Pre-production organization in engineer-to-order companies - A multiple case-study

Pre-production organization in

engineer-to-order companies

-

A multiple case-study

MSc Technology and Operations Management MSc Supply Chain Management

Date: 23-6-2014

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ABSTRACT

This study aimed to provide insights into the arrangement of the pre-production stage. Poor internal deliveries from the pre-production stage are a main problem for small and medium sized ETO companies. Simultaneously, customers require faster and more reliable delivery performance in this sector. The actual causes of the internal delivery problems lies in the pre-production stage. After an in-depth literature review about the requirements and the pre-production activities, a multiple case study has taken place to realise the complete study and to learn from the actual ETO company pre-production stage arrangements. The main methodology used is multiple case research among eight ETO companies for an explorative study. New insights are gained on the arrangement of five pre-production activities; lead time decision making, coordination between all departments, design & engineering planning, materials requirement and purchasing, and controlling job release onto shop floor. New insights are gained on the arrangement of the pre-production stage activities which contribute to current ETO literature and are useful for managerial practice. The arrangement of the pre-production stages were shown to be partly differ on the five activities, according to the company product complexity, product customisation and company size.

Keywords: delivery performance; early order delays; small and medium sized enterprises; engineer- to-order, pre-production arrangement, pre-production activities

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TABLE OF CONTENT

2.2. Shop floor requirements, unmet needs and response ... 6

2.3. Stages within ETO companies ... 7

2.4. Pre-production activities ... 8

2.5. Pre-production organization between different ETO subtypes ... 9

3. METHODOLOGY ... 10

3.1. Research design ... 10

3.1.1. Research methodology ... 10

3.1.2. Case selection process ... 10

3.1.3. Case study company characteristics and case descriptions ... 11

3.1.4. Data collection methods and procedures ... 13

3.1.5. Data analysis methods ... 14

4. RESULTS ... 14

4.1. Shop floor requirements and response... 14

4.2. Case results ... 16

5. DISCUSSION ... 19

5.1. Pre-production organization issues ... 19

5.1.1. Lead time decision making ... 19

5.1.2. Coordination between all departments ... 21

5.1.3. Design & Engineering planning ...22

5.1.4. Materials requirement and purchasing ... 23

5.1.5. Controlling job release onto shop floor ...24

6. CONCLUSION ... 25

7. REFERENCES ... 27

APPENDIX A – Thesis planning ... 29

APPENDIX B – Interview protocol ... 30

APPENDIX C – Company size ... 35

APPENDIX D – Coding tree (1) ... 36

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1. INTRODUCTION

In recent years, customers require a faster and more reliable delivery. Therefore, tight delivery performances become more and more crucial for companies (C Hicks, McGovern, & Earl, 2000)(Chris Hicks, Mcgovern, & Earl, 2001). Nevertheless, order delays are a well-known problem for small and medium sized engineer-to-order (ETO) companies (Pandit & Zhu, 2007). Especially these companies face problems because of internal delivery problems from the pre-production stage to the shop floor. The pre-pre-production stage is hard to control due to the high complexity, dynamics, and uncertainty of ETO companies (J. W. M. Bertrand & Muntslag, 1993). The result of these unreliable internal deliveries of orders from this stage causes many disturbances observed on the shop floor (Land and Gaalman, 2009). This study analyses the arrangement of the pre-production stage with the focus on the internal deliveries to the shop floor.

From a literature review of Stevenson, Hendry and Kingsman (2005) we know that currently, a lot of research is focused on production planning and control (PPC) mechanisms for the ETO and make-to-order (MTO) companies. However, Land and Gaalman (2009) found that in the pre-production stage, before release, two common problem areas can be identified: (1) inadequate capacity planning overviews to support sales decisions, and (2) uncontrolled delays in engineering. Thus, despite the fact that there are enough PPC mechanisms present in common literature in order to support companies in organising their business which are assumed to be used in practice, internal deliveries are still uncontrolled and the available PPC concepts are inappropriate. Researchers nowadays try to explore the pre-production stage and study how this stage can be controlled. This is an interesting topic for ETO firms, especially because of the complex characteristics of this type of companies.

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these activities will influence the outcomes, the shop floor requirements. Since this is indicated as the point of interest, the question thus is how the pre-production stage serves the shop floor. In other words, how do ETO companies arrange their business in order to meet the shop floor needs. Therefore, the main research question is:

“How are the pre-production stages of ETO companies organized in order to fulfil shop floor requirements?”

To answer this research question additional questions will be posed. Firstly, it should be known what the production stage exactly has to deliver. With this information it is easier to focus on the pre-production activities which are directly related to the shop floor needs. Therefore, the first sub-question is: “What are the shop floor requirements?”

Inter alia, Kingsman (2000), Aslan et al. (2012), and Sun et al. (2012) have outlined the various activities within the pre-production stage. Several decisions have to been made and actions should be taken. If the shop floor requirements are known, the next question is about the relevant pre-production activities related to the those requirements. Hence, the second sub-question is: “What are the different pre-production activities, relevant to fulfil shop floor requirements?”

With these sub-questions it is possible to research and display how the relevant pre-production activities are arranged. However, from the study of Bertrand and Muntslag (1993) we know that there are significant differences in ETO companies. It is reasonable that these differences may have impact on the arrangement surrounding the activities. A third last sub-question is proposed: “How are the relevant activities arranged in different ETO companies?”. To answer this question certain characteristics must be known to define where ETO companies may vary on.

The three sub-questions above will answer the main research question. The next chapter will review the shop floor requirements, the relevant activities of the pre-production stage, and the ETO characteristics. Chapter three presents the proposed methodology for this research. In chapter four the results are presented, and in chapter five the results are discussed more in depth. Finally, a conclusion with limitations of the research and further research possibilities are given.

2. THEORETICAL BACKGROUND

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company may vary on are established, so that the arrangement between different ETO companies can be analysed.

2.1. Engineer-to-order

In the engineer-to-order environment individual products are generally highly customised to meet individual customer requirements and are produced in low volume on an engineer basis. The main products have deep and complex product structures that give rise to many levels of the assembly process (C Hicks et al., 2000)(Amaro, Hendry, & Kingsman, 1999)(Pandit & Zhu, 2007)(Chris Hicks et al., 2001).Typical for an ETO company is that very little is known about what to order or manufacture until after receipt of a customer order and development of engineering specifications (J. W. M. Bertrand & Muntslag, 1993) which makes the organisations rather complex. An ETO company with highly customised products, produced in low volume with deep complex product structures, are difficult to be controlled, because the complexity, dynamics and uncertainty factors. In general, this leads to increased costs, higher risk, and long lead times (C Hicks et al., 2000) which is one of the major problems associated with ETO products (Pandit & Zhu, 2007)..

2.2. Shop floor requirements, unmet needs and response

Land & Gaalman (2009) found that most of the performance losses in ETO companies in the form of decreased reliability, can actually be predicted before an order is released to the shop floor. Decisions after release are mainly made in order to correct the losses caused before release. Figure 1 shows that all stages before release can be called as the pre-production stage. Land & Gaalman (2009) confirm that the shop floor, after release, is dependent on the input of the pre-production stage. In addition, if necessary, the shop floor has to make adjustments in order to correct the disturbed input and to meet customer requirements. From the perspective that pre-production is in service of the shop floor, the shop floor input can be seen as the shop floor requirements. The shop floor faces problems when their requirements, the internal delivery from the pre-production stage, are not fulfilled.

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2.3. Stages within ETO companies

The complete ETO order process can be divided into five critical stages and various activities (Aslan et al., 2012)(Sun et al., 2012)(Kingsman, 2000)(Hendry, Land, Stevenson, & Gaalman, 2008). The shop floor is the last stage of the total processing cycle of an ETO company. From a PPC perspective, this stage is also known as the shop floor dispatching stage. In this stage production control is essential to monitor the progress to guarantee the due date, detailed shop floor scheduling is determined, and jobs are sequenced via job prioritisation.

The other stages are (1) customer enquiry stage; the customer provides invitation for a particular product, requiring the determination of price, quantity, and due date. Planning and control begins soon after, so that decisions regarding the due date promises can be based on information on work load and expected lead time. Decisions have to be made about the assessment of available design/production skills and facilities, and the estimation of cost/profit margins. An effective coordination and communication is required between all departments involved in the activities listed above.

(2) Design &Engineering Stage; entering detail engineering stage if the orders are accepted. This determines the technical feasibility and manufacturability. Also a more detailed design and engineering planning takes place. For ETO companies, this stage is very important and has a significant impact on the total lead time (Land & Gaalman, 2009). Despite of the importance of this stage, limited research is conducted.

(3) Order Entry Stage; where the production of a confirmed order is planned. Including material requirements, purchasing, and shop floor routing. Sometimes ETO companies require project management techniques and relevant IT support, when a majority of orders are for large projects (J. Bertrand & Muntslag, 1993)(Aslan et al., 2012).

(4) Job Release stage; Orders entered into a pre-shop pool. Decisions have to be made about when and where to produce the products. Required information, materials, and capacity have to be available.

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Figure 1: ETO processing stages and pre-production activities

2.4. Pre-production activities

Many of the unfulfilled shop floor requirements are the effects of decisions made in the pre-production stage. During the enquiry stage decisions have to be made about lead times and availability of production skills. These decisions require capacity insights in the shop floor, which are often unknown (Land & Gaalman, 2009). Setting lead times is the biggest operational level coordination problem in ETO companies (Konijnendijk, 1994) mainly because of the impact of the design and engineering stage on the total lead time (Land & Gaalman, 2009). These two pre-production activities, lead time decision making and design and engineering planning, are determined as important for the internal delivery of materials and information on time. Therefore, these two aspects will be included in this research. During the order entry stage, required materials have to be purchased which is another important activity in order to deliver the materials on time at the shop floor. Especially ETO companies face difficulties for this activity because the Bill of Material (BoM) structures are not always fully available during these early planning stages, and only gradually become certain (J. W. M. Bertrand & Muntslag, 1993)(Stevenson, Hendry, & Kingsman, 2005)(Deep, Guttridge, Dani, & Burns, 2008). During the job release stage, stage four, the transfer of an order takes place from the pre-production stage to the shop floor. This is crucial in the delivery process of the shop floor requirements.

While passing through all the pre-production stages the information of the customer requirements is converted into drawings, documents, and other shop floor requirements. The transmission of information between all departments has to be coordinated, as well as the pre-production tasks.

Shop floor requirements

Material Information

Enquiry stage Design &

Engineering stage Order entry stage Job release stage

Shop floor

(parts manufacturing – sub assembly – final assembly)

Customer order

request Order delivery

- Lead time decision making

- Availability of design/ prodution skills and facillities - Estimation of cost/profit margins

- Coordination betwween all departments

- Design & Engineering planning

- Product development

- Planning of production order

- Materials requirment and purchasing

- Shop floor routing - Plan capacity

- Controlling job release onto shop floor

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These two aspects, coordination of information and tasks appear to be relevant for shop floor requirements purposes.

To conclude, based on this theory we expect that there are five pre-production activities which play a crucial role in the internal deliveries: (1) lead time decision making, (2) coordination between all departments, (3) design and engineering planning, (4) material requirements and purchasing and (5) controlling job release onto the shop floor (figure 1). Further exploration on the arrangement of the ETO pre-production stage is will be focused on these five activities.

2.5. Pre-production organization between different ETO subtypes

Bertrand and Muntslag (1993) came to the conclusion that many industrial firms can be characterized as engineer-to-order. However, these firms may still differ in terms of the complexity of the products, degree of customer specificity of the product, lay-out and complexity of the production process, and the characteristics of the market and the competitors. The product complexity can be divided into engineering complexity and material complexity (Land & Gaalman, 2009) It is assumed that the material complexity will influence the arrangement around the material requirements and purchasing activity, while the engineering complexity will influence the arrangement of the design and engineering planning activity. In addition, a lack of agreement about the definition of ETO is found in the extent to which existing designs are modified to order or whether completely new designs are developed for each order. The degree of customisation might also influence different activates, like coordination of information, engineering planning and material purchasing. Amaro et al. (1999) developed classification framework based on the so called degree of product customisation, comparable with Bertrand and Muntslag their ‘degree of customer specificity of product’ characteristic. Amaro et al. (1999) classifications are: (1) pure customisation, production of completely new designs; (2) tailored customisation, modification to an existing design; and (3) standardised customisation, selection of set design options. Next to the product complexity and the degree of product customization, the company size may play a role in arranging different activities. In particular the way of coordination the stages will be influenced.

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3. METHODOLOGY

This section introduces the research methodology used, the theoretical sample, the selection of sites for collecting data and the case descriptions, the type of data collected and the data collection tools and procedures.

3.1. Research design

3.1.1. Research methodology

This study is based on field research. Because of the explorative nature of the study insights are needed from real organizations for adding results to existing theory and stimulating new theoretical ideas. This research is based on case study methodology to investigate the ETO shop floor. The strengths of case research are that (1) meaningful relevant theory can be generated from the understanding gained through observing actual practice, (2) the case method allows the questions of why, what and how, to be answered with a relatively full understanding of the nature and complexity of the complete phenomenon and (3) the case method lends itself to early, exploratory investigations where the variables are still unknown and the phenomenon not at all understood (Meredith, 1998). Although previous theory exists about the research topic, the topic is not completely covered. This explains the exploratory nature of the study. This, combined with the complexity of the research area, the ETO pre-production stage involve many activities and decisions have to be made in an uncertain and dynamic situation about complex customized products, meant that case study research offered the methodological fit to advance relevant theory on the ETO pre-production stage (Yin, 1994).

3.1.2. Case selection process

A multiple case study is conducted which seems to be the best fit in answering the research questions, known the different types of ETO companies, and to avoid the risk of misjudging a single event. As a result the depth of the study may reduce and more resources are needed. Since the unit of analysis is defined as the ETO organization, each case reflects an organization.

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There are differences within the sample in terms of product complexity, product customisation, and company size, as mentioned in the previous section. Furthermore, all companies can be defined as ETO companies.

3.1.3. Case study company characteristics and case descriptions

All companies involved in this study can be labelled as small and medium sized enterprises (SME’s). However, these companies may still differ in size within the range of an SME. According to the number of FTE’s (fulltime equivalent) and the annual turnover (appendix C) the companies are re-categorised in small (S), medium (M) and large (L) (table 1). As outlined in chapter 2, also the degree of product customisation and complexity might play a role in arranging the pre-production stage. Therefore products complexity is labelled as high, medium or low. According to Amaro et al. (1999), the customisation of the product is labelled as tailored, modified or standard. Next, the studied companies are introduced. Besides the product they produce and the industry they are into, an interpretation of the characteristics (degree of product complexity, customization and size) are given, which are summarised in table 1.

- Company A

Company A is active in the ship-building industry and produce ship control systems. Their products are highly customised because of the influences from customers; even the captain may influence the product specifications. Therefore, it is hard to standardize their products. In addition, their products consist of many specific parts. The product complexity is even higher because of the required electronic techniques, which require highly skilled production and engineering employees.

- Company B

Company B builds customer specific manufacturing and transportation automation systems. They deliver their products to various industries. The products are extremely complex. They consist of many parts and require high software engineering skills. The automation products must be able to perform difficult tasks which always are customer specific. This also requires high engineering skills. Engineers try to compose their product of standardized components as much as possible. Most of the make parts are outsourced. The engineering of these parts is done by the company itself.

- Company C

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relatively more simple and standard final products can be outsourced to an associated company in a low-wage country. This will be done for cost saving and capacity flexibility purposes.

- Company D

Company D is specialized in producing customer specific aluminium gutters. They deliver it to the residential building industry. Usually, a long time expires between the quotation and the order. The residential building industry is dynamic and at a last moment semi manufactures are purchased. The products of company D are always customer specific, however they do not require many parts. The products may be difficult to handle because of their size and shape, but are less complex in terms of material properties. They are mostly made of standard raw materials which gives company D the option to put these materials on stock.

- Company E

Company E serves a high variety of industries with their internal logistical resources products. The market where this company finds itself is dominant in determining the delivery date. The market also influences the lead time of parts. The products of company E do not have a complex structure and do not consist of many parts. However, all current products are customer specific. On the other hand, a substantial part of the products are repeat orders with small changes.

- Company F

Company F is active inside the printing industry. It produces (biblical) books. The product of company F consists of a certain set of standard modules. Few materials are used for the end product, however, almost all materials are order specific. Furthermore, some parts have to be outsourced. This outsourcing process makes it complex, because the suppliers are located in Europe and Asia. Products are always customised, and developed together with the customer.

- Company G

Company G is specialised in producing concrete elements for the construction industry. Orders are mostly assigned to company G because of the short lead time and decisions do not fully depend on the product prices. Total lead time can be easily decreased by increasing the number of molds for the required product. The products consist of minor elements. Next to the raw materials, only one essential intermediate product is required. Most of the products are customer specific designed. However, ideas are often based on previous work of the company.

- Company H

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colours can differ. The product does consist of a few standardised materials and in very little cases some special parts are required. Orders are easy to schedule and lead times are known.

Table 1: Company characteristics

Company Product complexity Degree of customization Company size

Industry Primary products

A High Tailored L ship-building _industry ship control systems

B High Tailored S various industries

manufacturing and transportation automation systems

C Medium Modified M residential

building industry window frames

D Medium Modified L residential

building industry aluminium gutters

E Medium Modified M variety of

industries

internal logistical resources products

F Low Modified M Printing industry books (biblical)

G Low Modified S construction _industry concrete elements

H Low Standard L Ship building _industry Ship doors and _hatches

By analysing table 1, it can be concluded that the product complexity and product customisation are highly related. Therefore, three different segments can be determined: companies A and B (high product complexity and tailored customisation), companies C, D and E (medium product complexity and modified customisation) , and companies F, G and H (low product complexity and modified or standard customisation).

3.1.4. Data collection methods and procedures

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conducted by one researcher. The interviews were recorded. Each interview began by asking the person their name, years of work for the company, and responsibility. The preselected interview questions were complemented with others that yielded deeper descriptions of specific facts and events. The average duration of an interview was sixty minutes.

To ensure reliability and validity of the case research, multiple data sources are used (Yin, 1994). Observation data was collected mostly from guided tours through the shop floors. It also involved informal talks with employees on the shop floor or with the tour guide. Secondary sources of data, where available, included work instructions, drawings, schedules, and overviews of procedures.

3.1.5. Data analysis methods

The data, including the interview recordings and field notes, were collected and stored digitally. Interview records and field notes were the bases for writing the descriptive cases. Given the exploratory nature of our research we used the cases to examine emerging patterns in order to inductively develop theory (Eisenhardt & Graebner, 2007; Eisenhardt, 1989). Relationships were identified that were replicated across most or all of the cases (Eisenhardt & Graebner, 2007). Finally, the propositions were presented at the consultancy company and feedback was used to refined the findings.

For the data analysis coding trees have been conducted. All information is labelled to a specific category, which again is related to a theme. The themes correspond with the interesting pre-production activities as described in the theoretical section. In appendix D and E all coding trees can be found.

4. RESULTS

In this chapter the case study results are given. In the first section the shop floor requirements are outlined and elaborates on the situation if requirements are unfulfilled. In the second section, section 4.2, the most relevant pre-production arrangements are presented, which are in the next chapter discussed more in depth.

4.1. Shop floor requirements and response

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The outcome of this verification was not surprising. For all companies hold that their shop floor expects materials and information. Materials can be in the form of raw materials or semi-finished products. Information can be in the form of text documents and drawings. When the shop floor is satisfied with only drawings or only text depends. The complexity plays an important role in this case, but also the knowledge of the shop floor employees. If a company produces standardised products where only sizes can differ, a text document will give enough information to be able to produce the required products. For a more specific assembly, drawings may be asked for. Some companies do not provide extra information but only drawings, because the shop floor is skilled enough to produce with information only gathered from drawings.

Moreover, the companies were asked about their actions and performance if the shop floor requirements are not fulfilled with the purpose of stressing the importance of this research. In short, usually an unmet requirement is the result of a pre-production mistake, whereupon the shop floor experiences problems. The shop floor has to respond to that problem in order to still deliver the product in the right quality on time to the customer. This response will influence the performance of the overall company (see figure 2).

The pre-production mistakes are information or material related. The information mistakes are errors in drawings or information, or there is no information or drawings available at all. Materials can be ordered too late so they are not available on time, wrong materials are purchased or they are not purchased at all. Another option is that the confirmation date from a supplier may be different as the date asked for and no action has been taken.

This unavailability of information or materials can result in production errors, for example, wrong materials or the incorrect settings are adopted from the drawings, or production has to stop because there are no materials available or information is missing.

The shop floor has few options to react to the arisen situation. Mostly is chosen for an internal response in the form of producing in overtime or hiring temporary workers. If there are issues with the material requirement, suppliers may be contacted for a fast delivery. A more drastic intervention is to outsource part of the products, in order to increase capacity. But, mostly if there is no other option, companies have to contact the customer and postpone the order.

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Most of the above mentioned responses result in increased costs and the production efficiency often drops. These costs are not taken into consideration when calculating the quotation price, and are therefore unforeseen. But not only the costs affect the overall performance, if orders are delivered late the company reliability will also decrease. Recalling from Land & Gaalman (2009), these performance losses in ETO companies can actually be predicted before an order is released to the shop floor, in the pre-production stage. The next section will show the results per case about the arrangement of the pre-production stages.

4.2. Case results

Chapter 2 discussed the five key pre-production activities of the internal deliveries: lead time decision making, coordination between all departments, design and engineering planning, materials requirement and purchasing, and controlling job release on the shop floor. It is expected that companies arrange these activities differently, compared to their organizational characteristics (product complexity, product customisation and size). In table 2 until4 the arrangements that arose in the eight case study companies are reviewed. The information is structured in tables following the complexity and customization classification of companies as described in section 3.1.3. As the focus of this paper is to identify specialties in arrangements in order to deliver the production requirements, straightforward elements are not included.

Table 2: Case results company A and B

Theme Company A Company B

Lead time decision making

Face lots of problems with the lead time calculation during the enquiry stage, the estimated hours rarely correspond to reality

Sales managers try to inform the shop floor about the needed capacity in a very early stage, short after the order confirmation, but this information is more or less purposeless

Production managers have decided to take extra hours into account, which acts as a time buffer for rush orders or miscalculations

In collaboration with the customer it is possible to start with a part of the total order for lead time reduction purposes. This gives the possibility to make changes in the remaining parts The company representatives for lead time decision making are aware of the lead time bottlenecks and pre-production lead time is generally calculated correctly

The behaviour of the products becomes clear after the commissioning. Therefore, the software engineering may require more time than expected on forehand

Coordination between all departments

Use a project structure to arrange the pre-production stage

After the order confirmation, the order is transferred to a project leader, who is responsible for a proper coordination between the different stages

Information which has to be transferred during the handovers should consist of the expected bottlenecks Information may become outdated because the customer is able and allowed to make changes during the early stages.

There is no strict policy for decision-making, so

At the point of sale, a complete specification list is present and the order is transferred to an engineer.

This role of this engineer is a combination of a self-serving team and a project leader. The engineer is responsible for almost all tasks in the pre-production process and has to manage the order from sales to the shop floor and implementation phase on site. This decreases the probability of errors in the pre-production process. Fewer handovers are required

17 information is used occasionally by the project leader which leads to a fairly unstructured situation

Proceedings are highly automated, especially activities which need to be done in a CAT system. Customised digitalisation of activities deliver many benefits in the form of clear information sharing and efficient engineering.

Design & Engineering planning

One week before production starts, the order has to be available at the job release stage. This deadline of engineering is rarely met. The entire job release stage will be skipped for many orders

Engineers have to plan their own tasks by themselves, the overall planning is done by one planner, as well the production planning and implementation planning for the mechanicals.

Materials requirement and

purchasing

Many of the required materials are order specific and are purchased according to the just-in-time principle. Parts with a long lead time are purchased in an early stage, but this is not formalized

Products require many specialised parts which have to be outsourced. All parts are purchased by the engineer

Customers are asked for an early signature for purchasing the long-lead items and a signature for all other outsourced parts

Controlling job release onto shop floor

Most of the orders arrive too late at the job release stage for controlling purposes

The project leader decides when to start with an order in production. Total process information has been gained from the mechanics at the yards

A warehouse employee has the task to check the availability of all parts before production starts, by taking the backorder program in mind with information about expected late deliveries of materials and documents

The engineers have regularly meetings with the mechanicals to share extra information for installation on site

Production employees are allowed to contact the engineers for any questions they have, for example in case the documents or drawings are unclear

The drawings and preparation documents are checked by the chief engineer. The material and parts availability is visible in their enterprise resource planning (ERP) system

Table 3: Case results company C, D and E

Theme Company C Company D Company E

Lead time decision making

The delivery date is estimated with reasonable ease, on the basis of the total minimal engineering and production lead time. Actual required delivery dates are known from the project leaders on site

Sales determines a delivery date. After the order acceptance, sales gets advice from the project leaders about the real required delivery date because of the uncertain planning of the building sites

Sales determines the delivery date with the help of the advice from a project leader. A project leader has insights in the lead time bottlenecks (engineering and welding jigs)

After order acceptation, modifications to the design are not permitted. Changes will have impact on the agreed delivery date

Coordination between all departments

The production manager is the link between the shop floor and the pre-production stage. The pre-production manager is highly involved in the engineering stage

There is an handover moment from sales to the project leader and preparation department after an order confirmation

Without specific coordination of a project leader, the order flows from department to department. All information is combined in a so called project folder

Orders are assigned to ‘on-site’ project leaders, who share information with the engineers.

A project leader is assigned to the order during an official handover within 48 hours after the order acceptance, and has to supervise the order until shipment Sales are enforced to specify the total product before the order acceptance. The project leader has the task to check all the specifications and may decide to accept the order or not

Design & Engineering planning

There are weekly meetings to monitoring pre-production tasks ( purchasing and engineering). Pre-production activities per order are separated and assigned to specific employees with a deadline. This structure is formalised and will be used for all orders

The engineers have contact with a planner about the required delivery dates and are free to plan their own tasks

18 The production manager creates task

lists out of an ERP system

Materials requirement and

purchasing

The task specific planning system for pre-production includes purchasing of materials. Due to the strict pre-production control, materials are always on store when they are needed A first approval from the customer is given to by the long-lead items, a second approval is given on the drawings before purchasing other parts

Most of the materials are in stock in order to be able to produce when an order arrives. Possible long-lead items may be purchased specifically in an early stage in collaboration with the customer

The production manager does checks during the engineering stage about the customer specific purchasing and production parts, to detect long-lead items and production impossibilities Materials are purchased by a separated purchasing department

Controlling job release onto shop floor

A weekly meeting between the production manager and project leaders takes place. The production manager has the knowledge about information and materials delivered by the pre-production stage and the available production capacity. The project leaders have gained knowledge about the total order process from the building sites and decide the production order sequence

There will be no further communication between the pre-production department and the production employees

The project leader does not have contact with the production department at all. Products are considered to be ready if they are needed at the building site.

A last check of the project folder before production has been carried out by the project leader

Warehouse employees receive overviews of the expected deliveries and expected late deliveries.

Production is not allowed to produce if required information or materials are still missing, this will be checked before production. The preparation department will control the drawings and the BoM The company is thinking of introducing a policy to combine the product engineering with the welding jigs engineering, which can be produced simultaneously

Table 4: Case results company F, G and H

Theme Company F Company G Company H

Lead time decision making

Product lead time is pretty good to predict. The product can consist of a few modules, which forms the so called critical pathway. This gives sales the option to set a feasible delivery date.

Unexpected design changes after the order confirmation may have impact on the product price or delivery date

Are able to predict the order lead time precisely. Production lead time depends mostly on the number of molds.

Changes after the order confirmation will often result in postponed delivery dates.

Customers know the lead time of the product lead time

Plenty of knowledge about lead time available due to the self-serving team.

Coordination between all departments

Sales, in collaboration with the customer and engineering, highly specify the order before the confirmation. The customer has to sign for the specifications and a proto type. The engineering employees act, similar to company B, as project leaders. Orders are divided to an employee of the department who is responsible for all tasks at this stage

The order confirmation frequently consists of drawings of the final product

The internal process after the order acceptance is structured properly Information is easily shared among the employees. This is done without the use of an IT system

Orders are divided into production groups which act as a self-serving team. This team consists of a sales person, an engineer, an employee for other preparation tasks, and a production manager

In case of incomplete specifications order is rejected by production manager and returned to sales.

Order confirmation is also the production document.

Information is shared mainly digitally.

Design & Engineering

The engineers have to make their own pre-production planning

Engineering is done by one person who may plan his own tasks.

19 planning Materials requirement and purchasing

Customers are asked for a first signature to buy the needed parts with long lead times

Specific materials are purchased by using a system, other standardised bulk materials (paper) are available in stock

Materials are purchased without the help of an IT system. Bulk materials are in stock and are refilled weekly. Few specific parts are mainly the concrete reinforcement elements. Drawings of the end product will be shared with the core supplier who delivers the concrete reinforcement elements

Bulk materials (in stock) are purchased by the purchasing department and order specific materials by work preparation employee.

Always bulk material in stock in order to serve the market directly.

Controlling job release onto shop floor

meetings are scheduled with the production chief to transfer the order from pre-production to the production department. Documents, material availability, and the understanding ability of the documents will be checked, which decreases production problems.

A close collaboration between the pre-production and production department ensures a smooth handover to the shop floor

Production manager will check an order before release

5. DISCUSSION

After establishing the case study results in the previous section, this chapter will discuss the case study evidence. The discussion is outlined flowing the five selected relevant pre-production activities.

5.1. Pre-production organization issues

5.1.1. Lead time decision making

In order to come up with a feasible delivery date the total order lead time has to be known. The total lead time can be divided into two parts, the production lead time and the pre-production lead time. Because this study is focused on the internal delivery of the pre-production stage, this study concentrates only on the arranging around the pre-production lead time. Land and Gaalman (2009) already came to the conclusion that delivery dates promised by sales often are based on unrealistic pre-production lead times.

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and/or lead time, and therefore the delivery date. More interesting is how companies try to improve their estimated lead time by arranging the lead time decision making activity. Many benefits are gained from the involvement of a project leader or engineer in the enquiry stage. The sales department is therefore often supported by such a person. A specialist of the engineering stage can trace potential lead time bottlenecks at an early stage, because of their knowledge of the processes. Most common bottlenecks are the long-lead items, mostly parts which have to be outsourced. But also welding jigs may be a vital aspect. Companies try to analyse the critical pathway of an order, all processes with the longest lead times in sequence, to come up with a proper deadline.

For the small company with highly customized and complex products (company B) a different situation is found. It appears that due to the different internal structure they experience few problems in predicting realistic pre-production lead times. Again, the engineer is involved in the enquiry stage, but more important, this engineer is also responsible for all pre-production tasks. The question is how their structure is of influence on predicting pre-production lead times. Most obvious is the knowledge these engineers have, compared to the engineers of the companies just mentioned. They understand the total process and have experience with similar situations. Also the sense of responsibility may affect the willingness of achieving the lead time they have proposed and agreed with. Despite of the low complexity company G shows many similarities. However, more research is needed to establish that estimated pre-production lead times are more realistic when orders are fully handled by one engineer.

Companies with products which are less complex and customized (company F, G and H) also experience few problems in predicting pre-production lead times. Their engineering tasks are relatively small and therefore will not significantly influence the total lead time. In addition, due to the low complexity, less materials are needed. All three companies have one or few core suppliers who always deliver their standardised products with the same lead time, which makes it more predictable.

21 5.1.2. Coordination between all departments

While passing through the pre-production process the information of the customer requirements is converted into drawings, documents, and other shop floor requirements. The transmission of information between all departments has to be coordinated, as well as the pre-production tasks. These two aspects, coordination of information and tasks appear to be relevant for shop floor requirements purposes.

At almost all companies orders are coordinated by a project leader. Orders are allocated to a project leader during the enquiry stage or short after the order acceptance. This person is responsible for a smooth order flow through the pre-production stages. Only company H divides orders into production groups which act as a self-serving team. Coordination is done by this team instead of one person. This team consist of a sales person, an engineer, an employee for other preparation tasks and a production manager. This structure seems to fit in a company with less complex and customised orders compared to other companies which have orders that act more as a project. Potential benefits of a team are fast decision making and problem solving, and efficient engineering as less handovers are required.

The degree of coordination of the project leaders differ from each other. Project leaders can have only the task to monitor the process and to ensure a smooth information transfer. However, others also control the pre-production tasks and are more involved in these activities. This ensures a monitored pre-production planning and potential issues can be traced early. It has been discussed what the potential benefits are of such a project leader for the lead time decision making, and it will be beneficial for the material purchasing as well. Due to the required helicopter view of the project leader, timely adjustments can be made on the order when customer requests or engineering tasks turn out to be impossible for production.

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structure are mainly companies with low complex and customised products. Logically this is because the low work load of the pre-production stage. An exception is company B. They indicate that benefits are gained by this structure because of their high complexity and customised products. It seems that the coordination structure of company B is more effective compared to the similar complex company A. Company A coordinates the information flow with a project leader and tasks are divided to different departments. However, it is reasonable that company A has chosen to let more specialised engineers work on the same project for decreasing work load and lead time purposes. However, this does not imply that the element task integration is completely useless for companies in this situation.

5.1.3. Design & Engineering planning

Different aspects are related to the design and engineering planning activity, such as capacity constraints, processing times, operations sequences, and due date decision making. In section 5.1.1 the processing times are already discussed because of their impact on the lead time decision making. The aspect of pre-production capacity constraints is plainly interesting, however it requires more research in order to analyse this in depth and is therefore not included in this study. When it comes to the arrangement around the design and engineering planning it is more interesting how companies structure this activity.

First of all, it is remarkable that most of the companies put extremely limited effort in design and engineering planning. Engineering plans are rarely made, let alone that they are controlled. Especially in companies with low product complexity and customisation (company F, G and H) engineers are free to plan their own tasks. They determine their own deadlines based on the delivery date of the end product, and subsequently decide when to start with an order. The same holds for the more complex companies (A, B, C, D and E) , however they make use of a planner who will support these activities. Where the first three companies are free to plan their own tasks, and where these companies are satisfied with, the more complex companies are willing to structure and control this activity by planning the stage. Not only the final delivery date is seen as important, but also the internal delivery deadline with respect to the time required at the job release stage and the shop floor. In order to control the deadlines, meetings are arranged with planners and project leaders where potential bottlenecks are discussed.

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this structure the company experienced serious improvements in timely material and information availability. The task specific planning combined with highly monitoring these tasks give the opportunity to intervene on time if, for example, deadlines are not met due to capacity constraints or purchasing of materials (when included in the engineering stage) is forgotten. Though, this structure affects the behaviour of engineers and the culture of the engineering department. Engineers are often not used to work according to strict tasks and deadlines, which is comparable with a standard production situation. The freedom of the engineer will be restricted, and project leaders have indicated that this has negative influences on their motivation. These contradictions deliver the project leaders of complex ETO companies challenging issues.

To conclude, there are many opportunities for design and engineering planning and arranging this activity. Even though this study gathered minimal information about this subject, it resulted in a large point of interest.

5.1.4. Materials requirement and purchasing

Final products of the ETO sector typically consist of many parts. Next to the standard purchase items, many of the parts are order specific. This implies that these semi-manufactured articles often have to be engineered and need to be outsourced, and therefore consist of long lead times. The purchasing activity is important for an on time availability of these materials.

By asking the companies how they arranged this activity, it appeared that they are struggling with four issues: who, when and how to purchase the order specific items, and how to monitor this activity. Results did not reveal that there are large differences between companies in arrangement of order specific parts. For companies with more complex and customised products this subject is more relevant because their final products consist of more special parts.

Few companies decided that a separated purchasing department has the responsibility to buy the articles. However, they have to receive product information, mainly in the form of drawings, from the engineering department. In most cases the engineers are considered to be responsible for this task. Despite of the higher work load of the engineers, two benefits are identified. Because no extra handover of information is required, it is less likely misunderstandings occur, and the long-lead items are automatically traced in an early stage.

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Therefore companies usually choose to buy these parts as quickly as possible, which, on the other hand sometimes lead to an unstructured situation.

Companies try to decrease the risk of buying by asking the customer for an early signature on the special parts. However, this is occasionally formalised. Relationships with customers are often based on trust, so investments may be done before an order acceptance. Furthermore, the question is how to transfer information to the supplier. Trust is again a key concept. Some companies exchange not only drawings of the semi-manufactured part, but also of the final product in order to exclude more final assembly problems.

To monitor the activity, some responsibility lies at the project leader. They have to detect long-lead items during the enquiry stage or, if the engineer is not responsible, during the design and engineering stage. Again, this is almost never structured and formalised. Only company C has arranged weekly meetings and discusses the purchasing activities which are assigned to specific engineers. The company experiences a considerable difference in material availability since this structure is implemented.

To summarise, compared to the arrangement of the design and engineering plan, the material requirement and purchasing activity is almost never formalised and structured. However most of the companies are aware of the essential aspects of this activity and many opportunities can be gained by a better focus on this.

5.1.5. Controlling job release onto shop floor

This section elaborates on the order transfer from pre-production to the shop floor. It is essential that the required shop floor information and materials are available at the order release stage where the transfer takes place. For controlling the job release two elements became apparent, checking the availability of the shop floor requirements and guaranteeing the understandability of the information. Companies approach this in different ways, however it is not reasonable that this is influenced by the company size.

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responsible for the link between the departments. This has to result in a more effective way of communicating, which is assumed to be less time consuming for the engineers and production employees. Moreover, sometimes the production department is responsible for the material availability check. If materials are not standardised and in stock (company A and E), and they find that materials are missing, production cannot start with the order at the moment they should. Opportunities are present for these companies to conduct extra checks during the work preparing stages, simply because the check at the release stage is too late and materials typically have long lead times, as explained in section 5.1.4.

6. CONCLUSION

As stated in the introduction, the study intends to fill a gap in the available ETO literature by providing empirical evidence on the arrangement of the pre-production stage activities, which are responsible for the timely internal delivery of the shop floor requirements.

These requirements are indicated as materials and information that has to be known in order to be able to produce the required product.Aset of pre-production activities has been selected which are highly involved in the internal delivery, and possible share responsibility for the poor internal delivery mentioned by Land and Gaalman (2009). These activities are lead time decision making, coordination between all departments, design and engineering planning, material requirement and purchasing, and controlling job release onto shop floor. However,this research is restricted to these five activities, more research should be done to determine the completeness of the involved activities.

The research continued on exploring the arrangement around them. The arrangement of the pre-production stages were shownto partlydiffer on the five activities, according to the company product complexity, product customisation,and company size. The most interesting elements discussed include the task allocation and integration in the pre-production stage, monitoring the engineering planning and purchasing tasks, and the coordinating of all handovers.

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extending the results with larger and more varied pre-production stages, and eventually determining the “best” arrangement under various ETO company characteristics.

In summary, the outcomes developed in this research study revealed new interesting elements of pre-production arrangement with respect to the internal deliveries. It is hoped that these insights provide ETO organisations with the ability to share pre-production arrangement insights with other similar types of companies and foster additional study in this critical and largely under-researched area.

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7. REFERENCES

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Aslan, B., Stevenson, M., & Hendry, L. C. (2012). Enterprise Resource Planning systems: An assessment of applicability to Make-To-Order companies. Computers in Industry, 63(7), 692– 705.

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Christer Karlsson. (2009). Researching operations management (p. 322). New York: Routledge. Deep, A., Guttridge, P., Dani, S., & Burns, N. (2008). Investigating factors affecting ERP selection in

made-to-order SME sector. Journal of Manufacturing Technology Management, 19(4), 430–446. Edmondson, A. M. Y. C., & Mcmanus, S. E. (2007). METHODOLOGICAL FIT IN MANAGEMENT,

32(4), 1155–1179.

Eisenhardt, K. M. (1989). Building Theories from Case Study Research. Academy of Management Review.

Eisenhardt, K. M., & Graebner, M. E. (2007). THEORY BUILDING FROM CASES: OPPORTUNITIES AND CHALLENGES. Academy of Management Journal.

Hendry, L., Land, M., Stevenson, M., & Gaalman, G. (2008). Investigating implementation issues for workload control (WLC): A comparative case study analysis. International Journal of Production Economics, 112(1), 452–469.

Hicks, C., McGovern, T., & Earl, C. . (2000). Supply chain management: A strategic issue in engineer to order manufacturing. International Journal of Production Economics, 65(2), 179–190.

Hicks, C., Mcgovern, T. O. M., & Earl, C. F. (2001). A Typology of UK Engineer-to-Order Companies, 4(1).

Kingsman, B. G. (2000). Modelling input–output workload control for dynamic capacity planning in production planning systems. International Journal of Production Economics, 68(1), 73–93. Konijnendijk, P. A. (1994). twoduction ieconomics marketing and manufacturing in ET0 companies,

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Meredith, J. (1998). Building operations management theory through case and field research. Journal of Operations Management, 16(4), 441–454.

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Stevenson *, M., Hendry, L. C., & Kingsman †, B. G. (2005). A review of production planning and control: the applicability of key concepts to the make-to-order industry. International Journal of Production Research, 43(5), 869–898.

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APPENDIX A – Thesis planning

FORWARD SCHEDULING

Activity

Through-put time Deadline

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APPENDIX B – Interview protocol

Interview protocol

Purpose of this protocol

This protocol aims to give insight in the method the researcher will use during the interviews. For the participating companies, this protocol is also designed for explanation of the study and to prepare for the interviews. The researcher will use the protocol as a questionnaire for interviews and as a checklist that all topics are covered.

Motivation of research

In recent years, customers require a fast and reliable delivery, which makes it important for suppliers to ensure a high reliability. Though, delays of orders is a common problem in many SMEs. Especially in companies with an engineer-to-order (ETO) structure has shown that it is difficult to meet the high customer requirements. This will happen due to the specific characteristics of this business. The complex customized products provide a lot of uncertainty in the process steps before production, pre-production phase. A good transfer of pre-production to production also appears to be difficult and may cause problems in production.

Aim of study

This study aims to provide insights into the arrangement of the pre-production stage. Participating companies receive upon completion of the investigation the research report, including a management summary in Dutch. In addition, during the interviews companies have the opportunity to discuss with the researcher about the research problem.

Purpose of interviews

The interviews were designed to obtain information on the subject and which may contribute to answer the main question more information.

General Information

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researcher contacts the companies personally, possibly in cooperation with consulting company Langhout & Cazemier.

The companies are asked for the ability to (1) interview an employee, preferably a business or production manager, to talk about general business topics and pre-production-related issues. In addition, it will be asked if the researcher is allowed to speak with other (production) employees. (2) To clarify the present situation (3) a small tour is required. The interview protocol sent on forehand by email to the company.

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Interview with 'production manager / project leader / supply chain manger'

Date: Interviewed by: Name: Title / Function: Department: Years of service: Company information 1) General company a. Name b. Company description c. Annual turnover d. FTE pre-production e. FTE production

2) Order proces. Can you explain the complete order proces in detail?

a. Can you eleborate on the order release, from pre-production to production? b. Average lead time orders (sales - delivery)

c. Average lead time pre-production (sales - start production) d. Average production lead time (start of production - delivery) e. Average number of orders per week / month / year

f. Average number of products per order 3) Production

a. Types of processes

b. Complexity / difficulty of processes 4) Product

a. Complexity of a product

b. % Repeat orders and new customer-specific products

c. Rate between client-specific products and standard products a. Small adjustments

33 5) Performance

a. Delivery reliability

a. Moving deadlines b. Interaction with customer c. Interaction with supplier

Production wishes

Before production can start with an order, a lot activities are already done during the pre-production stage. The pre-production stage includes: sales, engineering, purchasing and work preparation

6) What does production require, so that production can start with an order?

Think of information requirements (drawings, planning dates, etc.), materials (calculated and ordered raw materials, supplies, etc.) and capacity (planned capacity, knowledge workers, production (machine) capabilities, etc.).

7) How often are production requirements not fulfilled? 8) What do you miss?

Can you give several examples here?

Production problem situations

If the pre-production does not satisfy production requirements, we name it a 'problem'.

9) If there are "problems" arise,

a. What impact does did have? b. Can you give examples?

c. Can you can link these issues to the production requirements? For example: missing drawings often leads to errors in dimensions Solving problem situations

In order to deliver the goods in the desired quality and on time, sometimes problems have to be solved.

10) Can you tell me how to solve problems?

Think of calling the customer (order delay), hiring extra people, and so on. 11) Can you indicate a "solution", who decides which solution to choose?

For example, he production operator or production manager? This may vary per solution. 12) Can you indicate when there will be chosen for a certain solution?

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Did it for example contribute to the problem. Did it cost you a lot of money. And so on. 14) Can you indicate which solution has your preference?

.Prevention of problems

Which "tricks" do you take to prevent problem (dealing with high uncertainty / long lead time)? Organizational aspects

1) Systems 2) Controlling

3) Order process coordinating

Tricks

a) materials / components with long lead times purchased in an early stage (pre-engineering of long lead items)

b) Agreements with customers about delivery times (overall planning, freezing date of production start)

c) Agreements with customers on design changes d) …

Can you think of more?

In which degree are these tricks formalised in your company? a) Not at all

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APPENDIX C – Company size

Company FTE (pre-production) FTE (production) Annual turnover (million) Size