in the S&OP process. This is another reason that a relation exists between the S&OP and the employees at the operational level.
Furthermore, coordination plays a central role within S&OP in aligning business strategy and operational planning, as well as aligning the involved business functions and supply chain partners (Grimson and Pyke, 2007). Coordination is the pattern of decision-making and communication among a set of actors who perform tasks to achieve common goals (Malone, 1987). In organizations, coordination is realized when the actors make decisions that are efficient for the organization as a whole (Crowston, 1997; Gupta and Weerawat, 2006). In this instance, coordination is understood as a synonym for integrations because it connects employees at the operational level with S&OP.
In the field of operations management, there is a prevailing understanding that well-performing relationships between company functions enhance firm performance ( Flynn et al., 2010; Swink et al., 2007) and that internal coordination between functions is considered as a prerequisite for intercompany coordination within organizations (Mentzner and Moon, 2004). In the context of S&OP that is related to the employees at the operational level, the understanding of coordination remains low in the current S&OP literature. In contrast to previous literature reviews about S&OP (Grimson and Pyke, 2007; Olhager, Rudberg and Wikner, 2001), that studied the literature from the tactical performance viewpoint, this research will study the S&OP from an operational coordination viewpoint, and it will investigate whether there is a relation between S&OP and the employees at the operational level.
Conceptual Model
The studies mentioned above show how important it is to understand the relationship between the tactical and operational levels regarding the performance of the S&OP process. Furthermore, the clarity of activities and responsibilities for the employees at the operational level can be an important aspect for the functionality of S&OP. This research will focus on different variables between the tactical and operational levels in order to understand the relation between S&OP and the employees at the operational level. The different variables are: communication, decisions, rules and procedures and activities.
Communication
With this statement, I will investigate the provision of S&OP information between the tactical level and the operational level. This study will identify whether managers of the S&OP process are giving the correct information (on time) to the employees at the operational level in order for them to understand their activities and why the S&OP information is necessary. The provision of information can be achieved by sending the information through a one-way communication channel (top-down) or the employees at the operational level could be given the opportunity to communicate back to the managers of S&OP, which would be a two-way communication relation.
Furthermore, I will investigate the method of communication between S&OP, managers and the employees at the operational level. This research will also identify whether there are any information resources for communication and if there is any face-to-face communication between the managers of S&OP and the employees at the operational level.
Decisions
The literature review has shown that decisions about S&OP are made by managers at the tactical level. This research will investigate the interdependency of these S&OP decisions for the employees at the operational level, which types of decisions are important for the employee's activities and the influence on the employee's activities if there no decisions have been made about a problem or issue.
Furthermore, I will investigate the participation (involvement) of the employees at the operational level in decisions that are made by the managers of S&OP with regard to issues and problems in the S&OP process. To measure employee participation in decision-making, the six levels that were provided by Dachler and Wilpert (1978) will be used to indicate the opportunities that employees have to participate in the decision-making process and to measure the level of influence that this has on the decisions made. The six levels are:
1) No (advance) information is given to employees about a decision that is to be made. (2) Employees are informed in advance of the decision to be made. (3) Employees can give an opinion about the decision to be made. (4) Employees' opinions are taken into account in the decision process. (5) Employees have a veto, either negatively by blocking a decision that has been made, or positively by concurring in advance. (6) The decision is completely in the hands of organization members, with no distinction between managers and employees.
Rules and procedures
This variable will lead to an understanding of whether there are specific S&OP regulations and procedures according to the employees at the operational level. This will indicate whether there are S&OP rules that regulate issues such as whether the employees must report the results of their activities, whether there are issues at the operational level and if there are any step-by-step procedures that the employees need to follow in order to accomplish a particular S&OP objective. In addition, what procedures should be followed if there are any issues or problems related to the S&OP.
Activities
This variable will lead to an understanding of which employee activities are related to the S&OP. I will investigate whether the tactical level determines the rules of the S&OP game that is played by the employees at the operational level and if the employees have any autonomy.
Furthermore, I will investigate whether S&OP influences the flexibility of the employee activities.
With the explanation of the four variables, the following conceptual model has been created for this research:
The conceptual model implies the following relevant sub-questions in order to answer the research question:
1. What are the characteristics of the S&OP process?
2. Which different functions of employees and their activities exist at the operational level?
3. How does the communication that is part of the relation between S&OP and the employees occur at the operational level and does this influence the activities of the employees at the operational level?
3. Methodology
3.1 Using Case Studies
In order to investigate the relationships proposed in the conceptual model (see figure 4) and provide an answer to the research question, a case study was performed at Operating Company Y.
The choice for an explanatory case study has been made because the focus of the research is to answer ‘how’ and ‘why’ questions to explain a presumed relation between S&OP and the employees at the operational level (Yin, 2009).
The ‘how’ and ‘why’ questions are explanatory and are considered operational links. The ‘what' questions describe the incidence or prevalence of a symptom or when it will predict certain outcomes (Yin 2009). According to Meredith (1998), ‘what’ questions focus on identification, ‘how’ questions focus on an explanation or prediction and ‘why’ questions focus on understanding the symptom.
Case study research is especially suitable for studying a symptom in its real-life context (Yin, 2009). By studying the S&OP and employee interpretation through a case study research I will be able to observe the actual practice of S&OP, which will result in an understanding of this symptom on the basis of which meaningful, relevant theory can be generated (e.g. Meredith 1998).
According to Wacker (1998), “Theories carefully outline the precise definitions in a specific domain to explain why and how the relationships are logically tied so that the theory gives specific predictions”.
Due to the complexity of the relation between the tactical and operational levels and the limited time available for performing this research, a single case study has been performed, because this gives the opportunity for in-depth observations (Karlsson, 2010).
3.2 Case selection&
In order to collect the necessary data for the aim of my research, I searched for a semi-production company that is knowledgeable about the S&OP process. After a period of investigation, I entered into conversation with a Distribution manager from a semi-production company and he told me about some issues concerning the S&OP process and the operational level inside the company.
Those issues are related to the aim of this research and was the reason for allowing a case study at an operating company, called Operational Company Y (in short OpCo Y). This company is part of the semi-production company that is called Company X.
OpCo Y has already been utilizing S&OP for three years and they are searching for further optimization of the S&OP process at the operational level.
The organizational structure of OpCo Y will be discussed in chapter 4 of this research.
3.3 Data
The data has been gathered by making use of different research sources and methods and this has ensured useful, qualitative data. Using and combining different sources and methods increases the construct validity. These different research instruments are:
• Use of databases (e.g. Google Scholar, ScienceDirect, Web of Science and Business Source Premier) for the literature review about S&OP.
• Gathering management reports and reports about S&OP meetings of OpCo Y. • Observing employees at the operational level during the order intake process.
• Semi-structured interviews. The interviews were held with: three Demand managers, Sales Controlling manager, Distribution manager, Master planner, Supply manager, Order Fulfillment officer and Consumer Management officer.
Interviews
operational level. Therefore, semi-structured interviews were conducted. In semi-structured interviews, the interviewer can ask supplementary questions in order to gain a clearer understanding of the answers and to obtain more information (Cooper & Schindler, 2008).
The semi-structured interviews consist of open questions about S&OP characteristics, of the role that employees play in the process and their activities (especially the employees at the operational level) that relate to S&OP and their experiences with the four variables: communication, decisions, rules and procedures and activities. Each interview started with general questions about the respondent's function within OpCo Y and their involvement with S&OP. The following questions from the interviews were also related to the different sub-questions from this thesis. The different interview sub-questions can be found in appendix A.
At the end of each interview, the respondents were asked the research question and they were also asked whether they had any suggestions for potential improvements that could be made to the S&OP process at OpCo Y.
In addition, the different managers and employees had the opportunity to ask questions about the research if something was unclear.
Furthermore, the nine interviews that lasted an average of 65 minutes were held at different locations within a period of two months. All interviewees gave me (the researcher) permission to record the interview and they were informed that their answers would be handled confidentially.
Report analysis
Two different reports were used, namely: an S&OP handbook from OpCo Y and an excel file that contained different decision-making issues. Those reports were strictly confidential and I received them, after signing a confidential contract with the distribution manager from OpCo Y.
The reports were mainly used to understand the different characteristics of the S&OP process and gave support in the development of the open interview questions.
Data organization
Handbook from OpCo Y.
The interviews resulted in a large amount of data. In order to reduce this data to its essence, it has been coded and aggregated into meaningful results. The interviews were analyzed using coding. The coding was separated into the answers that the managers and employees gave about the four variables (see figure 4): communication, decisions, rules and procedures and activities. A diagram was used to include the relevant answers that were derived from the interviews and that included all of the variables (Baarda et al., 2009). This diagram can be found in appendix B of this research.
The next step in the analysis was to explore the impact of the variables in order to
explain the relation between S&OP and the employees at the operational level. This analysis will lead to an answer to the main research question.
4. Description of Sales and Operations Planning
This chapter will start with a description of Operating Company Y, where the case research was done, and its relation to Company X.
Furthermore, the chapter describes a general overview of the S&OP process in the practical environment. It specifically offers a description of the different S&OP characteristics, information resources, employee involvement and employee activities in the S&OP process.
4.1 Description of the case
Background Company X
Company X is one of the biggest dairy companies in the world. The main activity of Company X is supplying consumer goods like infant nutrition, cheese & desserts and dairy-based beverages. They supply their goods to three continents Europe, Asia and Africa.
Another activity of Company X is supplying ingredients and half-finished products to manufacturers of infant nutrition, the food industry and the pharmaceutical sector around the globe.
Company X’s activities are separated into four main market-oriented business groups, namely: Consumer products Europe, Middle East & Africa; Consumer products Asia; Cheese, Butter & Milkpowder and Ingredients.
The business group Ingredients exits of a couple of operating companies. Figure 5 shows a structural overview of the organization.
Background Operating Company Y
This thesis focuses on one operating company Y (OpCo Y), which is positioned within the business group Ingredients (see figure 5). OpCo Y produces, sells and develops high quality dairy ingredients for infant, medical and cell nutrition for different markets in the world. These ingredients are subject to strict quality requirements, because the end-users are primarily sick people and babies.
OpCo Y has five production locations and the headquarter in the Netherlands.
Specifically for this research, I focused on the headquarter of OpCo Y, because this is where tactical decisions are made regarding S&OP which are in direct relationship to specific employees. Figure 6 gives the subjective organizational structure of OpCo Y and the specific employees who operate on the operational level are highlighted in red.
Figure 6: The subjective organizational structure of OpCo Y
4.2 Sales and Operations Planning characteristics within Operating Company Y
OpCo Y already uses S&OP three years, aiming for continuous improvements which leads to transparent and objective information in order to ensure optimal decision making processes. The main reason to work with S&OP is forecasting and responding to market-driven changes, which are in line with the strategic initiatives of OpCo Y.
day-to-day operations to their business goals, operational planning and financial planning. S&OP also helps empower decision-makers to reach consensus on a single strategy that facilitates critical resources and uses these critical resources in achieving their goals (S&OP Handbook from OpCo Y).
S&OP Process
Inside OpCO Y, the S&OP process follows the same fixed, monthly drumbeat in order to have all relevant data available at the same time for the tactical S&OP process (see figure 1 at chapter 2). According to the description of the S&OP process of Grimson and Pyke (2007) and Wallace (2004), the fixed components demand planning, supply planning, pre-S&OP and S&OP of the S&OP process inside OpCo Y will be described.
The tactical S&OP at OpCo Y provides a planning for the upcoming 3 to 18 months.
The planning period 0 to 3 months belongs to the operational S&OP and this will be described after the characteristics of the tactical S&OP. Figure 7 shows the weekly phases with their in- and output relation which are separated from week A to C each month. The results about the S&OP process are collected from the S&OP handbook which originates from OpCo Y.
Figure 7: The fixed monthly S&OP cycle
Demand Review
The Demand review is performed in week A of the S&OP cycle. The process exists of four steps and is executed according to the time schedule and the responsible functionaries as Customer Management officer (CMO), Sales managers, and Demand manager as depicted in figure 8:
Monday Wednesday & Thursday Friday
!
CMO Demand Manager CMO Demand Manager Sales Managers Demand Manager Secretary
Master planning
Figure 8: Time schedule of Demand process
The results after the Demand review are an unconstrained Demand plan, an overview of issues and agreed new actions- and decisions about the demand.
These results are created and communicated by the Secretary to the participants of the Demand Planning process (see figure 8).
The Demand manager is responsible for the assumptions of the Demand report and will answer the questions from employees regarding the Demand plan.
Supply Review
The supply review is divided in two meetings: Pre-Supply and Supply.
Considerable data is collected through a fixed supply process for the both meetings.
Supply review is performed in week B of the S&OP cycle. The process exists of five steps which are executed according to the time schedule below (figure 9) and the responsible functionaries as Master planning and Demand manager also depicted:
Monday Tuesday Wednesday Thursday Friday
Master planning Master planning & Master planning Master planning Team Lead Master planning Demand Manager & Plant Secretary
Master planning
Figure 9: Time schedule of Supply Process
CreaNng! Baseline! Forecast! CreaNng! "DraR"! Demand!Plan! Review! Baseline! Forecast! Demand! MeeNng! Review! Demand!Plan! &!Supply!Plan! PreLSupply! MeeNng! Scenario! Planning!&! Proposals! Review!Supply!
Pre-Supply Meeting
The results from the Demand review are the input for the Pre-supply meeting, namely the unconstrained demand plan, a concept overview of issues in the Supply Chain and the Supply plan. The Master planning is responsible for collecting the data of the supply plan, namely the capacity, manufactory related projects and a rolling plant revision plan.
The results from this meeting are an overview of issues in the Supply Chain, agreed new actions- and decisions and scenarios to be specified and validated as input for the Supply Meeting.
Supply Meeting
The results of the pre-supply meeting are the input for this meeting, namely an unconstraint demand plan and Supply plan.
The results after this meeting lead to a constrained Supply Plan issues overview (for upcoming 3-18 months), Supply Chain inclusive scenarios and agreed new actions- and a decision log.
The resulting documents from the Supply Review are created and communicated by the Secretary to the participants of the Supply process (see figure 9) and count as input to Pre-S&OP. The Master planning is responsible for the assumptions of the Supply report and will answer the questions from employees about the supply plan and shares the output (e.g. actions) with the plant.
Pre-S&OP
Pre-S&OP is performed in Week C of the S&OP cycle and the resulting documents of the Supply review are the input for this process.
The results of the Pre-S&OP are an agreed (constrained) sales – operation plan, an overview of decisions & proposals and agreed new actions- and decision log.
S&OP
S&OP is performed in Week C of the S&OP cycle and the resulting documents of Pre-S&OP are the input for this process.
This process leads finally to the Sales and Operations Planning consist of a forecast Demand-Plan and a capacity-plan, an overview of decisions and an agreed new actions-decision log. The Sales and Operations Planning will be communicated by the Secretary and are shared with all participants of the S&OP process. It will also be the input for the next S&OP cycle and for the operational execution by the organization. The participants are managers from the following departments: Marketing, Sales, Finance and Supply chain.
The Supply Chain manager is responsible for the communication of the final output report of the S&OP process to the employees of the headquarter from OpCo Y.
4.3 The operational process
The different fixed processes described above, consist of the tactical S&OP process with a planning horizon of 3-18 months. To enable a split between the operational process (0-3 months and the tactical S&OP process (3 – 18 months) the Demand & Supply Match is designed for OpCo Y. The Demand & Supply Match is a bi-weekly process and is performed in week B and week D of the S&OP cycle. The Demand & Supply Match structure is described in figure 10.
Figure 10: Demand & Supply Match (S&OP handbook from OpCo Y)
• Output: one demand & supply plan, overview of issues/bottlenecks in Supply Chain and agreed new actions and decisions.
• Communication: Output documents are created and communicated by the Secretary of the meeting & shared with key stakeholders (e.a. Supply Chain manager, Demand manager and Master planning) in day to day operations. Furthermore, Master planning is responsible to inform Order Fulfillment Officers on applicable actions and decisions. The Supply Chain manager is responsible to communicate the output of the meeting to the Distribution manager of OpCo Y.
4.4. Information Resources
OpCo Y make comprehensive use of different information resources to link and facilitate access of the input and output information from the S&OP process to the managers, who are involved in the S&OP cycle, and the employees.
Obviously, the different resources influence the ways in which demand and supply data are processed in the S&OP, and influence the efficiency of the activities and decisions of managers and employees. Furthermore, they assure continuous improvement of the S&OP process.
The following information resources are used inside OpCo Y for the availability and accessibility of information from the S&OP:
• Actions and Decision log (AD log): capture the actions and decisions during the meetings in the S&OP cycle. The Secretary of the S&OP process is responsible for completing the AD log within the required time and shares the data with the relevant stakeholders and employees of the day to day operations.
• SharePoint: database for saving files, documentation and presentations.
• Advanced planning and scheduling (APS): is a data source (from SAP) consisting of the forecast demand planning, the customer orders, and available stock. This integrates the S&OP information that is needed to coordinate demand and supply. • Heatmap: an excel file consisting of e.g. data of the products volume, inventory
volume. The possibility with a Heatmap is to recognize the main issues which lead to scenarios.
Operations (Capacity) and maximum impact on Standard Gross Profit (SGP) or a combination of both. The different scenarios are collected by the Secretary and they will make a scenario list for the Pre-S&OP and Demand-Supply Match process in the S&OP cycle. The managers from the S&OP cycle anticipate on the best scenario and adjust their activities to this scenario.
4.5 Employees and their activities
There are employees with different functions working at the operational level. There are a number of employees who are affected by the tactical S&OP process characteristics, thus the output of the S&OP plays an important role in their activities. The different employees work on the headquarter of OpCo Y (see figure 6). We do not focus on the employees of the different production locations, because the results of the interviews indicate there is no relation between those employees and the S&OP process.
In line with the aim of my research, the tactical S&OP process characteristics affect the following employees:
Order fulfillment Officers (OFO)
The OFO activities are related to the treatment of customer orders and they don’t have direct contact with the customers. They are responsible for a couple of activities that exist between the entering of the customer order until the delivering of the products at the customer, e.g.: order acceptation (checking of customer credit limit, item description & availability of the products), documentation, order quotation (delivery time & product configuration), order entry, order scheduling and arranging transportation.
The team of OFO has separated the different customers into 4 groups of two Key Accounts, internal customers and smaller customers. Every OFO is responsible for a couple of customer orders from a group.
Customer Management Officers (CMO)
The CMO is the contact point for the customers and is responsible for a couple of activities, namely: e.g. preparation of tenders, cost and price calculations, customer complaints, billing and after sales support. An important activity is order status reporting, that points to the tracking and tracing of the customer order throughout the process and keeps the customer informed about issues in the process. If there are any issues about the status of the customer order, the CMO ask the Demand manager and Master planning for clarification of the order and their decisions.
On the other hand, the CMO is responsible for giving the final customer contracts to the OFO and his/her “customer” demand plan to the Demand manager.
External providers
External providers provide warehouse space for the products of OpCo Y. They are totally dependent on the Distribution manager for information on the total SKU and about inventory management. They are concerned with how many space and people they will hire for OpCo Y. If there is uncertainty about the SKU or inventory, the external providers ask the Distribution Manager for more clarity, because they have no access to the information resources of OpCo Y.
Sales Managers
5. Diagnosis of the relation between Sales and Operations Planning and the
employees at the operational level
As argued previously with e.g. the information from the S&OP Handbook, some employees and their activities within OpCo Y are interdependent with S&OP characteristics, communication from the managers and especially with the decisions in the Demand Supply Match.
In this section, the results of the interviews that were conducted with different managers and employees at OpCo Y will be given. This section is divided into paragraphs according to the variables and the last four sub-questions that have been investigated in this research. The different paragraphs discuss the understanding of the relation between S&OP and the employees at the operational level. Finally, an outline of the S&OP process will be discussed.
5.1 Communication
While conducting research at OpCo Y, I discovered that the employees at the operational level did not know the exact definition of S&OP and they did not know what the goals were. As one CMO stated; “The communication is unclear and the definition S&OP is also unclear. I don’t know exactly what is going to happen and I don't know whether S&OP ensures of consequences for my activities”. The employees felt that more communication about S&OP was necessary: “We have read about S&OP in our email, that’s why we knew very little about the S&OP characteristics” (see appendix B).
The lack of communication of the S&OP information to the employees at the operational level was confirmed during the interviews with the different managers. As one manager stated (see appendix B); “We will improve this by holding workshops and we will distribute a newsletter to every employee. This will definitely help to involve the employees more in the S&OP process”.
Additionally, the Demand manager is responsible for the demand plan and the Master planner is responsible for the supply plan. They are responsible for communicating the decisions and for the output of demand and supply to the OFO and CMO. They receive data concerning the output in an email and determine how many orders can be made for that month. They can also find the data about the forecast contracts through the following information resources: AD log, SharePoint and APS (S&OP Handbook OpCo Y).
resources. Relevant information for external providers is the forecast of the product and decisions concerning the inventory management.
The Distribution manager is not included in the different, fixed S&OP meetings and the Demand & Supply Match meeting. For information regarding the S&OP, the Distribution manager is dependent on the Supply Chain manager, the Master planner and the information resources (see appendix B).
As the OpCo Y Distribution manager stated (see appendix B); “More meetings with the Supply Chain manager and the Master planner are necessary, because there is a poor overview of inventory and product decisions. This is important for the working relations with the external providers”.
Furthermore, additional questions about the decisions and data from S&OP are communicated by email and not face-to-face. According to the OFO and CMO (see appendix B), communication by email is disadvantageous, because the managers do not react directly to some of the questions. More face-to-face communication could be more effective, according to the OFO and CMO (see appendix B), because it would create an increase in direct communication, which would also serve to increase operation speed.
The managers within the S&OP process have opportunities to increase transparency in their entire supply chain and to recognize the bottlenecks/issues. However in practice, this usually only occurs after the issue. As the CMO and OFO stated (see appendix B): “It is known what the bottlenecks/issues are (e.g. whether the products are qualitatively solid in the inspection), but the communication and actions to counter this still appear to be inadequate, resulting in a wrong view of S&OP”.
Furthermore, the managers and employees from OpCo Y do not work at the same location every time. There are situations in which they can quickly inform each other, but the lack of continuity regarding location could lead to inefficient connecting and decision-making processes. Many employees thus passively wait for the day in the week when the manager is at the same location, because they prefer to connect and resolve issues in person (see appendix B).
maintained, resources and opinions could be improperly shared and this could negatively affect the relation between the managers and employees and their activities.
In conclusion, for the employees at the operational level, the content of the S&OP process is unclear. The results of the interviews indicate that at this moment, the managers of the S&OP are willing to improve the involvement of the employees in the S&OP process.
However, the employees still lack a means of communication with their managers with regard to the results of the S&OP process and they are unsure about how to perform their role within the S&OP process. In addition, even though the managers communicate with each other, not all of the information they have is shared with their employees at the operational level and it is often communicated too late. Furthermore, the provision of information about S&OP is mainly done with a one-way method of communication (top-down) between the managers and the employees at the operational level. The company also tends to use information resources more frequently to provide information about S&OP and they are less likely to use face-to-face communication between the managers and the employees at the operational level.
I believe the overall communication between the managers of S&OP and the employees at the operational level is unsatisfactory to most employees and there is definitely a need for more information about S&OP to do their work.
5.2 Decisions
Managers involved in the S&OP process must make decisions about issues and scenarios that are related to the demand and supply.
Those decisions are important for the activities of the employees, but it occurs that the decision-making period is too long. This leads to uncertainty among the employees, because they do not know which decision will be made (see appendix B).
Furthermore, there are situations in which managers of the S&OP process must decide about the stock level based on the forecast and these decisions are very important for the external providers. These external providers must know how much warehouse space they have to rent for a certain period and are thus dependent on the forecasting. However here also, the decision-making period is either too long or the external providers do not know which decision will be made. This leads also to uncertainty among the external providers.
level of importance and are connected to a CMO and OFO from OpCo Y. As argued previously, there are some situations in which the quality of the products is not good and this leads to a decrease in product volume. When this occurs, the Demand manager makes a decision based upon the data from S&OP as to which volume will be delivered to the different customers. Those decisions are related to the level of importance (see appendix B).
When this occurs, some CMOs and OFOs have difficult discussions with customers. As one CMO stated: “If I make a different decision about the forecast volume of products, this can lead to a difficult discussion with my customer about the promised volume of products” (see appendix B).
According to the OFO, Distribution manager and CMO (see appendix B), sometimes it is unclear which of the managers within S&OP are responsible for making a decision, for instance regarding a production issue. As the Distribution manager stated; “I want more clarity and structure about who is responsible for decisions and other questions regarding the data from S&OP” (see appendix B).
In conclusion, with regard to the decision-making process at S&OP, the employees at the operational level experienced their participation level to be low. The decisions about S&OP are made through managers at the tactical level.
During my research at OpCo Y, I can show that the employee's participation during S&OP decision making has fallen to level 1 (Dachler and Wilpert, 1978): “No (advance) information is given to employees about a decision to be made”.
The employees at the operational level were not involved in the decision-making regarding issues and problems at S&OP and were thus unable to give their opinions about the decisions that are made. Therefore, the opinions of employees and the consequences of decisions at the operational level are not taken into account during the decision-making process at S&OP.
However, the employees at the operational level are sometimes independent from the S&OP decisions and this has consequences for their activities. Specifically, the decisions related to the customers and products impact the employees at the operational level and they have a direct effect on their activities. I believe that having a limited relation between S&OP and the employees at the operational level can create ambiguous situations. It can lead to situations in which the employees make their own decisions about the volume of products or other things to avoid the discussion with the customers and to gain more speed in their activities.
participation in the decision-making process at S&OP, because the decisions that are made are also related to factors that are directly related to (e.g. customer orders, product volume) employee activities.
5.3 Rules and procedures
During my research at OpCo Y, I did not notice whether there were specific S&OP regulations for the employees at the operational level and for their activities.
Furthermore, there is also no standard formal procedure for how to communicate the actions and decisions about important issues to the employees. It is up to the managers to decide how they will communicate the output of S&OP, for instance: in a weekly meeting or by swinging by the employees informally (see appendix B).
I have noticed that there are rules for the managers regarding the S&OP process. When the S&OP process was initiated, OpCo Y arranged a method for recording and sharing the actions & decisions from the S&OP cycle and Demand-Supply match into the AD Log and the SharePoint. This is done to record the data on the same day of the meeting and it is important to deliver the correct information to the proper person. Every employee has access to the Ad Log and SharePoint databases, but external providers do not.
However, as the Distribution manager stated (see appendix B); “the managers and employees have to make better agreements about when the managers will answer to the employees. This will help to optimize the continuous process of employee activities”.
In conclusion, I found out that there are currently no rules or procedures for the employees at the operational level regarding S&OP. However, rules and procedures will support the employee activities, because they will know what they need to do if there are any issues or problems related to the S&OP.
5.4 Activities
As one CMO stated; “I don’t know exactly what is going to happen and I don't know whether S&OP will have consequences for my activities” (see appendix B).
the employees are not involved in the S&OP process, it may cause them to develop their own patterns of working and decision-making, which would then result in a delay in their work activities.
However, the main activities of the employees did not change with introducing S&OP. They have the same activities that they had before the implementation of S&OP. The only difference is that they now must sometimes do their work independently.
During my research, I noticed that there is still autonomy with the employee's activities, because they are responsible for example, for arranging the transportation to the customers. However, there is less flexibility with the activities that are related to the S&OP. S&OP has ensured that there is more structure related to the activities of the employees and this is seen as an advantage for their activities. As the CMO and OFO stated: “S&OP have created a more effective working structure and can assess any problems that arise in sales and production etc. more quickly. This leads to better communication with our customers. With S&OP, we can contact the customers early about certain issues or problems” (see appendix B).
In conclusion, the S&OP activities of the employees are independent from the output from S&OP, such as the method of communication and the decisions that are made. However, they are autonomous in their activities and their activities did not change with the implementation of S&OP.
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5.5 Relations within the S&OP process
Figure 11: Relations between S&OP and employees
Figure 11 shows the relation between the S&OP process and the Demand-Supply Match review with the different managers and the employees. This chart also shows how the employees receive the information from the S&OP process and the Demand-Supply Match review, the important role of the Secretary and the role of the Distribution manager. The chart also gives a clear view of the interdependency of S&OP decisions for the CMO, OFO and external providers and the way they receive the S&OP information.
plays a role in the S&OP process. This leads to a chain of information sharing which is subject to error and timing problems. In this way, external providers are subject to problems that stem from a sub-optimal communication process between Supply Chain managers and Distribution managers. This creates informational problems and uncertainty. In addition, figure 11 shows that the Secretary is the central link in the S&OP process. He is responsible for recording all of the decisions and data from the different S&OP meetings and then communicating it to the different managers and information resources.
When considering the research results from this study and the overview in figure 11, it can be argued that S&OP is a business process with a number of interrelated decisions that are used to coordinate the planning of sales and production. I also argue that the decisions related to the activities of the employees at the operational level are embedded in the tactical coordination of the S&OP.
This is because the employees are dependent on the managers or the different information resources for receiving data and decisions from the S&OP process or Demand-Supply Match review. There is no direct link with the Secretary and this could be a reason for complaints from the employees. They have argued that there is uncertainty about some decisions and regarding the timing of decision-making. A reason for this could be the sub-optimal system of communication (managers) between the Secretary and employees at the operational level.
Strategies
The practical research and figure 11 show that most interdependencies and issues in the process of S&OP are related to the structure of the decision-making process and the way in which the information is communicated within the organization. Those interdependencies and issues could also lead to task uncertainty by the employees and there is also no integration of the employees in the process.
In the literature, there are many authors who have discussed ways to solve those uncertainties and interdependencies.
Galbraith (1974) believes that “the greater the uncertainty of the task, the greater the amount of information that must be processed between decision makers during the execution of the task to get a given level of performance. Firms can reduce uncertainty through better planning and coordination, often by rules, hierarchy, or goals” (Galbraith, 1974).
tasks (Galbraith, 1974).
Different organizational forms are related to design strategies that reduce the amount of information processed, or increase the ability to handle more information and all of these strategies help to reduce the number of exceptions that must flow up the hierarchy for resolution (Galbraith, 1974). According to Galbraith (1974), a critical limiting factor of an organizational form is the ability to handle the non-routine events that cannot be anticipated or planned for.
The discussion above, about the uncertainty and independence of employees at the operational level and their activities in the S&OP process of OpCo Y suggest that there is some room for improvement. In the next section, I will discuss the different organizational forms and their activities, mentioned by Galbraith (1974), to the current S&OP process at OpCo Y.
Creation of Slack Resources: This strategy will occur if a company is not capable of
creating a higher-level strategy to deal with uncertainty. This can lead to an extension of completion dates, a reduction in budget constraints and an increase in inventory etc. (Galbraith, 1974)
This form applies less to the S&OP process at the OpCo Y. I believe that there is a high level of resources available for processing S&OP at the tactical level. Therefore, this is not related to the uncertainty and interdependence of the employees at the operational level.
Creation of Self-Contained Tasks: This organizational form leads to a strategy of changing
the function groups to product groups. For instance, changing from functional to product groups makes better management of exceptions possible. However, this could lead to a loss of resource specialization (Galbraith, 1974).
This form is also not related to uncertainty and interdependence of the employees at the operational level.
Investment in Vertical Integration Systems: This organizational form can lead to better
analysis, decision-making and information processing with the help of specialized languages and computer systems (Galbraith, 1974).
uncertainty of the employees at the operational level, because specialized languages and computer systems will be created.
I have observed in the interviews that no fixed S&OP languages exist between the managers and employees. Some employees do not know all of the definitions and do not know the precise content of the S&OP process.
I believe that in order to achieve a high quality S&OP process, a company must ensure at the beginning of the implementation phase, that every employee knows the definitions and the process of S&OP, supported by the appropriate computer systems
Creation of Lateral Relationships: This organizational form focuses on moving the decision
making power down in the organization to where the information is to reduce the uncertainty. There are different strategies to achieve this (Galbraith, 1974):
- Direct Contact moments between managers: Makes it possible to commonly solve the issue.
- Liaison Rules: Special participants who are able to overcome two sub-systems and reduce the requirements of hierarchical decision-making.
- Task Forces: Creating multi-department groups to solve a specific issue.
- Teams: Creating formal groups to execute a task. The designation of a leader is a difficult part.
- Integrating Roles: Participants who have some power between departments to affect decision-making. They collect information and equalize power differences, which improves joint-decision making processes
- Matrix Organization: A dual-authority relationship that is based on effects, uncertainties and interdependencies. (Galbraith, 1974)
This form answers in my eyes, the question of the participation of the employees at the operational level in the decision-making process at S&OP. The uncertainty and dependency of the employees regarding certain decisions could be solved by moving the decision making power down in OpCo Y. In my opinion, different strategies are suitable for this:
• Liaison Rules & Integrating Roles: These rules are related to the Distribution manager from OpCo Y. He is capable of getting a direct link with the S&OP process and he knows everything that is happening at the operational level. If he can join the Demand-Supply Match meeting then it is possible to communicate the decisions to the employees in a quicker way. This is also an advantage for the communication to the external providers.
Or
• Managerial Linking Roles: Because the employees do not report directly to the linking manager in this strategy, this could be exported to a new management function: S&OP manager.
6. Conclusion
The aim of my research was to understand the relation between S&OP and the employees at the operational level. The research question was stated as: “How are the employees at the operational level affected by Sales and Operations Planning and what is the impact of Sales and Operations Planning at the employees activities?”
The literature and practical research sections have discussed the relation between S&OP and the employees at the operational level with the aid of four variables: communication, decisions, rules and procedures and activities.
As shown in the literature review, the general literature on Operational Management is limited and does not apply to the aim of my research and this has led to finding the answers in a case study research. The results from the research at OpCo Y have provided an answer to the research question.
In this research, it can be concluded that S&OP is related to the tactical level inside a company. The way of working corresponds to the fixed S&OP structure, with the five process steps that were argued by Grimson and Pyke (2007). The managers at the tactical level are responsible for decisions concerning several issues in a S&OP process.
The relation between S&OP and employees at the operational level consisted of communication and decision-making. It can be concluded that the decisions and the method of communication at the tactical level determine the activities of employees at the operational level.
Although the results of the case study at OpCo Y indicated that employees at the operational level experienced a lack of formal communication about the decisions and information of S&OP and indicate that the participation in the decision making was low with regard to issues and problems at the S&OP (level 1, Dachler & Wilpert, 1978).
The research also indicates that the employees at the operational level wish to communicate more with the managers in S&OP about the content of S&OP and that this communication was top-down. The results support the idea that there is a relation between the S&OP and the employees at the operational level and that the decisions and information from S&OP affect the employees at the operational level.
