Analysis company E

Company E produces all kinds of furniture for two main markets, namely office design and shop design. The main characteristics of company E, as described in chapter 6.6, are presented in table 7.5. Differences between the characteristics per market are separately mentioned 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 E (see figure 7.5). This section ends with a discussion of the role of the ordering process at company E and the order- processing pattern.

Table 7.5 Overview of the characteristics of company E Characteristics Company E

Office design Shop design (80% of turnover)

CODP Mainly ATO (6) ETO (7) – ATO for advance orders

Predictability Heterogeneity Customization

Only few regular customers

4 main product groups (1) Standard modules with customer specific combinations

Blanket orders

9 main product groups (2) Customer specific products, but repeatedly delivered

Multiplicity Uncertainty Flexibility

4 main operations/ compound products

Dependent on timely delivery of purchased parts (4)

Machines are interchangeable/ operators are multi-skilled/ capacity may be varied by overtime, shifts, outsourcing and hiring temporary workers (3)

Information System ERP-system / CRM-program (not linked to ERP), separate program for management information and some drawing programs (5) / Intranet used

OP 20 orders per day/ 1-50 order lines / 1 rush order per week

Complexity OP Non-routine task project leader / Interdependency high, especially in first phase project (9) / Design-Sales-Planning-Production have different interests (8)

Formalization LD

Formalization IP

Formalization OS

Principle of mass customization + minimum stock of modules (10) Planning rules + slack (12) Delivery time 6-8 weeks (13) DPR-procedure (for projects) (14) Workflow formalized (15)

Project leader (sales and planning) (16) Formalized meetings (17)

Customized design + blanket orders + min stock of materials (11) Planning rules + slack (12) Delivery time 6-8 weeks (13) DPR-procedure (for projects) (14) Workflow formalized (15) Project leader (sales and planning) (16) / Kick-off meeting (17)

Responsiveness

Efficiency OP

Efficiency prod.

Mix-flexibility (18)/ product-flexibility (21)/ not able to deliver quickly (23) / ability to handle rush orders (24)

Lead-time is long for ETO-products (25)/ extensive coordination between many actors to monitor individual projects thus coordination costs are high (26) Capacity utilization decreasing (22)/ Batch production (19)/

Relationship between demand and production

Demand characteristics are not the same for the two distinguished markets. In the market for office design the modularized products primarily influence the degree of customization and heterogeneity. The predictability is low, especially because there are few regular customers and the volume ordered varies greatly and cannot be easily predicted (1). In the market for shop design the focus is to deliver customized design, resulting also in a great variety in demand. The predictability of shop demand is based on regular relationships with customer and resulting advance orders as part of a blanket order (2).

The products for the different markets are produced on the same production line that consists of 4 main product units. If possible, production of the sheet steel unit is planned in batches. Modules for office products are produced in batches and kept on stock as standard modules. Parts for shop products are also produced in batches and kept on stock for a specific customer for future advance orders. Products are therefore assembled to order (1Æ6; 2Æ6). The CODP is positioned after the sheet steel unit, because the next operation (welding) not only increases the volume per product, but also customizes the product (for example, a table with a left corner or a right corner). The new designed products and the first products of a blanket order are engineered to order (2Æ7).

The production system is very flexible downstream from the CODP: operators are multi-skilled, set-up times of machines are low and the capacity may be varied by working overtime, working in shifts or outsourcing (3). But, the production is also very dependent on the supply of purchased parts, which is an important element of the final product (4). This dependency influences the flexibility of the production system (4Æ3).

Relationship between influencing variables and the ordering process

In the ordering process a clear reflection of the distinguished markets is not very apparent. Although the logistical concept formalizes a modularized production for the office products (1Æ6Æ10) and a customized design approach for the shop products (2Æ7Æ11), the office products are also often treated as projects and the shop orders are often treated as advance orders. But, initially the standard office products do not have a design phase and can be handled following the structuring of the ERP-system and the prescribed sequence of information processing (1Æ15; 5Æ15). The customer orders are translated into production orders along the same formalized information processing steps.

According to the managers at company E, demand is hard to predict on a detailed level and as a consequence they argue that it is almost impossible to formalize a structural logistical coordination between demand and production. This structural coordination is further complicated through the generally high degree of customization.

Figure 7.5 Causal network of the ordering process at company E

LD

IP

OS

Modularized products, but hard to

predict 1

Highly customized demand but with

blanket orders 2 Flexible production system 3 Dependent on supplies 4 ERP-system 5 ATO 6 Modularized production + min. stock modules 10 Customized products + min. stock materials 11 Planning + slack 12 Delivery times 6-8 weeks 13 DPR-procedure 14 Prescribed sequence of order information 15 Mix flexibility 18 Batch production 19

High stock levels 20 Product flexibility 21 Speed of delivery 23 Operations strategy not clear * ETO7 Ambiguity goals 8 Interdependence Sales-Production 9 Formalized meetings 17 Project leader 16 Capacity utilization 22

Able to deliver rush orders 24 Lead-time OP 25 Coordination costs 26 Influencing variables Complexity ordering process Formalization

ordering process Performance

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

The company formalized some planning rules and the use of slack in planning (1+2Æ12). Delivery times are based on the supply time of materials needed (4Æ13). Further logistical coordination, meant for customized projects, is placed at the operational level per project or order request. This operational coordination is primarily formalized by two strategies, namely the Development Price Request procedure (DPR) (2Æ14) and the installation of project leaders (2Æ16). The DPR-procedure formalizes the information-processing steps to be taken in the design-phase of a project.

Especially the not well defined operations strategy (*) and demand for completely customized products result in ambiguity in goals between the parties involved (*Æ8; 2Æ8). The high degree of customization means that products need to be designed according customer wishes, but at the same time Production strives for a capacity filling and batch-wise production process. The interdependency between Design, Sales, Planning and Production for customized products is therefore high (8Æ9). To deal with this interdependency company E created a formalized function, namely a project leader (9Æ16). This project leader is meant to guarantee a central coordination of each project and a reduction of the transfer of information between different actors involved. Thus, the project leader has an intermediate function in the ordering process. Projects are assigned to the various project leaders based on their expertise with a certain customer or a certain product. The project leaders may have different projects at the same time. According to other actors involved, project leaders sometimes have no good overview of priorities between these different projects. Besides, the project leaders need to have commercial as well as technical skills that are difficult to combine in one person. Some actors believe that the project leaders are more technically trained and oriented, resulting in, for instance, not well commercially defined quotations. The project leaders have non-routine tasks. During order-processing related to projects a main formalized meeting is the kick-off meeting at the start of the project, in which all parties involved are represented (16Æ17). The kick-off meeting and the weekly commercial-technical meeting are also meant to deal with the interdependency between the parties involved is (9Æ17).

Relationship between the ordering process and performance

On the basis of modularized production, Company E is capable of realizing mix- flexibility, in being able to deliver a broad product range (10Æ18). Because of the modularization, the company is able to produce batch-wise (10Æ19). But stock levels of modules are high (10Æ20), especially because the stock levels are still based on the turnover of one year ago. Besides mix-flexibility, company E is also capable of realizing product-flexibility, because the company has the competencies and the organization to design and develop completely customized products (11Æ21). But the high degree of customization also means that part of the products designed cannot be manufactured in the production plant of company E and production has to be

outsourced. Design of customized product is increasingly based on other materials than steel. Therefore, the capacity utilization is decreasing (11Æ22).

Because of the long delivery times of supplies the speed of delivery is not so high (4Æ13Æ23). But at the same time, company E has special agreements with customers, based on blanket orders, to produce modules on stock in order to shorten the throughput time. For one customer, company E even keeps the products on stock to be able to deliver advance orders out-of-stock. Company E also creates possibilities to deliver rush orders, when asked for (24). The production system in itself is flexible enough to produce and deliver quickly (3Æ24); the bottleneck for delivering rush orders is often the availability of purchased parts. Creative solutions used are to deliver the products ordered with a standard part in the first place. The standard part will be replaced by the customer-specific part right after delivery from the supplier. These creative solutions are accommodated by the modularized production possibilities (10Æ24). The coordination via a central contact person for the customer and the intermediate role of the project leader helps to realize responsiveness (16+17Æ24).

The lead-time of administrative order processing is long for new orders due to the fact that the product often has to be designed before order agreements are formulated (14Æ25)). In cases of advance orders or orders for standard office products the lead-time is much shorter, because of the clarity about information processing as prescribed (15Æ25). The coordination costs within the ordering process are rather high as a consequence of the fact that many actors are involved and that these actors have to communicate many times during processing the order (16+17Æ26).

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

Company E distinguishes two main markets, namely office design and shop design. The market for office design has a certain degree of standardization of products by using standardized modules that are produced in batches and the customized end products are assembled to order. The role of the ordering process for office design concerns the coordination of customized, modularized, but hard to predict demand with a flexible production system. This role can be associated with a puzzle-solving pattern.

The market for shop design is characterized by a completely customized design. However, company E focuses on selling via blanket orders on the market for shop design, meaning that during a certain period the new designed product will be re- ordered for other locations of the same customer. On the basis of agreements within blanket orders it is still possible to produce in batches. So, in the market for shop design the first phase of a new project, the design phase, is based on ETO-production and the second phase, the roll-out phase, is based on advance orders for already designed products that are often assembled to order. The role of the ordering process for shop design in the design phase is to coordinate a highly customized demand that is very uncertain with a production system that is especially dependent on the supply of purchased parts. The dependency on suppliers influences the flexibility of production.

Therefore, the ordering process is quite complex and is associated with the compromising pattern of order processing. In the roll-out phase of shop orders, demand is modularized and more predictable based on agreements within the blanket orders and thus the ordering process is less complex in the roll-out phase.

As came up in the analysis, there is no clear reflection of the distinguished markets in the ordering process. The role of the ordering process is complex for both markets, although it is more complex for the design phase of shop orders. The management of company E has difficulty in formalizing the logistical decision-making of the ordering process on a structural level, because of the general high degree of customization and the low predictability of demand. This difficulty seems to be further enlarged by the lack of a clear operations strategy. The lack of a clear operations strategy is caused by the recent changes within the organization resulting from succeeding reorganizations, the loss of orders in the market for office design, changing customer wishes and more severe competition. As a consequence, management of company E is searching for a refining or even renewal of their strategy. Design and Sales are convinced that the organization should profile on value adding via customized design. Because customized design of shop products are often based on other material than steel, production should be mainly outsourced. On the other side, Production argues that Sales should aim at obtaining orders for steel-based products in order to make production profitable and to gain from the flexibility of in-house production. This ongoing discussion is not yet resolved and, consequently, there is no clear operations strategy. The lack of a clear operation strategy also results in ambiguity between the parties involved and hinders the process of making agreements on logistical decision-making.

To be able to respond flexibly to customer demand logistical decisions are taken on the operational level and require operational coordination per project or order request. The DPR-procedure that defines what actions have to be taken by whom to make a first official quotation to the customer formalizes the information processing. The installation of project leaders as central coordination function formalizes the organizational setting. These formalizing measures are helpful in reducing the complexity of the ordering process and help in achieving responsiveness, but do not result in an efficient production.

Summarizing, company E has to cope with varying roles of the ordering process, depending on the market as well as on the phase of order processing. The company seems to focus on a formalization of the information processing and the organizational setting for both the solving the puzzle pattern as for the compromising pattern, resulting in a good performance on responsiveness but a rather low efficiency of order processing.

7.7 Summary

In this chapter we presented the within-case analyses of the five manufacturing companies. On the basis of the characteristics per company we presented a causal network per company of the relationships between the characteristics. First, we discussed the relationship between demand and production. Second, we addressed the relationships between influencing variables and the complexity and formalization of the ordering process. And third, we discussed the relationships between the ordering process and performance.

The analysis of the relevant characteristics and relationships was the basis for analyzing the role of the ordering process and the pattern of order processing. Thus, we classified the ordering processes on the taxonomy and analyzed the complexity and degree of formalization of the ordering process related to the order-processing pattern and the effects of formalization of the ordering process. The findings of the within-case analyses are the basis for the cross-case analysis, which is presented in the next chapter.

8 CROSS-CASE ANALYSIS