Additional Sub-question - Extended research question

6. PURCHASE ITEM ANALYSIS

6.4 Extended research question

6.4.1 Additional Sub-question

The additional sub-question that should be answered is:

7. How do the factories and suppliers perform if a redesign is introduced in the control structure?

This new research question and sub-question ask for an extra analysis of the control structure of Vanderlande and an additional literature search in ‘Design Control Structures’. Chapter 7 elaborates on the analysis and redesign of the control structure. To answer the initial research question, Chapter 8 elaborates on a modest inventoy control model for the purchase items with uncertainty in their demand.

Moreover, the effect of lead-time uncertainty is investigated.The new approach, acoording to the model of Van Strien (1986) is illustrated in Figure 15.

Figure 15, Adjusted Regulative Cycle

27 7. REDESIGN OF THE CONTROL STRUCTURE

In Chapter 6, it was concluded that a redesign in which PIs are ordered after the conceptual design, increases factory performance more than inventory control. The original research question was therefore extended and an new sub-question was defined. This chapter answers the new sub-question:

How do the factories and suppliers perform if a redesign is introduced in the control structure?

First, the current control structure is described, next the opportunties for improvements and characteristics of an ETO control structure are discussed, and the actual redesign is developed. The chapter finalizes with the results. The production control model of Bertrand and Muntslag (1993) is used as guidance during the redesign, and within each step, there is shortly referred to their model.

This report does not take the different characteristics of VIA in consideration, as too little information is available about the factory in America. In Chapter 2, it is stated that VIA is not operating yet, and that Vanderlande is still equipping the factory and collecting information about transportation possibilities.

This information is indispensable if one wants to create a redesign that considers the characteristics of the control structure of America. For simplicity, it is therefore assumed that there are no differences between the European factories and the American factory and that the standard lead-time given by a supplier is applicable to each factory.

7.1 Current Control Structure

Chapter 2 explaines the current control structure of SCCE and manufacturing at Vanderlande. Figure 16 illustrates the current control structure from sales engineering to the FG stored at the distribution centre, as the sales engineering process and FG stockpoint mark the boundaries of the system that is in the scope of the redesign. There are two order acceptance functions in this scope:

1. Project acceptance function, the moment at which a contract is signed or rejected;

2. Order acceptance function, the moment at which an order is accepted and allocated to a factory.

Figure 16, Current Control Structure

Goods Flow Control (GFC) consists of the high level coordination of all processes and production units.

This currently involves the activities of SCCE and the planning department. According to Betrand et al.

(2015) GFC should also be in charge of the materials supply to the various stock points between the manufacturing phases. However, the material supply is currently the responsibility of the factories and as a result, four local inventory points for purchase items are illustrated.

7.2 Improvement possibilities

There are numerous possibilities for Vanderlande to look into a redesign. The possibilities between and within departments are discussed in Chapter 2, 5, and 6, and are summarized in Table 6. The redesign should address all these possibilities to increase the performance of the factories and second tier suppliers.

Table 6, Improvement possibilities

Department Sales Engineering SCCE Factories Second tier

suppliers

Factories - (3) Order acceptance

is based on historic

7.3 Characteristics of an ETO control structure

Chapter 1 describes multiple ETO characteristics. Uncertainty and complexity are two of those characteristics and these are further elaborated on in this sub-section. Bertrand and Muntslag (1993) state that there are 3 types of uncertainty:

A. Uncertainty of product specifications; during engineering, design, and process planning activities the details for the production and material become known.

B. Mix and volume uncertainty for future demand; it is very difficult to make a detailed demand forecast because of customer specific characteristics of each project.

C. Process uncertainty; parts of the system are unknown at the beginning of a project. It is difficult to make an estimation of the type and amount of resources required.

Complexity is caused by three factors:

D. Structure of goods flow; controlling the goods flow in both the physical and non-physical stage.

The non-physical stage concerns engineering, design and process planning activies and the physical stage involves in component manufacturing, assembly and installation activities. The internal structure of a product makes it difficult to define routings and operation times.

E. Multi-project character of the situation; a customer order consists of a network of activities and a number or uncertainties. The same departments can control various projects at the same time.

Bottlenecks, caused by uncertainties, can affect other projects.

F. Assembly structure of a product; a system may consist of thousands of purchase items. Specific material might be needed for a specific project. Those items are specially purchased for this project. There are two options: buy the items in an early stage of the project without knowing the full details of the product, or cope with long lead-times.

The characteristics are reflected by the products and processes of Vanderlande’s supply chain and although the organisation is flexible to its customers, there is only little flexibility within the organisation.

7.4 Redesign

The control structure redesign takes complexity and uncertainty, and the improvement possibilities into account, and is developed in three steps:

I. The logistic chain is designed;

II. The production control framework is developed;

III. The decision structure is defined.

Figures 16 to 22 display parts of the redesign and Figure 23 displays the complete redesign. Each part refers to information explained in the sub-section elaborated on proir to the figure. Next to the three steps, the changes within the information systems are considered in the redesign.

7.4.1 Logistic chain

The logistic chain refers to the primary process involved in production planning control. This step is split up into three sub-steps: ‘define the operations’, ‘identify GFC items and production phases’, and

‘establish the production units’.

Define the operations

The operations at Vanderlande are defined in section 2.4.1, and are in short sales engineering to create a conceptual designed system, engineering to define a detailed system, SCCE to to determine the workload, planning to attach a planning to a project, SCCE to divide orders among factories and subcontractors, manufacturing and assembly to order materials and to produce the actual system, and distribution to ship the system to site.

The redesign adds one activity to SCCE: the procurement of items with a standard lead-time longer than four weeks (Figure 17). Meanwhile, the engineering department can conduct its activities. The factories can still order the material with a lead-time equal to or shorter than four weeks, and place an order request at the suppliers of items with a lead-time longer than four weeks, to make the supplier aware of the location to which their material should be sent to.

Figure 17, Procurement activity

Identify the Goods Flow Control items and production phases

It is the task of GFC to coordinate activities while keeping both the economic and production system objectives in mind (Bertrand et al., 2015). Next to GFC, there is Production Unit Control (PUC), and this control level is involved in the coordination of a specific Production Unit (PU). A PU is a grouping of resource capacities that can perform activities independently and is capable of making reliable commitments (Bertrand and Muntslag, 1993). According to Bertrand and Muntslag (1993) there are five production phases related to GFC items: ‘the conceptual product design’, ‘detailed conceptual product design’, ‘completion of detailed product specifications’, ‘manufacturing of components and assemblies’, and ‘assembly of the finished product’. Per phase, the activities and the application to the logistic chain of Vanderlande are defined. The phases and activities of Vanderlande are illustrated in Figure 18.

Figure 18, Goods Flow Control and production phases

1. Conceptual product design

The first phase involves the development of a global conceptual product design (Bertrand and Muntslag, 1993). This is the sales engineering phase at Vanderlande. The price quotation, delivery date of a project, and conceptual design are agreed upon, but there is still a lot of uncertainty at sub-component level and within the processes. The information available about product characteristics from signed contracts should be reported at GFC level, where this information can be added to the SPO Future demand.

2. Detailed conceptual product design

After a tender is accepted, the second phase is initiated. A detailed view of the design is created and uncertainties about the product and processes are eliminated (Bertand and Muntslag, 1993). This phase is the engineering phase at Vanderlande, in which the detailed design is engineered. By the end of this phase, most uncertainty about the product is eliminated.

3. Completion of detailed product specifications

In the third phase, the engineering drawings and the BOM are developed. Detailed information about the components and assemblies is established and the uncertainty about the products or processes is

reduced to zero (Bertrand and Muntslag, 1993). The drawings are developed by engineering, but all other activities are executed by engineering manufacturing and production planning, which are part of manufacturing. The activities include defining the routing, creating WKs and WOs and attaching a BOM.

When engineering manufacturing and production planning are finished, all uncertainty about the product and process of production is eliminated.

4. Manufacturing of components and assemblies

The fourth phase concerns manufacturing of sub-components. It is important that manufacturing reports updated information to GFC, allowing them to coordinate the manufacturing and assembly activities. Bertrand and Muntslag (1993) state that this phase starts with the preparation of production documentation and ordering of materials. This is in line with the current control structure at Vanderlande, as material is ordered after all uncertainty about product specifications and routing is eliminated. However, in the redesign, items with a lead-time longer than four weeks are already ordered centrally. After material is received, manufacturing activities can take place.

5. Assembly of the finished product

The final phases consists of assembling the various assemblies and sub-components. The planning activities for this phase precede the physical assembly process (Bertrand and Muntslag, 1993). At Vanderlande, the planning for phase 4 and 5 is combined and preceded before the start of physical production. After the assembly activities are finished, the sub-components are transported to the EDC.

Establish the production units

Now that the production phases are identified, the production units can be established. Bertrand and Muntslag (1993) defined four generic production units required for the five phases:

 PU1: Conceptual Design;

 PU2: Product Engineering;

 PU3: Component Manufacturing;

 PU4: Assembly.

The first two phases can be processed within a single production unit, as the nature of the required capabilities is similar (Bertrand and Muntslag, 1993). However, within Vanderlande, an acceptance function is located between the two phases, the phases contain many activities, and the difference between the knowledge required for the phases is substantial. Therefore the two phases are processed within two production units. Nevertheless, close cooperation between the two PUs is imperative.

The second generic PU involves engineering manufacturing and production planning activities. The factories are geographically dispersed. Therefore, four different PUs are required for this phase. The third and fourth generic PU are merged into one PU, as Component Manufacturing and Assembly involve activities that can cross in time. Due to the geographical dispersion, there are four different PUs required to define the production locations. Consequently the single PU is divided into four PUs that illustrate the factories. The PUs and departments that are involved in the activities are illustrated in Table 7.

Table 7, Production Units at Vanderlande Production Unit Bertrand and Muntslag (1993) Vanderlande

1A Conceptual design sales Engineering

1B Conceptual design engineering

2A Product Engineering VIM, engineering manufacturing and

production planning

2B Product Engineering VIS, engineering manufacturing and

production planning

2C Product Engineering VIA, engineering manufacturing and

production planning

2D Product Engineering Subcontractor, engineering manufacturing

and production planning 3A and 4A Component Manufacturing and Assembly VIM, manufacturing 3B and 4B Component Manufacturing and Assembly VIS, manufacturing 3C and 4C Component Manufacturing and Assembly VIA, manufacturing

3D and 4D Component Manufacturing and Assembly Subcontractor, manufacturing

7.4.2 Control framework

There are two levels of production control: PUC and GFC. Local PUC functions can be defined for each of the ten PUs and global GFC coordinates the total logistic chain. There are three aspects within GFC:

 Aggregate Production Planning (APP);

 Operational Production Planning (OPP);

 Interface between Production and Sales.

First the control of each activity executed in the logistic chain is described per GFC aspect, and next the aspect of the PUC is discussed. Figure 19 displays the aspects of GFC with respect to Vanderlande.

Aggregate Production Planning (APP)

APP is a medium-term planning, which comprises the matching of requirements of resources with the available capacity of these resources. Capacity adjustments can be made by arrangements with external subcontractors (Bertrand and Muntslag, 1993). Vanderlande’s planning department develops the planning of a project and SCCE uses its SPO Future demand to control the workload. The SPO Future demand is thus part of APP. This high level forecast provides SCCE with information about the requirements of resources and whether subcontractors are needed to control workload.

Operational Production Planning (OPP)

OPP concerns the coordination of material and capacity scheduling for the goods flow (Bertrand and Muntslag, 1993). Therefore the activities of OPP are executed at different stages in the logistic chain. In the initial stages, a project organisation still faces a lot of uncertainty about the control of a customer order. OPP is then based on aggregate data and focusses mainly on resource capacity. During the initial stages the uncertainty decreases and control increases. Subsequently, the material aspect is integrated, and the global plan is modified. As more and more details are added, a more sophisticated coordination of material is developed. During the intermediary or even final stages of the logistic chain, all information about a project becomes available, and a detailed planning can be prepared for the sub-orders associated with the customer order (Bertrand and Muntslag, 1993).

Within Vanderlande, OPP comprises multiple activities that should be executed by SCCE. SCCE already releases OFs or POs in collaboration with PUs. Moreover, SCCE should coordinate the raw material and intermediate products by translating the SPO Future demand into PI Demand and reserve capacity at second tier suppliers to guarantee material availability. Furthermore, SCCE should monitor the progress of projects during the physical stage of the logistic chain. OPP thus involves numerous activities that are excluded from the current control structure, that have a big impact on the redesigned control structure, and that directly affect the performance of factories. These activities are discussed separately in the following paragraphs.

1. PI Demand control

SCCE should translate the SPO Future demand into PI Demand for all items of which the characteristics are known at the end of the sales engineering phase. The SPO Future demand is updated weekly, therefore the PI Demand should also be updated weekly.

2. Order longer lead-time items with known characteristics

SCCE can order the items that have a standard lead-time longer than four weeks, and that are known in the PI Demand. The ordering happens at a weekly basis, as the PI Demand is updated weekly. Moreover, one order involves the total demand required in all factories instead of the demand per factory. Hence, a supplier receives an anonymous purchase order that consists of the total demand requested in a specific week. Anonymous means that the location to which material should be shipped is still unknown. Information about the location to which the material or a part of the material should be send is provided by the factory itself, after a PO or OF is allocated to a factory. The material should be ordered at least the standard lead-time before it is requested at the factory.

3. Demand signalling for other items with known characteristics

The total demand for items in the PI Demand that have a standard lead-time equal to or shorter than four weeks should be signalled to second tier suppliers. This gives the second tier suppliers the possibility to reserve capacity at an early moment in time and to order their resources or to already start production.

4. Inventory control for items with unknown characteristics and longer lead-times

The purchase items that require other characteristics to determine their demand can either have a lead-time equal to or shorter than four weeks, or longer than four weeks. The items with a lead-time shorter than or equal to four weeks should still be ordered by the factories. However, the items with lead-times longer than four weeks that remain uncertain until OF or PO release, request for inventory. The inventory control policy is explained in detail in Chapter 8.

Interface between Production and Sales

The most important control decisions of GFC are taken at the start of the logistic chain, as the degree of uncertainty is the highest. Conditions may change during the conceptual design, due to adjustments in customer specifications, the arrival of other customer orders, or capacity requirements (Bertrand and Muntslag, 1993). Close cooperation between sales engineering, SCCE, factories, and second tier suppliers is essential if Vanderlande wants to maintain a high service level, control workload levels, and increase material availability of purchase items.

Figure 19, Aspects of GFC at Vanderlande

Production control

Control of manufacturing processes is part of PUC as it involves an “autonomous group” within the organisation (Bertrand and Muntslag, 1993). In the redesigned control structure, the majority of the purchase items is ordered or signalled to second tier suppliers by SCCE. Consequently, material with a lead-time longer than four weeks should not be ordered, but can be requested by a specific factory. The factory should only request the exact amount of materials, as otherwise material availability of other factories is negatively affected. The material with a lead-time equal to or shorter than four weeks is still ordered by factories, and both the ordered and requested material should be received four weeks later.

It can be concluded that Vanderlande still has an ETO strategy with its CODP located at the purchase process. Figure 20 illustrates the redesigned production control.

Figure 20, Production control redesign

7.4.3 Decision structure

The decision structure provides GFC and PUs with more substance. There are four key decisions incorporated in the logistic chain:

1. Customer order acceptance function with the due date of the assignment (GFC);

2. Sub-order assignment and PU outsourcing decision (GFC);

3. Work order release (PUC);

4. Work sequencing (PUC).

Customer order acceptance function

The internal order acceptance function is the most important decision of GFC. Here the regulation of the work flow is controlled. According to Bertrand and Muntslag (1993) there are a number of factors that should be considered when making the decision: future capacity loading, the value of a customer order, desired delivery lead-time, and technical risks. Sales engineering, engineering, and SCCE should be involved in the customer order acceptance decision, since those departments can help estimating the

In document Eindhoven University of Technology MASTER Redesign of the control structure and inventory control at Vanderlande Gubbels, P.M. (pagina 43-0)