CONTRIBUTION OF SALES & OPERATIONS PLANNING TO SUPPLY RISK MANAGEMENT: A MULTIPLE CASE STUDY

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CONTRIBUTION OF SALES & OPERATIONS PLANNING TO

SUPPLY RISK MANAGEMENT: A MULTIPLE CASE STUDY

Master’s Thesis, MSc Supply Chain Management University of Groningen, Faculty of Business & Economics

June 22, 2020

MILOU BENSCHOP

3789551

m.q.benschop@student.rug.nl

Supervisors/University H. Dittfeld and D.P. Van Donk

2nd assessor/University X. Tong

Word count: 10,672

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ABSTRACT

Purpose - This paper explores how the S&OP process contributes to supply risk management.

Design/Methodology/Approach - An explorative multiple case study consisting of fourteen semi-structured interviews within eight cases in different industries is conducted. The unit of analysis is the organizations’ S&OP process, which is being investigated for its role in supply risk management. An inductive case study approach is used when analysing the data.

Findings - Key findings show that supply risk management is incorporated in the S&OP process, as supply risks are partly covered in the S&OP process. This concerns supply risks that disturb the balance between supply and demand. The S&OP contributes to supply risk management by means of collaborating departments who align, discuss, raise awareness and make decisions concerning supply risks.

Originality/Value - This paper provides an in-depth insight into the S&OP process as a capability of supply risk management.

Keywords - Sales & Operations Planning, supply risks, risk management

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1. INTRODUCTION

In early 2020, Apple's main iPhone manufacturer Foxconn had to shut its factories because of the Coronavirus outbreak in China. This led to a production stop of iPhones until the mid of February 2020. Accordingly, Foxconn was not able to satisfy the worldwide demand of several iPhone models (Stevenson, 2020). Due to industrial trends like an increase in outsourcing and globalization, the supply risks increase as well (Aberdeen Group, 2007). According to the Business Continuity Institute (2013), 58% of the disruptions occur at the first-tier supplier. Suppliers are seen as the “companies’ number one concern” in terms of risk sources (Blackhurst, Dunn and Craighead, 2011, p. 382). Hence, this makes managing supply risks a subject of broad theoretical and practical interest (Narasimhan and Talluri, 2009). The concept of Sales & Operations Planning (S&OP) aims to balance supply and demand at a tactical level (Jacobs, Berry, Whybark and Vollmann, 2011). One of S&OP’s goals is to manage uncertainties and risks (Thomé, Scavarda, Fernandez and Scavarda, 2012). It is possible that supply risks such as the iPhone example can be managed within the S&OP process, but little is known about how exactly S&OP contributes to managing supply risks.

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lead-addition, companies respond to material supply uncertainty by including supply-inputs in the S&OP process (e.g. forecasts of availability and capacity) (Kjellsdotter et al., 2015).

The above shows that supply risk management and S&OP are linked to each other as supply risks can affect (parts of) the S&OP process. What remains unclear however, is how supply risks are tackled in the S&OP process (Daniels and Kenny, 2008). The interface and integration of S&OP with risk management is an area that needs to be further investigated (Kristensen and Jonsson, 2018). All in all, little is known about how the S&OP process can contribute to managing supply risks. To close this gap, the following research question is formulated:

RQ. How does Sales & Operations Planning contribute to supply risk management?

This paper explores how supply risks are addressed in the organizations’ S&OP process. To answer this research question, a multiple case study consisting of eight cases is conducted. As the predominant part of prior research focused on either the S&OP process or supply risks, the theoretical contribution of this empirical research is to establish a bridge between the S&OP process and supply risks. This research intends to contribute to supply risk management via the S&OP process literature by reflecting on various case studies. This provides an in-depth insight into how supply risk management is handled in practice via the S&OP process. Additionally, the paper aims to contribute to practice of managing supply risks. The S&OP process can address issues within the existing risk management process and it can be used to determine the impact of potential supply risks.

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2. THEORETICAL BACKGROUND

To clarify supply risks, supply chain risk management and the S&OP process, corresponding concepts will be discussed, which are acquired from academic and practitioner literature sources. This will lead to a research framework, where supply risks and the S&OP process are linked.

2.1 Supply risks

Wagner and Bode (2006, p. 303) define supply chain risks as “the negative deviation from the

expected value of a certain performance measure, resulting in negative consequences for the focal firm.” Supply chain risks are distinguished into two major categories, i.e. supply risks

and demand risks (Johnson, 2001). This paper solely focuses on supply risks since these can have a tremendous effect on the focal organization and subsequently for the customer (Chen

et al., 2013; Zsidisin et al., 2004). Supply risks are defined as “the potential occurrence of an incident associated with inbound supply from individual supplier failures or the supply market, in which its outcomes result in the inability of the purchasing firm to meet customer demand or cause threats to customer life and safety” (Zsidisin, 2003, p. 222). Supply risks

concern risks with the upstream partners of an organization (Ho et al., 2015), which are risks that involve the supply network. Supply risks interrupt the focal organization’s business continuity when the supplier might not be able to deliver the ordered products (Wagner and Bode, 2009).

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Table I. An overview of supply risks (Zsidisin et al., 2000) Supply risk Definition

Business risk

The financial stability of a supplier, which determines how long an organization stays in business. When a supplier goes bankrupt, it results in a discontinuity at the supply and focal organization (Sheffi and Rice, 2005).

Supplier capacity constraints

When a supplier does not have sufficient capacity to keep up with the customers’ demand, it leads to a lack of needed products and services, which may cause the bullwhip effect that also influences the focal organization (Fine, 1998; Lee, Padmanabhan and Whang, 1997).

Quality

Quality failures can already start at the supplier. It can have a tremendous effect throughout the entire supply chain, as all links depend on each other to meet certain product or service requirements (Zsidisin et al., 2000). Production

technological changes

When suppliers are not able to stay ahead of technological changes, it can have a damaging effect on costs, lead times and competitiveness in the market. When suppliers cannot keep up with the technological changes, the new quality standards will not be met (Zsidisin et al., 2000).

Product design changes

As customers’ demand changes regularly, organizations need to modify by continuously making product design changes. Once they are not able to do so, supply risks can develop, as the focal organization’s requirements are not met (Zsidisin et al., 2000).

Disasters

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2.2 Supply chain risk management

Jüttner, Peck and Christopher (2003, p. 9) define supply chain risk management as “the

identification and management of risks for the supply chain, through a coordinated approach amongst supply chain members, to reduce supply chain vulnerability as a whole.” According

to Kern, Moser, Hartmann and Moder (2012), supply chain risk management aims to reduce the frequency and impact of supply risks. It consists of four process steps, i.e. risk identification, risk assessment, risk treatment and risk monitoring (Fan and Stevenson, 2018; Neiger et al., 2009). These steps might be (partially) covered within the S&OP process.

The first process step of supply chain risk management is risk identification, which allows managers to identify and manage these identified risks and/or factors (Ho et al., 2015). Risk identification is of considerable importance as it triggers other supply chain risk management process steps (Kern et al., 2012).

Secondly, assessing supply risks involves analysing the probability of an occurred event and its impact on the business (Norrman and Jansson, 2004; Zsidisin et al., 2004) and has been studied to a certain extent (Ho et al., 2015). The focus is mainly on supplier evaluation and selection, where certain supply risks, such as poor quality and late delivery, are considered (Talluri and Narasimhan 2003; Talluri, Narasimhan and Nair, 2006).

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of reducing the supply base complexity is finding the optimal number of suppliers (Berger, Gerstenfeld and Zeng, 2004).

The final risk management process step covers risk monitoring, which enables early identification of risks and subsequently proactive risk management planning (Goh, Wang, Yin, Fu and Ponnambalam, 2013). It includes tracking all risks and giving regular updates on risk information (Shivakumar, 2014; Wun-Young, 2009). Risk monitoring has been given the least attention in the literature and so has supply risk monitoring (Ho et al., 2015; Zhang, Chai, Yang and Weng, 2011).

2.3 Sales & Operations Planning

Thomé et al. (2012, p. 360) define S&OP as “a process to develop tactical plans that provide

management the ability to strategically direct its businesses to achieve competitive advantage continuously by integrating customer-focused marketing plans for new and existing products with the management of the supply chain.” S&OP is cross-functional and integrates tactical

planning processes and all functional plans into one integrated business plan. S&OP links strategy and operations and is linked to organizational performance (Nakano, 2009; Grimson and Pyke, 2007). S&OP is used for the near to intermediate-term with a planning horizon between three and eighteen months, where resources are covered and the annual business planning process is supported (Thomé et al., 2012). The S&OP enables minimizing stock outs and the ability to swiftly respond to demand changes without increasing inventories by encouraging communication and collaboration across departments (Danese, Molinaro and Romano, 2018). Moreover, S&OP enhances collaboration with suppliers (Nakano, 2009). Organizations from different industries enable unique S&OP problem contexts (Kjellsdotter

et al., 2015; Kjellsdotter, Dukovska-Popovska, Riikka, Fredriksson, Dreyer, Johansson,

Chabada, Damgaard and Tuomikangas, 2015). S&OP is relevant across industries, but research on different industries is lacking (Kristensen and Jonsson, 2018). The organization size influences the S&OP processes as these are more commonly used and advanced within large organizations compared to small organizations (Kristensen and Jonsson, 2018).

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2010). Gallucci’s research (2008) linked risk management to the S&OP process, but its focus was solely on including scenario management into the S&OP process.

The S&OP process consists of inputs, five process steps and outputs (Kjellsdotter et

al., 2015). The inputs of the S&OP process are distinguished into three categories, which are

separated plans, constraints and goals (Kjellsdotter et al., 2015). Separated plans include demand, historical sales data, production, procurement and capacity plans. Constraints of S&OP’s input are production capacity, supplier constraints and financial restrictions. Goals such as reducing inventories, enhanced forecasts, balancing supply and demand affect S&OP (Thomé et al., 2012). Supply risks can occur in separated plans (procurement) and constraints (supplier capacity constraints).

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2.4 Research framework

This study investigates how the S&OP process contributes to supply risk management. As mentioned before, the S&OP enables organizations to balance supply for and demand of their products (Avila, Lima, Moreira, Pires and Bastos, 2019). Yet, this balance can be offset by supply risks. It is not clear how supply risks are taken into consideration within the S&OP process. In Figure 1, the relationship between the S&OP process and managing supply risks is transformed into a research framework.

Figure 1. Research framework

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3. METHODOLOGY

The method section addresses how the research was conducted and explains the study’s research design, case selection, data collection and analysis.

3.1 Research design

To study how the S&OP process can contribute to managing supply risks, an inductive case study research approach was used. Primarily exploratory research was used to gain an in-depth understanding of the topic and to find links between the S&OP process and supply risk management (Pathak, Jena and Kalra, 2013). This is considered to be an appropriate method as both the S&OP process and supply risks are at a well-developed stage in the literature (Ho

et al., 2015), but the way in which these affect each other has yet to be investigated. A

multiple case study of eight cases was conducted by doing interviews with employees of different organizations. Case study research is suited to explore a real-life phenomenon in-depth such as different S&OP processes and various supply risks (Yin, 2009) and can lead to new insights and subsequently to new research (Boyer and Swink, 2008). A multiple case study was conducted as it provides stronger and more reliable evidence (Baxter and Jack, 2008).

3.2 Case selection

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expected. This corresponds with theoretical replication. Consequently, different S&OP processes might lead to various ways to address supply risks. Furthermore, multiple respondents from one organization lead to different perspectives and a more complete overview of the S&OP process. Managers that are involved in the S&OP process (Sales, Marketing, Operations/Supply Chain en Finance) or are ultimately responsible for the risk management process within their organization were considered relevant respondents.

3.3 Data collection

Four researchers conducted a total of fourteen interviews, which are distributed over the eight cases. The interviewees were managers who are involved in the S&OP process and/or risk management process. A semi-structured interview protocol was used to conduct the interviews in April/May 2020 (see APPENDIX A). A semi-structured interview is a mix between predetermined questions and an open conversation, where there is room for the interviewee to elaborate (Ryan, Coughlan and Cronin, 2009). The interviewees were approached via e-mail or LinkedIn. If possible, several interviews within each organization were conducted to acquire an in-depth understanding of the S&OP process when managing supply risks. This would also contribute to a higher reliability of the findings. Table II provides an overview of the cases, including the organization’s size, position of the interviewees, the interview duration and the industry in which the organizations operate. The organizations were subdivided based on the Standard Industrial Classifications (Dutch SBI). The main category and subcategory are indicated in the column ‘Industry’. All cases are manufacturing organizations with the exception of case E, which is a service organization. Case E does not have an Operations department, but indicated to have an S&OP process.

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Table II. An overview of the cases

# Case Industry Size Interviewees Interview

duration

1 A

Industrial (manufacturer of electrical and electronic parts and

accessories for cars)

2,500 Global internal audit

& Risk manager (A1) 01.26.00

2

B Industrial (manufacturer of

hydraulic equipment) 200

International Sales & Marketing director (B1) 00.35.00 3 Operations director (B2) 00.38.00 4 C Industrial (manufacturer of switchgear and control gear

assemblies)

270 Global Supply Chain

manager (C1) 00.58.00

5

D Manufacturing (manufacturer of

starch and starch products) 1,300

Supply Chain

manager (D1) 01.22.00

6 Sales planner (D2) 01.00.00

7 Risk manager (D3) 00.54.00

8 E Retail (storage in distribution

centres and other storage) 900

Supply Chain

director (E1) 01.34.00 9

F

Industrial (manufacturer of other machines, apparatus and equipment for specific purposes)

150

Senior Supply Chain

planner (F1) 01.26.00

10 Business controller

(F2) 01.26.00

11

G Industrial (manufacturer of pipes) 390

Senior planning

specialist (G1) 01.26.00

12 Supply Chain

coordinator (G2) 01.26.00

13 Financial & Business

controller (G3) 01.22.00

14 H

Industrial (manufacturer of spices, sauces and seasonings; salt

refining)

290 Supply Chain

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3.4 Data analysis

The interviews were coded in Excel, with the aim to analyse the transcriptions and identify recurring patterns across the cases (Barratt, Choi and Li, 2011). The interviews were analysed separately since each interviewee has a different point of view within the organization (e.g. Sales, Marketing, Operations, Finance and Risk Management).

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Table III. Excerpt of coding

Link to S&OP

process Data reduction (first-order codes)

Descriptive code (second-order categories) Link to risk management process steps (third-order theme) Link to supply risks (third-order theme) Within the S&OP process

So you will first check what you can get from the stock and then you check your gap. (D1)

Substantial impact

Assessment Disasters But then we listed those chemicals in the S&OP and looked at the

inventories at the moment and we took the action to increase some. (D1)

Treatment Disasters

So then you actually get more insight from departments if it (semi-finished product) is something they see risks in or that they expect

this to be easily available. (A1) Multiple

departments

Identification

Supplier capacity constraints In S&OP we define what we do with each other, this is what we

can do. If you want more inbound supply, the switch time is an X number of weeks. (E1)

Treatment Supplier capacity constraints Outside the S&OP process

The QESH and Purchasing department will check how well the supplier is performing, if the supplier is reliable and to see that you do business with a reliable partner. (H1)

Limited

departments Assessment Quality

Yes, but I always escalate immediately when it is a big risk. You should not wait for two weeks. So I am going to get together with the Production manager and the head of Operations. (C1)

Instant action Treatment

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4. FINDINGS

The findings section gives an overview of the obtained data. From the data collection, findings about the contribution of the S&OP process to supply risk management could be derived. Within all eight cases, the S&OP process contributes to supply risk management. An elaborate overview of the organizations’ S&OP processes is provided in APPENDIX B. It shows which departments are involved in the S&OP process, the meeting frequency, the planning horizon and the department that is first responsible for managing the supply risk.

Firstly, the different supply risk categories will be reviewed. Secondly, the risk management process steps will be considered. Thereafter, S&OP’s role in supply risk management will be elaborated upon. Finally, the characteristics of supply risks that are covered within the S&OP process will be discussed. Whenever supply risks are addressed outside the S&OP process, it will also be mentioned.

4.1 Supply risk categories

Some supply risk categories have been cited more than others (see Table V). This classification is based on Zsidisin et al. (2000), who categorised these according to the six supply risk categories. The majority of the cases experienced supplier capacity constraints, which was the most frequently occurred supply risk category (8 out of 22). Other supply risks that came across were disasters, quality and business risk. Due to the Coronavirus outbreak, ‘disasters’ have been cited often. The interviewees did not mention production technological changes and product design changes. It was found that supply risks of the same category are managed either with or without S&OP’s contribution. For example, cases C and D manage delivery risks (supplier capacity constraints) differently. Case C handles the absence of deliveries in consultation with the Production planners, so outside the S&OP process. “If we

have unreliable deliveries and we are not able to arrange with the supplier from Purchasing that they do deliver on time, the planners will solve it afterwards.” (C1). On the other hand,

case D's decision to secure starch availability is handled via the S&OP process: “For starch,

we did decide in the S&OP process, because that is one of our main risks.” (D1). It seems

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Table V. Cited supply risks by the interviewees in the S&OP process Case Business risk Supplier capacity constraints Quality Production technological changes Product design changes Disasters A 1 B 1 1 1 C 1 D 1 1 2 E 2 1 F 1 G 1 1 1 2 H 1 2 1 Total # 1 8 6 0 0 7

4.2 Risk management process steps

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Table IV. Risk management activities in the S&OP process

Risk management

process steps # Supply risk management activities

Identification (6)

2 Looking ahead and considering potential supply risks 2 Getting updates (inputs) from planners

1 Informing each other

1 Inputs regarding harvest forecast Assessment

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8 Analysing the current state of affairs 2 Assessing stock levels

2 Setting priorities (making a distinction between suppliers)

Treatment (9)

2 Managing the required capacity with regard to meeting customer's demand

2 Increasing stock levels

2 Switching to an alternative supplier

1 Determining what we can do with each other

1 Making agreements with suppliers to improve performance 1 Buying volume from a supplier

Monitoring (3)

2 Evaluating KPIs

1 Checking Bill of Materials report

Cases B, C, F and G identified supply risks in the S&OP process. Cases B and D both mentioned the risk management process step identifying supply risks in the S&OP process, but came across differently. Case D identified the supply risk in the input phase of the S&OP process and case B in the S&OP meeting. Case D identified the insufficient quality of the raw materials as input for the S&OP process (input phase), after which steps could be taken.

“That is identified by the planners. […] Then you indeed have the S&OP cycle every month.”

(D2). B2 mentioned to identify the risks within the S&OP process (S&OP meeting), but the treatment part is Purchasing’s responsibility. “So, of course, the S&OP meeting often looks at

whether there is a risk. But ultimately the solution is purely on the Purchasing side. It is not really said about that: we are going to do it like this.” (B2).

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Case E distinguishes the suppliers on the basis of a baseline. Based on this, case E determines the fixed capacity per week the supplier can deliver: “A distinction has been made between a

type of baseline, where we have placed our key suppliers.” (E1). Another example is from

case H: “We also look at the worst performing suppliers.” […] But innovation and

communication is also part of the supplier performance.” (H1).

After assessing supply risks, potential treatment strategies were formulated in the S&OP process. Cases C, D, E, F and H indicated to treat supply risks in the S&OP process. Case C’s supplier was taken over by a competitor, which could lead to lower delivery reliability. The supply risk treatment strategy was set up in the S&OP process. “When a Sales

Engineer comes up with a configuration with that engine that you say: let's at least try to preventively transfer it to an alternative with another supplier, so that is why we are already looking at things like that in the supply chain and in the S&OP.” (C1). Case D’s amount of

raw materials depends on weather conditions. In the S&OP, case D sets up a treatment strategy in case there are good weather forecasts. “If we expect a good harvest next year, we

want to buy volume from a number of suppliers despite the fact that we do not need it.” (D1).

Monitoring was covered to a lesser extent in the S&OP process in comparison to the previous three risk management process steps. D1 looks back on a report with the indicated components needed (Bill of Materials). “And based on that, they can check what is happening

and whether they should make adjustments or not.” (D1).

4.3 S&OP’s role in supply risk management

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Cases B and G align their (production) planning in the S&OP process with all involved departments, including the department that is responsible for managing supply risks. Case B’s S&OP cycle repeats every two weeks, where they meet with multiple departments to make sure to align with each other. “On the basis of the work in progress and new orders, the new

planning is determined. This concerns the new production orders we will put in our system.”

(B2). In addition, G3 mentioned: “So basically, all aspects that affect operationally as well as

financially are involved in that meeting, so that we are on the same level there too.” (G3).

This includes the supply risks. Cases D, F and G indicated to discuss, provide feedback and make each other aware about issues in the business processes (including supply risks) in the S&OP process. D1 looked at the threat of a shortage of raw materials: “In the case of two

years ago, we scaled the frequency of the S&OP process to a weekly one. We really looked every week at the latest state of affairs.” (D1). F1 discussed issues that were given attention in

the S&OP meetings: “Not so much at an item level, but mainly about what is going on in the

market and whether we should adjust to it if we are not aligned or if we cannot deliver.” (F1).

The S&OP process also allows learning from each other. “Just with common sense and

talking to each other and asking what everyone thinks and how you would rate it. Putting arguments on the table and from there making a decision: OK, we are going to do this. (F1).

In addition, G2 indicated regarding supply risks: “At the moment, that is based on the feeling

we discuss with each other in an S&OP meeting. That we say what we think together and that we try to give each other the best reasoning we can think of.” (G2). Planning and risk

management merge into each other, which makes it hard to distinguish them clearly. “We

always start with stock availability and look at the status of the materials and whether we do have everything in stock.” (G2).

D1 and G2 even perceive the entire S&OP process as a part of (supply) risk management process: “For example, if you see that you come out too low in stock. Then you

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4.4 Supply risk management in the S&OP process

It was found that supply risks were taken into account in the S&OP process when the supply risk had a substantial impact on the organization. In addition, supply risks that affect/involve multiple departments are covered in the S&OP process.

4.4.1 Supply risks that have a substantial impact

Supply risks that have a substantial impact are covered in the S&OP process. Cases D and G included supply risks in the S&OP process as these supply risks appeared to be a substantial issue, such as the Coronavirus outbreak. D1 (like the majority) had not foreseen the Coronavirus to be a global problem, but when it happened this was definitely covered in the S&OP process as it could have a bigger impact than previously thought. “First, we thought

that Corona would only be a Chinese problem. But then we listed those chemicals in the S&OP and looked at the inventories at the moment and we took the action to increase some.”

(D1). G2 scales up the supply risk to the S&OP meeting if it appears to be a long-term problem, in which the management also has to be involved. “When we see that it is not a

quick solution or is something that can be a problem for a long time, we scale it up to the S&OP meeting.” (G2). G1 added that the decisive factor to include supply risks in the S&OP

is whether the supply risk affects an assortment or portfolio rather than just one single item.

“And also to make the distinction between one specific article or an entire range or portfolio that you are talking about. That is also very decisive from the monthly S&OP to the weekly supply chain consultation.” (G1).

Cases D, E, G and H stated to take the supply risks into the S&OP process, as these are the most significant risks to them. The dependence on weather conditions is also closely related to the dependence on raw material suppliers for case D. Therefore, this supply risk is of high importance to case D as they provide the inbound supply. “We have decided in the

S&OP process about starch, because that is one of our main risks.” (D1). Thereafter, D1

added to take drastic actions if there was no other possibility: “And actions that you do not

want but what can think of in the latter case, is to reduce sales. Because if you do not have enough sales in the end, you cannot sell.” (D1). E1 only includes large supply risks in the

S&OP process, for example when the goods have been delivered late, while at the same time you have planned commercial actions that you will take. “Then we look at what is possible

within S&OP, we look at potential scenarios to solve that and then we put it back.” (E1).

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the relevant Buyer. Absolutely, that will happen immediately.” (G1). H1 mentioned peanuts as

a product to be purchased, which is worth discussing in the S&OP process in contrast to a supplier who delivers packaging: “Concerning peanuts: you do not have many suppliers who

are reliable and deliver good products. So the strategic importance is enormous.” (H1). In

addition: “With all respect, you have enough suppliers of cardboard boxes. Thus, the

strategic importance is less.” (H1).

4.4.2 Supply risks that affect/involve multiple departments

Supply risks that affect and involve several departments are taken into account in the S&OP process. Cases A, C and E indicated to do so. Case A needs semi-finished products to be made, which were the subject of the conversation in the S&OP. “So then you actually get

more insight from departments if it (semi-finished product) is something they see risks in or that they expect this to be easily available. In any case, the departments are already aware of the capacity they must be able to provide.” (A1). Case C’s diesel supplier has been taken over

by a competitor, making the delivery more uncertain. In their S&OP process, multiple departments discussed whether it would be necessary to stick to that specific supplier or whether it might be a good idea to switch to another diesel motor supplier. “Then you explain

the situation and then everyone says: yes, OK, but sometimes it should be that diesel motor to get a certain voltage or whatever you need to have that configuration.” (C1). Case E

experienced that all inbound arrives simultaneously, which means that the planning concerning inbound forecast versus inbound plan is difficult to maintain. “In S&OP we define

what we do with each other, this is what we can do. If you want more inbound supply, the switch time is an X number of weeks.” (E1).

Cases D, E and H used the S&OP process for discussing and reviewing or ranking suppliers. These risk management activities aim at reducing the frequency and impact of supply risks, which contribute to supply risk management, as these risk performance evaluations measure the supply risk reductions. D1 used the inputs concerning expected harvests as a KPI in the S&OP process. “So we start our S&OP process: first we discuss

KPIs and one of the first sheets is the sheet that our department A provides.” (D1). H1

measured the performance on the following three pillars: “quality, quantity and on time and

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set our key suppliers. […] Other suppliers must have a planning in advance and then we will see what we can do.” (E1).

4.5 Supply risk management outside the S&OP process

It was also considered under which circumstances supply risks are not managed via the S&OP process. It frequently happens that the Purchasing and Supply Chain departments jointly manage supply risks. Occasionally, a supply risk needs to be taken care of immediately. Most cases (A, B, C, D, E, F and H) mentioned to manage supply risks outside the S&OP process.

4.5.1 Supply risks that involve a limited part of the organization

Within case B, the delivery of engines threatens to disrupt the production planning. The Purchasing department first tries to solve it, but if that does not lead to timely deliveries, the Production planners will try to resolve it. “Of course things are also solved in Production

eventually. So if we have unreliable deliveries and we do not arrange with the supplier from Purchasing that they do deliver on time, this will affect production planning. So the planners solve it afterwards.” (B2).

Cases C, D, E, F and H meet outside the S&OP process with a minimum number of departments, as more consultation is occasionally needed. C1 meets with other departments concerning the supplier’s delivery times. “And in fact, […] we actually still consult outside

the S&OP with two planners. We put Purchasing and planning together.” (C1). D2 also

mentioned to be in contact with the planners: “You are in contact with the planners to see

what it looks like now and to check if we can meet customer’s demand. It is not once a month that you are in contact. For myself, I have a lot more contact with those planners to ensure that it remains aligned.” (D2). Due to an exploded factory, a component was very poorly

available. Case D then acted outside the S&OP process. “Our Purchasing department does

that, it also has an Enterprise Risk Management program itself. Those Purchasers also look at what you have available per chemical and per component to what is useful and the right strategy.” (D1). E1 indicated what is excluded from the S&OP process: “What is not included in the S&OP process are the statuses of the suppliers, the relationship and collaboration. We do not look at that at all.” (E1). In addition, E1 mentioned that the Buying department is

responsible for setting priorities regarding the planning of inbound supply. The execution takes place outside the S&OP process. “And should priorities be assigned, this is done by the

Supply Chain planners within the Buying department, the goods planning.” (E1). F1

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Finance departments. “Yes, the price fluctuation […] of brass or steel is mainly the game of

the Purchasing department and the Finance department.” (F1). Auditing suppliers are also

part of risk management, which is carried out by the QESH (Quality, Environment, Safety and Health) department based on established criteria. “The QESH and Purchasing department

will check how well the supplier is performing, if the supplier is reliable and to see that you do business with a reliable partner.” (H1).

4.5.2 Supply risks that require instant action

One of S&OP’s characteristics is the S&OP cycle, which happens mostly monthly or quarterly. Due to the limited S&OP meetings, cases C and H indicated that they could not wait for the S&OP cycle to stop by, as immediate action was required. Therefore, cases C and H acknowledged handling materialized supply risks outside the S&OP process. C1 indicated that they could not wait too long when the supplier could not supply them, partly due to a relatively narrow supplier base. “Yes, but I always escalate immediately when it is a big risk.

You should not wait for two weeks. So I am going to get together with the Production manager and the head of Operations.” (C1). H’s supplier delivered poor quality plastic cups

with a cardboard sleeve around it, but that sleeve came off. H1 could not wait for the S&OP cycle. “So then you switch with that supplier to get a new batch as soon as possible. […] This

is something you just have to solve on that day. So that goes very quickly if you notice that.”

(H1). Another example was when an Italian supplier could not deliver sambal to case H due to the Coronavirus outbreak. For this reason, case H examined alternatives for transport to receive the essential product as soon as possible. “If we do not get that, we cannot produce

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5. DISCUSSION

With the aim to explore the contribution of the S&OP process to supply risk management, this study provides empirical insights into this. Based on these empirical insights, four propositions are introduced.

5.1 Contribution of the S&OP process to supply risk management

The S&OP process appears to be an initiator of bringing departments of the organization together, especially in the S&OP meetings. The departments discuss work in progress, new orders, (supply) risks and market developments, which leads to an overview of the current state of affairs. This is in line with Venkataraman and Pinto (2018), who state that the S&OP process enabled the departments to acquire a complete picture of the main direction. There is room for aligning different disciplines, informing and providing feedback to each other, which is in accordance with Kristensen and Jonsson (2018) and Grimson and Pyke (2007). The S&OP process also facilitates in discussing supply risks, where departments become aware of supply risk issues and developed ideas about managing supply risks. In previously presented literature, it was shown that the S&OP contributed to raising awareness across the organization (Kepczynski, Jandhyala, Sankaran and Dimofte, 2018). The S&OP’s objective is to ensure plans and keeping the organization aligned (Bozutti and Espôsto, 2019). The S&OP also appears to have these functions concerning supply risk management.

Supply risks were not always explicitly put on the S&OP agenda. This is consistent with Schlegel and Murray (2010), who mentioned risk management in the S&OP process was mainly implicit. Occasionally, supply risk decisions were made in the S&OP process. The S&OP enabled a better response to supply risks. In general, interdisciplinary teams are necessary to adequately solve the situation and treat the risk in its entirety. This means that high supply chain risk management levels require the preparedness and risk awareness of many employees within the organization beyond the Purchasing and Supply Management staff, which is consistent with Manuj and Mentzer (2008) and Hallikas et al. (2005). Hence, the following is proposed:

P1. In the extension of its general function, the S&OP process enhances supply risk

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5.2 Supply risks that are managed in the S&OP process

In the foregoing of this paper, it was indicated that S&OP's contribution to supply risk management possibly depends on the supply risk category based on the classification of Zsidisin et al. (2000). It seems that the way in which supply risks are addressed in the S&OP process is not supply risk-category based. Supply risks from the same category were managed within the S&OP process as well as outside the S&OP process. In addition, it turned out that all the risk management process steps were taken some way into account both in and outside the S&OP process. So it seems that the risk management process steps are not a determining factor for including risks in the S&OP process. This means that there could be other reasons or factors in play that determine whether a supply risk is addressed in the S&OP. The findings show that supply risks that have a substantial impact are taken into account in the S&OP. This is mentioned as a reason for bringing in the S&OP. Supply risks that have a substantial impact seem to coincide with supply risks that can disturb the balance between supply and demand. This is consistent with Thomé et al. (2012), who mentioned that the planning regarding balancing supply and demand is discussed in the S&OP process. Moreover, the way in which supply risks are managed in the S&OP process is in line with the general aim of the S&OP, i.e. balancing supply and demand at a tactical level (Avila et al., 2019; Jacobs et al., 2011).

It is also found that there are many supply risks, which are managed outside the S&OP process. In most cases, these supply risks were solved by the Purchasing or Supply Chain departments on their own. In these situations, there does not seem to be a direct threat to not meeting customer’s demand. This is in line with Manuj and Mentzer (2008), who mention that it is not needed to involve another department as long as the functionality of the material to be purchased is the same as before. Furthermore, the findings indicate that supply risks that needed to be solved instantly were addressed by the department(s) responsible for these. Therefore, they were taken care of outside the S&OP process. This could also be a contextual element. This is in line with Kristensen and Jonsson (2018), who state that human, technological and organizational characteristics can ease or hinder the use of the S&OP.

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P2. Supply risks that threaten to disturb the balance between supply and demand are

included in the S&OP process. This does not alter the fact that other supply risks are alsoaddressed in the S&OP.

5.3 Context-related factors for supply risk management in the S&OP process

Kristensen and Jonsson (2018) state that whether the significance of the role of the S&OP is context-dependent. For example, specific differences between industries such as food and service can influence the S&OP design (Kjellsdotter et al., 2015; Kjellsdotter et al., 2015; Sheldon, 2006). The way in which the S&OP plays a role in managing supply risks can also be context-related. The context of supply risks in the S&OP seems to be partly determined by the possibilities for solving supply risks, apart from the specific need for raw materials or parts. The findings support the assumption that the solutions for the decisive risks concerning raw materials and parts indeed differed from case to case and are related to the industry and/or the organization’s activities. The amount of disturbance of the balance between supply and demand by supply risks could depend on the extent of the treatment possibilities of the organization. Examples: alternative raw materials or parts, alternative suppliers and adjustment of the production or planning. The fewer alternatives there are available, the greater the need to scale up to S&OP. This means that one of the context-related factors in the S&OP could be organization’s treatment possibilities. Hence, the following is proposed:

P3. It depends on the extent of the organization’s treatment possibilities whether the

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5.4 Risk management process steps in the S&OP process

It is found that supply risks from the same supply risk category can be managed differently. For example, identification sometimes only occurs in the input phase. The first responsible department identifies the supply risks and brings them in the S&OP meeting for assessment or treatment. But in another case, identification of supply risks was being discussed in the (pre-) S&OP meetings. Therefore, in this case the S&OP process contributed to creating awareness among Purchasers about what is going on and what it means for the focal organization and ultimately for the Purchasing department. It is unclear why risk management process steps occur in various ways in S&OP. The ways in which risk management steps are taken into the S&OP could possibly be context-related.

It was also found that all risk management process steps could occur in the S&OP process. Supply risk assessment and treatment appeared to be more common than identification and monitoring. The reason for this can be that there are more risk management activities on assessment and treatment than on identification and monitoring, both in and outside the S&OP process. This might be due to the fact that supply risk assessment and treatment have been studied more than identification and monitoring (Ho et al., 2015; Blackhurst, Scheibe and Johnson, 2008), which might explain the fact that there have been more activities on these risk management process steps. It is possible that the findings are in line with the aforementioned literature. Basically, all risk management process steps can occur in the S&OP process. Kjellsdotter and Jonsson (2014) state that the S&OP focuses on identifying and assessing risks. According to Pedroso, Da Silva and Tate (2016) performance monitoring and information systems are critical to successfully implement S&OP.

It is also possible that supply risk assessment and treatment are more often encountered because the S&OP process is seen as more suitable for these risk management process steps. After all, the S&OP is a place where issues are scaled up. These problems have often already been identified before and will be included in the S&OP for further assessment and treatment. Hence, the following is proposed:

P4. Although the S&OP process can contribute to all risk management process steps,

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6. CONCLUSION

The aim of this research paper was to answer the following research question:

RQ. How does Sales & Operations Planning contribute to supply risk management?

This research provides insight into S&OP’s contribution to supply risk management. By providing empirical insights, this case study contributes to filling the gap between how the S&OP process and supply risk management are linked to each other. Supply risks are partly managed via the S&OP process. The S&OP brings crucial departments together to inform each other and become aligned. In addition, the S&OP facilitates in providing feedback to and raising awareness among each other. This also applies to supply risks. The case study shows that all risk management process steps (i.e. identification, assessment, treatment and monitoring) can be involved in the S&OP process. In this way, the S&OP process enhances supply risk management. It appeared that risk management is not always a formal element of the S&OP process.

The supply risks that are (partly) covered in the S&OP process tend to have a substantial impact on the balance between supply and demand. It could be dependent on the organization’s treatment possibilities and alternatives whether supply risks need to be resolved in the S&OP. When the supply risk only affects one or two departments and does not affect the balance directly, it is often not considered necessary to include it in the S&OP process. Supply risks concerning short-term issues can also be excluded from the S&OP process. These supply risks need to be solved immediately and cannot wait for the periodic S&OP cycle.

6.1 Theoretical implications

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6.2 Managerial implications

Supply risks are an element of the supply chain and doing business and they are difficult to absolutely prevent. This paper elaborates on the contribution of the S&OP process to supply risk management. The S&OP process is used in resolving supply risks, where there is an emphasis on assessment and treatment. Managers could consider making identification and monitoring a more explicit S&OP item, as earlier signals regarding supply risks can be acquired. In addition, it could be considered involving the managers of the departments in the S&OP process that are responsible for managing supply risks (e.g. Purchasing/Supply Chain) in order to achieve customer needs (Bozutti and Espôsto, 2019). Without collaborative planning in the S&OP, it would be difficult to adhere to customer’s demand (Hadaya and Cassivi, 2007).

6.3 Limitations and future research

For this multiple case study, unique organizations from different industries have been interviewed. In the ideal situation, three interviews within each case would have been conducted to acquire a better insight into the supply risk management and S&OP process of the cases. This would result in higher reliability, as some interviewees were not always aware of how supply risks are managed within their organization. Due to the Coronavirus outbreak, organizations were not always able to provide multiple interviews per organization. In addition, this is a small-scale research. This means that the answers are not generalizable to all organizations. More in-depth case studies would contribute to a higher reliability and generalizability.

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Due to the fact that this research concerns a case study (qualitative research), future research may be able to provide more quantitative insight into the S&OP process when managing supply risks. Future research might conduct statistical analyses when studying the relationships, which was not possible in this qualitative research.

Other future research could further explore which context-related factors, besides the organization’s treatment options and disturbing the balance between supply and demand, play a role for including supply risks in the S&OP process. In addition, not all risk management process steps are always integrated in the S&OP process (i.e. identification and monitoring). The findings show an emphasis on assessment and treatment in the S&OP process. The integration of identification and monitoring could lead to earlier warning of supply risks. Limited research has been done regarding this subject, which is why it would be useful for future studies to further examine this topic.

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CONTRIBUTION OF SALES & OPERATIONS PLANNING TO SUPPLY RISK MANAGEMENT: A MULTIPLE CASE STUDY