Analysis company A

Company A is a producer of furniture for offices and production is based on standard modules with customer specific variations. The main characteristics of company A, as described in chapter 6.2, are presented in table 7.1. The characteristics are the basis of our analysis in which we discuss the relationships between these characteristics, along with a presentation in the causal network of the ordering process of company A (see figure 7.1). This section ends with a discussion of the role of the ordering process at company A and the order-processing pattern.

Table 7.1 Overview of the characteristics of company A Characteristics Company A

CODP Mainly ATO (6)

Predictability Heterogeneity Customization

140 regular customers, but no long-term contracts (3)

4 main product groups / modularized products/ 1-100 order lines (2) Standards with customer specific variations; only 5% specials (1)

Multiplicity Uncertainty Flexibility

4 main operations/ compound products

Purchased parts on stock 4 Setup times after CODP are low/ operators not yet multi-skilled/ overtime

Information System ERP-system only used for administrative order processing (6) Intranet between Sales- Planning- Production.

OP 30 orders/day and 5 rush orders/ day

Complexity OP Routine task sales desk, but non-routine tasks planner (9)

Sales and Production interdependent via delivery time promising (8) Sales most powerful.

Formalization LD

Formalization IP

Formalization OS

Fixed delivery periods (10)

Agreed upon slack in stock and delivery timing (11) Workflow formalized by ERP-system (15) Lack of automated production and stock control (7) Daily meeting Planning-Production (13)

Formalized coordination Sales – Planning – Production. (14)

Responsiveness

Efficiency OP Efficiency prod.

Mix-flexibility (16)/ ability to deliver quick and delivery reliability timing (17)/ ability to handle rush orders (20)

Lead-time administrative order processing realized (21)/ coordination costs high (22)

Capacity utilization good by batch production, but less by no real production planning (18)/ high stock levels of materials and parts (19)

Relationship between demand and production

Demand at company A is based on standards with customer specific variations (1). A relatively broad product range composed of modularized products within four main

product groups further characterizes demand (2). The resulting variety in end products is too large to keep the end products on stock. The production system is initially equipped to produce large batches and has long set-up times in the first operations. In combination with the commonality of basic materials and the modularization, company A has positioned the CODP after the first operations and before the customer specific additions to the products at a buffer before the spray unit. Thus, the standard modules can be sprayed in the color asked for by the customer and assembled according to customer wishes (1Æ6; 2Æ6). Therefore, company A can be characterized as an ATO- production environment (6).

Although company A has regular customers and demand can be forecasted on a yearly basis, demand on the short term is hard to predict (3). There is some flexibility in the production system, attained by short set-up times downstream from the CODP and varying capacity through working overtime (4). The uncertainty of incoming orders is partly coped with by the flexibility of the production system (3Æ4).

Relationships between influencing variables and the ordering process

The logistical concept prescribes what products need to be delivered in what time period (10), based on standard modules (6Æ10). The time periods are appointed to products depending on the degree of customization of products (1Æ10) and on the turnover rate of the products. Fast-movers are held on stock and have a delivery time of 1-3 weeks. More customized products are produced from a buffer of semi-finished products and have a delivery time of 3-5 weeks. Slow-movers and specials are completely produced on order and have a delivery time of 5- 8 weeks. But, there are no explicit rules on inventory levels and there are no explicit planning rules. According to all parties involved in order processing, company A therefore lacks an adequate production control and stock control (7). To compensate for this lack of an adequate production control and to account for uncertainties in demand, Sales and Production agree upon using slack in delivery time promising and in stock (7Æ11; 3Æ11).

Sales, Planning and Production are rather interdependent (8) because of the combination of a hard-to-predict demand (3Æ8) and the lack of production and stock control that causes difficulties in obtaining insight in material and capacity availability (7Æ8). At the moment an order arrives, the order itself is often handled in a rather routine manner, based on standard modules with fixed delivery periods. But, whenever a customer has a special request further operational coordination is necessary. Special requests occur about 30 times a day and mostly concern the timing of delivery. When the sales desk receives such a special request they have to forward the request to the planner, because the planner is responsible for delivery time promising. The planner has to check the availability of materials and capacity to be able to promise a delivery time. The task of the planner is rather complex (9) because there is no adequate planning and production control (7Æ9) and the interdependency between Sales-Planning and Production (8Æ9).

So, the planner plays a central role in the operational coordination of demand and production. This operational coordination is used for all special requests of customers that cannot be captured within the formalized logistical decision rules (8Æ14).

Figure 7.1 Causal network of the ordering process at company A OS IP LD Standards with customer specific variations 1 Modularized products 2 Demand hard to predict 3 Flexibility via overtime 4 ERP-system only used for administrative order processing 5 ATO 6 Lack of production and stock control

7 Sales-Planning- Production interdependent 8 Fixed delivery periods 10 Slack in delivery time and stock

11 Task planner complex 9 No production planning 12 Daily meeting Production-Planning 13 Formalized coordination 14 Sequence of info flow prescribed 15 Mix flexibility 16 Batch production for modules + capacity utilization 18

High stock levels 19

Able to handle rush orders 20 Coordination costs high 21 Lead-time OP is according to norms 22 Influencing variables Formalization

ordering process Performance

Complexity ordering process

Speed and delivery reliability 17 LD = Demand-production = Organizational setting = Information processing = Logistical decision-making = Influencing variables IP OS

The ERP-system is only used for administrative order-processing (5) and especially the status-attribution per information-processing activity formalizes the information processing by a prescribed sequence of the information flow from order receipt until order scheduling (5Æ15). But the information requirements for order scheduling are not supplied by the ERP-system, because production planning, engineering and production are not yet automated (5Æ7). Insight in capacity availability has to be obtained from the managers of the production units (12Æ13) and insight in the material availability has to be obtained from a manually kept stock control system. All information on exceptions per order has to be traced through the actors involved (14).

Relationship between the ordering process and performance

By using the ATO-structure and formalized delivery periods company A is able to deliver a rather broad product range against relatively short delivery times and, at the same time, guarantees efficient batch production and reasonable stable capacity utilization (6 + 10Æ16/17/18). The agreed upon use of slack makes sure that promised delivery times can be realized (11 Æ17), but the use of slack also results in relatively high stock levels (11Æ19).

According to the operations manager, the absence of a production planning results in a lack of adequate and up-to-date information to plan production efficiently (12Æ18) and to respond quickly on special requests of customers (12Æ20). The lack of insight in capacity availability through a production planning is partly compensated by daily meetings between Planning and Production, which make it possible to respond on rush orders and special requests (13Æ20).

By coordinating special requests through formalized direct contact between Sales, Planning and Production in which Planning has an intermediate function, company A is able to handle rush orders and special requests according to customer wishes (14Æ20). But, it also means that many hours are spent on finding a solution for the various operational problems and thus coordination costs are relatively high (14Æ21). The lead-time of processing ‘normal’ orders is realized according to the norms of the company, primarily as a result of adequate support of the ERP-system and the prescribed sequence of the information flow (15Æ22).

Discussion: the role of the ordering process and the order-processing pattern

As we mentioned, demand at company A is partly standardized by the use of specified modules, resulting in standard products with customer specific variations. Despite this modularization demand is difficult to predict on the short term. But, the uncertainty of demand is compensated by some flexibility of the production system based on the ATO- structure, the use of slack and the possibility of working overtime. The role of the ordering process is to coordinate a moderately uncertain demand with a moderately flexible production system. But, because there is a lack of production and stock control, company A has no reliable insight in actual production possibilities. In situations of

special requests of customers or rush orders coordination of demand and production is complex because of the lack of information on material and capacity availability. In cases of rush orders the task of the planner, who is responsible for delivery time promising, is complex and the interdependency between Sales and Production is high. Therefore, the role of the ordering process is relatively complex and can be associated with a puzzle-solving pattern of order processing.

The complexity of the ordering process at company A is caused by the uncertainty about demand on the short term and the lack of insight in actual production possibilities. Because of the lack of production and stock control - due to little sophistication in the information system - much communication is needed to exchange the information necessary to use production capacity efficiently and to be responsive at the same time. Therefore, company A applies a formalized and complex consultative structure. The consultative structure is mainly used to coordinate demand and production on an operational level, resulting in an adequate response to customer wishes. However, being responsive also seems to result in high coordination costs.

Besides the formalization of the organizational setting, company A has a certain degree of formalization of the logistical decision-making, namely the fixed delivery periods and the agreed upon use of slack. The fixed delivery periods accommodate flexibility in responding to customer wishes. The agreed upon slack, both regarding delivery times as well as regarding stock levels, helps in realizing delivery reliability and delivery flexibility but also cause relatively high stock levels.

Summarizing, we conclude that the ordering process of company A can be characterized as a puzzle-solving pattern. The company copes with the complexity of coordinating demand and production by some formalization of the logistical decision- making and a formalized consultative structure, resulting in a rather good performance on responsiveness, but a lower performance on efficiency.