Analysis company C

Company C produces flue gas terminal and ventilation systems in customer specific variations. The main characteristics of company C, as described in chapter 6.4, are presented in table 7.3. 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 C (see figure 7.4). This section ends with a discussion of the role of the ordering process at company C and the order- processing pattern.

Table 7.3 Overview of the characteristics of company C Characteristics Company C

CODP Mainly MTO (6)

Predictability

Heterogeneity Customization

Seasonal demand (1)

150 - 200 regular customers, but no long-term contracts

7 main product systems/ 7500 end items/ av. 2-3 order lines (2) Customer specific variations; only 5-10% new design

Multiplicity

Uncertainty Flexibility

3 different production lines with each 5-6 main operation units Average 7 production operations per product/ compound products Machine breakdowns at spraying unit/ little space for stock (3) Multi-skilled operators and many temporary operators (4)

Information System Integrated ERP-system, customized for users (5) Intranet between Sales- Planning- Production

OP 50-75 orders/day in high season (av. 2-3 order lines) and ca. 2 rush orders/ week

Complexity OP Routine task sales desk (7), but non-routine tasks planner

Sales and Production interdependent via delivery time promising (8) Some ambiguity between Planning and Production.

Formalization LD

Formalization IP

Formalization OS

Specified product range per customer/ Fixed delivery time (12 days) (10) Chase demand plan/(9)/ some slack in planning/

BOM’s / min. stock levels (11)/ non-formalized detailed planning (12) Workflow formalized by ERP-system

Information requirements provided via ERP-system (13) No formalized meetings (14)

Ad hoc coordination between Sales and Production via direct contact.

Responsiveness

Efficiency OP Efficiency prod.

Speed + ability to handle rush orders + reliability timing okay (16) Mix flexibility (17)

Lead-time administrative order processing realized (18)/ coordination costs low (19)

Relationship between demand and production

Demand at company C is greatly influenced by seasonal effects; every year there is a peak in demand during a couple of months (1). Furthermore, demand is almost completely customized, but the degree of customization is based on customer specific variants of a number of standard components. Customers can thus order a great variety of end products and demand is hard to predict (2). Because demand is hard to predict and very heterogeneous the company cannot anticipate on incoming orders; it is not possible to predict which type of products the customers will order at what time.

The production system consists of three production lines and each production line is based on a different type of raw material to handle. These production lines are not coupled to specific markets. Another important constraint is the limited space in the production plant (3). Because of these characteristics and constraints production on stock is not realistic. The risk of unsaleable goods is high because of the degree of customization and in the present plant there is only little space to keep stock. Company C is thus more or less forced to produce on order (2Æ6; 3Æ6). Hiring temporary workers to enlarge the production capacity in peak months adjust capacity to demand and result in a rather flexible production system (2ÅÆ4).

Relationship between influencing variables and the ordering process

A chase demand plan (producing against infinite capacity) is the basis of the logistical concept (9). The philosophy behind the chase demand plan is that the production capacity is adjusted daily to the incoming orders by varying the human capacity through deploying temporary workers and working overtime. Machine capacity is sufficiently available. This chase demand plan is a direct consequence of the seasonal demand (1Æ9) and the uncertainty about demand (2Æ9). Furthermore, Sales and Production agreed to deliver according a fixed delivery time that is made possible by the flexible production system (4Æ10) and the chase demand plan (9Æ10). These managerial logistical agreements also structure the coordination between Sales and Production on an operational level.

Delivery time promising is based on a fixed delivery time. The delivery time is therewith the starting point for material and capacity allocation. The material allocation is formalized by the use of BOM’s per product and the stock control (11). The material coordination is almost completely automated via the ERP-system used: based on BOM’s and information on stock levels the ERP-system calculates the necessary components for an order and then generates purchase instructions and production orders (5Æ11). The capacity allocation is formalized via the chase demand plan. In allocating capacities the planner is responsible for calculating machine time necessary per product and an equal distribution of capacity per operation per day. The planning results in an overview of the planning per operation per day. This overview is printed and distributed to the units and is used as a detailed planning per production order. But the unit leader of each production unit may autonomously decide to change the sequence as proposed

on the planning. There are no formalized rules for prioritizing production orders. According to the operations manager there is an unwritten rule that order-driven production has priority above stock production, but this rule is not always kept (12).

Figure 7.3 Causal network of the ordering process at company C LD OS IP Seasonal demand 1 Customized hard-to-predict demand 2 Little space 3 Flexible production system: temporary workers 4 Completely customized ERP-system 5 MTO 6

Chase demand plan 9

Fixed delivery time 10 BOM’s + stock control 11 Non-formalized detailed planning 12 Information order acceptance 13 No formalized meetings 14 Efficient production 15 Speed + delivery reliability + rush orders 16 Mix flexibility 17

Lead time order processing short 18 Coordination costs low 19 Interdependency Sales-Production not high 8 Task sales desk

routine 7 Influencing variables Complexity ordering process Formalization

ordering process Performance

LD = Demand-production = Organizational setting = Information processing = Logistical decision-making = Influencing variables IP OS

The completely customized information system formalizes the information processing in the ordering process to a large extent. Order acceptance is formalized by the fixed specifications and price linked with the article numbers per product and per customer in the ERP-system (5). Thus, the sales desk is informed about all necessary information to accept an order (5Æ13) and further coordination is only necessary when a customer has special wishes, for example a faster delivery time. In those cases the sales desk consults the planner. The task of the sales desk is rather routine (5Æ7; 13Æ7).

The formalized logistical concept and the customized ERP-system arrange for the logistical trade-off decisions, resulting in an interdependency between Sales and Production that is not high (LDÆ8; 5Æ8). There is no further formalized consultative structure and, according to the actors involved, formalized coordination is not necessary because of the relatively low interdependency (8Æ14). Only in cases of special customer wishes further coordination between Sales, Planning and Production has to take place. Because this coordination is incidental, it takes place in informal meetings.

Relationships between the ordering process and performance

Based on the order driven production, company C is able to deliver a broad product range (6Æ17). Furthermore, company C is able to deliver quickly: the fixed delivery time is 12 days and the logistical concept is formalized in order to always realize this delivery time by varying the capacity when necessary. For the same reason rush orders are no real problem. (9 + 10Æ16). The formalized and automated information processing is also helpful in realizing speed and reliability of delivery and in handling rush orders (5Æ13Æ16). The delivery reliability is negatively influenced by a lack of materials because of the shortness of space to keep stock (3Æ16) and (uncontrolled) changes in the order planning on a detailed level (12Æ16).

Company C has a rather efficient production, especially in the high season, because the man capacity is adjusted to the order receipt by hiring temporary workers (9Æ15). At the same time the capacity utilization is negatively influenced by the great variety of products and small batches that need to be produced to customize the products (2Æ6Æ15). Stock levels are rather low, mainly because of the little space, resulting in low costs for stock and therewith influencing the efficiency of production positively (11Æ15).

The administrative order processing is rather short: the sales desk translates the customer order in a sales order at the same day as the order is received. The night program prepares the sales order for planning and the planner translates the order the next morning into a production order. So, the short lead-time of administrative order processing is mainly a result of the customized ERP-system used for information processing (5Æ18). The lead-time of administrative order processing is sometimes lengthened when the customer asks for a rush delivery, because then the sales desk and the planner have to discuss the necessity and possibility of a quick delivery (14Æ18).

This happens only incidentally. At company C there are only little extra costs for operational coordination. The ordering process is concentrated around two actors, who can process the orders within the managerial agreements with help of the information system (8Æ14Æ19).

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

Company C is characterized by a seasonal demand that influences the way of producing. The company chooses to adjust capacity to the seasonal effect by planning against an infinite capacity. This so-called chase demand plan results in a very flexible production system. A broad product range of customer specific variations further characterizes demand. The role of the ordering process at company C is thus to coordinate a seasonal, customized and heterogeneous demand with a flexible production system. Therefore, the order-processing pattern can be characterized as a puzzle-solving pattern of order processing. That means that the role of the ordering process is associated with finding the optimal solution to fit uncertain demand with flexible production possibilities.

In finding the optimal solution, company C uses a formalized logistical concept, supported by an integrated ERP-system, to decompose the control problem. The chase demand plan combined with fixed delivery times structures the logistical decision- making and accommodates responding adequately on specific customer requests. The goals and margins for the operational logistical coordination are given by the formalized logistical concept. As a result, the actors in the ordering process have the tools to handle individual customer orders without much coordination on an operational level. Only few orders need further coordination, which is obtained by informal communication between the actors involved.

It seems that the formalized logistical decision-making and the formalized information processing reduce the interdependency between Sales and Production and, consequently, the ordering process is not very complex. The organizational setting is hardly formalized for the consultative structure. There seems to be no need for formalized meetings, because the actors are familiar with the agreements and goals they have to attain and within those margins they are free to make their decisions. Coordination takes place by bilateral communication. Company C performs well on responsiveness towards customers as well as on efficiency of production and efficiency of the ordering process.

Summarizing, company C copes with a puzzle-solving pattern of order processing by a formalized logistical decision-making and a formalized information processing, resulting in a good performance on responsiveness as well as on efficiency.