Analysis company B

Two main order streams characterize the ordering process at company B. There is one order stream with orders for standard heat exchangers and one order stream with orders for customer specific heat exchangers. The main characteristics of company B, as described in chapter 6.3, are presented in table 7.2. Differences between the order streams are mentioned separately in the overview. 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 B (see figure 7.3). This section ends with a discussion of the role of the ordering process at company B and the order-processing pattern.

Table 7.2 Overview of the characteristics of company B Characteristics Company B

Standards Specials (60-70% of turnover)

CODP Mainly MTS (7) Mainly MTO (8)

Predictability Heterogeneity Customization

Regular customers/ agreements 12 main product groups (1) Standard products

No regular customer contracts 12 main product groups (4) Customer specific variations

Multiplicity Uncertainty Flexibility

3 main production units with various hardly interchangeable production streets (2) Uncertainty because of not reliable stock information.

Multi-skilled employees/ overtime and working in shifts (3)

Information System Integrated ERP-system; specials based on separate configurations (6) CRM via separate program / Intranet between Sales – Planning – Production

OP 20 orders per day/ 2-3 rush orders per week/ average of 2 order lines

Complexity OP Routine tasks

Not very interdependent

Ambiguity Sales–Production high (10)

Non-routine tasks Interdependency is high (9) Ambiguity Sales–Production high (10)

Formalization LD

Formalization IP

Formalization OS

BOM’s/ Minimum stock levels for standards(11)/ Configuration for specials (15) Period batch control (12) + slack (13)

No fixed delivery times (16) and no formalized prioritizing (14) Workflow formalized by ERP-system (17)

‘Procals’ for specials (18)

No formalized meeting between Sales – Planning - Production (19)

Responsiveness

Efficiency OP

Efficiency prod.

Able to handle rush orders (22)/ Mix-flexibility (23)/ Delivery reliability is low (24)

Efficient order processing for standards (25)/ lead-time for specials often exceeds norm/(26)/ coordination costs are high (many actors; little trust; much

communication per separate order) (27)

Efficient batches for standards, but capacity utilization negatively influenced by producing specials (20) / stock levels exceed norm (21)

Relationship between demand and production

Demand for standards is characterized by a low degree of customization, a limited variety and some predictability on the basis of regular customers with general agreements and historical data on earlier sales (1). Standards are made to stock (1Æ7). Demand for specials is characterized by a relatively high degree of customization, resulting in a very heterogeneous demand. There are no regular customer contracts for specials and predictability of the specials is low (4). Specials are therefore made to order (4Æ8).

All products are produced on the same production lines. The parallel production lines are not really interchangeable because they are equipped for a certain size and weight of the end product (2). The machines used are not very flexible; especially in the sheet steel unit there are relatively high set-up times. Because of these high set-up times in the sheet steel unit stock is used to de-couple this unit from the other two. In the other production units manual work plays an important role. By using multi-skilled employees some flexibility in capacity variation is created. Furthermore, working overtime or even working in shifts creates capacity variation (3). The production system is equipped to produce in batches and therefore does match with the standard demand (1Æ2), but the production system does not really match with the great variety in demand for specials (4Æ2). Some indicators of this misfit (5) are varying bottlenecks in production, a badly controlled detailed planning of work orders within a production unit and low delivery reliability. According to the operations manager, the production system is not flexible enough to react responsively on the customer specific demand and is better suited to make standard products.

Relationship between influencing variables and the ordering process

Standard demand

Standard products are made to stock and production is planning-driven (instead of order-driven). Logistical decisions concerning producing standards are formalized by rules with respect to minimum stock level and by bill-of-materials (BOM’s) (1Æ7Æ11). The ERP-system adequately supports the administrative order processing as well as the production control based on the BOM’s and routings that link materials and capacities to the product (6). Delivery time promising for standards is based on the insight in available materials (6Æ17). The actors from the various departments all mentioned that orders for standards are handled routinely in the ordering process. Specials

Specials are configured on the basis of customer requirements (4Æ8Æ15). The specials have to be produced in a production system that is not equipped to produce a variety of products in small batches (5).

LD IP OS Predictable standard demand 1 Interchangeability machinery low 2

Varying capacity via overtime 3 Customized hard to predict demand 4 Misfit specials-production 5 ERP-system: BOM’s for main product groups formalized 6 MTS 7 MTO 8 Sales-Planning interdependent 9

Min. Stock levels + BOM’s

11

Period batch control 12 Slack in planning 13 Configuration per product 15 No fixed delivery times 16 Non formalized direct contact: coordination by e-mail 19 ’Procal’ for specials

18

Ambiguity between Sales and Production

10

Efficient batches 20

Stock levels high 21

Mix flexibility 23 Able to handle rush

orders 22

Low delivery reliability

24

Lead time specials exceeds norm

26

Influencing variables

Formalization

ordering process Performance

Complexity ordering process Non formalized prioritizing 14 Workflow formalized + insight material availability 17 Efficient order processing 25 Coordination costs 27 LD = Demand-production = Organizational setting = Information processing = Logistical decision-making = Influencing variables IP OS

Figure 7.2 Causal network of the ordering process at company B

Especially the interchangeability of production lines is low and thus production does not have many options for planning orders across production lines (2). On the other hand, it

is clear from the moment of order receipt at what production line certain products will be produced. The planner allocates the product to the most suitable production line and uses the formalized principle of period batch control (2Æ12), meaning that the planner plans production by taking into account one week per main operation. The actual throughput time per product is less than one week and therewith certain slack is created in the planning to cope with uncertainties in the production system (2Æ13) as well as with uncertainties in demand (4Æ13). The planning results in an overview of the planning per production line per week. These overviews are posted at the production line on the shop floor and when an order is finished it is deleted from the list. The unit leader production indicates with what order to begin (14).

Because of the earlier-mentioned misfit between demand for specials and the not very flexible production system Sales, Planning and Production have to transfer much information on specials to achieve realizable order agreements on product configuration and delivery timing and thus the interdependency between these parties is rather high (5Æ9). The ERP-system formalizes the main product groups via BOM’s and routings (6), but every customer specific variation has to be configured separately and further specified via a so-called ‘procal’, an order form on which the product and all customer- specific requests are specified (6Æ18). The use of these procals with information on customer orders outside the information system seems to influence the interdependency between Sales and Planning. In handling procals they can not rely on information formalized in the ERP-system. Every procal needs to be coordinated via direct contact between Sales and Planning (18Æ19). Sales is also dependent on the planner for delivery time promising, because the delivery time is determined by the filling of capacity (16Æ9). To reduce the interdependency on delivery times the planner makes an overview of estimated delivery times for standards and for specials. The overview is not updated weekly and the planner often deviates from the estimated delivery times. The sales desk finds the information on delivery times not reliable, resulting in much communication between sales desk and planners about delivery times, mostly by email but also by phone and face-to-face contact. This direct contact is not formalized and as a result various employees of the sales desk communicate with the planner whole day through (16Æ9Æ19). There is no further structural meeting in which Sales, Planning and Production participate. The actors involved believe that such a formalized, integral meeting is not necessary, because coordination is only needed in special cases. But, from the AAD of the ordering process (recall figure 6.2) it is clear that much coordination is used during the ordering process: at three different moments during the processing of orders the delivery time is discussed all over again.

Another important issue is the ambiguity between Sales and Production: there are opposite, even conflicting interests between the parties involved (10). Sales wants to compete by producing merely specials, while Production believes that the production system is not flexible enough to be competitive with specials alone and wants to aim at

producing standards. The ambiguity between Sales and Production is related to the misfit between demand for specials and the production system (5Æ10). The differences in perspectives also result in little trust between the sales desk and the planner. Agreements made by phone are almost always confirmed by email. The planner and the sales engineers believe that it is necessary to have the arrangements in black and white. Although the ambiguity result in an extensive coordination (10Æ19), the coordination does not seem to reduce the ambiguity (19Æ10).

Relationship between ordering process and performance

By producing standards on stock and planning these orders via minimum stock levels, BOM’s and period batch control, company B is able to produce these standards in batch sizes optimized for efficient capacity utilization (11/12Æ20). The formalization of the information processing for standards results in a rather efficient order processing for standards (17Æ25).

Company B is able to deliver a broad product range by configurations per customer specific product (15Æ23). To be able to handle rush orders company B varies capacity, for instance, via overtime (3Æ22) and via the use of slack in planning (13Æ22). At the same time, the slack in planning also causes relatively high stock levels (13Æ21). The ability to handle rush orders is further enlarged through the use of direct contact in the ordering process (19Æ22). The delivery reliability for specials is too low, according to the actors involved. The delivery reliability is influenced by different variables. First, the misfit between demand for specials and production makes it difficult to produce small batches flexibly (5Æ24). Second, the ambiguity between Sales and Production result in little trust between the parties and a less cooperative attitude in finding solutions for specific customer orders (10Æ24). Third, the (non formalized) prioritizing within the planning per week is executed by the unit leaders production who aim at efficiently using production capacity by producing similar orders after each other (14Æ20). But, the various production lines have to deliver semi-finished products to the assembly unit. When the unit leader production changes the sequence of orders as proposed on the weekly planning overview, it happens that not all parts are produced in time for assembly. Thus, this prioritizing hinders the delivery reliability (14Æ24).

The lead-time of administrative order processing often exceeds the norm of 48 hours. Because there are no fixed delivery times, delivery time has to be calculated per order. In delivery time promising the planner is dependent on information from the drawing office and information with respect to purchased materials to be able to assign a realizable due date. This information is not always available and it may take more than one day up till a couple of weeks to attain this information (16Æ26). The use of procals that have to be entered handwritten also influence the length of the order-processing lead-time for specials (18Æ26).

The operational coordination costs much time in the administrative order processing. The extensive coordination results in relatively high coordination costs, because there

are many different actors involved who have to communicate with each other on many individual orders for specials (19Æ27). The time necessary is influenced by the ambiguity between Sales and Production that results in no clear rules on how to handle specific orders (10Æ27).

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

Standards and specials are produced in the same production system, resulting in two kinds of roles of the ordering process. The low customized and predictable demand of standards has to be matched with a production system that is equipped to produce batch- wise. Therefore, the role of the ordering process is relatively simple and can be associated with a passing-on pattern of order processing. Because demand is relatively certain and production can be planned beforehand, incoming orders do not pose many problems on the ordering process and formalization may be easy on all three dimensions: logistical decision-making, information processing and organizational setting. From the analysis of processing standard orders at company B, we see that the ordering process for these standards is formalized for:

- the logistical decision-making by rules on stock levels, BOM’s combined with period batch control and

- the information processing by the ERP-system that formalizes the sequence of information processing.

Standard orders are handled routinely and with relatively ease in the ordering process. The formalized logistical decision-making and information processing arrange for the coordination of demand and production in such a way that capacity utilization is optimized and quick delivery of orders is possible. The lead-time of order processing from order receipt until order agreement remains within the norm of 48 hours and coordination costs are considered low because there is not much coordination necessary between Sales, Planning and Production. We conclude that the ordering process for standards at company B is formalized in accordance with the requirements of demand and production and results in a performance that meets customer requirements and production efficiency.

Besides the standards, very customized and heterogeneous demand that is hard to predict has to be matched with a production system that is not flexible enough to react adequately on the uncertain demand. The misfit between demand for specials and production system results in an ordering process for specials that is characterized as a compromising pattern. The role of the ordering process for specials is to find solutions for coordinating uncertain demand and a not very flexible production system. Based on this role the ordering process for specials is quite complex:

- the task of the sales desk is complex in finding the optimal configuration, - the task of the planning is complex in promising a realizable delivery time,

- the interdependency between Sales, Planning and Production in coordinating demand for specials and production possibilities is high and

- the ambiguity between the parties involved is high.

In such a compromising order-processing pattern formalizing the logistical decision- making and the information processing may be rather difficult. At company B, we see that the same formalizing measures are used as for the processing of standard orders. These formalizing measures do not account for the complexity of coordinating specials, resulting in many coordination problems in the ordering process. Specials ask for flexibility in order processing and flexibility in producing. The flexibility in order processing is realized by the use of so-called ‘procals’, but the information processing along with the ‘procals’ seem to be insufficient to guarantee a quick and flexible processing of these orders. The flexibility in production is created by using slack in planning and especially by using overtime. But, it seems that these forms of flexibility are not enough to find the compromises necessary in processing the orders. The compromising itself is further hampered by the ambiguity between Sales, Planning and Production. On the operational level the actors involved experience much distrust that hinders the coordination necessary to attain realizable order agreements. The interdependency and the ambiguity between the parties involved are not solved by a formalized and transparent consultative structure.

Summarizing, the ordering process for specials is not able to cope with the uncertain and customized demand. As a consequence, the orders for specials are not efficiently processed through the ordering process and influence the responsiveness (especially delivery reliability) as well as the efficiency of production negatively.

We conclude that the ordering process of company B has two different roles, because of the two types of orders that are processed. The order stream for specials is confronted with much more uncertainty and these orders cannot be handled according to the same formalized agreements as the standard orders. Because many orders for specials ask for specific trade-offs between demand and production and need a more intense coordination of Sales and Production, the order processing of specials requires an extensive information exchange. The order processing of specials therefore takes more time than the processing of standard orders. In trying to find compromises in coordinating demand and production for specials the order processing of specials also interferes with the order processing of standards in a negative way. For instance, planned production orders for standards are rescheduled or postponed by the planner in favor of production orders for specials in order to realize a short delivery time. But, vice versa, production orders for specials are postponed by the unit leader production in favor of production orders for standards to realize efficient batches. Thus, at company B the two order streams combined in one ordering process influence each other.