Improving capacity planning in outsourced manufacturing through sales and operations planning: A case study at Axis Communications

Abstract: This master’s thesis explores how capacity planning in outsourced manufacturing can be improved through sales and operations planning (S&OP). The master’s thesis was done in collaboration with Axis Communications AB, where the capacity planning and S&OP processes were analyzed. Managing manufacturing capacity in high technology industries is one of the most important aspects to consider for achieving business success and is part of the strategic level in manufacturing planning and control systems. S&OP is often cited as an effectivemethod to jointly balance supply and demand, including manufacturing capacity. However, little research has been done exploring the link between capacity planning and S&OP, and even less research exists when manufacturing operations are outsourced. The purpose of this master’s thesis was achieved through a single-case study with the collaborating partner, Axis. A literature review was conducted to establish knowledge within capacity planning, S&OP, outsourcing, supply chain collaboration, and the link between capacity planning and S&OP. An analytical framework was developed based on the literature review to guide the empirical data collection and analysis. Empirical data was collected through 12 interviews with employees at Axis, five observations of S&OP meetings, and extensive archival research within Axis’ intranet. Axis’ current capacity planning and S&OP processes were identified and mapped using the empirical data collected and analyzed using the literature review's theoretical lens. Fourteen propositions were developed for Axis, facilitating the capacity planning process through the S&OP process. The propositions developed are specific to Axis; however, some takeaways may be applicable in other cases and highlight important aspects. First, this master’s thesis highlights the importance of supply chain collaboration when manufacturing activities are turnkey outsourced. Second, there is a need to develop differentiated capacity planning strategies when product portfolios are broad as there is no “one size fits all” solution. Third, decision-making in the S&OP process is critical to balancing supply and demand successfully, and top management involvement is critical in achieving decision-making. Fourth, this master’s thesis highlights the need for performance measures that have been heavily discussed in academic research as critical for business success for decades but are still underdeveloped in practice. The existing research on capacity planning and S&OP is limited to in-house manufacturing, and little research exists addressing the link between capacity planning and S&OP. This master’s thesis shows that business environment, management, and strategy seem to be the most significant factors when planning manufacturing capacity in an outsourced context. Further, S&OP is often influenced by contextual factors, and insights are provided on S&OP design affected in a context where manufacturing is outsourced. Last, insights are provided on how capacity planning and sales and operations can be linked by integrating capacity planning into the S&OP process.