Analysis company D

Company D is a sheltered workshop that produces a broad variety of standard as well as customer specific products. The main characteristics of company D, as described in chapter 6.5, are presented in table 7.4. 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 D (see figure 7.4). This section ends with a discussion of the role of the ordering process at company D and the order-processing pattern.

Table 7.4 Overview of the characteristics of company D Characteristics Company D

CODP

MTS for stock orders (based on blanket orders) (5) Mainly ATO for standards (6)

Mainly MTO for customer specific variations (7)

Predictability

Heterogeneity Customization

2 large customers with blanket orders Æ stock orders (1) 70-80% regular customers/ no sales plan

8 product groups/ 1-10 order lines (2) 30% standards / 70 % customer specific variations

Multiplicity Uncertainty Flexibility

1 production line with 3 main production units/ simple and compound products little machine breakdowns/ reliable supplies

machines are interchangeable/ operators not multi-skilled/ no overtime (3)

Information System ERP-system used for administrative order processing and production control (4) Planning by spreadsheet and no use of Intranet

OP 5-20 orders per day (90% repeat order)/ 1 rush order per week

Complexity OP Sales desk has routine task; planner less routine Interdependency is high for delivery time promising (9)

Opposite interests between Sales and Production/ Production most powerful (8)

Formalization LD

Formalization IP

Formalization OS

Min stock levels (10)/ No fixed delivery times (11) / Planning rules (12) / agreed upon slack in planning (13)

Formalized workflow by ERP-system (only quotation phase not formalized) (14) Stock control via ERP-system, but planning and calculation by spreadsheet (15) Formalized and extensive consultative structure (16)

Responsiveness

Efficiency OP

Efficiency prod.

Mix-flexibility (18)/ delivery reliability is good for timing (21)/ not able to handle rush orders or to deliver quickly (22)

Stock orders are handled quickly (20)/ lead-time for non-stock orders is relatively long (20) /Coordination costs are high (23)

Man-machine combination is difficult, but batch production for stock orders and for standard non-stock orders (17)/ Stock levels high for work-in-process (19)

Relationship between demand and production

Demand at company D is very heterogeneous; every customer orders his own customer- specific products and these products in itself can be very different. Two main customers have a long-term contract with the company in the form of a blanket order (1). For these customers products are made to stock (1Æ5). For all other customers, it is not known beforehand what they will order and when they will order. Although customers tend to order the same kind of products, demand is hard to predict on a detailed level and thus the company cannot anticipate on incoming orders (2). These orders are referred to as non-stock orders. Non-stock orders for standard products are assembled to order, to be able to produce these products in batches in the sheet steel unit and to customize the products in the spraying unit (2Æ6). Non-stock orders for customer specific variations are made to order (2Æ7).

All different products are produced on the same production line that consists of three main production units, the sheet steel unit, the spraying unit and the assembling unit. Operations within the sheet steel unit are structured for batch-production often based on working with templates. The operators are mostly coupled to one specific machine and overtime is not an option for varying capacity. Therefore, the production system is not very flexible (3). The not very flexible production system does not fit with the non- stock orders that are produced order-driven and are hard to predict (2Æ3).

Relationship between influencing variables and the ordering process

Stock orders are orders for products as a result of blanket orders. These orders are produced on stock and stock is replenished when it reaches the minimum stock level (1Æ5Æ10). Capacity for the replenish orders is allocated weekly per operation. When an order for a stock item is placed at company D, the sales desk processes the order without consulting other actors and checks via the stock control in the information system if the item is still available on stock (4Æ15).

The non-stock orders (orders that are not related to blanket orders) are processed in a different way. The central coordination issue for these orders is the delivery time promising. There is no fixed delivery time for these orders and therefore the timing of the order has to be calculated (6+7Æ11). The planner has the formal authority to promise delivery times and thus these orders have to be processed via the planner before the order confirmation can be given. Delivery time promising is based on some planning rules that prescribe the capacity availability per operation. The planning rules are a fixed maximum capacity, an average of 2 operations per product per week and delivery of the finished products to the shipping department on Friday of the week before the delivery week (3Æ12). The last two rules incorporate much slack in the planning (12Æ13). This slack is necessary to be able to produce without pressure and to compensate for production disturbances, according to the actors involved (3Æ13). The use of slack is agreed upon and accepted, but Sales expects that some slack is used to cope with rush orders, while Planning and Production preserves slack completely for

uncertainties in production. Therefore, the use of slack results in ambiguity between Sales and Production (13Æ8).

LD

IP

OS

Stock order based on blanket orders

1

Non-stock orders heterogeneous and hard

to predict 2

Not very flexible production system 3 ERP-system 4 MTS 5 ATO 6 MTO 7 Ambiguity is high 8 Interdependence between Sales-Production 9

Min. stock levels 10

No fixed delivery times 11 Planning rules 12 Slack in planning 13 Prescribed sequence of info flow 14 Material availability 15 Daily formalized meetings 16 Efficient capacity utilization 17 Mix flexibility 18

High stock WIP 19

Lead time OP 20

Delivery reliability 21

Not able to handle rush orders

22

Coordination costs are high 23 Influencing variables Complexity ordering process Formalization

ordering process Performance

Operations strategy not clear * LD = Demand-production = Organizational setting = Information processing = Logistical decision-making = Influencing variables IP OS

It seems that the ambiguity between Sales and Production is especially high due to a lack of a clear operations strategy (*Æ8). Company D is looking for a distinguishing profile, but the management has not yet decided on the order winning performance objectives. The sales manager wants to compete on speed and flexibility, while the manager industrial products strives for competing on efficient production to guarantee low prices (*). The lack of a clear operations strategy appears to be an important influencing variable in this case.

The sequence of information-processing activities is prescribed by the ERP-system used (4Æ14). Information regarding delivery time promising for non-stock orders on material availability is provided for by the ERP-system (4Æ15), but for information on the actual state of the production system the planner is dependent on the unit leader steel (9). In company D the accuracy of the actual state of production is important to be able to guarantee a production process without pressure on the operators. Because of the lack of flexibility of production Sales, Planning and Production are very interdependent (3Æ9). To deal with this interdependency the planner and unit leader steel meet daily with the manager industrial products, and often also discuss individual orders during the day (9Æ16). Besides, within the ordering process of company D many other formalized meetings are held, between the actors involved. Some of these meetings are intended to monitor the progress of orders through the ordering process or through the production and some of these meetings are used to inform other actors about production capacity, material availability, specific customer wishes or individual orders. According to the actors involved, these meetings also are intended to reduce the ambiguity and tension between Sales and Production (8Æ16).

Relationship between the ordering process and performance

The logistical decision-making of the ordering process at company D is formalized by minimum stock levels for stock orders (related to blanket orders). Stock is replenished batch-wise thus guaranteeing an efficient capacity utilization (10Æ17). The non-stock orders are assembled or made to order, resulting in the ability of delivering a broad product range (6Æ18; 7Æ18).

The non-stock orders concerning standard products are assembled to order to realize batch-production in the sheet steel unit. The ATO-structure for these products accounts for an efficient capacity utilization (6Æ17). Logistical decisions concerning the customer-specific non-stock orders are formalized by planning rules and an agreed upon use of slack in planning. Slack is built in by means of planning a longer throughput time per operation than the actual operation time. In combination with producing batch-wise, this formalized use of slack often results in relatively high stock levels of work-in- process (12+13Æ19). Because delivery times for non-stock orders are not fixed, but based on actual capacity, the delivery time need to be calculated per order. This takes up a much time, especially because not all information is available right away. The lead-

time of administrative order processing of non-stock orders is therefore longer than preferred (11Æ20). But the lead-time for processing stock orders is relatively short, mainly because of the prescribed sequence or information flow and the information available on materials (14+15Æ20).

As already mentioned, slack in planning is used to cope with uncertainties in production and the use of slack mostly guarantees a reliable delivery to customers (13Æ21). At the same time, the slack in planning is not meant to fulfil rush orders. When a rush order is received the planner has to consult the unit leader steel to discuss the production possibilities. An important consideration is that accepting a rush order must not increase the pressure within production too much. This may result in rejecting rush orders. Therefore, company D is not able to handle rush orders easily (3Æ22). The operational coordination necessary for processing non-stock orders takes up much time of various actors, resulting in relatively high coordination costs at company D (16Æ23).

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

Although company D does not distinguish different markets, two order streams can be divided. The first order stream is associated with stock orders. Stock orders are part of blanket orders for specific customers. The products ordered by stock orders can be defined as standard products, being repeatedly ordered by the same customer. Based on the agreements of the blanket orders, demand for these products is predictable. This predictable demand has to be coordinated with the not very flexible production system. The role of the ordering process for the stock orders is rather simple and may be characterized as the passing-on pattern. The associated formalization for these orders is primarily based on minimum stock levels to control logistical decision-making and on a formalized information processing, using the ERP-system. These products are produced in optimized batches and a quick delivery is possible from the moment of order receipt. The order-processing lead-time is short, because to process these orders the sales desk only has to check the stock via the information system, without further consulting the planner. For that same reason coordination costs are low.

The second order stream concerns non-stock orders that are difficult to predict and are very heterogeneous. This type of orders also has to be coordinated with the production possibilities of a not very flexible production system. For non-stock orders the role of the ordering process is complex. There is a misfit between the heterogeneous and hard- to-predict demand and the not flexible production system. Therefore, the order- processing pattern for non-stock orders is associated with the compromising pattern. In coping with the uncertainty of demand there are not many production alternatives and Sales and Production have to find solutions by compromising between sales wishes and production possibilities. The complexity of the ordering process seems to be increased by the lack of a clear operations strategy, resulting in ambiguity in goals between Sales and Production.

In a compromising order-processing pattern it may be rather difficult to formalize the logistical concept and the information processing. From the analysis, it is clear that company D has difficulty in formalizing the logistical decision-making. Logistical decisions concerning delivery time promising are based on some planning rules and the use of slack in planning. But these planning rules do not decompose the complexity of planning uncertain demand, resulting in a low responsiveness towards customers. To coordinate demand and production, company D uses an extensive consultative structure, in which all relevant parties are consulted and informed. The consultative structure does not result in an efficient ordering process nor does it really improve the responsiveness.