Supply chain risk monitoring in the sales and operations planning process

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Supply chain risk monitoring in the sales and operations

planning process

June 22, 2020

Jean-Paul Jordens

Student number: S3730042

E-mail: j.jordens@student.rug.nl

Supervisor

H. Dittfeld

Co-assessor

X. Tong

University of Groningen

Faculty of Economics and Business

MSc Supply Chain management

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2 Abstract

With today’s globalization of organizations, there is an increase in potential supply chain risks. A frequently used concept to manage these risks is supply chain risk management. It is used to identify, assess, mitigate and to monitor supply chain risks. So far, little research has been done regarding supply chain risk monitoring. Therefore, the purpose of this paper is to explore how organizations monitor their supply chain risks. The reason for this is that a lot of research has been done regarding identification, assessment and mitigation, but there remains a gap in the literature regarding the monitoring of supply chain risks. To explore supply chain risk monitoring, we do this in the sales and operations planning process because its outcome is a production plan aligning demand with supply. The logic here is that supply chain risks influence demand and supply capabilities, which are managed in the sales and operations planning process. Therefore, the objective of this paper is to explore supply chain risk monitoring within the sales and operations planning process. This is done by using an inductive study approach, conducting multiple semi-structured interviews. It was found that strategic risks are monitored in a separate enterprise-wide strategic risk management process. Tactical risks are monitored at least once a month within the meeting structure of the sales and operations planning process. Operational risk monitoring takes place at least once a week, where the day-to-day business is managed, and potential risks are monitored periodically. This paper contributes to the literature by providing an understanding of supply chain risk monitoring.

Keywords: Supply Chain Risk Monitoring, Sales and Operations Planning, Supply Chain Risk

management

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4 1. Introduction

Organizations are forced to keep adjusting their operational plans to survive the competitive environment they are in (Ávila, Lima, Moreira, Pires, & Bastos, 2019; Wang, Hsieh, & Hsu, 2012). Especially when global competition intensifies and supply chains becoming longer and more complex, the likelihood of not achieving the desired supply chain performance increases due to the risk of supply chain failures (Tummala & Schoenherr, 2011). Complex supply chains come with a higher level of uncertainty, hence call for greater coordination, communication and monitoring of supply chain risks (Manuj & John T. Mentzer, 2008). Supply chain risk management (SCRM) is a concept that is used frequently to manage these risks. One element of SCRM is the ‘monitoring’ of supply chain risks. The process in which supply chain risk monitoring is explored is the sales and operations planning process, which aligns demand and supply. There is a link between SCRM and S&OP because supply chain risks influence demand and supply, and S&OP is the process where demand and supply are aligned. Therefore, S&OP is a suitable process to manage supply chain risks.

Supply chain risk management (SCRM) involves coordinated activities to direct and control supply chains concerning risk on a long-term horizon (de Oliveira, Marins, Rocha, & Salomon, 2017). The SCRM process exists of the identification, assessment, mitigation and monitoring of risks. Of all four phases, monitoring has gained the least attention as it was studied only once out of a population of 224 (Ho, Zheng, Yildiz, & Talluri, 2015). Risk monitoring enables early identification and proactive risk management planning (Goh et al., 2013) and the measurement of previous risk responses progress (Blome & Schoenherr, 2011). There are multiple definitions of risk monitoring in literature, but so far it remains unclear how organizations monitor their supply chain risks. Therefore, this paper aims to fill this gap in the literature by providing a deeper understanding of supply chain risk monitoring.

There is a need for mechanisms to reduce market uncertainty which enables organizations to best align demand and supply (Pedroso, da Silva, & Tate, 2016). A central process that aligns demand and supply is the sales and operations planning (S&OP) process. S&OP involves several functional units like marketing, sales and manufacturing (Antonio Márcio Tavares Thomé, Scavarda, Fernandez, & Scavarda, 2012) to ensure that the plans support the business strategic goal (Wang et al., 2012). The outcome of S&OP is a tactical production plan where demand and supply are aligned. The demand forecast, provided by the sales department, is translated into a capacity requirements estimation (Wang et al., 2012). This enables operations to determine whether the sales planning fits with the available operational capacity (Oliva & Watson, 2011a).

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might be able to identify risk earlier than without a monitoring process in place. However, it remains unclear how organizations monitor their environment to minimize the chance or prevent the risk from occurring. Therefore, this paper proposes that supply chain risks can be managed by proactively monitoring the environment which serves as input for the S&OP process.

Currently, little is known how organizations monitor their supply chain risks. This paper aims to fill this gap by answering the following question: “How do organizations monitor their supply chain risks in the Sales and Operations planning process?”. This field of research is in a nascent phase, which calls for an exploratory research method. A case study has been conducted by obtaining data from multiple organizations with experience in risk management practices linked to their S&OP processes. Our theoretical contribution is to provide a clear understanding of how organizations monitor their supply chain risks and how this is included in the S&OP. The objective of this research is to extend the literature in the field of risk management and the S&OP literature.

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6 2. Theoretical framework

Within this section, there will be elaborated on supply chain risk, supply chain risk management (SCRM), supply chain risk monitoring, and sales and operations planning (S&OP). Besides, there will also be elaborated on the risk classification adapted from Rangel, De Oliveira, & Leite (2015); internal risk, risk internal to the supply chain, and external risk. The reason for this is that risk classifications are effective in developing mitigation strategies to contexts that differ in nature and call for a different approach (Asbjørnslett, 2009). For example, an economic crisis would call for a different mitigation method than the mitigation of a supplier that might not be able to deliver goods. However, both risks influence the supply chain.

2.1 Supply chain risk

Supply chain risk is defined as ‘the likelihood and impact of unexpected macro and/or micro-level events or conditions that adversely influence any part of a supply chain leading to operational, tactical, or strategic level failures or irregularities’ (Ho et al., 2015: 5035). Supply chain risk is frequently referred to as having probability specifications at hand (Heckmann, Comes, & Nickel, 2015). Yet, certain situations and its development and the information about both may be uncertain while supply chain managers still need to make decisions even when there is no information available. Therefore, supply chain risk addresses both decision-making under risk and uncertainty (Heckmann et al., 2015). The restriction of risk to objective uncertainties only would be a too narrow view on what risk is, and only makes sense in the cases of repeatability (Aven, 2012).

2.1.1 Risk internal to the organization

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7 2.1.2 Risks internal to the supply chain

Risk internal to the supply chain are risks that are external to the firm but are internal to the supply network, involving demand and supply risks (Christopher & Peck, 2004a). Demand risks arise from variations between forecasted and actual demand (Louis & Pagell, 2019), which stems from disturbances in the product flow downstream of the focal company (Christopher & Peck, 2004b). Johnson (2001) provides an example to mitigate seasonality as a demand risk by launching a marketing strategy in the periods with low demand to smoothen out demand. The other risk internal to the supply chain is supply risks; the risk that occurs upstream of the focal organization in the supply chain. It arises from unwanted events that affect supplier output in terms of quality, quantity and costs (Louis & Pagell, 2019; Simangunsong, Hendry, & Stevenson, 2012; Van Der Vorst & Beulens, 2002). Relational risks like mistrust, lack of understanding, and second-guessing among supply chain actors are part of supply-side risks as well (Jüttner, Peck, & Christopher, 2003; Louis & Pagell, 2019; Matook, Lasch, & Tamaschke, 2009).

2.1.3 Risks external to the supply chain

Risks external to the supply chain involves catastrophic events that have a severe impact on the area of occurrence (Wagner & Bode, 2008) and are often outside the influence of an organization. Sources of external risks can be changing market competitiveness due to lack of knowledge on competitors’ actions (Manuj & John T. Mentzer, 2008), unwanted dramatic changes in the political system (Louis & Pagell, 2019), potential unwanted man-made acts (e.g. terrorism) (Wagner & Bode, 2008), or natural hazards (e.g. hurricanes) (Kleindorfer & Saad, 2004). A recent example is COVID-19, which is a major risk for companies worldwide impacting both demand and supply. It has interrupted global trade and supply chains and forced multinational businesses to make hard decisions with limited information under high uncertainty (Ayittey, Ayittey, Chiwero, Kamasah, & Dzuvor, 2020).

2.2 The SCRM process

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the impact of disruptions are kept minimal, for instance by increasing flexibility throughout the supply chain, building collaborative relationships, information-sharing, and managing suppliers (Ho et al., 2015). The fourth phase is supply chain monitoring, and as it is the core of this paper, it will be separately addressed in the next section.

2.3 Supply chain risk monitoring

Compared to the identification, assessment and mitigation of supply chain risks, little is known about the monitoring of these risks (Ho et al., 2015). Risk monitoring enables early identification and proactive risk management planning and the measurement of previous risk responses progress (Blome & Schoenherr, 2011; Goh et al., 2013). To the best of our knowledge, supply chain risk monitoring has not been described in the sales and operations planning process. According to the Oxford English Dictionary (2017), monitoring is defined as ‘to observe and check the progress or quality of (something) over some time; keep under systemic review’ (OECD, 2014: 2). It is an intermittent (regular or irregular) series of observations in time, carried out to show the extent of compliance with a formulated standard or degree of deviation from an expected norm (Hellawell, 1991).

Monitoring is a systematic measurement of variables and processes in a standardized manner at intervals over time, related to a specific reason (Römbke & Duis, 2018). Supply chain risk monitoring, therefore, is a standardized, periodic process that captures influences impacting the supply chain on a strategic, tactical or operational level (Ho et al., 2015; Römbke & Duis, 2018). Strategic risks stem from problems that affect business strategy implementation (Harland, Brenchley, & Walker, 2003). The tactical risks affect the medium-term planning of an organization, with a horizon between a few months and one year (Stadtler & Kilger, 2008). The operational level is concerned with immediate execution and control, where a high degree of detail is expected to be found. The planning horizon is between a few days and a few weeks (Pereira, Oliveira, & Carravilla, 2020; Stadtler & Kilger, 2008).

There are several types of monitoring, for example, background monitoring, impact monitoring, and trend monitoring (Römbke & Duis, 2018: 3). Background monitoring is the determination of reference conditions, e.g. developing KPI’s to determine whether the organization is performing well or not. Impact monitoring is the measurement of certain activities over time and its effect on the environment. Trend monitoring consists of the identification of long-term and/or large-scale changes (Römbke & Duis, 2018: 3).

2.4 Sales and operations planning

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operational plans of the firm (Antônio Márcio Tavares Thomé et al., 2012). It is defined as ‘a business process that links the corporate strategic plan to daily operations plans and enables companies to balance demand and supply for their products’ (Grimson & Pyke, 2007: 323). S&OP is performed at least once a month and is reviewed by management at an aggregate level (Cox & Blackstone, 2002). The planning frequency makes S&OP particularly suitable for risk monitoring, as it is a periodical, recurring process. The planning horizon usually covers 3-18 months at the product family level (Grimson & Pyke, 2007). Several authors state that S&OP is partially a strategic planning process. For example, when the production capacity must expand to meet demand, this can be seen as a strategic issue (Olhager & Rudberg, 2002). Mainly, it is seen as a tactical planning process (Antônio Márcio Tavares Thomé et al., 2012) that is linked to the strategic level. S&OP is characterized by two dimensions. The hard side includes a set of planning rules, procedures, alignment meetings, and performance measurements. The soft side is necessary to succeed in S&OP, including collaboration, culture, and executive support (Pereira et al., 2020).

The S&OP process requires input, which is processed to establish the production plan, being the output. A great number of papers describe input as plans for demand, sales and production. Production capacity is seen as one of the most important constraints within the S&OP (Antônio Márcio Tavares Thomé et al., 2012). Besides this, external inputs that impact demand or supply need to be included in the process as well. One example that has an impact on an organization’s demand is the influence of competitor’s actions (Grimson & Pyke, 2007), or supply contingencies including the possibility of for example strikes (Lapide, 2002). These inputs are processed in the S&OP process, which exists of five generic process steps (Grimson & Pyke, 2007; Kristensen & Jonsson, 2018; Rooney & Bangert, 2001); data gathering, demand planning, supply planning, pre-S&OP meeting, and executive S&OP meeting.

The planning process starts with data gathering for demand and supply planning (Noroozi, 2014). The demand data is used to establish a baseline demand forecast compiled by the sales department. It includes various inputs impacting demand, like competitors actions (Grimson & Pyke, 2007). Sales have pre-meetings to discuss the number of products that can be sold to customers. At this stage, the production capacity of the manufacturing facilities is not taken into account. The demand forecast is sent to the marketing department, which adjusts the forecast against promotional actions, new product introduction, and end-of-life products (Oliva & Watson, 2011b). When marketing and sales have reached the point of consensus regarding the demand forecast, the result is an unconstrained demand forecast. If there remains a gap between the forecasted revenues and the targeted revenues, the plan must be revised in consultation with the marketing department (Oliva & Watson, 2011b). The final demand forecast is then forwarded to operations in the supply planning process.

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Dukovska-10

Popovska, Fredriksson, Dreyer, & Kaipia, 2015). Choices are made regarding the master schedule, material requirements, production and distribution (Antonio Márcio Tavares Thomé et al., 2012). These choices are made with the information in the data-gathering phase that functions as input for the process. Regarding supply, the plans might be adjusted according to recent changes in supplier’s constraints (Chen-Ritzo, Ervolina, Harrison, & Gupta, 2010; Olhager, 2010). Data gathering, demand planning and supply planning should ensure that demand and supply are processed as connected activities, ready to be reviewed by the cross-functional team in the pre-S&OP meeting and the executive S&OP meeting (Stahl, 2010).

The pre-S&OP meeting usually involves middle managers in demand, supply, procurement, finance, new product, and logistics. The outcome of this session is to make final decisions that fit within the existing set of policies, budgets and risk levels. Decisions, recommendations, scenarios, and the agenda for the executive meeting are reviewed (Stahl, 2010; Antônio Márcio Tavares Thomé et al., 2012). The attendees of the executive S&OP meeting often involve top management (e.g. CEO, Managing Director, etc.). The future agenda from the pre-S&OP is followed, including the review of business goals, decisions made in the pre-S&OP, budgets and progress regarding the annual business plan (Stahl, 2010).

S&OP is an important tactical process to align demand and supply. It is performed at least once a month, so this means that it is a standardized and periodic process. S&OP includes the pre- and executive S&OP meeting that are suitable to monitor supply chain risks. Besides this, supply chain risk involves demand and supply risks, and as the objective of S&OP is to align demand and supply, this study proposes that S&OP is the process where supply chain risks can be monitored.

2.5 The conceptual framework

Supply chains continuously have to deal with risks and are constantly seeking for mechanisms to reduce market uncertainty (Pedroso et al., 2016). These supply chain risks have been divided into three classifications because this can be effective to develop mitigation approaches to contexts that differ in nature (Asbjørnslett, 2009). These three categories are respectively risks internal to the firm (intra firm risks), risks internal to the supply chain (intra SC risks) and risks external to the supply chain (external risks) (Rangel et al., 2015). This means that supply chain risks impacting organizations are divided into one of the three classifications and because they are managed (and monitored) differently.

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pre-S&OP meeting makes final decisions that fit within the existing set of policies, and the future agenda for the executive meeting are reviewed (Stahl, 2010; Antônio Márcio Tavares Thomé et al., 2012). The executive meeting reviews decisions made in the pre-S&OP (Stahl, 2010). The outcome of the process is a consensus-based integrated business plan. Discussion topics are forwarded to the next S&OP cycle, and functions as input for the S&OP together with the new emerging risks.

Figure 1

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12 3. Methodology

As argued in the previous section, how organizations monitor their supply chain risks within the sales and operations planning process remains understudied. As such, this study is exploratory in nature and required qualitative research methods. Within the methods section, there is described which research methods are used and which cases are included within this research.

3.1 Research design

The purpose of this paper is to describe how organizations monitor their supply chain risks within the S&OP process. To conduct this research, a multiple case study design has been adopted (Eisenhardt, 1989). As this field of research is in a nascent phase, this research calls for a qualitative, exploratory and inductive research design. Case study research is particularly suited to explore a real-life phenomenon in-depth (Yin, 2009). By applying this research method, the phenomenon can be studied in its natural setting and relevant theory can be derived from this.

Additionally, it is justified to adopt a case study research design because several authors have only provided a definition of supply chain risk monitoring but did not provide an understanding of the concept. This means that understanding supply chain risk monitoring in the context of S&OP is still an unexplored issue, which makes a case study suitable. The multiple case study design is particularly suited to answer ‘what’, ‘why’ and ‘how’ questions (Yin, 2009).

This research design helps to understand the underlying mechanisms how organizations monitor their supply chain risks in S&OP. Because practice is observed by conducting interviews and draw conclusions from that information, this research has an inductive nature. Currently, there is little known about supply chain risk monitoring, so this case study provides a starting point to understand supply chain risk monitoring by linking back insights from practice to the aforementioned risk classification.

3.2 Case selection

To conduct this research, it is necessary to have a good understanding of the S&OP processes of the cases. Therefore, our unit of analysis is the S&OP process. A theoretical replication logic is followed in this case study (Yin, 2009). All organizations that have been included in the research are selected based on several requirements. By selecting cases with different characteristics, it is possible to determine how supply chain risk monitoring practices differ under certain circumstances.

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risk monitoring within the S&OP process. This means that S&OP is the unit of analysis and that if we want to understand monitoring within the S&OP, cases need to monitor their supply chain risks.

The last requirement is that cases were selected according to their classification being a small-medium enterprise (SME) or that they are classified as a large enterprise (LE). It seems that the LE’s are slightly more advanced than SMEs in their use of S&OP (Kristensen & Jonsson, 2018). An organization is classified according to the European Commission as an SME if it has 50-249 employees. An organization is classified as an LE when it has at least 250 employees.

Table 1

Case and interview details

Case Industry Position of interviewee Size Length (hh /mm)

A1 Aviation Strategic Supply Chain Manager SME 01:37

B1 Electrical engineering Risk manager LE 01:30

C1 Hydraulics Director of Sales & Marketing SME 01:15

C2 Director Operations

D1 Electrical engineering Global Supply Chain Manager SME 01:00

E1 Agriculture Logistics / production manager SME 01:28

E2 Export manager 01:41

F1 Agriculture Supply Chain Manager LE 01:25

F2 Sales Manager 01:01

F3 Risk Manager 01:00

G1 Retail Supply Chain Director LE 01:52

H1 Utilities Supply Chain Planner SME 01:36

H2 Business Controller

I1 Utilities Supply Chain Planner LE 01:35

I2 Supply Chain Planner

I3 Financial Controller 01:33

J1 Food Supply Chain Planner LE 01:23

3.3 Data collection

Semi-structured interviews were conducted between April and May 2020. The strength of semi-structured interviews is that it is possible to go deeper into interesting elements occurring in the interview. During the semi-structured interviews, the interviewees had the opportunity to provide the researchers with detailed information on subjects they were most specialized in.

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drawn up in the theoretical framework, also in consultation with the other researchers. SCRM and S&OP must be covered in the questions since all researchers benefit from this. It is also important that every researcher asks the same questions to ensure the information from all cases is comparable. The interview protocol can be found in appendix 1.

The interviews would initially be conducted at the organizations. However, due to the COVID-19 regulations, organizations were forced to work from home. Therefore, all interviews have been conducted digitally by using Google Hangouts or Microsoft Teams. There were at least two researchers present during the interview, one actively conducting the interview and the other one taking notes to ensure the validity of the research. Then, the interviews were transcribed.

All names and details in the transcriptions of the interviews were removed, to guarantee the anonymity of the organization and the identity of the interviewees. Besides that, the interviewees were offered a possibility to review the transcription to remove parts of the interviews of which they did not feel comfortable with. After minor changes, all transcriptions were approved by the interviewees to be included in the research.

3.4 Data analysis

The interviews were digitally recorded, after the consent of the interviewees. Next, the interviews were analysed according to the method from Miles & Huberman (1994); data reduction, data display and conclusion. First, the transcriptions were reduced to quotes that help answer our research question. There will be many interesting quotes that can help answer the research question, although there will still be too many to derive conclusions of it (Gioia, Corley, & Hamilton, 2013). Therefore, the next step is to find similarities in the quotes to find recurring patterns and to assign second-order codes. The last step is to link the second-order codes back to the process steps that are discussed throughout the report, which functions as the third-order themes. By systematically analysing the information by coding from the interviews, the reliability of the research is guaranteed.

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15 Table 2

Excerpt of coding

Data reduction (first-order codes)

Descriptive code (second-order

categories)

Third-order theme

"Yes, that [Agro report] is one of the inputs of our S&OP process. So we start our S&OP process, or a first we discuss KPI's, and one of the first sheets that comes after that is the sheet that our Agro department

provides" (F1)

Inputs for S&OP Sales and operations planning

"Our customer uses portals. Every day we read that out and put it in our ERP system" (A1)

Sales starting point S&OP

"What are the developments in the market?" (F2) Developments used as

input

"We very much use our historical data" (H1) Establishing demand

forecast "By the way, the resulting incidents are reflected in the S&OP. So

suppose there's a supplier and he's made a mess of his deliveries, that's what we call it. So that we have that recorded" (G1)

Reporting into S&OP

“So, Corona [strategic risk] is, of course, discussed in the S&OP, because supply is influenced and also demand. But in the case of Brexit, in terms of demand and supply, it does not have much impact

for us [which in turn will not be discussed in S&OP]” (F1)

Link S&OP and risk

management Strategic risk monitoring

“We only take this [COVID-19] into the S&OP if it is still a risk. In the S&OP nowadays I only report, and that is expected of me, that I am

working on it” (D1)

Mitigating risks

“We carry out a kind of risk assessment once a year with the management team, which we then monitor quarterly” (B1)

Yearly risk assessment “Orders are linked to this, and then the risk is increased or decreased.

And what are the actions we need to take to avoid that” (G1) Mitigating actions

“No, we're too small for that. [monitoring]” (C2) Tactical risk in S&OP

Tactical risk monitoring

“We also do that [monitoring] in the S&OP” (D1) Monitoring tactical

risks “Because it impacts demand and also supply, it is discussed in S&OP”

(B1) Monitoring in S&OP

“Those [tactical risks] are more project-based concerns, if you look at a summer period, for example [...] so that we can guarantee our capacity. Then you have some kind of build-up plan. That's what you monitor. That monitoring is part of the S&OP, by the way. These are

project-based things” (G1)

Project based actions

“That [escalating to S&OP] didn't really have to happen, because we appeared to be able to solve it relatively quickly [...] you always have to report in the S&OP if there is still a risk that hasn't been solved yet”

(D1)

Escalation of risks Operational risk monitoring

“Operationally [...] you have mass dashboards and data, so we actually know everything. [...] There's a continuous magnifying glass in there,

on a daily and weekly basis” (G1)

Monitoring frequency “The lines are short and very informal. How do we cover risks; I don't

even think consciously, but unconsciously and certainly very quickly” (H1)

Formality risk management “We do look at the current stock of our finished products every two

weeks. ...do we see risks in that? We share these with sales [...] to ensure that they purchase these products” (J1)

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16 4. Findings

By analysing the data, it was made possible to explore and create a better understanding of how organizations monitor their supply chain risks within their S&OP process. It was found that LE’s monitor their strategic risks in an annual enterprise-wide risk management process and that SMEs do not have these processes. The supply chain risks on the tactical level of the organization are managed within the S&OP process for both LE’s and SMEs, although the design of S&OP differs. Operational risks are monitored in separate short-term meetings.

4.1 Sales and operations planning

This section describes the S&OP process of the cases. First, the sales and operations planning processes of the cases will be elaborated on. This functions as the main process throughout this paper of which we propose the supply chain risks can be monitored in. The sales and operations planning process is the planning process on the tactical level of the organization aligning demand and supply. Supply chain risks – impacting demand and supply – are taken into account in establishing the integrated business plan. In the next section, there will be elaborated on the S&OP process structure, the main characteristics of the S&OP and how it relates to the characteristics of the cases. The results can be found in table 3. Case B did not describe their S&OP process in detail; however, the interviewee was able to indicate their S&OP process follows a monthly cycle.

Table 3

Overview of within-case S&OP process steps

Case S&OP process Frequency Size Comment

A • Demand planning

• Supply planning

• (executive) S&OP

Weekly SME

B - Monthly LE Interviewee not actively

involved in S&OP

C • Demand planning

• Supply planning

Twice a month SME Weekly order book

meeting

D • Operational meeting

Twice a month SME Weekly order book

meeting

E • Demand planning

• Capacity planning

Quarterly SME No formalized S&OP

meeting. Sales and operations meet informally.

F • Demand planning

• Supply planning

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• Pre- S&OP • Executive S&OP G • Demand planning • Supply planning • Pre-S&OP • Executive S&OP

Monthly & weekly LE High demand volatility.

Therefore, two cycles.

H • Demand planning

• Supply planning

• S&OP

Twice a month SME

I • Demand planning • Supply planning • Executive S&OP Monthly LE J • Demand planning • Supply planning • Executive S&OP Monthly LE

4.1.1 Data gathering

To start the periodic S&OP cycle, data must be gathered to align demand and supply. Table 3 indicates that neither of the cases gather data. However, cases do gather data although it has not been indicated by the interviewees that it is considered a separate process within S&OP. It was indicated that the data can be gathered directly from the ERP system. As S&OP is a process aligning demand and supply, this means that all information regarding demand and supply should be gathered. However, the cases did not indicate that they collect several different sources of information in the data-gathering phase. Case A, for example, did not indicate they have a formalized ‘data-gathering’ phase, instead, sales figures are primarily used:

“Our customer uses portals. Every day we read that [sales] out and put it in our ERP system” (A1)

The majority of the cases stated that the only source of information that is used to trigger the periodic S&OP cycle comes from sales. Case F also indicated the following:

“It all starts at the demand-side, so every day our salesmen […] can put their demand forecast in our planning system” (F1)

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18 4.1.2 Demand planning

The demand planning phase is important in the S&OP cycle, as its outcome is the demand forecast that functions as the basis for the final production plan. The demand forecast is provided by the sales department, which is compiled by processing the information from the sales representatives. For example, case E indicates that they work with a rolling year plan which is monitored quarterly. They receive signals from the market and reports from salesmen or dealers, and these are incorporated in the rolling annual demand plan.

Case H states that the business managers determine according to their estimate what the turnover will be in their region in the upcoming year. They do this based on historical data, market data, and conversations with their customers. The next thing they do is to take a look at what they are planning to do regarding sales for the upcoming year and pointing out which products are the main outliers. The demand forecast is adjusted according to the signals or market developments that are forwarded by the salesmen.

4.1.3 Supply planning

Supply planning is initiated when the demand forecast has been compiled. Case F indicates that the demand forecast is forwarded to the S&OP planners. Based on the demand forecast, the planners try to make the most optimal production planning. Case I has a supply planning meeting to look at the production figures of the previous period, to check whether it is in line with the planning or not. Besides that, they look at the demand forecast to check whether any problems arise regarding the capacity of people or machines. They review their production performance and determine whether they can deliver the products according to the demand forecast. The SMEs however, (case C) have a less complex supply planning phase:

“When the order is processed, it is transferred to production. That happens via the ERP system. That is where the purchase orders come from” (C1)

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19 4.1.4 Pre- and executive S&OP

When the supply planning is done, a discussion takes place in the pre- and executive S&OP. The first meeting, the pre-S&OP meeting, is where the topics are discussed that can be judged with the capabilities of the attendants. When an issue cannot be solved in the pre-S&OP, it will be escalated to the executive S&OP meeting. However, several cases did not have the pre-S&OP meeting in place. Case G, operative in the retail market, must cope with high volatility in demand and must be responsive to the market. Therefore, they have two periodic S&OP cycles: a weekly S&OP and a monthly S&OP cycle. Within the weekly S&OP, they use a 6-week rolling demand forecast. Within this relatively short cycle, they do not distinguish between pre- and executive S&OP, because the main decision-makers attend to this meeting. This is primarily an operational meeting to manage short term demand and supply. However, the monthly S&OP does have a pre- and executive S&OP meeting. Every month there is a pre-S&OP, and once every two months they have an executive S&OP meeting. They state the following:

“That is what we do in the monthly S&OP; we bring it to MT level once every two months. […] to a certain extent people think it is fine if we find solutions ourselves, but if it exceeds a certain amount of money it is convenient to first escalate it to MT level” (G1)

The topics to be discussed are solved to a certain extent within the pre-S&OP meeting, however, if the investments or the responsibilities are too significant to make the choices yourself, it must be escalated and discussed by management within the executive S&OP meeting.

The role of the executive S&OP meetings is twofold, depending on whether a pre-S&OP meeting has been deployed or not. When the pre-S&OP is deployed (cases C, F, G), within the executive S&OP meeting, those topics are discussed that resulted from the pre-S&OP meeting. All other cases did not have a pre-S&OP in place and decided to do only one meeting; the executive S&OP. Within these cases, the meeting is the same as the pre-S&OP meeting; the production plan will be discussed with the most important topics that have not been solved. Mitigation strategies are deployed to prevent or overcome the risk from happening.

These mitigation strategies are put on a topic list that is forwarded as a discussion point for the next S&OP cycle. So, in fact, when in the S&OP meeting mitigation strategies are deployed, the plan is forwarded to the departments that have to deal with the project and it is forwarded to the next cycle as a discussion topic. Case G remarked:

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20

Case I also monitor their mitigation strategies in the next S&OP cycle if the mitigation strategy takes longer than a month to implement.

Two cases (B and E) were not able to indicate which of the two meetings were used, therefore we have excluded them. From the remaining cases, 1 out of 5 SMEs (20%) used both pre-S&OP and the executive pre-S&OP. 2 out of 3 LE’s (67%) uses both the pre-pre-S&OP and executive pre-S&OP meeting. 3 out of 10 cases did not know whether they have a pre-S&OP or executive S&OP meeting because they were not involved in those meetings. We find that LE’s have more often set up a pre-S&OP meeting than SMEs. Besides this, it was found that the frequency of the pre-S&OP cycle between LE’s and SMEs differs. LE’s (cases B, F, G, H, I, J) execute their S&OP process once every month. SMEs execute their S&OP process on a weekly (case A), two-weekly (cases C, D, H) or quarterly (case E). The export manager of case E prefers to change the frequency of their S&OP cycle to monthly. However, the logistics department of case E cannot keep up with a monthly dynamic as it concerns products with long lead-times (e.g. 8 months lead time for parts).

4.2 Supply chain risk monitoring

Supply chain risk monitoring is part of the supply chain risk management process with the objective to early identify new risks and to monitor mitigation strategies applied. Case G formally divides their supply chain risks in strategic, tactical and operational risks. Examples of risks they provided are strikes regarding their employees or their carrier (strategic risk), the risk that suppliers are not able to deliver (tactical), and the management of inbound and outbound flow (operational risk). Case F also formally distinguished between strategic, tactical and operational risks:

“When you are working on a project, these are often in support to the strategy, and then you are talking about the tactical level. And then, as well about the operational level” (F3)

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21 Table 4

Supply chain risks and its categorization

Case Risk Impact demand/supply Categorization

G The entrance of a large Chinese retail company

in the Dutch market

Demand Strategic

G Strikes Supply Strategic

B Employee satisfaction Supply Strategic

G Weather conditions Demand Tactical

I Governmental measures Demand Tactical

H Being dependent on supplier Supply Tactical

F Drought Supply Tactical

A Inventory level Supply Operational

C Defects Supply Operational

H Warehouse capacity Supply Operational

4.2.1 Strategic risk monitoring

Strategic risks are the risks that an organization faces in a long-term horizon. It includes the risks that “can have a significant negative impact on an organizations’ strategy” (case B). Three cases (case B, F and G) - all classified as ‘Large Enterprises’ - were able to provide information about their formalized risk monitoring process. The remaining cases deal with strategic supply chain risks as well but are managed (and monitored) in a less formalized way.

The large enterprises (cases B, F and G) have an annual risk identification meeting. They call it ‘risk identification’, however the risks they note down are not yet an active threat to the strategy of the organization. In fact, these are potential risks. For example, case F has a formalized process called ‘Enterprise Risk Management’. A separate system is used (RiskID) to submit potential risks to the organization:

“If I think, this could turn out to be a risk, I will submit it. And that is included within the system, and then once every while, we are going to vote the risks with the whole management team. Then we are going to vote: what if we do not take any measures to mitigate the risk? Then it [the system] will assign the risk with a certain score” (F1)

After multiple times of assigning a score to the risk, a list of the most important risks remains. If necessary, mitigation strategies are developed to prevent or overcome the risk from occurring. Case F executes this process once a year, where both the risks and mitigation strategies are monitored.

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“That's actually [name] risk management, and I think it's done twice a year. And then you have a kind of MT risk assessment, and when you plan, and we look at what the biggest risks of [name] are. [...] and then that sticks to the strategic level in particular. What is the status of the mitigating actions, are there still outliers?” (G1)

As well as case F, case G starts with a management team (MT) risk assessment to identify new potential risks that might impact the strategy which is then monitored according to a certain frequency. When the management decides that mitigating actions are needed to overcome the risk, orders are linked to strategic mitigation actions which are executed on the tactical and operational level of the organization and then monitored on the strategic level of the organization twice a year.

Case B also executes a yearly risk assessment ‘workshop’ to determine the strategic risks that need to be monitored. The interviewee (B1) facilitates yearly risk assessment workshops with the MT where they establish a top-10 list of risks that need to be managed. Next, there will be determined who is responsible for the risk, the mitigation actions, and a pathway for meeting the deadlines according to the mitigation strategy. The progress of the mitigating actions is monitored every quarter.

The remaining cases did not indicate if they have an enterprise-wide risk management process. Case E, for example, states that “if it is about essential topics, then we talk about it in the MT”. This means that they do not have a separate strategic risk management process, but they possibly discuss all different kinds of topics within their MT meeting. The supply chain risk management process takes place more fragmented, as opposed to LE’s, which have a more formalized process.

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23 4.2.2 Tactical risk monitoring

Supply chain risk monitoring on the tactical level takes place in the S&OP. Within S&OP, there is a periodic meeting structure where potential risks impacting demand or supply are monitored or where mitigation strategies of previous risks are discussed. Every month in the pre-S&OP meeting, a topic list will be discussed, including the supply chain risks. However, looking at the frequency of the meeting structure in table 5, we see that SMEs have a less mature S&OP process and meet in a higher frequency.

Two out of ten cases (A and B) did not provide information regarding both monitoring and S&OP, the remaining eight cases did provide information regarding monitoring and their S&OP practices. It is found that risk monitoring is not always a formalized process, primarily SMEs indicate that every employee monitors their environment and is likely to indicate when risk is likely to occur. Case C indicated that they are too small to have a formalized monitoring process. They do monitor their environment but discuss it in a less formalized setting. For example, their sales managers pass-through signals from the market, but this does not take place in a formal meeting. Case C employs a daily meeting with the management team where risks are discussed. However, for large companies, this would not be feasible as there would be too many topics to discuss. Case H has a monitoring process in place but does not actively communicate these discussion points back into S&OP. They meet every day with management, which is feasible in a relatively small organization when there are short lines with employees and management.

Eight out of ten cases that provided information about monitoring, monitor their supply chain risks. Case H does have a monitoring mechanism in place but is not linked to S&OP. However, the remaining seven cases (C, D, E, F, G, I, J) indicate that supply chain risks are monitored in the S&OP process. Case F for example, states that if there are risks impacting demand and supply, it is discussed in the S&OP. They monitor the risks and the mitigation strategies by including it in the monthly S&OP cycle, and if once every month is insufficient for them (e.g. high volatility), they hold the meeting more frequently.

Case G (retail) indicates that tactical risks are monitored in the S&OP and its corresponding mitigation strategies are project-based:

“Those tactical risks are more project-based concerns. If you look at a summer period for example […] so that we can guarantee our capacity. Then you need some kind of build-up plan. That is what you monitor. That monitoring is part of S&OP, by the way. These are project-based things” (G1)

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As briefly mentioned, case H is an informal SME. They do monitor their supply chain risks, although it is not formalized. They classify themselves as a fairly flat organization, and if they can solve problems or risks immediately, then they will do that:

“And otherwise, if there is a problem, we monitor it according to the existing meeting structures we have. We have a prognosis meeting and a customer meeting where indeed any monitoring is carried out and remains on the agenda. And if there is a big problem or a big risk that we want to cover, then yes, we may have to put it into a project form” (H1)

This means that case H does have monitoring processes, although it takes place more informally and fragmented and it is not integrated within S&OP.

The monitoring of case I primarily come from a reporting tool integrated with their ERP system. Data is automatically retrieved from the system and is visualized in a graph. An example is the monitoring of the delivery reliability of the organization. If there is poor delivery reliability, mitigating actions are deployed to the operational level of the organization. They state that, for instance, the top 3 causes are discussed within the S&OP meeting. Within the next cycle of S&OP, the mitigation strategy is monitored (e.g. positive or negative outcome relative to the target).

Case J monitors their demand and supply risks within S&OP:

“Anyway [monitoring demand and supply risks] already in the demand and supply review, and eventually in the master S&OP” (J1)

Multiple KPIs are discussed within the S&OP meeting: financial (working capital), supply chain (inventory levels, delivery reliability), and quality (complaints). To a large extent, this is all monitored within the master S&OP where these KPIs are reflected on. If KPI’s are not on target, they develop mitigating strategies and are monitored in the next S&OP cycle. Case J:

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25 4.2.3 Operational risk monitoring

Operational risks occur within an organization and impacts the day to day business and are also managed on a daily and weekly basis. As operational risks impact the business’ horizon on the short-term, it was found that operational risk monitoring takes place at least once a week.

The operational director of case C has a daily meeting with the management of the organization to discuss whether the production facility can meet demand and whether they can deliver on-time. This is a reporting meeting, where both cash flow and the final production planning are discussed. Besides that, they hold an operational meeting twice a week including operations, production, purchasing and logistics to determine whether all departments have sufficient capacity to execute the production plan:

“Twice a week I have a meeting with several people from my teams: operations, production, purchasing, logistics. […] are there any changes? Should we continue to worry? And if we start to worry: what further actions can we take?” (C2)

Within this meeting, they monitor their environment and determine if it becomes an actual risk or not. Next, there will be decided what further actions need to be taken, and depending on whether the risk is prevented or overcome it will be escalated and discussed within S&OP.

Case D has a weekly operational meeting and a two-weekly S&OP cycle. Every week, the inventory levels are discussed to check whether they can meet demand. This is the predecessor of the S&OP meeting, as it provides important information about prospects that are or not able to be delivered. If the capacity is not sufficient to meet demand, demand is eventually adjusted in the S&OP meeting. They do this because there are relatively many long-lead items. Therefore, it is not possible to place new purchasing orders that are delivered in the short-term. Within the weekly operational meeting, they monitor their risks and if necessary, they can take mitigating actions. The link with the (two-weekly) S&OP cycle here, is that that risks that cannot be prevented or overcome in the operational meeting are mitigated to the S&OP cycle.

Case E is an informal organization with relatively little formalization:

“Of course, we go through the projects and like this afternoon I had an MT-lunch with sales, so I know how it goes. I also really know what our order book looks like, I see a trend, but seriously going along a certain list and going along an agenda, no, we don't do that” (E1)

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Case G monitors their operational, short term risks, within a separate S&OP cycle. As briefly mentioned in the S&OP section; case G is operative in the retail market with high demand volatility. For example, it is very sensitive to seasonality, and therefore the organization is forced to be responsive. The weekly cycle consists of a 6-week rolling demand forecast. Sales establish the 6-week demand forecast, based on market developments, weather forecasts and market interactions. Especially weather conditions are important:

“If the weather suddenly turns out to be great, or the weather becomes bad, those are drivers for people to make a purchase” (G1)

Every week, the regular S&OP cycle is followed. This means that the rolling demand forecast is compiled by sales. Based on the demand forecast, it is translated into volumes (pieces) to determine whether there is sufficient capacity in the warehouse to process demand. Then, there is a final meeting including buying (purchasing), sales, operations and controlling to discuss outliers in the upcoming period regarding demand or capacity. It is found useful for organizations in volatile markets to meet and monitor their processes frequently, as it makes them agile to their environment. They try to solve the risks or issues that emerge in the weekly S&OP cycle. If the risk or issue cannot be solved in the weekly S&OP, it is escalated to the monthly S&OP cycle.

Case I initiates a weekly balancing meeting to monitor their risks:

“[…] a weekly balancing meeting in which we’re going to keep track of what the risks are. […] then we can switch weekly from something going up or going down and who is responsible for it? That we appoint someone from for this risk, and that you should at least monitor this on a weekly level” (I2)

Within these weekly balancing meetings, attendants are sales and production. They state that it is, in fact, S&OP, but then just a lower level. And it is more detailed than is done within S&OP. Having this weekly balancing meeting makes the organization responsive to their environment because it enables them to respond in relatively small cycles.

The cases provided insight in their way of monitoring risks on the operational level of the organization. On the operational level of the organization, the monitoring is done based on the information provided by the system. For example, case G indicates that they use a lot of dashboards and access data which enables them to monitor their daily operations. Case J monitors the inventory levels of their finished products every two weeks, to determine whether they can meet demand or not.

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the organization is not able to process it, sales must discuss what mitigation strategy should be applied to prevent or overcome this risk.

Operational risk monitoring is a more frequent process than tactical and strategic risk monitoring processes. Looking at table 10, we see that within all cases at least once a week there is a monitoring process in place. Case C indicates that they have an operational meeting twice a week including all operational departments of the organization. This is primarily an operational meeting to check whether there are any changes in the production schedule and whether they can deliver the products sold. Within that same case, they also have a weekly sales meeting to check any outliers.

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28 5 Discussion

In contemporary literature, little research has been done regarding the monitoring of supply chain risks. As supply chain risks include the likelihood of unexpected events that can impact the supply chain on the operational, tactical or strategic level of the organization (Ho et al., 2015: 5035), we aim to describe how supply chain risks are managed on the operational, tactical and strategic level of the organization. There is a need to reduce market uncertainty to best align demand and supply (Pedroso et al., 2016) which is typically done in S&OP. Therefore, we described supply chain risk monitoring within the S&OP planning process.

Across cases, it was found that there are different designs of S&OP and monitoring practices. The difference primarily lies in whether a company is an SME or a large company. From literature, it is known that there are different levels of maturity an organization can have regarding S&OP. However, as this paper aims to understand how organizations monitor their supply chain risks in the S&OP, this has implications for the monitoring of supply chain risks within S&OP.

Strategic risks are managed on the corporate level of the organization. It was found that LE’s implemented a separate strategic risk management process as opposed the SMEs. This can be clarified by the premise that large organizations are forced to formalize to control their processes. SMEs must manage their strategic supply chain risks as well, however, they can manage it informally and takes place more fragmented throughout the organization. The SMEs remarked that they have a meeting with the management team once a week. Large enterprises, however, cannot do this because there would be too many topics to discuss.

Supply chain risks on the tactical level of the organization are monitored within the S&OP process. S&OP is suitable to monitor supply chain risks, as it is a recurring systematic review of risks over time. Here, too, there are differences between LE’s and SMEs. The S&OP process of LE’s correspond with the theoretical background; data is gathered through the ERP-system, a demand forecast is compiled, the supply plan is made, and the pre- and executive S&OP are executed every month. SMEs, however, tend to have a more frequent S&OP process than LE’s. Besides that, the design is less formalized, indicating a lower S&OP maturity. The implications for monitoring supply chain risks on the tactical level here are that the monitoring takes place in shorter cycles, making SMEs more responsive to their environment. As it is a less formalized way of monitoring supply chain risks, it is presumed that the quality of the monitoring is not on the same level as LE’s. However, this remains an underexplored issue.

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level of the organization. When any outliers cannot be solved on the operational level, these are escalated to the S&OP meeting structure. Figure 2 provides a revised overview of supply chain risk monitoring in the context of S&OP. The (dark) blue coloured lines indicate the S&OP process.

Figure 2

The revised conceptual framework

The findings correspond with the theoretical background, although it was found necessary to change the risk classifications. The risk classifications as described in the theoretical background were not sufficient to cover all risks. This was primarily because ‘strategic risk’ is classified as an ‘internal risk’ (Louis & Pagell, 2019) which mismatches with the risk and its mitigation. Therefore, we have chosen to use the risk classifications that emerged from the data analysis.

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escalated to the S&OP process. The biggest change lies in the fact that external risks do not correspond with strategic risk monitoring. For example, strategic risk is classified as an internal risk (Harland et al., 2003; Louis & Pagell, 2019), but requires a different monitoring approach than on the operational level of the organization. Therefore, the risk classification described in the theoretical background would not work to explore supply chain risk monitoring in S&OP process.

We tried our best in maintaining the validity and reliability of the research. During the data collection, there were at least two researchers present; one taking notes, and the other one doing the interview. This ensured validity of the research. Besides this, relatively many interviews (17) were conducted and included in the research among different industries which ensured the reliability of the research.

5.1 Theoretical and managerial implications

For supply chain risk management researchers, this paper sheds light on supply chain risk monitoring and provides a framework that can be used as a starting point for future research. Until now, monitoring was an unexplored subject, and therefore we filled an important gap in the literature by providing an understanding of risk monitoring among cases with different sizes. The majority of research about SCRM leaves supply chain risk monitoring underexplored. Until now, academics have only provided a definition of supply chain risk monitoring. Therefore, the findings of this research contribute to the literature by exploring how organizations monitor their supply chain risks within their S&OP process. It allows other researchers to build on this paper to gain a better understanding of the concept and ultimately contribute to SCRM literature. On the other hand, it provides a link with S&OP that can be used to extend the sales and operations planning literature where supply chain risks can be included. As supply chain risks can impact both demand and supply, it might be useful to include it in S&OP literature.

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31 5.2 Limitations

This paper has several limitations. 17 interviews have been conducted among 10 cases, and not all interviewees employ the same position. This results in multiple perspectives on monitoring and the S&OP process (e.g. operations, sales, finance). Besides that, not all interviewees were involved in it but were actively involved in the monitoring of risks in general. They roughly knew what the process looked like but were not able to tell in detail and the link between the two became not explicitly clear.

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32 6. Conclusion

The findings of this research contribute to research regarding supply chain risk management, answering the research question: ‘How do organizations monitor their supply chain risks within the sales and operations planning process?’

Based on a qualitative analysis with a total of 17 interviews among 10 cases, it can be concluded that organizations monitor their supply chain risks on different levels of the organization. On the strategic level of the organization, strategic risks are managed in a separate enterprise-wide risk management process and are monitored quarterly. When strategic risks impacting demand and supply need to be mitigated, these are translated to the tactical level of the organization. The demand and supply risks on the tactical level of the organization are managed in the S&OP process, which from the theoretical background is primarily a monthly process. However, it was found that the frequency of S&OP is dependent on the size of the company.

Smaller organizations tend to have a more frequent meeting structure, as they can include top management of the organization into the weekly meeting. Larger companies, however, tend to follow the S&OP cycle that corresponds with the literature. The monitoring of tactical risks is executed within the meeting structure of S&OP. Potential tactical risks are included in the monthly meeting, and the mitigation orders from the strategic level of the organization are implemented and monitored according to the S&OP sequence.

The risk monitoring on the operational level of the organization includes the day to day business and are discussed in organization-specific meetings. Operational risks are monitored at least once a week, and when they identify a risk they try to mitigate and solve the problem themselves. When there is no possibility to prevent or solve this risk within their power, it is escalated to the S&OP meeting where it will be discussed, and possible mitigation strategies can be deployed to prevent or overcome the risk from happening.

We make several recommendations for future research. First, we recommend investigating the existence of formalized monitoring processes relative to the size of organizations, or maturity of the S&OP process. This is because there has been found that large organizations have a more formalized monitoring process as opposed to smaller organizations. It is important to determine whether it is the size that determines these formalized processes, or whether it has to do with the maturity of their S&OP processes.

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