Insights in the multi-level aspect of the S&OP process Master Thesis, MSc. Supply Chain Management University of Groningen, Faculty Economics and Business Economics June 24

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Insights in the multi-level aspect of the S&OP

process

Master Thesis, MSc. Supply Chain Management

University of Groningen, Faculty Economics and Business Economics

June 24th, 2019

Eline de Groot S2500701

G.de.groot.10@student.rug.nl

Word count: 11.605 (excluding references and appendices)

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Abstract

Purpose: The objective of this research is investigating how companies perform a multi-level Sales & Operations Planning (S&OP) process and which factors have an influence on the design of a multi-level S&OP. Due to globalization and the ever-growing consumer-oriented economy, the complexity of the business environment increases. A single S&OP process will be too unwieldy to deal with those more complex and risky environments. Therefore, the multi-level aspect of S&OP deserves more attention.

Method: An exploratory multiple case study is conducted to gather empirical data. Four companies and a total of 11 semi-structured interviews formed the basis for this research. Within case analysis and cross-case analysis made it possible to compare the results.

Results: The research gives insights in how companies perform their multi-level S&OP or why they do not have a multi-level S&OP. The S&OP process or steps of the process could be performed at business unit-level, country-level, division-level and organizational-level. Besides, the S&OP levels can also be divided in local, regional and European/global level. Moreover, this research indicates several factors that influence the multi-level design. The factors are characteristics of demand (volatility of demand and project-based demand), supply (serving the local or global market) and production (amount of production locations and the interdependency between production locations). Lastly, the different levels of detailed information and decision making have an influence on the aggregation and disaggregation of S&OP levels.

Contribution: This research adds new insights to academic literature and the knowledge of companies in how companies perform multi-level S&OP or not and which factors are related to the design of the multi-level aspect.

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Acknowledgements

This master thesis is the final contribution to my master’s degree in Supply Chain Management at the University of Groningen. During the past 5 months I have been doing this research about the interesting subject of the multi-level aspect of the Sales & Operations Planning. However, I was not able to write this thesis without the support of several people. First, I would like to thank H. Dittfeld for all his support, feedback and guidance throughout the process. Besides, I would like to thank Prof. dr. D.P. van Donk for the critical but valuable feedback during the sessions we had. Furthermore, I would like to thank all the interview partners for participating in the interviews. The useful information, their openness and honesty during the interviews and the interesting stories about practical problems enables me to do this research. Lastly, I would like to thank my family, friends and fellow students for their support during this process.

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1.Introduction

The most important goal of a company is to satisfy their customers by balancing supply with demand (Pedroso, da Silva & Tate, 2016; Thomé, Scavarda, Fernandez & Scavarda, 2012). In a production environment, this means delivering the products at the right time, at the right place in the right quantity. The Sales & Operations Planning (S&OP) is a process that aligns supply with demand. However, today’s business environment is challenging and changing fast. To be competitive, companies have to deal with variations in the market (Wagner, Ullrich & Transchel, 2014; Pedroso et al., 2016; Lapide, 2006). To quickly respond to changes, S&OP should be effective and collaborative, which means that knowledgeable people from different levels of the organization need to work together (Lapide, 2006). However, globalization increases the complexity and uncertainty in the daily operations, which makes the S&OP process of more importance to the success of a company than ever before (Baumann, 2010; Lapide, 2011; Tuomikangas & Kaipia, 2014). Due to the complex environment where business operate in, S&OP also becomes complex because of the many organizational levels, departments and products involved (Jonsson & Holmström, 2016). This results in several S&OP levels of aggregation and disaggregation within an organization to be able to balance supply and demand and to integrate all different departments and planning systems. However, the multi-level aspect of S&OP is a topic that is discussed little in academic literature. Besides, factors that influence the multi-level S&OP are mostly unknown by companies.

Given the fact that S&OP has many positive effects on the performance of the firm in terms of forecast, inventory levels, capacity utilization and service level (Kristensen & Jonsson, 2018; Nabil, El Barkany & El Khalfi, 2018). The multi-level aspect is crucial in those complex environments to achieve the benefits of S&OP (Lapide, 2011; Wallace and Stahl, 1997; Kristensen & Jonsson, 2018). For companies, it is essential to know how to develop, implement and execute a multi-level S&OP to achieve those benefits. However, academic literature about that is lacking (Kristensen & Jonsson, 2018; Tuomikangas & Kaipia, 2014; Danese, Molinaro & Romano, 2018; Pedroso et al., 2016).

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7 SKU-level, warehouse-level and plant-level (Lapide, 2006; Wallace & Stahl, 2008, p.97). However, S&OP can also be performed at local, regional and global levels (Wallace & Stahl, 2008, p.167). In addition, elements of the S&OP design are authorities, the roles and responsibilities, centralization/decentralization and structure of the decision-making process (Tuomikangas & Kaipia, 2014; Kristensen & Jonsson, 2018). These decisions are related to the business context and will be more complex when the business context becomes more complex (Tuomikangas & Kaipia, 2014). However, academic literature remains generic about this topic and does not elaborate on the complexity of the elements of S&OP. To be able to achieve the benefits an S&OP process can give, it is important that S&OP levels are harmonized in order to reach strategic goals of a company. The incomplete knowledge of companies about the different S&OP levels and the links between them hinder the achievement of strategic goals and therefore strengthen the importance of this study. Next to that, literature is minimal in addressing which situations require a multi-level S&OP process.

Therefore, the research question that will be answered in this research is the following;

How do companies perform multi-level S&OP and which factors have an influence on the design of the multi-level S&OP?

A case study of four companies in the manufacturing sector will add empirical data and enlarge the knowledge about how companies perform level S&OP and which factors influence the multi-level aspect. This research will add value to the limited existing literature and knowledge of companies by focusing on the underlying factors and principles of having different levels of aggregating and disaggregating within S&OP.

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2. Theoretical background

In this chapter several concepts will be defined and described to get an overview of the existing literature. First, the S&OP process will be discussed. After, the concept of the multi-level S&OP process of an organization will be elaborated.

2.1. Sales & Operations Planning

Sales & Operations Planning (S&OP) is a key business process and has several main purposes or characteristics; (1) balancing supply and demand, (2) link strategic and operational plans, (3) it is a planning process which is cross-functional and integrated, (4) create value and improve performance and (5) it handles a planning horizon from approximately 3 till 18 months (Thomé et al., 2012; Tuomikangas & Kaipia, 2014; Grimson & Pyke, 2007). S&OP seeks to improve the customer service, decrease inventories, shorten customer lead times, make the cooperation with suppliers better and stabilize the production rates (Kristensen & Jonsson, 2018; Nabil et al., 2018; Wallace & Stahl, 2008, p.169). Moreover, the S&OP can be defined as “a process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain” (Noroozi & Wikner, 2017, p.139; Thomé et al., 2012, p.2). Within the organization, several parties are involved such as marketing, sales, operations and finance and the integration and coordination between the departments is very important to be successful in the S&OP process (Wagner et al., 2014; Noroozi & Wikner,2017; Thomé et al., 2012).

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9 The planning horizon of S&OP is mainly 3 till 18 months. But it can compass a horizon from three months till three years in the broadest way (Grimson & Pyke, 2007). Due to the different planning horizons, the amount of detail of the plans can differ (Noroozi & Wikner, 2017). In most cases a product family is the planning object of the S&OP. However, companies can also use SKU (stock-keeping unit) as their planning object (Noroozi & Wikner, 2017; Grimson & Pyke, 2007; Thomé et al., 2012; De Kok et al., 2005).

Integration and coordination between departments, goals and strategies at different levels within the organization is the main aim of S&OP and will improve the performance of the firm (Tuomikangas & Kaipia, 2014; Kristensen & Johnsson, 2018; Thomé et al., 2012; O’leary-Kelly & Flores, 2002). Coordination can be defined as ‘the pattern of decision making and communication among a set of actors who perform tasks to achieve common goals’ (Tuomikangas & Kaipia, 2014). Coordination is realized when efficient decisions are made by the actors of the S&OP process. The need for coordination increases when the supply chain complexity and the firm size increase (Kristensen & Johnsson, 2018; Tuomikangas & Kaipia, 2014). Besides, detail complexity, having multiple marketing and sales units, increase to the number of processes that needs to be managed and therefore strengthen the need for parsing the S&OP process (Kristensen & Johnsson, 2018; Tuomikangas & Kaipia, 2014).

2.2. Multi-level aspect within S&OP

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2.2.1. Multi-level model of Lapide (2011)

Demand and supply are not linked anymore to one single location, but become global, including multiple locations. To harmonize this worldwide demand and supply, the S&OP process needs to be divided among several dimensions and consolidated at one central point (Lapide, 2011; Basu, 2001). Lapide (2011) conceptually developed four scenarios considering the supply in which a multi-level S&OP is needed or not. The first scenario is the Single Worldwide Source, which is the simplest one and refers to a situation where one plant produces products and supplies it to all regions on a global basis. One S&OP process is sufficient here. Regions in this framework are market-based or based on demand. The second scenario is the Multiple Regional Source where multiple plants produce products, but a region is supplied by only one plant. That plant can supply multiple regions. The third scenario is the Dedicated Regional Source where multiple plants produce products, but only supply one region. That region is supplied by only one plant. In this situation, each region would have their own S&OP process and these processes are independent. The last scenario is the Multiple Shared Sourcing which refers to a situation where multiple plants produce products and each region can be supplied by one or multiple plants. In case of Multiple Regional Source and Multiple Shared Sourcing the supply is shared among different plants. Therefore, each plant needs an S&OP process, but these processes also need to be harmonized at a central, aggregated level. Most companies are a combination of the scenarios mentioned above (Lapide, 2011). Table 1 shows the four scenarios of Lapide (2011). This research will investigate if these scenarios also apply in real cases and if other factors are related to these scenarios.

2.2.2. Model of Wallace and Stahl (1997)

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11 (2011). This research will challenge both the view of Lapide (2011) and Wallace and Stahl (1997) and identify similarities and differences.

2.2.3. Factors related to the multi-level aspect of S&OP

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12 company are reasons to aggregate plans (Lapide, 2011; Kristensen & Johnson, 2018; O’leary-Kelly & Flores, 2002). Scenarios of Lapide (2011) Single Worldwide Source Multiple Regional Source Dedicated Regional Source Multiple Shared Sourcing

Description One plant produces and distributes products to all regions. Multiple plants produce products. One plant distributes one or more regions, these regions will not be supplied by other plants.

Multiple plants produce products. One plant only distributes to one specific region. This region is not supplied by other regions.

Multiple plants produce products. Each region can be supplied by one or more plants, so the supply is shared among the regions.

Multi-level S&OP needed according to Lapide (2011)?

No. Yes, each S&OP

process should include all regions with common supply and the demand will be consolidated.

No, S&OP processes parallel for each region is needed.

Yes, each region with a supply resource should have their own S&OP process. These plans need to be consolidated to ensure global goals and objectives. Design of multi-level S&OP according to Wallace and Stahl (1997).

N.A. Each area or region

should follow the five steps of the S&OP process. After, the different areas or regions come together in a global executive meeting where the plans are

consolidated.

N.A. Each area or

region should follow the five steps of the S&OP process. After, the different areas or regions come together in a global executive meeting where the plans are

consolidated

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3. Methodology

In this section, the choice for conducting a multiple case study will be explained. Besides, the selected cases and their characteristics will be provided. Lastly, the methods for collecting and analyzing the data will be discussed.

3.1. Research method

The main aim of this research is to get more insights in how the multi-level S&OP process is designed within an organization and which factors influence that design. A multiple case study will be conducted to answer this question. A case study is the most suitable research method because of several reasons. First, a case study is studying a phenomenon in-depth and within a real-life context. Second, the variables are unknown, and the phenomenon is not fully understood. Third, a case study is suitable for theory refinement and is exploratory in nature (Karlsson, 2016. P.170). In this study, little is known about the different levels of S&OP and their underlying factors that contribute to that. Therefore, the exploratory view is necessary, which have a link with the research question which starts with the ‘how’. ‘How’ questions are the most suitable to answer by means of a case study (Karlsson, 2016, p.167). Next to that, academics stated that empirical evidence is lacking about the S&OP process (Kristensen & Johnsson, 2018; Thomé et al., 2012). This strengthen the need for a case study to investigate the phenomenon in a real-life context. Multiple cases are selected to compare the cases and to be able to generalize the results (Eisenhardt, 1989).

3.1.1. Unit of analysis

The unit of analysis refers to the level of data aggregation during the subsequent analysis. It refers to the major unit that is analyzed in the research and encompass the research field which derives from the research question (Elo & Kyngäs, 2008). The unit of analysis in this research is the S&OP process within a manufacturing firm.

3.2. Case selection

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14 needs to be active in a production environment, otherwise there is no supply to balance with demand (Pedroso et al., 2016). Besides, large companies expect to have multiple production locations which make their business more complex. One way to handle the complexity is parsing the S&OP process in multiple levels (Kristensen & Johnsson, 2018). Therefore, the expectation is that larger companies have a multi-level S&OP process.

Table 2 presents an overview of the selected cases.

Case Type of company Number of countries with at least one production location

# of employees Company A - 3 +/- 1350 Company B - 30 +/- 48.000 Company C - - +/- 900 Company D - 23 +/- 5.500 Company E - 1 +/- 600

Table 2: Overview of selected cases.

The aim of this research is to extend the theory using multiple case studies, therefore it is important to be able to compare the cases and indicate differences. Replication logic will be used to be able to refine and extend the theory on the multi-level aspect of the S&OP process within manufacturing firms (Karlsson, 2016, p. 176).

Each case is selected so that it predicts similar results (literal replication) and it provides contradictory results which are expected before (theoretical replication) (Karlsson, 2016, p.176). As mentioned in the theoretical background, more marketing and sales units or production locations increase the need for parsing the S&OP process due to more processes that need to be managed (Kristensen & Johnsson, 2018; Tuomikangas & Kaipia, 2014). Therefore, considering the amount of countries where production take place, the expectation is that cases B and D shows similar results why they have a multi-level S&OP. Also, some factors that influence the design of the S&OP of those cases will probably match. Contradictory results in each case will be expected because every firm operates in a different context and therefore uses different motives for the design of the S&OP process (Ivert et al., 2015; Tuomikangas & Kaipia, 2014).

3.3. Data collection

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15 emerge during the interview. This is also known as probing, which gives the interviewer the freedom to make adjustments during the process of data collection (Eisenhardt, 1989). An interview protocol (Appendix 8A) is developed that contains the set of questions that were asked during the interviews and specific data that was required (Karlsson, 2016, p.179). The protocol is sent to the interviewees prior to the interview, so the interviewees could take some preparations if needed. After an introduction with a short background of the studies, the interview protocol started with some general questions about the company itself such as ‘How would you describe the strategy of the firm?’ and ‘How does the production network look like?’ to provide context. After, topic-related information was gathered by asking some general questions about the S&OP process such as ‘What are the stages you go through to determine a final S&OP plan?’ and ‘What is the main aim of the S&OP process?’. After, more detailed questions are asked to dive into the different levels of S&OP and the relating factors such as ‘Why is the multi-level/one-level S&OP process sufficient for your company?’ and ‘Are there any specific characteristics of your company that influence the design of the current S&OP process?’.

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16 documents are consulted such as slides used in the S&OP meetings and presentation slides about the company itself and the S&OP process.

Case Interviewee Function Communication channel

Length # pages of transcript

Company A A1 S&OP planner Face to face 52:48 10

Company A A2 Sales planner Face to face 1:03:08 10

Company B B1 Planning &

Logistics manager and Supply Chain Coordinator

Face to face 1:16:37 15

Company B B2 Supply Manager

Europe of one division

Skype 1:29:33 15

Company B B3 Demand Manager

Europe of one division

Skype 52:58 9

Company C C1 Operations manager

of one business unit

Face to face 1:05:34 8

Company C C2 Supply Chain

professional of one business unit

Face to face 54:09 11

Company D D1 European S&OP

planner

Face to face 56:26 11

Company D D2 IBP Project

Manager – East Europe

Skype 48:40 10

Company D D3 Supply Planning

Manager – UK & Ireland

Skype 50:55 9

Company E E1 Production planner Face to face No

permission to record, so about 1 hour

8

Company E E2 Supply Chain

Manager & Export Operations Manager Face to face No permission to record, so about 1 hour 8

Company E E3 Manager Demand

Planning, Customer Service & Distribution Face to face No permission to record, so about 1 hour 5

Table 3: Overview and characteristics of the interviews.

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17 meeting for bringing together different departments to share information and data. Therefore, these findings are different to the findings that were expected by selecting the case and not applicable for this research. The company complied to the selection criteria of being a large company, having a location in the Netherlands and is (was) a manufacturing firm of tangible products. However, the outsourcing part was not mentioned before doing the interviews.

3.4. Data analysis

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18 First order concepts Second order concepts Overarching theme ‘No, we have production site in the Netherlands,

Germany and Sweden’ (A1)

Location of production sites

Characteristics of production ‘We only make product X in the UK, the rest is all

across other production sites wherein 23 other countries across the world where we manufacture’

(D3)

Our company is a single plant and directly connected to their offices (E1).

In total there are 75 factories globally. We are 47.000 people worldwide, we are selling in 150 countries, we have 75 factories split over these different units. (B1) ‘But we don’t have, this location is producing only for the European market, so I will plan this. The production locations we have are all producing for the global market’ (A2)

Production network ‘Yes, in Germany they might make products that come

to the UK, France and to other site. And products from France and UK are also sold to other countries and sites as well’ (D2)

In one division, is a more specialized production structure. Some products are specific produced in a specific production site, that distribute all over Europe (B3)

Yes, it makes it more convenient when we want to switch sales between countries that we have all the participants in the meeting and we have one overview of all the production line (A1).

Flexibility of production between

business units From our S&OP we give input to the next step, saying

we have an issue on the medium segment, and we cannot fix it within half a year. Then they can go up and say, “maybe we can switch some markets, temporary to X products”, but then you are still in the same segment and then you have your total view (B2) And be on a top-level rather than on a side specific level, because quite often we will might be running crazy on one site and the other site is quiet. We don’t get to see that and if it is shared we will understand where the constraints are on other site or not or whether we can share some loads or share some work with other sites (D3).

Table 4: Part of the coding tree for the theme ‘characteristics of production’.

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within-19 case analysis and looked for differences, similarities and patterns between cases. The cross-case analysis is done by identifying factors that links with the multi-level aspect of the S&OP process, described in section 4.4.

3.5. Validity and reliability

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4. Results

In this section, the results of the interviews will be presented. First, a case description of each case will be given, followed by an overview of the context of the case. After, different factors are presented which seems to have an influence on the multi-level design of the S&OP process. The research question consists of two parts. Sections 4.1, 4.2 and 4.3 will discuss the results related to the first part of the research question ‘how do companies perform multi-level S&OP?’

4.1. Case description

To be able to compare the results between the cases, it is important to first analyze the cases individually. Therefore, a short case description will be given for each case. The analysis will only cover information that is the most relevant to the multi-level aspect of S&OP.

4.1.1. Company A.

The production network of the company consists of production sites in the Netherlands, Germany and Sweden. Their customers are all over the world. Therefore, the production locations all produce for the global market.

Company A has four different divisions and therefore four different pre-S&OP meetings. Thereafter, they come together in one S&OP meeting and authorization meeting. These levels can be seen as multi-level because the pre-S&OP is executed at a division level and the S&OP meeting and the authorization meeting is executed at the organizational level.

In the three steps of the S&OP process, the production lines are discussed, with the lines with the most problems discussed in the authorization meeting. The production sites in Germany and Sweden participate in the S&OP process in the Netherlands. When their lines have some issues, they will participate in the meeting and will give the relevant information. Therefore, the global demand and supply is used in the reviews. S&OP planners in the Netherlands calculate with the total demand of the countries together. However, when more detail is desirable, they can split the demand to see the demand of each country in the system.

4.1.2. Company B.

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21 France, UK, Spain, Mexico, Colombia, Netherlands, United States and Italy (conducted from the slides of the company). Those 5 regions are not linked one-to-one to a division, so each region consists of production sites of multiple divisions.

The company knows 4 different divisions according to different types of products and technology and these four divisions all have their own S&OP process. There is no collaboration between these S&OP processes.

The first two steps, the demand and supply review, are executed at three different levels. The countries perform a local demand review, which means that the demand planning and the commercial department are sitting together. After, a regional review is carried out where the demand managers of the regions create a forecast and the data is aggregated (on a European level) to the European Demand Manager of the division who executes the European review of the data, which is used in the S&OP process. After that, the supply reviews will be performed at each production unit. Thereafter, this data is aggregated on a European level to the European Supply Manager of the division and this data is used in the S&OP meetings. However, the steps are not followed in the same way with the same standards by every country or region. They are working towards it, but they are not there yet. Step 3 of the process is the pre-S&OP meeting where the ‘hot potatoes’ will be discussed before the vice presidents are involved. The last step is the executive S&OP meeting where issue resolution is done at high management level. To illustrate this process with some numbers; in total there are approximately 120 country reviews, there are 4 different divisions, approximately 150 production areas involved and 4 executive meetings (conducted from the slides of the company).

4.1.3. Company D.

The production network consists of 29 production sites in 23 countries, and they are selling to 25 countries currently. Most of the countries where they produce are located in Europe.

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22 The production sites start the S&OP cycle with a statistical forecast from the demand planners. The demand planners improve this demand review by including market intelligence data of the sales experts. The supply chain planning managers use this improved forecast to make their calculations and plan how to meet this forecast, also called the supply review. The next step is the actual S&OP meeting. Here, the imbalances between demand and supply are discussed with the production department, sales department and the management. The S&OP process is supply chain driven and is focused on the short-term horizon and more operational decisions are involved. In reality, not all the production sites carry out all the steps of the S&OP process. The demand review is not executed at every production site. The supply review is performed at most of the production sites, but the perspective and practices could be different.

4.1.4. Company E.

Company E is part of a corporate group, which have locations in The Netherlands, Czech Republic, Poland and Romania. However, there is no interaction or collaboration between those locations and the Netherlands. The S&OP process discussed below is on business unit level.

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4.2. Overview context cases

To summarize the information from the cases and to be able to put the results into perspective, an overview of the 4 cases is presented table 5. Next, in this table the cases are also classified according to the framework developed by Lapide (2011).

Company A Company B Company D Company E

Steps of the S&OP process 1. Pre-S&OP 2. S&OP meeting 3. Authorization meeting 1. Country and/or regional and aggregated demand review 2. Unit and aggregated supply review 3. Pre-S&OP 4. Executive S&OP meeting 1. Demand review 2. Supply review 3. S&OP meeting 1. Demand review 2. Supply review 3. S&OP meeting Departments involved Product management, sales, supply chain, operations, production sites, finance, management director Marketing, finance, production, demand managers, supply managers, Supply chain, finance, sales, manufacturing, customer services, and territory director. Sales, marketing, finance, operations

Planning object Step 1: SKU level,

line level Step 2 & 3: Line level

Step 1&2: SKU level, product group level Step 3&4: Product group level

Step 1&2: SKU level

Step 3: Product group level

Step 1&2: SKU level, line level Step 3: SKU, line and retailer level

Planning horizon

3 till 24 months 12 till 24 months 1 till 3 months 6 till 12 months

Main aim of the S&OP process

Balancing the total production volume with the sales volume and agreement between sales and

operations.

To highlight the situation where the organization is in and agree on the taken actions. Next to that, to spot issues as early as possible, so that they can be solved before they arise.

To get information and to solve

problems on a short time horizon.

Serve the customer in line with the customers service agreements by discussing the problems immediately at a low level. Multi-level S&OP? Yes Yes No No (Multi-level) S&OP design Pre-S&OP meeting at division level, S&OP meeting at organizational level

Local and regional demand review, unit supply review, European/global demand and supply

Unit demand review, unit supply review and unit S&OP meeting.

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24 reviews, European/global Pre-S&OP, European/global executive S&OP Classification in framework of Lapide (2011) Multiple Shared Sourcing Multiple Shared Sourcing & Single Worldwide Source Multiple Shared Sourcing & Multiple Regional Source Single Worldwide Source The production locations produce for the global market. The basic product, X, is used in all the divisions. The divisions itself produce different kind of products. Production locations serve multiple countries. However, in one division there is more specialized production where some products are produced in a specific production site and supplied to multiple countries.

Dedicated products are produced in specific plants that serve Europe. But there are also multiple plants producing the same kind of products which are distributed to different

regions/countries.

There is only one production location that distribute to different countries.

Table 5: Overview of the context of the cases.

4.3. Multi-level aspect of S&OP

The multi-level aspect of S&OP refers to an S&OP design where multiple levels are used to be able to benefit the advantages of S&OP in a more complex environment. To understand how the cases perform or do not perform multiple levels, table 6 shows which decisions are made in which step of the S&OP process. Only the first step, data gathering, will not be discussed because this is mostly done automatically through IT systems such as SAP. Besides, only the most important information and some example questions are given. Company A does not follow the five steps from the literature but has an S&OP meeting between the pre-S&OP meeting and executive meeting. It is decided to include their S&OP meeting within the category of pre-S&OP, because their S&OP meeting is more linked to the pre-S&OP meeting as known in the literature.

Company / Step

Company A Company B Company D Company E

(2) Demand review

Is included in the pre-S&OP meeting.

Local, regional and European/global level

-Creating forecasts with data from the market.

-Consolidate the local reviews into a regional review to

Business unit level -Combine statistical information with market intelligence data to make forecast release. - Already consider some constraints, do not make a

Business unit level -Gather

unconstraint demand, sales and marketing

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25 find root causes for

the problems. - Harmonize regional reviews into European review and consolidate shared product groups. - Do we need to postpone launches because of capacity constraints?

bigger demand plan if production cannot achieve that.

- Are there any gaps? How are we performing in sales vs our budget and vs our weekly forecast? (3) Supply review Is included in the pre-S&OP meeting. Local and European/global level - Local capacity planning; are we able to supply from this specific site? Is the forecast in line with the planned production? - Combine the unit supply reviews and consolidate shared product groups to have a total supply overview.

- Is there free capacity elsewhere? Do we need to change the source of supply? Are we still profitable on certain market areas?

Business unit level - Develop a plan to supply the forecast. - Discuss stock levels, volumes, product mix and machine capacity. - What can we do, where are capacity constraints of machine, material supply or labor?

Business unit level - Review of production, product availability, capacity of machines, stock levels, efficiencies, obsoletes.

- Why don’t we sell that much as expected? - Are there products becoming obsolete? (4) Pre-S&OP Division level -SKU and line level reviews about forecasts, stock levels, production output. -Act to big changes in forecasting and production plans. -Solve easy issues. Division level -Hot potatoes are discussed. - When demand is higher than capacity; which markets get which portion of their demand? - Do we need to switch production between sites or reduce the safety stock levels?

Company D does not have a pre-S&OP meeting.

Business unit level -Commercial and operations comes together.

- Only big

problems in terms of losses and costs are discussed here. - Understanding each other to improve future processes.

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26 S&OP meeting Division level - All production lines with limited details. -Efficiency and status update. - Compare data with the budget. -Give advice to executive S&OP. - Give advice to executive S&OP. - Decide on final plans. (5) Executive S&OP Organizational level -Discuss selected production lines with the most issues.

-Do we need to cut sales and in which division? -Compare scenario’s and strategic vs financial decisions - Solve issues or make decisions where money is involved. Division level - (dis)approve requests from lower levels. - Discuss financial results. - Strategic vs financial decisions - Investments or cutting demand decisions - Are we able to supply and meet the requests by all the markets? - Do we need to move production from A to B due to poor machine performance?

Business unit level - Agreements between production, sales and management. - Discuss shorter-term imbalances, - Make plans to achieve the numbers in the budget. - Decisions about for example delaying sales to other countries to use more capacity for project in own country

Company E does not have an executive meeting.

Table 6: (Multi-level) S&OP design of the cases

4.4. Factors related to the multi-level aspect

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4.4.1. Characteristics of demand

One of the characteristics of demand is the volatility, which is recognized by all the cases in this research. The volatility in demand makes it hard to have a high forecast accuracy and therefore often plans need to change. This volatility has several causes. First, company B mentioned that promotions are one of the reasons of the demand volatility and are driven by the supermarket or other retailers themselves. Similar products of other companies can also have some promotions, therefore the behavior of the customer is hard to predict. Company B indicates this ‘Next week customers will make a different decision, because other brands can have a better discount’ (B1). Company E also faces problems with the promotions. Supermarkets do not want to give information about the content of the promotion to company E because they are afraid that competitors of the supermarket will find it out. Second, company E mentions weather and events as important causes of the volatility in demand. Although Company E knows which events are coming and that this will influence demand, they do not know how much they will sell. Besides, the products of company E are sold much more when the weather is good. In cases of high fluctuations in the demand, it is of more importance to profit by having the aggregated division or organizational view. This enables business units to handle those fluctuations without having high stock levels or under capacity at certain moments. They can ask other business units to use their free capacity when the demand is high.

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28 production locations do have free capacity or some products on stock to help them supplying the project.

4.4.2. Characteristics of supply

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4.4.3. Characteristics of production

Characteristics of production are the third factor that influences the multi-level aspect of S&OP. First, the higher the number of production sites around the world, the more efficient it is to have local demand and supply reviews and aggregate it to a higher level. Company B mentions the following; ‘We manage round about 70 different warehouses, to which we deliver in round about 32 countries. In the combination of 640 SKUs moving over the year. That’s where we have to build the S&OP process’ (B1). This makes it a very complex production network where a lot of data needs to be collected. Next to that, each product has its own forecasting problems, lead times and each production site has its own capacity constraints. To be able to process all this data, different levels are needed to make sure that it is still manageable. The lower levels make it possible to get the data with a high accuracy because they are close to the data and the aggregated levels make it possible to harmonize the data to make scenarios for solving problems. Company E supports this by mentioning the opposite. They have one production site and experience that a single-level S&OP is sufficient because they can handle all the data in one process with the three steps involved. Therefore, there is no need for them to aggregate the data to a higher level because there are no other plans which can be combined. Company D does have multiple production locations around the world, but the S&OP process is not that mature yet. Currently they are implementing the multi-level aspect where they want to include the European/global view. The wish is to have an aggregated review for the same reasons as company B. Including longer-term decisions instead of fire-fighting and focusing on the short-term decisions.

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30 locations face constraints in terms of capacity for example and which locations do have some free capacity and can take over some demand. In this way, in case of company A, the total demand can be fulfilled or the balance of product X can be achieved so the customer can be supplied. Company D currently has a single-level S&OP but expects that multi-level S&OP is superior to one-level S&OP. Two of the things that arise by asking what they expect that will change by having a multi-level S&OP, is the ability to share loads or work and to have insights in where the constraints are. ‘Be on a top-level rather than on a side specific level, because quite often we will might be running crazy on one site and the other site is quiet. We don’t get to see that and if it is shared we will understand where the constraints are on other site or not or whether we can share some loads or share some work with other sites’ (D3). However, to indicate why company A has the executive meeting at an organizational level and company B at the division level, the characteristics of the product itself have to be considered. Company A has four different divisions. Their basic product, X, can be used in all the four divisions where different products are made. Therefore, they can switch X between those divisions in times of capacity constraints or other issues and therefore an organizational level is desirable. On the other hand, company B has different divisions, but the basic products are also different. They cannot switch products between divisions because it is a different type of product and it makes no sense to consolidate the plans of different divisions because you cannot switch capacity, products, demand etc. Therefore, they have an S&OP process per division.

4.4.4. Transparency of detailed information and decision making

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31 same issue according to the S&OP planner: ‘If the forecast is we will sell 10 tons and we actually sell 10 tons, we say perfect, well done. But for example, if we look in detail we noticed that for Product A they forecasted 5 tons and they didn’t sell anything and for Product B they forecast 5 tons and they sold 10 tons’. To face this problem, it is important to have a multi-level S&OP process where different levels of aggregated and disaggregated information are present. In the higher, aggregated levels you can make decisions with the more detailed information coming from the lower levels. Aggregating problems to a higher level, where other production sites are involved, provides the company with the possibility to see if other sites can help to solve the problem. On higher levels, there is more space, money, capacity and possibilities to solve bigger problems. Company D supports this: ‘Yes, suppose. At top level we may decide that we may want to bring products inhouse rather than outsourcing it based on value or based on where we see we got some capacity in certain areas. Utilization as well, where we could be overutilized at some points. We may miss that because we do not have the overall view but the site-specific view’ (D1). To be able to make decisions like this or decisions like: which country gets which share of the forecast when there is a capacity constraint or which country is underperforming and needs to boost their sales when we look at the growth plan, an aggregated level is needed.

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5. Discussion

In this chapter the results of this research will be related to existing literature and contributions will be discussed. First, the framework of Lapide (2011) and Wallace & Stahl (1997) will be reflected. After, factors described in the literature will be compared to the factors found in this research. 5.1. Model of Lapide (2011)

Lapide (2011) conceptually developed a framework with four scenarios where a multi-level view of the S&OP process would be desirable or not. The cases of this research are classified in this framework in the results section (table 5). This research contributes to these scenarios by adding empirical data and applying these scenarios to real-life cases. In addition, the framework of Lapide (2011) only considers the supply in addressing the perspective of a production location serving one or multiple countries or areas which can be served by one or multiple locations. However, little details are given about how the regions are defined, the role of having different divisions and the influence of production or demand characteristics. These factors will be explained in the remaining part of the discussion.

5.2. Model of Wallace and Stahl (1997)

Lapide (2011) does not elaborate on how the S&OP process should be parsed in terms of the five steps of S&OP process. However, the model of Wallace and Stahl (1997) addressed this subject. They showed that each region or area should follow the five steps of the S&OP process described in the literature (Kristensen & Johnsson, 2018; Wagner et al., 2014). However, results show contrasting results. Company B already executed the demand and supply review at three different levels; local, regional and European/global. The following steps, the pre-S&OP meeting and executive meeting, are only performed at the European/global level. This is related to Wallace and Stahl (1997) who mentioned that the different plans of the regions should be consolidated in an executive meeting at a global level. Moreover, company A does not follow the five steps from the literature but have a pre-S&OP meeting at division level and a S&OP meeting and authorization meeting at organizational level. Therefore, this research adds other ways to set up the S&OP process.

5.3. Additions to the views of Lapide (2011) and Wallace and Stahl (1997)

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33 all based their regions based on geographical factors. Therefore, this research adds another factor to existing literature which plays a role in dividing regions.

Furthermore, literature does not consider the role of divisions in subdividing the S&OP process (Lapide, 2011; Wallace and Stahl, 1997; Tuomikangas & Kaipia, 2014; Kristensen & Johnsson, 2018). However, this research showed that different divisions based on product type and technology do play an important role in sub-dividing S&OP. A division consists of products with the same product technology or product type. This research showed that it is desirable to have an S&OP process for each division which could contain multiple levels. When the product technology or components of products are similar and interchangeable between several divisions, it would be desirable to have an aggregated, organizational level involved. The aggregated views enable companies to share capacity or switch production between production sites.

5.4. Factors related to the multi-level aspect

Lapide (2011) indicated several factors that are important in the decision of parsing the S&OP process. However, little details or explanation were given by Lapide (2011). Moreover, supply and demand characteristics seem to have an influence on the decision-making in parsing the S&OP process because they are the main uncertainties in the S&OP process (Lapide, 2011; Ivert et al., 2015). This research contributes to the factors described in the literature by giving more detailed information about how these factors influence the multi-level S&OP and by discussing the characteristics of production as an additional factor.

This research supports the fact that the number of plants within an area impacts the multi-level aspect of S&OP. A higher number of production locations indicates that it is more efficient to have multiple levels to make sure that the data, which can differ between production locations, is manageable. Besides the number of production locations, another factor arose in this research which is related to the characteristics of production. The interdependency among production locations to be flexible in switching production. Multiple levels in S&OP enables companies to supply the customer in situations of capacity constraints by being able to share capacity and switch production (see section 4.4.3).

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34 characteristics discussed in literature. Supply characteristics are related to sourcing, production and distribution resources (Lapide, 2011; Ivert et al., 2015).

Product demand patterns and geographical factors are described in the literature as demand characteristics (Lapide, 2011; Ivert et al., 2015). This research finds support for the product demand patterns such as the volatility of demand and the project-based demand. Geographical factors are supported by this research because the companies divide their regions based on the geographical factors.

The last factor that arose in this research is the transparency of detailed information and decision making. This factor is not earlier discussed in literature. Several levels of detailed information seem to help solving problems and achieving (budget) numbers. In the higher, aggregated levels you can make decisions with the more detailed information coming from the lower levels. The aggregated level enables companies to make decisions. Lower levels of information are important to really see the problems (see section 4.4.4).

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6. Conclusion

The main objective of this research is investigating how companies perform multi-level S&OP and which factors influence the multi-level design. The research gives insights in how companies perform their multi-level S&OP or why they do not have a multi-level S&OP process by conducting a multiple case study of four companies. The S&OP process or steps of the process can be performed at business unit-level, country-level, division-level and organizational-level. Besides, the S&OP levels can also be performed at local, regional and European/global level. Moreover, this research indicates several factors that influence the multi-level design. The factors are characteristics of demand (volatility of demand and project-based demand), supply (serving the local or global market) and production (amount of production locations and the interdependency between production locations). Lastly, the different levels of detailed information and decision making have an influence on the aggregation and disaggregation of S&OP levels. In the higher, aggregated levels you can make decisions with the more detailed information coming from the lower levels.

Theoretical implications

This research gives more insights in the multi-level aspect of S&OP, where the literature is lacking. The factors that arise in this research complement the literature in finding support for known factors from the literature and comes up with new factors. Next, this research adds more in-depth analysis from real-life cases to the literature to increase the knowledge of the multi-level aspect and how companies perform this aspect.

Managerial implications

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Limitations and directions for further research

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7. References

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Ivert, L. K., Dukovska-Popovska, I., Kaipia, R., Fredriksson, A., Dreyer, H. C., Johansson, M. I., Chabada, L., Damgaard, C.M & Tuomikangas, N. (2015). Sales and operations planning: responding to the needs of industrial food producers. Production Planning & Control, 26(4), 280-295.

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38 Karlsson, C. (Ed.). (2016). Research methods for operations management. Routledge.

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Lapide, L. (2006). Top-down & bottom-up forecasting in S&OP. The Journal of Business Forecasting, 25(2), 14-16.

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39 Voss, C. (2010). Case research in operations management. In Researching operations management (pp. 176-209). Routledge.

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8. Appendices

8A. Interview protocol

Interview protocol - Master thesis Sales & Operations Planning Dear Interviewee,

This document contains a part of the questions that will be asked during the interviews which are part of the research about Sales & Operations Planning, conducted by two students of the University of Groningen.

The interview will start with some general questions about your company, followed by some general questions about the Sales & Operations Planning. After that, two perspectives will be highlighted where questions will be asked about:

1. Multiple levels: in academic research the focus of S&OP is mainly on highest organizational level. However, in practice the S&OP process is (often) done at different levels of the organization (e.g. plant, business group, enterprise or local, regional and global respectively). Within this study, we want to gain insights in how companies perform the S&OP on those different levels (or not) and what the motives are to organize the process in such a way.

2. Horizontal alignment: how do organizations deal with the clash of interests among the different departments? Furthermore, the role of finance is of great interest as many organizations seem to struggle to take the step from volume-based planning to value based planning. As such the main aim is to get insights in how the different departmental plans are aligned.

We would like to ask permission for recording the interview? We want to audio record the interview, so no information will get lost. We will keep the information and names confidential and they will not be used by other parties.

Kind Regards,

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41 General questions

1. Could you describe the organizational structure? 2. How does your production network look like?

3. What are the difficulties with demand of these products? 4. What are the difficulties with supply of these products?

General S&OP questions

7. What is the main aim of the S&OP process? 8. What are the success criteria of the S&OP process?

9. What are the stages that you go through to determine a final S&OP plan? 10. Which data do you use for the S&OP process?

11. How do you align the forecasts of all different departments involved?

Multi-level S&OP

12. Do you have multiple levels of S&OP? (for example, Local, regional, global?) If YES:

13. How is the S&OP process exactly designed and organized?

14. How did you develop and implement the current S&OP at different levels?

15. Are there specific characteristics from your company that influence the design of the S&OP process? Which one and how do they influence the S&OP?

16. Which demand and supply characteristics does influence the subdividing in the S&OP? If NO:

13.2 How is the S&OP process exactly designed and organized?

14.2. Are there specific characteristics from your company that influence the design of the S&OP process? Which one and how do they influence the S&OP?

15.2. Why is the one-level S&OP sufficient for your company?

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42 Finance’s role in the horizontal alignment of the S&OP process

23. Is the finance department involved in the S&OP process?

If yes: If no:

What is the purpose of involving finance? Why is the finance department not involved?

Since when has finance been a part of the S&OP process?

How do you integrate the value perspective in the S&OP process?

What role does the finance department have in the S&OP process?

How do you discuss the S&OP plan with the finance department?

24. Would you describe your organization as horizontally aligned, when considering the S&OP process?

25. How do you deal with misalignments in the S&OP plans?

26. Does the financial department differ from the rest of the involved departments in any way in the S&OP process?

Insights in the multi-level aspect of the S&OP process Master Thesis, MSc. Supply Chain Management University of Groningen, Faculty Economics and Business Economics June 24