SCENARIO PLANNING IN S&OP FOR EFFECTIVE RISK MANAGEMENT by YVAR VAN DE KRAATS

(1)

1

SCENARIO PLANNING IN S&OP FOR EFFECTIVE RISK MANAGEMENT

by

YVAR VAN DE KRAATS

University of Groningen Faculty of Economics and Business

MSC Supply Chain Management June 2020

Supervisor: H. Dittfeld 2nd supervisor: D.P. van Donk

2nd-assessor: B. Tong Taco Mesdagstraat 7 9718 KH Groningen (06) 53157270 y.g.van.de.kraats@student.rug.nl student number 3824403

Word count: 10.440 (excl. tables findings, references & appendices)

Acknowledgements

This master thesis is the final contribution to my master’s degree in Supply Chain Management at the University of Groningen. I would like to thank my supervisor, H. Dittfeld for his guidance and support

through each stage of the process and B. Tong and D.P. van Donk for their constructive- and valuable feedback. Moreover, I would like to thank all the companies that participated in this research for their

(2)

2

ABSTRACT

Purpose – The purpose of this paper is to explore how scenario planning in a sales and

operations planning process (S&OP) contributes to the supply chain risks management (SCRM) process.

Design/methodology/approach – An inductive case study design is used. The data gathering

consists of 17 semi-structured interviews at ten case companies in multiple sectors. Moreover, secondary data including presentations, forecast charts, and process maps are used.

Findings – It is found that scenario planning can be incorporated in the demand review, the

supply review and the reconciliation meeting. In the case of high detail- and dynamic complexity, companies use scenario planning to deal with the risks and uncertainties that endanger the continuity of their organization. Some companies use advanced software to run a scenario quickly, while others use more simple Excel spreadsheets. Different demand- and supply risks and corresponding scenarios were found applicable to manage in the S&OP process. Finally, scenario planning will contribute primarily in the assessment and mitigation phases of the SCRM process.

Originality/Value – This study is one of the first to adopt the three broad concepts of

scenario planning, S&OP, and SCRM in one study. Besides, additional value is obtained by taking the whole SCRM cycle into account, where the majority of literature only focuses on one or two phases.

Keywords: scenario planning; what-if analysis; sales and operations planning; supply chain

(3)

3

1. INTRODUCTION

In today’s business environments filled with many uncertainties, companies have to be prepared for supply and demand changes, which require enhanced planning techniques (Amer, Daim and Jetter, 2013). After all, the identification of future trends and the anticipation of market changes are determinants of an organization’s competitiveness (Varum and Melo, 2010). However, traditional strategic planning techniques may not be sufficient in such highly uncertain and complex competitive markets. It lacks the ability to inform managers about economic, environmental, political and social changes (Chermack, Lynham and Ruona, 2001). In these circumstances, scenario planning is one of the most recommended tools for facilitating decision-making (Derbyshire, 2017), offering a solution to manage risks through “what-if” analyses in case of supply or demand changes. Hence, industry-leading companies integrate scenario planning into their sales and operations (S&OP) process (Noroozi and Wikner, 2017), to increase their ability to adapt to unforeseen events (Ivert and Jonsson, 2010). However, while there is an agreement in the literature that scenario planning is an element of S&OP, to date little is known on how exactly scenario planning in S&OP contributes to the supply chain risk management process (SCRM).

It is acknowledged that SCRM is aimed at developing strategies for the identification, assessment, mitigation and monitoring of risks in supply chains (Ho, Zheng, Yildiz and Talluri, 2015; Fan and Stevenson, 2018). Through scenario planning, risk management becomes the key focus of the decision-making process (Gudum, Fjelbro and Klitz, 2015). Hence, scenario planning can be defined as: ‘’a tool, technique or process which includes

managing the risks and uncertainties of the future by creating internally consistent alternatives of future outcomes.’’ (Karlsson and Sandin, 2011: 34). The insights of scenario

planning are drawn from many sources, covering a range of possible contingencies, which helps to uncover blind spots (Miller and Waller, 2003). However, scenario planning is not a tool that reduces or eliminates risks and uncertainties, but a process that helps managers understanding them (Ahn and Skudlark, 2002; Miller and Waller, 2003). A S&OP process on the other hand, is used as a medium term planning tool (3-24 months) to find the right balance between supply and demand, to create consensus among different functional units and actors, and to settle around one set of plans (Grimson and Pyke, 2007; Sodhi and Tang, 2011).

(6)

6 scenario planning as a tool to integrate these concepts (Schlegel and Murray, 2010; Singh and Lee, 2013; Gudum, Fjelbro and Klitz, 2015), in academic literature it is still unknown whether and how companies use scenario planning in S&OP to cope with risks and uncertainties (Kristensen and Jonsson, 2018). Academics refer mostly implicit, though rarely explicit to this relationship (Schlegel and Murray, 2010). Thus, at the empirical level there is a gap in the literature on the use and effects of scenario planning in S&OP and the SCRM process (Varum and Melo, 2010). This leads to the following research question: “How can scenario planning

in S&OP contribute to the supply chain risk management process?” To answer this question

an in-depth investigation of the relationships among concepts in ten case studies was conducted. The data gathering consists of 17 semi-structured interviews and secondary data analysis.

First, this study makes a specific scientific contribution by responding to the call of Ivert et al., (2015), to explore the relationship between the design of scenario planning in S&OP and SCRM processes through empirical case studies. This leads to a revised research framework with details of the relationship between the process stages. Secondly, the four SCRM areas of risk identification, assessment, treatment, and monitoring are incorporated in one study (Ho et al., 2015; Fan and Stevenson, 2018), which shows the relationship between the processes. For instance, applying one mitigation strategy reducing the risks for a certain scenario may cause another risk that then needs to be identified and assessed. Third, this paper demonstrates a practical application of how to deal with demand- and supply risks in the S&OP process, so that S&OP decision-makers can creates planning scenarios that are actionable and executable (Schlegel and Murray, 2010).

(7)

7

2. THEORETICAL BACKGROUND

In this part, relevant concepts will be introduced and defined to get an understanding of the existing literature. First, the concepts of S&OP and SCRM will be discussed. Thereafter, literature regarding the application of scenario planning is reviewed. This parts ends with a theoretical framework with the relationship between scenario planning in S&OP and SCRM.

2.1 Sales and operations planning

S&OP evolved into a major business process for balancing demand and supply and reaching alignment between different business units, suppliers, and customers (Grimson and Pyke, 2007; Oliva and Watson, 2011). In most organizations, departments such as Sales, Marketing, Operations, and Finance specialize in their own planning activities, which lead to conflicts over expectations, preferences, and priorities (Oliva and Watson, 2011). For instance, Sales aims to achieve the highest possible demand; Marketing wants a back-up of supplies for promotional campaigns; Operations wants to ensure the right balance in capacity: while Finance requires the plan to be within budget (Sodhi and Tang, 2011). As a consequence, demand and supply are not properly balanced within the entire company, which leads to a loss of sales and customers or extra costs for maintaining idle capacity (Bagni and Marçola, 2019). Executed properly, S&OP addresses these issues by linking the strategic and operational business plans in an integrated tactical plan for a horizon of 3-24 months (Kristensen and Jonsson, 2018). However, Grimson and Pyke (2007) state that the horizon varies by industry, by product and by the time of year that S&OP planning occurs.

(8)

8 the agenda for the executive meeting (Dougherty and Gray, 2006). Finally, in the executive S&OP meeting, top management resolves issues and settles plans around which the pre-S&OP meeting could not reach consensus or which entail significant costs (Wagner, Ullrich and Transchel, 2014).

The complexity of any S&OP process depends on (1) the level of detail complexity associated with the number of entities that make up the system (size of an organization, number of products, suppliers and customers) and (2) dynamic complexity dealing with restrictions and uncertainties in materials, demand and the production system (Ivert and Jonsson, 2014). Higher levels of detail- and dynamic complexity may require S&OP to incorporate scenario planning and interact with risk management processes in order to cope with risks and uncertainties (Noroozi and Wikner, 2017; Kristensen and Jonsson, 2018). Hence, traditional planning systems can be incapable to accommodate all significant planning variables and deal with the bounded rationality of decision makers (Kristensen, Asmussen and Wahrens, 2018).

2.2 Supply chain risk management

In literature, there is confusion around the different terms ‘risks’ and ‘uncertainty’ (Simangunsong, Hendry and Stevenson, 2012). Where a difference is argued, the term uncertainty reflects an absence of information (Galbraith, 1973) or clarity even when there is information available (Daft and Lengel, 1986). In contrast, risks refers to relatively recurrent events originated directly from internal activities of companies and/or relationships with partners in the entire supply chain, such as product obsolescence and quality problems (Ho et

al., 2015). Overall, although there are some high level differences between uncertainty and

risk, it is not essential to distinguish them, since in practice the terms often are applied interchangeable (Jüttner, Peck and Christopher, 2003). Managers have to face supply chain uncertainty and risk simultaneously (Wang, Jie and Abareshi, 2014). Therefore, this study considers the ways to deal with both uncertainties and risks simultaneously in S&OP. This refers to SCRM, which can be defined as: ‘’the identification, assessment, mitigation, and

monitoring of supply chain risks, with the aid of tools […] to reduce vulnerability, ensure continuity coupled with profitability, leading to competitive advantage.’’ (Fan and Stevenson,

2018: 210).

(9)

9 ‘risk identification’, aims to discover all relevant risks and identify future uncertainties in order to manage them proactively (Fan and Stevenson, 2018). Sunil and ManMohan (2004) created an extensive risk category as well as the events and conditions that drive them. Those risks are related to disruptions, delays, systems, forecast, intellectual property, procurement, receivables, inventory and capacity (see Appendix A for definitions and examples).

The second step, ‘risk assessment’, refers to the probability of an event occurring and the significance of the consequences (Harland, Brenchley and Walker, 2003). This must involve the exposure and triggers to risks, the non-regulated consequences as well as clearly identifiable financial implications.

The third step, ‘risk mitigation’, refers to actively reducing both the probability and consequences of risks to an acceptable level (Norrman and Jansson, 2004). Sunil and ManMohan (2004) distinguish the following risk mitigation strategies: increase capacity, acquire redundant suppliers, increase responsiveness, increase inventory, increase flexibility, pool or aggregate demand and increase capability. For example, what-if demand goes up by 20%, then capacity should be increased.

The fourth step, ‘risk monitoring’, refers to continuously evaluating how risk sources are developing and if any changes to the mitigation strategies need to be applied (Fan and Stevenson, 2018). According to Norrman and Jansson (2004), risk monitoring is required when the risk level is very high, or high and not mitigated. Moreover, when risk mitigation has not reduced risks to an acceptable level, companies must continue monitoring. Specific individuals or organizational subunits should be made responsible for monitoring key uncertainties and risks on an on-going basis (Miller and Waller, 2003).

Currently, there are several risk management tools among which scenario planning is considered valuable in supporting organizations to prepare for possible events and making them more flexible in either the demand- or supply side of the business (Amer, Daim and Jetter, 2013). Over time, scenario research has been defined in several ways, but the most common expressions are ‘scenario planning’, ‘scenario thinking’, ‘scenario analysis’ and ‘scenario building’ (Varum and Melo, 2010). These interchangeable terms are referred to as scenario planning in this study.

2.3 Scenario planning

(10)

10 approach of strategic planning and forecasting techniques resulted in the widespread use of scenario planning (Phelps, Chan and Kapsalis, 2001). Michael Porter (1985: 63) defined scenarios as ‘’an internally consistent view of what the future might turn out to be—not a

forecast, but one possible future outcome”. Scenario planning differs fundamentally from

forecasting in that it accepts uncertainty, tries to understand it, and makes it part of the reasoning (Cornelius, Van de Putte and Romani, 2005), which allows organizations to move forward from the actual to the future situation. Moreover, scenario planning conveys projections of the future with various possibilities, rather than one single set of conditions (Bloom and Menefee, 1994). Here, scenario planning differs from conventional approaches in the belief that the future cannot be predicted and not one single plan can cope with all inevitable variations impacting an organization (Wright, 2005). However, van Landeghem and Vanmaele (2002) found in their study that many uncertainty factors such as stochastic demand and price fluctuations can adequately be managed at the tactical planning horizon. At this level, sufficient time is available (weeks or months) to determine appropriate countermeasures. By separating the predetermined aspects from the uncertainty, the primary step is taken towards making the decision-making process more manageable (Wright, 2005).

In order to make scenarios more suited to address medium-term concerns and assist tactical decision-making (Cornelius, Van de Putte and Romani, 2005), companies produce specific scenarios to tackle risks and understand the risk implications (Sodhi and Tang, 2011). According to Stadtler and Kilger (2015), one way to deal with risks and further enhance S&OP is by a scenario tool to make “what-if” analysis in case of supply or demand changes. What-if analysis helps to assess the impact of a demand shaping forecast decision (e.g. promotion planning, price management and the timing of new product introduction) on the supply situation in S&OP (Cecere, Barrett and Mooraj, 2009; Stadtler and Kilger, 2015). For instance, ‘’a scenario with two products being bundled as a promotion to generate additional

demand. If one of the products is not available in sufficient quantities, the effect on sales will be lower than planned. The what-if scenario will reveal that additional demand forecasted due to the bundling-promotion should be reduced’’ (Stadtler and Kilger, 2015: 152). Hence,

demand planning needs to deal with risks associated with unmet demand, excess inventory, and inadequate liquidity across multiple periods in the decision horizon (Sodhi and Tang, 2011).

(11)

11 critical products and certain supply risks. For instance: the allocation of raw materials across products and markets due to a scarcity of raw material, requesting sales to run a campaign when there is overcapacity or the right timing of product launches to available capacity. Based on an integrated view of the S&OP process, participants can perform what-if analysis to identify plan alternatives for overall improvement (Stadtler and Kilger, 2015), while taking constraints, demand shortfalls, and capacity opportunities into account (Cecere, Barrett and Mooraj, 2009).

For a company with high supply chain complexity (e.g. hundreds of product families), manually running different what-if analyses for each product family is quite impractical (Sodhi and Tang, 2011) and in turn may lengthen the computing time (Ivert and Jonsson, 2010). Namely, a few hours to use all data in the model, which makes it impossible to generate scenarios during meetings. Therefore, advance software is indispensable for the plans to be generated with greater speed (Bagni and Marçola, 2019).

Thus, scenario planning has become an important part of the S&OP processes since it increases a firm’s ability to adapt to unforeseen events (Ivert and Jonsson, 2010). Sales and operations managers can use scenario planning to identify what might happen, provide early warning signals and take appropriate actions (Cornelius, Van de Putte and Romani, 2005).

2.4 Theoretical framework

(12)

(13)

13

3. METHODOLOGY

3.1 Research design

This study utilizes a multiple case study method to extend the theory on how scenario planning in S&OP contribute to the risk management process. As identified in the literature review, scenario planning in S&OP is at a developmental stage and the influence on the SCRM process has yet to be clearly identified and delineated (Yin, 2009). To answer the question an inductive case study research is used. Case study research provides a qualitative approach to study phenomenon in a natural setting while taking various factors, existing experiences and nuances into account (Boyer and Swink, 2008; Barratt, Choi and Li, 2011). Moreover, the flexibility of a case study approach allows to gather rich data from firms with different S&OP processes through interviews and document analysis (Seuring, 2008). Additionally, unintended insights can be derived from case studies, which can lead to new avenues of inquiry (Boyer and Swink, 2008).

3.2 Case selection

(14)

14 Table 1: Business characteristics case companies

Case A B C D E F G H I J Industry Aviatio n Car / industr ial Industr ial Industr ial Agricu lture Agricu lture Retail Industr ial Constr uction / Civil & Infra Food Turnover 45 mil. 462 mil. 80 mil. 106 mil. 75 mil. 574 mil. 661 mil. 36 mil. 1.2 billion 104 mil. Employees 200 2500 200 270 270 1300 900 150 390 290

Markets EU,US EU,US , Asia 40 countri es EU, Asia 56 countri es 100 countri es NL, BE EU, India, China EU, LAC, Asia EU Products (F = functional) (I = innovative) (I/F) Airpla ne- / engine parts (I) Electro magnet ic system s/comp onents (I/F) Hydrau lic vibrato ry hamme rs (I) Uninte rruptibl e power supplie s (I/F) Livesto ck feeding equipm ent (F) Potato starch and protein (I/F) Fashio n, beauty, home/ garden, electro (F) Air vents/ vacuu m degass ers (I/F) Plastic pipe system s & solutio ns (F) Herbs and spices # of SKUs (Product variety) X X 170 X 1000 1000 400.000 1800 900 2000

Low High Low Low Med Med High High Med High

Customers (demand uncertainty) 4/5 3000+ 40 dealers 30+- 100+ dealers 1300 2.8 mil. 340+ 3000 400

Low High Low Low Med High High Med High Med

Suppliers (uncertainty)

500 X 200 390 X 2300 700 400 300 400

Med High Low Med Med High High Med Med Med

3.3 Data collection

The main data collection consists of 17 semi-structured interviews conducted at ten different companies with people directly involved or accountable for the S&OP process at each case company (Table 2). The number of interviewees and their functions varied among the organizations, based on their expertise with scenario planning, S&OP and risk management (Krause and Ellram, 2014). To assess their role, I explicitly asked about their input in S&OP and their knowledge about scenario creation and evaluation to manage risks (Oliva and Watson, 2011). The main data collection took place between April and May 2020. The interviews were conducted online via Microsoft Teams and Skype and lasted between one and two hours. Informed consent for recording was obtained from each respondent before the interview took place. Additional contact with the informants was made when needed in order to elaborate and clarify the answers.

(15)

15 and relevant issues for the study, thus ensuring construct validity (Yin, 2009). The interview protocol consists of questions regarding currently used risk/scenario management in S&OP. All interviews began with general questions about the design of the S&OP process to guide the overall discussion. Thereafter, the researchers used predetermined questions from which the interviewees could further elaborate on. However, interviewees were not required to stay within these standard questions; the conversation was allowed to flow (Krause and Ellram, 2014). After each interview the protocol was modified accordingly to its final version (Krause and Ellram, 2014).

To achieve internal triangulation (Voss, Tsikriktsis and Frohlich, 2002), additional secondary data was collected to find evidence for the answers provided and to decrease biases. The data included copies of presentations and other materials, such as charts, process maps and organizational websites. This led to a comprehensive database for each case consisting of transcripts and detailed case stories, see Table 2.

Table 2: Data collection in case companies

Firm Case Job titles of interviewees Interview duration Other materials used

A A1 Supply chain manager 1:20:00 FMEA work/sheet, S&OP process descriptions

B B1 Risk manager 1:26:00 Annual report 2019

C C1 Director Sales / Marketing 35:00 Organizational website

C2 Director operations 38:00

D D1 Global SCM manager 58:00 Organizational website

E E1 Logistics / production manager 1:23:00 Sales forecast, brainstorm S&OP session

E2 Sales director 1:30:00

F

F1 Supply chain manager 1:22:00 Risk management ppt., S&OP process description, annual report 2019

F2 Sales planner 1:00:00

F3 Risk manager 54:00

G G1 Supply chain director 1:34:00 Organizational website H H1 Supply chain planner 1:26:00 Sales forecast, product-

and price list,

H2 Business controller 1:26:00

I

I1 Supply chain specialist 1:25:00

Product- and price list I2 Supply chain coordinator 1:25:00

I3 Finance & business controller 1:22:00

J J1 Supply chain manager 1:14:00 Sustainability report

3.4 Data analysis

(16)

within-16 case analysis, the responses from each interviewee at each case company were separately coded (Hulthén, 2016), following the key areas, scenario planning, S&OP, and SCRM from the theoretical framework. People from Sales, Marketing, Finance, and Operations were treated as multiple sources and the similarities and differences among informants within each group were analysed (Miles and Huberman, 1994). The data analysis followed the three steps by Miles and Huberman (1994): data reduction, data display, and conclusion. First, data was reduced to first-order categories, maintaining the interviewee’s own language, whenever possible (Gioia, Corley and Hamilton, 2013). This allowed me to get information that was truly relevant to the research question. Thereafter, all first-order-categories were coded into second-order categories, such as risk identification and demand review. Finally, third-order-themes were deduced in relation to scenario planning in S&OP and SCRM. All previous steps resulted in an excerpt of coding, from which an example is presented in Table 3.

Table 3: Example of the excerpt of coding for the theme ‘’SCRM’’

First-order concepts Second-order concepts Theme

‘’The entire sales organization is constantly reading professional journals about price fluctuations.’’ (E2).

Risk identification

SCRM

‘’We have a program called ERM (Enterprise Risk Management) where we put all risks that we have identified.’’ (F1).

‘’Via FMEA the severity and occurrence is scored. Based on these scores you can estimate whether something must

be done or not.’’ (A1). Risk assessment

Five impact classes: time, quality, safety, environment and image.’’ (Risks management PowerPoint, case F) ‘’Sometimes choices are made not to deposit parts with just one supplier, but in any case to a dual supplier solution.’’ (B1).

Risk mitigation

‘’We examine whether raw materials can be used in other products that are less affected by the corona virus to avoid making shelf life costs.’’ (J1).

‘’We continuously monitored the Brexit and looked at what we should do and what we can do to at least stay in the market.’’ (E2).

Risk monitoring

‘’In the summer period we need X% extra holiday workers to guarantee our capacities. Then you monitor your plan to reach that goal.’’ (G1).

(17)

17

4. FINDINGS

This section presents the cross-case analysis. Aiming to explore the relationship between scenario planning in S&OP and the SCRM process, I find that scenario planning can be incorporated in the demand review, the supply review and the reconciliation meeting. The latter can be one meeting or split up into a pre-S&OP, S&OP and executive S&OP. In outlining the findings, I first classify the use of scenario planning by type of scenario, stage of the S&OP process and the use of software. Thereafter, an indication is given of which SCRM activities, i.e. risk identification, assessment, mitigation and monitoring are captured in scenario planning. Due to the number of cases, a summary of the cross-case analysis of all ten cases is provided in Table 4.

Table 4: Cross-case analysis case companies

Case Scenario

planning

Type of scenario Where in S&OP Software

Demand Supply

A Informal COR SUP Indirectly based on the demand plan Excel / PowerPoint B Yes COR, FIN CAP,WOR Outside S&OP (at corporate level) Excel

C Informal GEO, COR SUP, INV S&OP (but is under development) Simulation tool D Informal COR, BRX SUP, INV,

COR,BRX

Outside S&OP (what-if analysis by risk owner) Excel / PowerPoint E Informal PRC,COM GEO SUP,INV, BRX

Demand review, Supply review, S&OP Excel

F Yes PRC,COM,

GEO, COR

CAP,INV, COR

Demand review, Supply review, pre-S&OP, pre-S&OP, Executive S&OP

SAP APO/IBP, Qlikview, Excel G Yes PRO,GEO, COR SUP,CAP, WOR,COR

Demand review, Supply review, S&OP, Executive S&OP

Excel H Informal PRO,COM SUP Demand review, Supply review Excel/AX

Dynamics I Yes NPI, COR CAP, INV,

COR,BRX

Demand review, Supply review, S&OP, Executive S&OP

SAP

APO/BO/BPC J Informal PRO,COM,

NPI

WOR Indirectly based on the demand plan, Supply review, Executive S&OP

Excel, Slimstock

 PRC = Price management  COM = Competitor  GEO = Geographic region  PRO = Promotional

 NPI = New product introduction

 SUP = Supplier COR = Corona

 CAP = Capacity BRX = Brexit

 INV = Inventory FIN = Financial  WOR = Workforce

(18)

18 advanced software or Excel. Case B make scenarios on a strategic level, mainly to evaluate whether capacity and workforce levels were aligned with the initial forecast and the updated demand plan. The output of scenario planning (i.e. numbers) is not transferred into an ERP system and is not used per department. It is an analysis that gives insight into what to expect when uncertainties (e.g. coronavirus with a drop-in turnover) actually do happen.

On the other hand, it was found that Case A, C, D, E, H and J work informally with scenario planning. Scenario planning is used for ad-hoc assessment, rather than routinely using the system. One reason that scenarios are not made regularly is due to the size of an organization. For instance, ‘’there is a culture of hands-on mentality and short lines resulting in quick and

accurate decisions around scenarios.’’ (A1) and ‘’I think it really depends on how big you are and how many options you have to find alternatives.’’ (I1). Another reason is the complexity

of the production process. "we have a fairly straightforward production process without very

complex products. If you have discussions concerning materials for certain scenarios and you ask the question, you already have the answer.’’ (H1). Thus, due to the lower level of

complexity it is easier to deal with risks and uncertainties directly. Besides, fewer resources (i.e. time and software) are needed when scenario planning is required.

There is consensus that scenario planning requires a flexible system including features to see the impact of changes to the main KPIs and assess whether a scenario is good or not. Most companies use Excel [A, B, D, E, G, J]. For instance, ‘’the ERP system itself leaves no room

for scenario planning or what-if analysis, so they are made in Excel or PowerPoint.’’ (D1).

and ‘’we do that very simply in Excel since our current ERP system does not have so many

options to create scenarios in the system. (E1). Others [F, H, I] have a module in their ERP

system. For instance, Case I works with SAP APO from which a lot of data can be extracted. ‘’Depending on the scenario and the download speed, scenarios can be created very quickly

from SAP APO in fifteen minutes and from Excel it takes about 2 days.’’ (I2). Case F switched

to SAP IBP, ‘’one of the reasons was to make scenarios within a day instead of three days

and the possibility to easily simulate multiple scenarios in that package.’’ (F1). However,

when a company has a module for scenario planning it does not mean that it is utilized. Take the example of case H, ‘’I have experimented with supply and demand scenarios in the past,

but that gave little added value to work with and that has to do with our simple process.’’ (H1). Finally, Case C is currently developing its own simulation tool to see the impact of

(19)

19

4.1 Risk identification

Risk identification is done in advance by thinking of risks and uncertainties that could endanger the continuity of the organization. The findings show that this is accomplished in different parts of the S&OP process (i.e. creation of the demand- & supply plan) by exchanging thoughts during brainstorming and the review of external sources (e.g. journals, media, interest groups, weather forecast).

Scenario planning in the creation of the demand plan

The sales forecast is based on the annual budget and the associated objectives. Data in seven cases [C, D, E, G, H, I, J] show a rolling sales forecast of a year with a quarterly / monthly revision. In this sales forecast, a distinction can be made between companies that include an estimation of the chance of success for certain leads [C, E, J, G] and companies that only include actual orders [B, F, H].

The creation of scenarios is much based on expert’s opinions and assumptions on certain sources of risks and uncertainty. The identified risks and uncertainties are used to develop different forecast scenarios. For instance, Case E identifies the nitrogen crisis, the climate change, animal diseases and investments by banks as potential risks. For the former, the following scenario was made: ‘’due to the nitrogen crisis farmers are given advance

measures. However it is still not clear what kind of measures, which means uncertainty and automatic postponement of investment. We just set up a scenario for that, which reduces demand by X%.’’ (E2). Thus, a risk is identified and subsequently scenario planning is used to

estimate the consequences and ultimate options. As another example, Case I determined three scenarios, i.e. optimistic-, most likely- and pessimistic scenario for the impact of the coronavirus: ‘’we indicate what we expect in terms of sales development in the next three

months and how it recovers in the period after that. These three scenarios are calculated down to the bottom of the EBITDA: what does it do on the cash flow, on the costs and personnel costs.’’ (I3).

(20)

20 profits and volume. An overview of the different demand scenarios is outlined in Table 5.

Table 5: Demand shaping scenarios in the creation of the demand plan

Case Category Type of scenario Quote

G H J Promotions Good weather promote swimwear

‘’Based on the 6-week forecast, especially at the weekly level, we include an uncertainty factor of X, mainly dependent on the weather forecast. When the weather is good we do promotions on swimwear.’’ (G1).

CL promote children’s clothing

‘’Imagine a rainy night and Ajax is playing Champions League and we are doing a children's clothing promotion. This is very successful because many women buy children's clothing while the men watch football.’’ (G1).

Promote a new product

‘’We promoted a new product of ours. The action itself was reported too late to Operations. Subsequently, that action was a huge success, but at a certain moment we could no longer deliver because we ran out of stock.’’ (H1).

‘’We often put a promotion increase in the forecast in Slimstock / Excel and then look at the consequences.’’ (J1). E F Price management Increase in milk price

‘’We made a scenario that milk prices in America will rise sharply and our demand will increase considerably. This automatically meant that we would have to do much more for a particular product group.’’ (E2).

Fluctuation in milk price

‘’The milk price is the most important indicator for us. Every year we make forecasts for the milk price in the main countries. We obtain these expectations from various agencies such as Rabobank. We keep a close eye on that.’’ (E2).

Indicate fair price with farmers

‘’We also have farmers who are not only affiliated with us, but also with one of our competitors. That is why you must ensure that you indicate a good price indication per ton, so that those farmers will deliver to us and not to a competitor.’’ (F2).

E F H J Competitors’ actions Competitor introduces new product

‘’We calculate for each product the relative market share and estimate how much our market share per country will change as a result. This could mean that you have 1 or 2% less market share from one day to the next.’’ (E2 & Sales forecast).

New entrants

‘’You will come across competitors at fairs and in the market with customers, etc. Over the past 5 to 10 years, more and more foreign entrants have come onto the market who indeed copy our product or make a variant of it that we do not know.’’ (H1).

Losing a customer

‘’A few years ago we experienced a very large customer switching to a competitor. Then there was no revenue there. That had a huge effect since you have to adjust your entire organization accordingly.’’ (H2).

‘’You see in particular at the product level that you occasionally lose a customer to the competition. Those resources are planned and purchased based on the forecast. Then that order suddenly disappears and then stock remain.’’ (F1).

Competitor benchmark

‘’You make a bit of an estimation of what competitors can do and what their prices are. What costs do they incur and what costs do we incur. You look at the size of the company, the customers they have and the products they make, so you can estimate that well.’’ (J1). C E F G Geographic regions Tremendous increase in export country

‘’In 2016 you saw an extreme increase of 50% demand in an important export country with X% of sales. Then that has a huge impact on the entire organization. We were unable to predict the increase in demand. Then you miss a piece of the market.’’ (E2). Decision America

or Asia

‘’Account Managers responsible for their region, recently introduced and presented a plan containing scenarios that have been calculated. For example, is it more profitable to go to America or do you go to Asia, where the market is already much more developed.’’ (F2).

Seasonality

‘’In recent years we have been very successful in Japan, probably partly because the Olympic Games are organized there. This requires scenarios for the enormous amount of investment in infrastructure.’’ (C1).

‘’Chinese New Year falls on a different date, which makes the delivery of China different. Finance and Sales must then indicate the impact of this. Is everything before or after the event or both.’’ (G1).

I J New product introduction Customer forecast over time

‘’It is really looking in a glass ball and nobody has the answer. With certain product introductions a customer expects a certain decrease in demand in year 1, year 2, year 3. You already make scenarios based on what the customer expects. You have to put people in your operation and contract your raw materials and packaging with suppliers.’’ (J1). Dummy forecast

‘’When there is a volume for an application for a new customer or an existing customer with new products. We do not yet know exactly what this will do, but we put that as a dummy in the planning and then we can also calculate the consequences.’’ (J1). Switching products

(21)

21 There are both advantages and disadvantages of the possibility to continuously change the demand plan. When Sales can adjust the demand continuously (i.e. directly when volumes changes) in a system, distorted information will be minimized. This helps to cover a risk right away. However, changing the demand plan every day, provide problems with creating an accurate supply plan. Case F manages this as follows: ‘’in the last week of the period the

system shuts down and no changes can be made. The next week the demand plan will be used as one plan (often no scenarios) for the entire S&OP process.’’ (F1). This is in line with case

G: ‘’actually, a remark is added in the demand forecast and sometimes a second scenario is

created, but usually, it is a baseline demand scenario that is used.’’ (G1). Thus, a single

demand plan with a report of issues and possibilities is the input for the supply review.

Scenario planning in the development of the supply plan

In this stage different supply scenarios are created in order to identify the potential risks of different demand alternatives. In other words, the demand plan including the demand shaping scenarios is tested by participants of the supply review. If the demand plans cannot be met, alternative demand scenarios need to be tested, creating a repetitive process between the demand- and supply scenarios.

A first step from the demand plan to the supply plan is to convert the numbers of sales to a SKU level. ‘’as Operations we make a derivative of the sales forecast because everyone

from Sales thinks in euro’s and I have to know what that means in packages and in pieces.’’ (G1). This also holds for case I: ‘’our Sales manager is responsible for providing a reliable forecast at assortment level and then it is translated by the demand manager to article level.’’ (I1). This is important because otherwise miscommunication may occur, leading to incorrect

adjustment of capacity.

The supply plan should be created based on suppliers, capacity, stock levels, and workforce. Data shows that this information can be obtained from the ERP system. With use of this master data different supply scenarios can be made. For instance the following what-if analyses: ‘’what if we get more sales than planned, do we have enough stock?’’ or ‘’when

sales are too low, how to adjust the production for the following month?’’ (I2). In these

examples, scenario planning [F, G, I] is used to take certain capacity and stock level constraints into account. ‘’Not being able to deliver is actually deadly because then they go to

a competitor, so we prefer to have a little too much in stock than too little.’’ (I2). As another

(22)

22

three, four or five shifts or do we run on Saturdays with impact on employees and salary.’’ (J1). The different supply scenarios with their available options are outlined in Table 6.

Table 6: Scenarios in the creation of the supply plan

Case Category Type of scenario Quote

C D E G H Supplier Bankruptcy supplier

‘’We had a supplier who suddenly went bankrupt, which meant that unique products could no longer be delivered […] Then we made three scenarios to get those products: (1) invest in supplier to keeps its head above water, (2) discuss with dealers to stop producing certain products and (3) transfer to another supplier (up to 30-50% in price).’’ (E2).

Delivery time ‘’When we see that we are going to get a shortage on a certain item because we are either late _{with ordering or surprised by something. Then scenario (1), let items fly in with an effect on the} price and the margin or scenario (2) we inform the customer to deliver it later.’’ (H1).

Corona

‘’What if the lockdown in England continues for a longer period of time. (1) what will we do with our main supplier? (2) what are our alternatives?.’’ (D1).

‘’There are some suppliers who have stopped supplying because of corona and their regulations. Options: (1) finding alternatives or (2) by still collecting something from the same supplier. We are now entering the critical phase, what-if the coronavirus stays longer.’’ (C2).

‘’Corona was really an example of having no clue what was going to happen in the coming weeks. Then you can apply all kinds of models to it but we then made 3 scenarios, a high, medium and low scenario.’’ (G1).

F G I Capacity Factory open or closed

‘’What-if we close a factory, what will be the impact on the total amount of potatoes that can be processed. This may result in negative consequences for our customers. Then we work out two scenarios: (1) the factory remains open (2) no investment and the factory will be closed.’’ (F1). Warehouse

capacity

‘’What-if incoming goods have a different size than the previous year. This has an effect on our storage capacity. Suppose we can keep 4 million pieces in stock, but if that trend continues, it will become 3.8 million. Then you need to make sure that you can get that 3.8 to 4 million. For example, by renting space somewhere else.’’ (G1).

Production line

‘’We had a production line that was overloaded (avg. load 110, 115%.) (1) the option was to increase capacity, which cost a huge amount of money (2) supply from another factory (large margin products) or (3) buy components from an external supplier (low margin products).’’ (I2). ‘’What-if a customer wants a new product. Then you look at the capacity, the people you need and whether a new production line is required. Sometimes we incur more costs than that the product yields purely to provide the customer. Other options (1) buy it elsewhere or (2) ask if the customer wants to wait longer.’’ (I2).

‘’Two scenarios for our production line were explicitly shown. (1) one that you saw was too low and (2) continue to produce about 10% than planned. This is the worst scenario and this is the scenario if we continue like this and the true one is somewhere in the middle.’’ (F1).

E D

I Inventory

Increase in demand

‘’The forecast for one of the markets that we supply was not good, i.e. 15% more sales at once than expected. We immediately adjusted the forecast for the next month and created two scenarios (1) purchase more parts or (2) stock levels are sufficient.’’ (I2).

Brexit

‘’We identified all the items we receive from the UK and determined how strategic the items are. Different scenarios: (1) increase stock levels in advance, (2) accept stock-out, or (3) look for alternative suppliers.’’ (I1).

‘’We do anticipate for the Brexit […] extra employee for handling export documents. […] longer lead times […] increase stock […] We are constantly working on this.’’ (E2).

‘’We identified which suppliers and customers we have from/in the UK. The risks you run is that you have a longer delivery time because of customs clearance and a margin risk since you suddenly have to pay customs fees. These scenarios were investigated.’’ (D1).

G

J Workforce

Fluctuation in demand

‘’We calculate production capacity based on sales forecast. When we do not have enough capacity, we draw up scenarios (1) scale- or downscale by using additional shifts (2) deploy people on other production lines (3) prioritize customers (4) add a line production line.’’ (J1). Increase in

demand

‘’One of our products is really going fast. Then we look at scenarios side by side: are we going to work in three, four, five shifts, or do we run on Saturdays with an impact on employees and salary.’’ (J1).

Absenteeism ‘’What-if absenteeism in the warehouse goes from 10 percent to 20 percent. Scenarios are made _{to indicate what is possible and what is the effect. (1) shift resources, (2) remove people from} the return processing, (3) put people on the outbound process.’’ (G1).

Increase in demand

(23)

23

4.2 Risk assessment

Risk assessment takes place after risks are identified. The findings show that risk assessment takes place at any point in the process, but primarily in the reconciliation meeting. ‘There may

be people with good ideas and we then put them into scenarios and present them in the next meeting.’’ (F1). It was found that impact and likelihood are the most important factors for risk

assessment.

The data show that scenarios are primarily made for risks that have a major impact on the organization and or the supply chain (e.g. coronavirus, new product introduction). Based on the largest identified risks, companies use scenario planning to look at the potential consequences for the organisation. For instance, ‘’if we identify a risk that can cause max.

10,000 euros we do not use scenario planning, but now with the coronavirus companies may lose 20% turnover. Then you talk about millions of euros and then we do it.’’ (I3). However,

it is not only about the total sum of potential damage, but also the absolute impact on capacity. This can be explained by the following example: ‘’suppose you have a capacity for

one million products and there you have a deviation of 20% in a week (an extra 200.000) then it is absolutely greater than if you plan on 500.000 (100.000 extra) products, but the impact on your total capacity is lower. In the second situation you use scenario planning for what the impact is’’ (G1). Hence, scenario planning can be used with taking certain capacity

constraints into account.

Furthermore, the impact of a scenario on the organization determines if it is discussed in the regular S&OP or the Executive S&OP. ‘’Scenarios can be decided at a lower level in

the pre-S&OP when it is not so much money and it does not yet have that much impact.’’ (F1). For instance, for the risk of an underperforming production line two scenarios were

explicitly shown in the S&OP: ‘’(1) as worst-case scenario: one that was too low and (2) as

default scenario: continue to produce about 10% less than planned.’’ (F1). However, if

uncertainty has a great effect on the entire company, key demand and supply scenarios are made at a tactical level as in the following example: ‘’if you look at the competition for this

year, you have to acknowledge the entrance of Amazon with a Dutch website as a huge demand risk, which could be both positive or negative in some way.’’ (G1). and ‘’if you have to deal with investments of a certain amount in space, equipment, staff, then it is convenient to discuss it in the Executive S&OP.’’ (F1). These key scenarios require a top management

decision and will therefore be discussed during the Executive S&OP meeting. Additionally,

(24)

24 When different scenarios are made, an indication of the likelihood of a risk happening is lacking. One of the reasons for this is due to complexity. For instance, ‘’sometimes we also

try to score risks based on likelihood, but that is often a bit complex. Usually you only have scenarios for risks that sometimes occur.’’ (G1). This is underlined by Case F, who gives the

following two scenarios: ‘’what if we have a very low harvest or what if we have a very high

harvest? Then we do not explicitly say what the chance is that it will happen. In the S&OP that is more based on the input of the participants of the meeting’’ (F1). This is in line with

Case G, who mentions: ‘’on the one hand based on common sense, and that has to do with the

fact that as soon as there is more fluctuation, we create scenarios to see what the effect is’’ (G1). Thus, scenarios are created based on what S&OP decision-makers assume as risks

likely to happen. Furthermore, for a long-term risk the likelihood of happening is not changing every week. Therefore, at the moment the risk kicks in or there is more certainty, scenario planning is used. This helps to convert the numbers and have a short-term impact.

Additionally, it is proven useful to be able to create new scenarios during the reconciliation meeting and see the effects of a different scenario. In the S&OP someone presents a scenario and in the Executive S&OP someone who is not yet convinced requires more information. Then in the next cycle the scenario is further elaborated on and assessed. For instance, ‘’once

someone in the S&OP said: can we make this product there? Then based on that, we have prepared several scenarios in the Executive S&OP.’’ (F1). In the end, action plans on how to

(25)

25

4.3 Risk mitigation

The outcome of scenario planning provides key S&OP decision-makers the tools to determine the right risk mitigation plans for the demand- and supply scenarios from Tables 5 and 6. This is done through testing the effectiveness of these mitigations strategies and to explore other options, based upon projected results. For example, ‘’various mitigation strategies are drawn

up for extreme drought or excessive rainfall.’’ (F: annual report, 2019:53). Once the range of

infinite possibilities can be distilled to the most plausible scenarios, S&OP managers can formulate strategies that reduce the risk and take action to exploit the opportunities identified. These risk mitigation strategies are discussed in the demand review, the supply review, or reconciliation meeting depending on the impact for the organization.

The data shows that to mitigate risks, companies acquire redundant suppliers, increase responsiveness, increase inventory, increase flexibility, pool or aggregate demand, and increase capability. The first strategy, acquire redundant suppliers [B, C, E, G, I and J] is being accomplished in the form of dual-source i.e. ‘’with a preferred and an alternative

supplier’’ (J1), by finding alternatives such as ‘’a different supplier’’ (C2) or a take-over, ‘’ securing the supply of their unique products.’’ (E1). Another mitigation strategy is to increase

the responsiveness of the organization [D, B]. This is achieved through arranging a different customer status, penalties or pre-payments. For example, ‘’during the Brexit, we arranged to

be given a different custom status and temporarily do customs clearance ourselves.’’ (D1).

The most common mitigation strategy is to increase inventory [A, B, C, D, E, F, H, I]. For instance, ‘’to cover our risk with critical suppliers we ensure to have enough inventory.’’

(E1). In the case of the coronavirus, two opposite strategies were taken: ‘’managing cash by keeping stock as low as possible.’’ (B1) or ‘’buy as many as we could and put that in stock to keep production running’’ (I3). Furthermore, the cases [D, E, F, H, I, J] increase flexibility

either through temporary workers ‘’used to switch up and down in the short term.’’ (E2) or the use of semi-finished products ‘’used to switch from customer A to customer B at the last

moment.’’ (H2).

To resume, companies pool or aggregate demand [E, F, G, H, I] either through the dispersion of promotions ‘’Black Friday is actually a week purely intended to spread the

demand.’’ (G1), attracting customers elsewhere ‘’sell a lot of volume in a market in which we were normally not active.’’ (I3) or granting a credit limit ‘’customers can only be delivered if we are assured to be paid.’’ (F2). Finally, risks are mitigated through increasing capabilities

(26)

26 In Table 7, an overview is given of all six mitigation strategies.

Table 7: Mitigation strategies for the scenarios

Case Mitigation str. Explanation Quote

B,C,E, G,I,J Acquire redundant suppliers Alternatives

‘’Agreements with our suppliers […] when suddenly freezes […] all categories of skating […] with dedicated transport within 2 days instead of the normal 2-3 weeks.’’ (G1).

Dual-source

‘’For critical parts we always have alternative suppliers. […] However, finding an alternative often takes weeks. […] Besides, some suppliers can hardly be replaced.’’ (E1).

Take-over

‘’A supplier almost went bankrupt. It was already in suspension of payment and we were able to take it over just in time to secure the supply of their unique products.’’ (E1).

B,D Increase

responsiveness

Custom status

‘’During Brexit we arranged to be given a different custom status […] temporarily do customs clearance ourselves […] do not pay tax and import tariffs.’’ (D1).

Penalties ‘’You often see that contracts also contain clauses. If you cannot deliver on time penalties are attached to them.’’ (B1).

Partial payments

‘’You can mitigate it in part by talking to our suppliers about a cancellation curve and partial payments.’’ (D1).

A,B,C, D,E,F, H,I Increase (decrease) inventory Critical supply

‘’The moment you have a supplier or a certain part that is very critical for your process, it is often the case that you order larger quantities and increase safety stocks.’’ (A1).

Control ‘’We control stock levels based on a standard (norm stock), which already includes a part of safety in order to always have stock.’’ (F1).

Corona / Brexit

‘’There is now a lot of emphasis on managing your cash […] working capital as low as possible […] by keeping stock as low as possible.’’ (B1). ‘’Number of suppliers from Italy […] bought as many as we could and put that in stock. […] In any case, we do not have to worry that we will run out of our stock.’’ (I3).

D,E,F, H.I,J Increase flexibility Temporary workers

‘’Well, temporary workers we had in the process are being expelled. […] It is being looked at to even shut down parts of the factory during corona to save money there.’’ (I2).

Use of raw materials

‘’We examine whether certain raw materials can also be used in other products that are less affected by the coronavirus to avoid making shelf life costs.’’ (J1). E,F,G, H,I Pool or aggregate demand Promotions

‘’During Black Friday, there have been several campaigns announcing to order on time […] Black Friday is actually a week purely intended to spread the demand.’’ (G1).

Attract customers elsewhere

‘’The African swine fever may lead to a drop in demand […] price promotions to temporarily sell a little more in certain countries and maintain market share.’’ (E2).

Credit limit

‘’If a customer is over the credit limit […] they cannot order anymore. […] spread that risk, so that customers can only be delivered if we are assured to be paid.’’ (F2).

B,F,H Increase

capability

In-house expertise

‘’Looking in our breed company for a variety of potatoes that is more resistant to diseases.’’ (F3).

(27)

27

4.4 Risk monitoring

Risk monitoring has emerged less during the interviews than the other three SCRM activities. However, I found that the following two elements are important for risk monitoring: frequency and KPIs.

The reason for deciding whether a risk is monitored daily, weekly, or monthly depends on the risk level. This means that the risks and corresponding scenarios that have a high impact and/or likelihood of happening, such as the nitrogen crisis, coronavirus and Brexit, are monitored daily. For instance, ‘’we monitor the nitrogen crisis with proposals of

the government in newspapers every day’’ (E2) and ‘’with the coronavirus, you adjust your forecast, keep an eye on it day by day and if it deviates you also know whether another scenario is being used..’’ (I1). Besides, there can be a difference between departments in a

company. For instance, at case I, Operations monitors the coronavirus daily and Finance weekly, i.e. ‘’the press conferences are closely monitored because measures are changing

from week to week.’’ (I3). In general, risks and their corresponding scenarios are monitored in

the S&OP cycle every month. For instance, ‘’in the S&OP process, we have a specific list

including products with the material code X, meaning that something is wrong either a rejection, rework or obsolete. We receive a monthly update.’’ (F2). When the risk mitigation

strategies do not reduce the risk to an acceptable level, companies keep monitoring and create new scenarios when necessary. ‘’In the end you can also indicate whether a measure is aimed

at removing the cause or limiting the impact.’’ (F3).

Additionally, the created demand- and supply scenarios should be evaluated through KPIs in order to understand the impact of each scenario on the business. The business goals vary from company to company and therefore different KPIs are used for evaluation of the scenarios over time. ‘’Yes, pure KPI monitoring. We have a daily, weekly, monthly, annual

KPI update in various areas and they then clearly show how progress and developments are’’ (I1). Overall, it was found that turnover, costs, profit and EBITDA are used as the main

(28)

28

5. DISCUSSION

In line with the aim of this paper to explore the relationship between scenario planning in S&OP and the SCRM process, this study contributes valuable empirical insights to the concept of SCRM. In particular responding to the call of Karlsson and Sandin (2011) to use case studies in order to assess how scenario planning can be incorporated in the S&OP process, while looking at the current use in different industries. This study confirms that companies incorporate scenarios during creation of the demand plan, the supply plan and the reconciliation meeting (Karlsson and Sandin, 2011), but that this depends on detail- and dynamic complexity and the use of software. Furthermore, this is one of the first studies to combine the broad concept of scenario planning in S&OP with the SCRM process that has been suggested in previous research (Varum and Melo, 2010; Noroozi and Wikner, 2017; Kristensen and Jonsson, 2018). The findings highlight the importance of identifying risks with high impact and likelihood first and subsequently create demand- and supply scenarios, to thereafter compose corresponding mitigation strategies and monitor the progress over time.

5.1 Detail- and dynamic complexity and the use of scenario planning in S&OP

The ability to execute a structured S&OP process including scenario planning is a major challenge in many organizations (Gudum, Fjelbro and Klitz, 2015). The results indicate that companies dealing with high detail- and dynamic complexity formally use scenario planning in their S&OP process. For instance, the retailer (case G), is a large organization (900 employees) with a high variety of products (±400.000), number of customers (2.8 mil) and suppliers (700 suppliers) corresponding to high detail complexity. In addition, the retailer deals with high supply uncertainty due to variations in lead time/quantity of supply and demand uncertainty due to the combination of functional and innovative products. The value of scenario planning and what-if analysis to deal with these uncertainties has been underlined by Ivert and Jonsson (2014).

(29)

29

5.2 Supply chain risk management activities

This is one of the first papers to incorporate all four SCRM processes, i.e. risk identification, assessment, mitigation, and monitoring in one study (Ho et al., 2015; Fan and Stevenson, 2018). This helped to find the interrelationship between the processes. For instance, major demand risks (e.g. coronavirus) are identified by Sales and assessed at the demand review. Subsequently, Operations identifies corresponding supply risks and draw multiple mitigation strategies such as increasing flexibility and inventory. Figure 2 presents a revised conceptual framework of how scenario planning can be incorporated into each of the five steps of the S&OP process. Additionally, a visual link is made with the SCRM process.

Figure 2: revised conceptual framework

Risk identification

(30)

30 competitor. This is done by continuously doing market analysis and competitor benchmarks. Thus, the results do not fit with the findings of Ivert and Jonsson (2010) that what-if analysis is not found during the creation of the demand plan.

On the other hand, the results with regard to the creation of the supply plan are in accordance with Ivert and Jonsson (2010). In this stage, what-if scenario analysis is used to support the decision-making process of SCM, Operations, and Finance, as shown in Figure 2. What-if analysis is used to achieve a better understanding of both internal capacity- and inventory constraints, which is in line with the findings of Cecere et al. (2009) and Ivert et al., (2015). In contrast to previous studies, this case study provides new insights by including the use of supplier- and workforce constraints while drawing up supply scenarios. For the former, constraints such as supplier delivery time, quality (Van Landeghem and Vanmaele, 2002), shipping capacity and timing of order placements (Feng, D’Amours and Beauregard, 2008). For the latter, constraints such as additional shifts, extended shifts, multi-skilled workers and absenteeism.

Risk assessment

In this stage, the data contributes to a clearer understanding of the role of scenario planning as tool to assess the impact and likelihood of risks and uncertainties as suggested by Harland, Brenchley and Walker (2003). Insights are drawn from many sources and interactions between S&OP decision-makers and thereby providing the ability to uncover blind spots while adapting rather than reacting to change (Bloom and Menefee, 1994). The reconciliation meeting is found to be the main place to discuss and asses major risks and corresponding scenarios. On the other hand, risks with lower impact or likelihood are assessed during the demand- or supply review (see Figure 2). In line with the findings of Ivert and Jonsson (2014), in general it takes too long to create scenarios during the reconciliation meeting. However, two cases [F, I] have advanced software to simulate new scenarios when it is based on similar master data.

Risk mitigation

(31)

31 mitigation strategies. For instance, during Black Friday the retailer (case G), mitigated their risks by hiring temporary workers, increasing inventory and spreading promotions. This means that through scenario planning S&OP decision-makers may distil the infinite possibilities and mitigation strategies to the most plausible ones (Miller and Waller, 2003) and thereby considering diverse ideas within the formal planning process. Furthermore, the available scenarios and corresponding mitigation strategies are found to be more versatile during creation of the supply plan than the demand plan (i.e. one option: price promotion or not). The manufacturer of plastic pipe systems, Case I, for example, mitigates the risks of the coronavirus by increasing inventory, firing temporary workers and acquiring alternative suppliers.

Risk monitoring

SCENARIO PLANNING IN S&OP FOR EFFECTIVE RISK MANAGEMENT by YVAR VAN DE KRAATS