PRODUCT ALLOCATION
Based on market requirements and
operational performance
PRODUCT ALLOCATION
Based on market requirements and
operational performance
Author: M.R. van Engen (student number 1656333) Supervisors: dr. G.C. Ruël (University of Groningen)
dr ir. H. van de Water (University of Groningen) ir. H. Legtenberg (Nijburg Industry Group)
PREFACE
This thesis finalizes the course program of the Master Technology Management at the University of Groningen. It has have been a personal challenge to combine the theory and practice into this report.
Many people have contributed directly or indirectly to this report. I am very thankful for the support I have received. I would to thank the following (groups of) persons in particular:
Herman Legtenberg, Technical director of the Nijburg Industry Group, for giving me the opportunity to do this research, and having the patience it required.
Mrs. Ruell, my supervisor from the University of Groningen, in her guidance in writing this thesis.
Marion and Coen for their critical reviews.
Sue, Sarah and Colin in sacrificing free time to collect me from the airport and hotel, and make me have a pleasant stay in England.
Solid Air staff for their cooperation and willingness to help.
Royair and Nijburg Products production staff, who not only helped to provide
information, but also in allowing me to follow them through the factory with questions a stopwatch and a photo camera.
NP office staff in the involvement they showed and their advice and willingness to help me. I also would like to thank them for the amusing social talks during coffee and lunch breaks.
Last but not least my girlfriend, family and friends who supported me, not only during the last “obstacle” of the study, but through my whole “career” as a student.
SUMMARY
The Nijburg Investment Group (NIG) is first active in the Dutch and later on also in British air conditioning market. Solid Air Ltd (SA_uk) is serving the British market and Solid Air Luchttechniek (SA_nl) the Dutch market. The purchase of a complementary British factory Royair (RA) to the Dutch factory Nijburg Products (NP), was to have a better position in the British market. Both factories produce similar products. For nine of these products (P1 – P9) the preferred production location is assessed for each market. The preferred location should give the best competitive advantage. This is summarized in the following research question:
Which production location(s) give(s) the best competitive advantage on the Dutch and/or British market for each product?
Seven factors are used to select the preferred production location. The answer to the research question has a market and a resource side. There are four factors that refer to the market side of the question (A to D). The research is structured according the Platts-Gregory Procedure (PGP), developed by Platts and Professor Gregory (1990). It makes an explicit comparison between what the markets want and how the operation performs. The procedure has three stages. The fist stage is looking into the market side, the second stage about the resource side and the last stage is to review different options for improvement and developing an operations strategy. Though, the last stage is used to assess the preferred production location per product.
In the first stage four factors (A to D) are assessed to find out what the markets want:
B) The difference in market requirements was assessed, also by interviewing sales representatives. They have selected the order winners and qualifiers. The performance to these requirements is compared to the quantifications of operations performances. Result shows that RA meets the requirements from both markets best.
C) Differences in market demand, based on sales, did not result in an unambiguous difference that applies to all products. For some products (P3, P4, P6 and P9) SA_uk has the highest demand, and for the other products (P1, P2, P5 and P7) SA_nl has the highest demand. For P8 it was not possible to assess the differences in demand.
D) A relevance of making products in England, because it is assumed to be important to the British customers in their purchase policy, was not confirmed by SA_uk in interviews.
On the resource side there are three factors (E to G) used to reflect the preference:
E) Differences in operational performance, was assessed by quantification of indicators for Slack and Lewis’ (2003) five performance dimensions. The overall operational performance of NP is better than RA. Especially the dimensions speed, flexibility and cost are better at NP. RA scores better when it comes to the dimensions quality and dependability.
F) Differences in product architecture. There are differences in product architecture, which was assessed with concept scoring. RA’s product architecture is superior for P2, P3, P5 and P8. NP’s product architecture of P4, P6 is superior. The differences are used to neutralize the effects of a superior product architecture to operational performance (factor E).
G) Differences in factory specific cost. Data of factory specific cost shows an advantage for RA. Especially cost of labour is lower at RA.
and NP, taken in to account the practical implications, is shown in table 1. Standard products are products from the catalogue, or slightly changed products to the ones from the catalogue.
table 1: product allocation
P1 P2 P3 P4 P5 P6 P7 P8 P9
Production at Royair X X X X
Production at Nijburg Products X
Local for Local production X X X
Serial production NP->RA
INDEX
PREFACE ... I SUMMARY...II 1 INTRODUCTION ...2 1.1 Structure of report... 3 2 CONTEXT...42.1 Solid Air International ... 5
2.2 Royair ... 5 2.3 Nijburg Products ... 5 2.4 Products... 6 3 THEORY ...7 3.1 View ... 7 3.2 Conceptual model... 9
3.2.1 (A) Differences in experienced performance ....10
3.2.2 (B) Differences in market requirements ...12
3.2.3 (C) Differences in demand ...12
3.2.4 (D) Relevance of ”Made in Britain”...13
3.2.5 (E) Differences in operational performance...13
3.2.6 (F) Differences in product architecture ...13
3.2.7 (G) Differences in factory specific costs...13
3.2.8 Preferred production location for a product...13
3.3 Research questions ...14
4 METHODOLOGY ... 15
4.1 Differences...15
4.2 Platts- Gregory Procedure...15
4.2.1 Market side...15
4.2.2 Resource side...18
4.2.3 Preferred production location ...21
5 REQUIREMENTS ... 23
5.1 Differences in experienced performance ...23
5.2 Differences in requirements of both markets24 5.3 Differences in demand...24
5.3.1 Sales...24
5.3.2 Trend ...25
5.4 Made in Britain...26
5.5 Conclusion market side ...26
6 PERFORMANCE... 27
6.1 Differences in operational performance ... 27
6.1.1 Conclusion ... 30
6.2 Performance on market requirements... 31
6.3 Differences in product architecture ... 32
6.4 Differences in factory specific costs ... 33
6.5 Conclusion operations side... 33
7 PREFERRED PRODUCTION LOCATION... 35 8 PRACTICAL REFLECTION ... 37 8.1 Standard products ... 37 8.1.1 Standard P1 ... 37 8.1.2 Standard P2 ... 37 8.1.3 Standard P3 ... 37 8.1.4 Standard P4 ... 37 8.1.5 Standard P5 ... 38 8.1.6 Standard P6 ... 38 8.1.7 Standard P7 ... 38 8.1.8 Standard P8 ... 38 8.1.9 Standard P9 ... 38 8.2 Special products... 39 8.3 Capacity... 39 8.4 Conclusion... 39 CONCLUSION ... 40 DISCUSSION ... 42 REFLECTION ... 43 LITERATURE ... 44 Text books ... 44 Articles... 44 Online sources... 46 APPENDIXES... 47
Appendix 1: The products ... 47
Appendix 2: Performance Indicators ... 49
Appendix 3: Experienced performance... 52
Appendix 4: Operational performance ... 53
Appendix 5: Product architectures ... 55
1
INTRODUCTION
The Nijburg Investment Group (NIG) is active in the Dutch air conditioning market, since 1968. Where core activities in the early years only included production and installation, activities are expanded with sales by incorporating Solid Air Luchttechniek in 1986. Twelve years later the sales activities were internationalized to the British Market by incorporating Solid Air UK. As a part of the UK growth strategy the bankrupted factory Royair LTD was purchased in 2007.
The purchase of Royair, “a bargain”, was primarily for the intellectual property, to expand the product range and to have a better position in the British market. The purchase also concerned a factory where similar types of products were produced to the existing factory Nijburg Products in Sappemeer (NL). Even though the products functions are similar, the product architecture is different. Differences are not necessarily visible, but especially have implications on manufacturing.
Today’s aim of Royair is to meet customers demand for special or quick deliveries in the British market. Nijburg Products is also still a supplier to the British market for the more common products.
The acquisition of Royair increased the total production capacity of the NIG, where the capacity of Nijburg Products could be sufficient to serve former Royair customers as well. This raises questions like does the NIG really benefit from Royair, and if so is the current usage of the new factory to only serve the British market the best usage? Or perhaps did the acquisition of Royair make Nijburg Products (NP) redundant for production of comparable products?
This leads to the following research purpose:
Select the preferred production location for the Dutch and British Market for each of the selected products
an organisation’s unique advantages over its competitors (Hollins & Shinkins, 2006). The markets are limited to the British and Dutch market. Those markets represent up to 99% of total sales of the Solid Air division. The production locations are limited to the current factories Royair and Nijburg Products.
1.1
Structure of report
2
CONTEXT
Nowadays the NIG activities are about designing, engineering, supplying, assembling, installing and servicing climate control projects, from the air handling unit to the final air outlet. The annual turnover, supported by a total of 330 FTE, is about €50 million Euros per year in a €350 million European market.
The mission of NIG is to contribute to the improvement of the indoor climate in offices, healthcare, house-construction, industry and shipping- markets (Nijburg Investment, 2008). The NIG consists of several divisions which all have their own accountability and specialty, in production, advising, sales or wholesaling. An organisation chart of the subsidiaries of the NIG is shown in Figure 1.
Figure 1: Organization chart of NIG
2.1
Solid Air International
Solid Air is the sales organization of air distribution technology in the NIG. Solid Air gives advice about how to get the right indoor climate with their knowledge of distributing air into areas. Solid Air UK (SA_uk) and Solid Air Luchtverdeeltechiek (SA_nl) are involved in this research. The majority of components of Solid Air are produced at own factories (Solid Air, 2008; Solid Air Luchtverdeeltechiek B.V., 2008). SA_uk makes use of Nijburg Products and Royair, where SA_nl only uses Nijburg Products, as illustrated in figure 2.
Figure 2: Current supply
2.2
Royair
Royair (RA) produces products in its own factory. RA moved from the old location in Honiton to a small 1200 m2 factory in Dunkeswell (UK). Old but solid production resources, together with ten former Royair employees and two new hired staff kept things running. The product discussed in this research, encompasses the majority of production at RA.
2.3
Nijburg Products
2.4
Products
The products involved are commercial products interesting for the British as Dutch market selected by the NIG. They are listed in table 2. All but two products are manufactured at RA and at NP. The two exceptions are the linear bar (p1) and the floorgrill (p9). The Dutch market is using a P1 supplied by a third party. P9 is only manufactured and sold in Britain, and there is not a Dutch substitute. All products are diffusers except the P8 which is a complementary product for many diffusers outnumbering the diffusers involved. More information about the products can be found in appendix 1.
table 2: The products
Product RA name NP name
P1 Linear bar LOO WB
P2 Door/wall diffuser SLT, STF WDZD
P3 Egg crate exhaust 024, 025 HREC
P4 Louvre face ceiling RD LTVD
P5 Duct diffuser 001,002,003 WUA, WUB, WUC
P6 Slot diffuser HC STAD
P7 Weather louvre EXT50/50 BM
P8 Volume control Damper Volume regelaar
P9 Floor grill HDFG WBC
A distinction in products is made between standard, non-standard and special products: Standard products are offered in a few standard dimensions and accessories as
mentioned in the Solid Air catalogue;
Non standard products are products with small differences to standard products. E.g. with a non standard dimensions or different colours;
Special products are products that require modification on existing products. Because the radical changes, additional drawings are needed for production.
3
THEORY
In this chapter the factors that influence the preferred production location are listed and described. They are selected based on a combination of theory, empiricism and common sense (De Leeuw, 2005). A conceptual model is formed to show the factors that can influence the answer to the follow research question:
Which production location(s) give(s) the best competitive advantage on the Dutch and/or British market for the selected products?
There are several methods to bring operations and markets together. McGee et al (2005) uses the product range and core competences to improve competitive advantage. The product range is fixed in this research and the goal is not to improve the competitive advantage but to determine how competitive advantage can be obtained best. Slack and Lewis (2003) seek this fit by comparing what is needed and what is achieved, to develop operations strategy to improve operations. The method from Slack and Lewis supplies a framework to evaluate the performance of both factories and compare it to the market requirements, as indicated in figure 3 which is adapted from Slack and Lewis (2003).
Figure 3: Fit according to Slack and Lewis (2003)
3.1
View
operations (Slack et al, 2004; Slack & Lewis 2003; Krajewski & Ritzman 2002). The five dimensions are, (1) quality, (2) speed, (3) dependability, (4) flexibility and (5) cost. There are two different markets, with (possibly) different requirements. It should become clear what the requirements are, in order to assess which factory responds best. Slack and Lewis (2003) identified that not all of the market requirements have to be equally important. It is necessary to assess what the most important requirements for both markets are.
Next to the market requirements of both markets, performance of both factories should be clear. The performance of the dimensions should be quantified. Where operations should follow the market, the market can articulate how satisfied they are with current operations. This in addition to the quantifications. Satisfaction is based on the difference between customers’ expectations and the perceived quality of the products or service (Slack et al, 2004). Quality of products or service should include total performance of a factory.
There is some difference in the products architecture of the comparable products between both factories. These differences can result in differences in operational performance. Product architecture directly affects the ability to produce at low cost (Ulrich and Eppinger, 2008). It is assumed that both factories are able to use each others product architecture, so advantages of the superior product architecture can be neutralized.
Both factories are located in two different countries what includes more factors than only performance of operations. Hibbert (1997) mentions 12 areas of concern for international operations. Three of the areas are considered relevant for this research:
(1) Demand. The number of sales can influence the outcome of the decision for a production location. If the demand in absolute numbers is high in one country and low in the other, it can be an argument to have production where the highest demand is; (2) Cost. This is also one of the five performance dimension, but here Hibbert (1997)
(3) Man power, refers to the quality and technical levels of local labour and of course labour cost. This factor is overlapping two of the five performance dimensions (quality and cost). Therefore it is not necessary to discuss it separately.
Because it is an existing situation, the following five areas mentioned by Hibbert (1997) are considered not relevant in the discussion of allocating products: (4) location of a factory, (5) access to sources of supply, (6) competition, (7) technical and logistical factors and (8) fiscal aspects.
A part of the risk factor (10) includes financial risk. Different currencies are used between both markets and both factories. Klassen & Whybark (1994) also identified currency as a risk factor for international operations. Including currency as a factor is considered out of scope. The focus will be on operations performances and because it relative difficult to assess the risk and the consequences. Another argument is that current developments in the exchange rate are very unpredictable and with high variation, influencing this factor on a daily basis.
Both countries are an EU member with tariff-free and unrestricted movement of goods, capital, services and persons (Europese Unie, 2009). That makes the last two remaining areas, (11) market access and proximity and (12) political factors, mentioned by Hibbert (1997) less interesting.
Additional to the areas mentioned by Hibbert (1997) to international operations is an argument for the decision of the purchase of Royair. The assumption is that “Made in Britain” is important to the British customers in their purchase policy.
3.2
Conceptual model
Figure 4: Conceptual model
In the following sections the elements of the conceptual model will be discussed. 3.2.1 (A) Differences in experienced performance
In this situation the sales organizations can be seen as customers of the factories. Customer satisfaction is based on the difference between customers’ expectations and the perceived quality of the products or service (Slack et al, 2004). Where often requirements and performance are hard to quantify, there is an experience how well operations are performing (Slack et al, 2004; Garvin, 1984). This experience is relevant where it shows the differences in experienced and required performance. The question is how to assess performance.
According to Porter a focus on costs is appropriate for commodity products. Commodity products are products with high competition and with little or no differences between the products (McGee et al, 2005). Solid Air not only sells standard diffusers, but they give advice and supply a diffuser with the right conditions for a particular situation. This can be a standard product or a special designed and made product. Differentiated products are about putting the condition in place that creates competitive advantage (McGee et al, 2005). Competitive advantage is delivering superior value to customers with an organisation’s unique advantages over its competitors (Hollins & Shinkins, 2006).
weapon to differentiate(Krajewski & Ritzman 2002). Differences in performance between RA and NP will be assessed based on the following five performance dimensions (Slack and Lewis, 2003):
1 Quality
There are several ways of defining quality. To assess quality of the two factories the manufacturing-based approach of quality by Garvin (1984) is used, because it reflects the quality of the operation function. The definition of quality is producing products free of errors that conform to their precise design specification. Quality of manufacturing is of major influence on customer satisfaction (Slack & Lewis 2003; Hill 2008; Swink Narasimhan & Wang, 2007).
2 Speed
Speed is the time between a customer requesting products and the moment of delivery (Slack & Lewis, 2003). For most goods and services, the faster customers can have the products or service, the more likely they are to buy it, the more they are willing to pay for it, or the greater the benefit they receive (Slack et al, 2004; Swink & Hegarty. 1998). 3 Dependability
Dependability means doing things on time for customers to receive their goods or services exactly when they were promised (Slack et al, 2004). Dependability is of major influence on customer satisfaction (Swink Narasimhan & Wang, 2007; Slack et al, 2004).
4 Flexibility
Flexibility is a result of responding to a dynamic environment by an organization to change their products and services and changes the way they do business (Slack & Lewis, 2003). Specifically customers will need the operation that can provide four types of requirements (Slack et al, 2004):
4.1 Products/service flexibility: the operation ability to introduce new or modified products and services. In this research the product flexibility will address the ability to produce special products.
4.3 Volume flexibility: the operation ability to change its level of output or activity to produce different quantities or volumes of products and services over time.
4.4 Delivery flexibility: the operations ability to change the timing of the delivery of its service or products.
5 Cost
A major operations objective is cost. Customers seek a balance between costs of a product or service and the benefits of a product or service. The dimension will represent the operating expenditure. This is the financial inputs the operation needs to fund the ongoing production of products (Slack et al, 2004; Krajewski & Ritzman, 2002).
Each of the five performance objectives has several effects to other dimensions (Slack et al, 2004):
Quality reduces costs and increases dependability; Speed supports flexibility;
Dependability reduces cost;
Flexibility supports cost and maintains dependability; Cost is affected by all other performance objectives.
These five dimensions will be used for more factors related performance and requirements in this research and will be referred to with the “performance dimensions”.
3.2.2 (B) Differences in market requirements
Slack and Lewis (2003) identified that not all performance dimensions have to be equally important to a market. There can be priorities in the performance objectives. Specific requirements can be important when it comes to selecting the preferred production location. The requirements will be obtained. The factory meeting the required performance is in favour to be the favourite production location what will be assessed on factory level.
3.2.3 (C) Differences in demand
should be able to meet the demand. Differences will be assessed on product level. 3.2.4 (D) Relevance of ”Made in Britain”
It is assumed by the NIG that “Made in Britain” (MIB) is important to the British customers in their purchase policy. If MIB is important it can affect the preference of production for the British market. Relevance of MIB will be assessed on market level.
3.2.5 (E) Differences in operational performance
This factor is very similar to factor A (differences in expected and experienced operational performance). It also assesses performance of both factories based on the five performance dimensions. The difference is that performance will be based on quantifications instead of qualifications as at factor A.
3.2.6 (F) Differences in product architecture
Differences in product architectures for similar products between both factories can affect the performance of a factory. It can be a result in differences in consumption of material, labour, equipment and overhead (Ulrich and Eppinger, 2008). Where differences in product architecture affect operations performances, differences in consumptions of material, labour and machinery plus the required skills to make the products will be made clear for each product per production location.
3.2.7 (G) Differences in factory specific costs
Superior performance on the cost dimension can be a result of cheaper resources and not necessary indicate superior performance of operations (Chakravarty, 2005). Therefore improvements in operations do not necessarily mean a better performance on the cost dimension. Performance of operations can be managed by an organisation, where unit costs of for instance labour, materials, energy etc are hard to control. The factory with cost advantages in unit cost is in favour to be the production location.
3.2.8 Preferred production location for a product
3.3
Research questions
From the conceptual model two main topics can be discovered that can influence the research question. One is market side and the other is the operation side. To answer the research question, seven sub questions are drawn and divided between the two main topics.
What the market wants include all factors related to market side. The factors are captured in the following four sub questions with respect to the requirements:
1. What are the differences in expected and experienced performance? 2. What are the requirements of both markets?
3. What is the demand in both markets?
4. Is “made in Britain” important in the British market?
The second are factors indicating how both factories are operating. The three performance sub questions are:
5. What are the operational performances of both factories?
4
METHODOLOGY
This chapter will give insight in the methodology used for answering the research sub questions mentioned in the previous chapter. The methodology and its utilization are described in this chapter.
4.1
Differences
In the conceptual model the factors are about the differences of performance between both factories. The differences will be presented in a ten point scale. From the best performance, the relative differences of the other performance to the best performance will be the score of the other factory. An example, with made up performances, can be found in table 3.
table 3: example of assessing difference
RA NP Best score Score RA Score NP
Deliveries on time 98% 85% RA (98%/98%)*10= 10 (85%/98%)*10=8.7 Cost 10 euro 15 euro RA (10/10)*10= 10 (10/15)*10= 6,7
The best score, not necessary the highest score as the example of cost in table 3 shows, will be used as reference. The result is a value from one to ten to value the performance. A higher score indicates a better performance.
4.2
Platts- Gregory Procedure
The Platts-Gregory Procedure (PGP), developed by Platts and Professor Gregory (1990), explicitly makes the comparison between what the markets want and how the operation performs. Factors that are required by the market are identified and compared with the level of achieved performance (Slack & Lewis 2003). The comparisons show up the gaps, what is used to show what the operations strategy must address (Slack & Lewis 2003). Showing gaps is also suitable to assess the differences in how operations perform and the differences between expected and experienced performance. The procedure has three stages. The fist stage is about the market side, the second stage about the resource side and the last stage is to review different options for improvement and developing an operations strategy.
4.2.1 Market side
and it particular identifies the factors that are required by the market and their priorities. The five dimensions will be used to capture the requirements of the British and Dutch market and to show the differences. The first stage will give insight on the research questions about the expected performance (A), the requirements of both markets (B) and the differences in demands (C) and if made in Britain is important (D).
Solid Air sales representatives are used to obtain the marketing understanding of the organisation. It is obtained by face to face interviewing, which makes it possible to obtain information in depth (De Leeuw, 2005). Interviewing is the preferred method when it comes to retrieving opinions, knowledge and attitudes (Baarda & de Goede, 2001). Three persons from the British market and four persons from the Dutch market participated. Purposive sampling is used because participants are chosen arbitrarily (Cooper & Schindler, 2006). It included the following functions: sales directors, British sales manger, area managers and a so called project advisor. They all have many years of experience in the air-conditioning market. The assumption is that the sales organizations have an interest in articulating customer current and future demands as good as possible. They benefit if those customers demands can be satisfied by operations.
(A) Differences in expected and experienced performance
Ten point value = (((5 point value-1)/4)*9)+1 (1)
After valuing the dimensions the average score of each factory shows the preference of the production location for a market.
(B) Differences in Requirements
A useful way of assessing the relevance of the indicators of the five dimensions is to distinguish them between qualifying and order winning factors (Slack & Lewis, 2003):
Qualifying factors are those aspects where performance has to be above a particular level just to be considered by the customer. These are general the minimum
expectations of customers, and they are not going to applaud too loudly for receiving them;
Order winning factors are regarded by customers as key reasons for purchasing the product or service. Raising performance in an order-winning factor will either result in more business or improve the chances of gaining more business;
Elements not assessed as qualifying or order winning are less important factors which do not influence customers in any significant way.
The required performance of qualifying and order winning factors of both markets will be assessed based on the five performance dimensions on the same aspects as the differences in expectations and experiences are expressed. It is assessed by structured interviews with seven sales representatives. The requirements will also be used to compare how well operations are performing on the qualifiers and order winners. This is one of the assessments of the second stage.
(C) Differences in Demand
The annual demand is expressed by the sales from the information systems of 2008. These numbers from 2008 are representative in this research. The share per market of the total market share will be used as indicator for preference of the demand factor. The percentage will be divided by ten to fit a ten point scale.
(D) “Made in Britain”
The method used to assess if made in Britain is a factor that can influence the choice of product allocation is by interviewing the British sales representatives. They can assess if “Made in Britain” is important to their customers. It will be valued in a 10 point scale where 1 is not important at all to 10 where it is absolutely crucial.
4.2.2 Resource side
The second stage of the PGP is about identifying current operation performances and how performance is affected by differences in factory specific cost and product architecture. It is also about assessing the extent to which practice helps to achieve the qualifiers and order winners. In this stage the research questions related to performance will be answered.
(F) Differences in Operations performances
Operations performance is assessed on the five dimensions. The used indicators, based on Neely, Gregory & Platts (2005), Galbreath (2005), Mills, Platts & Gregory (1995) and Slack et al, (2004), can be found in appendix 2. They will be used to assess the overall performance of operations as well as to show how operations are performing on qualifiers and order winners aspects. Different sources of data are used. The first source of data are NP’s and RA’s information systems. The information systems are a primary source of information where some production data is stored. Available data is about delivery dates, specifications of the products and complaints. Where the information system lacks data other sources are used.
There is no information recorded about usage of resources. Usage of resources determines performance of operations. Activity Based Costing (ABC) is used to get insight of activities, consumption of resources and associated costs. It can be applied for a wide range of economic activities, such as product mix, pricing, and outsourcing decisions (Kee & Schmidt, 2000). ABC systems represent the production process of a company as hierarchy of four mutually exclusive and exhaustive categories of activities (Cooper, 1990; Kee & Schmidt, 2000):
(1) Unit level activities are performed each time a unit is produced;
(2) Batch-level activities are performed each time a batch of goods is produced;
(3) Product-level activities are performed as needed to support the production of each different type of product;
ABC systems take advantage of this hierarchy by assigning the costs of the first three categories to products by using bases that vary in proportion to the activities in the categories (Cooper, 1990). Only the first two levels are used in this research, because product level and factory level activities are organized and associated cost are unknown. Required data for ABC was obtained by timing activities, weightings material usage and primary data of cost of resources. The activity based costing method not only used to assess the unit cost of products, but also to supply information about consumption of resources.
During measuring and observation activities, attention was also paid to quality of operations. There is no record of performance on quality. Random samples were checked for errors and consistency, and results were discussed with production staff. The last source of data is interviews with operations staff (manager (2 persons), foremen (2 persons) and production staff (6 persons)). Operations representatives were asked to value indicators in a 10 point scale where 1 is really bad, 6 is ok and 10 is excellent. Where a qualification of production staff is used it is indicated by the term “marked” before the given value.
(B) Performance on qualifiers and order winners
In stage one the order winners and qualifiers for both market are selected. The relative performance differences of both factories, as mentioned in previous section, will used to assess the preference for the priorities.
An average score for each factory market combination will be calculated for the qualifiers and order winners. The weighted average on the score for qualifiers and order winners is used to indicate the preference in market requirements. Because order winners are more important than qualifiers (Slack & Lewis 2003) there is chosen to weight the order winners twice as much as the qualifiers, what resulted in 67% for order winners and 33% for qualifiers.
(F) Differences in product architecture
manufacturing costs for a product at both factories, where usage of material and staff causes the most cost. Ease to manufacture only got 10% because the effects are also included in usage of staff. The easier a product can be produced, the faster it can be done. It is additional to give a preference to a product architecture that requires fewer skills. Needing fewer skills improves flexibility in the usage of staff. Evaluation of all products will be on the indicators shown in table 4.
table 4: Indicators for product architecture
Indicator Weight Description Method Source scale
usage of materials 35% The materials in the final product in Kg. It includes only materials needed in the product where waste and scrap are excluded.
Activity Based
Costing Weighting products
0-100 %
usage of staff 35% The minutes spend on making a single item Activity Based Costing Timing production staff 0-100 % usage of machinery 20% The minutes of machinery used on a
single item Activity Based Costing Timing production staff 0-100 % ease to manufacture
10% The skills needed to make a grill Unstructured interviews
Interview production staff
0-100 %
The difference in concept scoring shows advantage in product architecture in production. This advantage is used to reduce the operational performance of the factory with the superior architecture. This should represent a more objective performance.
The differences in architecture are used to correct the performance of the factory with the superior product architecture. If for example the product architecture at Royair scores 99% and at NP 88%, the difference of 11% is used to reduced the performance of Royair (factor E). This is assumed to neutralize the benefit in performance caused by superior product architecture.
(G) Differences in factory specific costs
table 5: Indicators for factory specific cost
Indicator Weight Description Method Source
transport within home
country 5,0%
The unit cost of transporting a pallet from the factory to the customer within the same country
Structured interview Transport Manger
transport to other market 5,0%
The unit cost of transporting a pallet from the factory to the customer to the other country
Structured interview Transport Manger
manufacturing labour hour
cost 30,0%
The average cost of labour per hour, including cost of absent, slack and foremen factor.
Total labour cost divided by the nett working hour
Salary summary, illness rate.
energy cost (electricity) 15,0% The unit cost of one kWh Desk research Invoice power company energy cost (cost of gas per
MJ) 15,0%
The unit cost of MJ of energy Desk research / Calculation
Invoice power company. materials cost (aluminium) 15,0% Unit cost of a kg aluminium Desk research Invoice material supplier recycling return materials
(aluminium) 15,0%
Return for a kg of scrap aluminium
Desk research Summary credit nota recycling company
The currency rate used in this report is 1 pound is 1,230 euro. 4.2.3 Preferred production location
The last stage of the PGP is to review different options for improvement and developing an operations strategy (Slack & Lewis 2003). Where this research is only about finding out which operation is giving the best competitive advantage to both markets, improvement actions are out of scope. Instead, this stage will be used to assess the preferred production location per product. All the different preferences of the factors from the conceptual model will be combined. All preferences are expressed in an interval scale (from 1 to 10).
10%. Table 4 shows a summary of the importance of the factors and how the values are obtained.
table 6: assessment of preferred production location
Factor Weight Level Method Source Scale
A differences in expected and experienced operational performance 20% Factory interview Sales representatives 1- 10
B differences in market requirements 25% Factory Interviews combined with measurement of performance
A and sales representatives
1- 10
C differences in demand between both markets
20% Product Data analysis Information system
1- 10 D relevance of made in Britain 10% Factory Interview Sales
representatives 1- 10 E+ F differences in operational
performance
15% Product Operational performance corrected by the advantage of the product architecture
Measurement, sales-production representatives
1- 10
G differences in factory specific cost 10% Factory Desk research 1- 10 conclusion (weighted
average)
Weighted average A,B,C,D,E,G
1-10
5
REQUIREMENTS
In this chapter the differences in expected and experienced performance (factor A), differences in market requirements of both markets (factor B), differences in demand and if made in Britain is important (factor D) are assessed in this chapter. The relative differences for each factor will be used in the calculation for the preferred production location, in chapter 7. The requirements set by the market and articulated by sales representatives.
5.1
Differences in experienced performance
The sales representatives were asked to value the performance of the factories. They valued indicators of performance of the five dimensions. From the indicators the score for each dimension and the average for each factory per market is calculated. The scores for each indicator per dimension in table 7 can be found appendix 3.
SA_uk has no experience with RA, which made it impossible to qualify their performance. That is why the column SA_nl - RA is blank in table 7.
table 7: Experienced performance
SA_uk - RA SA_uk - NP SA_nl - RA SA_nl - NP
Quality 8,1 5,1 6,7 Speed 7,8 7,8 7,0 dependability 7,8 6,6 3,9 Flexibility 8,2 7,8 4,6 Cost 5,5 7,8 6,3 Average 7,5 7,0 5,7
SA_uk is more satisfied on almost all dimensions with RA than NP. SA_uk experiences “fuzziness” and inconsistency in quality at NP. They are satisfied with the unit cost of the products at NP, where the unit cost at RA can use improvements.
5.2
Differences in requirements of both markets
After discussing the experiences about the overall performance of both factories, the following sections the requirements from the market will be discussed. The five performance dimensions are used as guidance to select the order winners and qualifiers.
The order winners and qualifiers indicators are shown in table 8. The markings were valued as follow: not important (1); qualifier (2); order winner (3). SA_uk was unanimous in classifying order winners and qualifiers. Results at SA_nl show some differences. Because this difference the average score of the answers is used. If the average was above 2,5 it is classified as order winner and between 1,5 and 2,5 as qualifier. The results are shown in table 8.
table 8: market requirements
SA_uk Score SA_nl score
Unit costs (cost) 3.0 Lead time: order to delivery (Speed) 3.0 Quality of final
products
(quality) 3.0 deliveries on time in full (dependability) 3.0 Order
winners
Range of services (flexibility) 3.0 Lead time specials (speed) 2.7 Number of defects
(per unit)
(quality) 2.0 Unit costs (cost) 2.0 warranty claims (quality) 2.0 Quality of final products (quality) 2.0 deliveries on time in
full
(dependability) 2.0 Consistency of products (quality) 2.0 Range of products (flexibility) 2.0 Number of defects (per unit) (quality) 2.0 Time to develop
new products
(Speed) 2.0 Extent to which delivery dates can be brought forward
(dependability) 1.8 Qualifiers
Range of sizes, gauges etc
(flexibility) 2.0 Time to develop new products
(Speed) 1.5
The score of the requirements depends on the performance of both operations on the order winners and qualifiers. This will be assessed in paragraph 6.2.
5.3
Differences in demand
5.3.1 Sales
configuration of the product it should fit on.
table 9: Annual demand
P1 P2 P3 P4 P5 P6 P7 P8 P9
Annual pieces 1.684 2.972 9.938 16.214 31.481 11.950 1.861 9.861 2.160
SA_uk 41% 34% 65% 92% 20% 64% 49% ? 100%
SA_nl 59% 66% 35% 8% 80% 36% 51% ? 0%
Special products would apply about 5% in the Dutch market according SA_nl. In the British market the demand for special products includes the majority of products.
5.3.2 Trend
There are no annual trends in the English markets according to SA_uk. Their information system is not usable to confirm this. According to SA_nl there are two seasonal trends with a peak before summer holiday and before Christmas in the Dutch market. This is an effect caused by the typical delivery dates of building projects for the building contractors. The information system confirms that this trend also applies to the involved products, what is shown in Figure 5.
1 2 3 4 5 6 7 8 9 10 11 12
2006 2007 2008 monthly average annual average
Figure 5: Dutch trend of products involved
5.4
Made in Britain
It is assumed that “Made in Britain” (MIB) is a qualifier for British customers in their purchase policy. According to the British sales team and General Manager of Royair, many British companies can have the perception that service is better if a company is located in England. This is not a patriotism reason. The need for having a production facility in the UK is not valid if service can be guaranteed differently. SA_uk says that MIB is not important. For the Dutch market MIB is also not an issue. The final conclusion is that Made in Britain is not something that should affect the choice in product allocation, what is represented with the lowest score in table 10.
table 10: Relevance of MIB
SA_uk SA_nl
Relevance of Made in Britain 1 1
5.5
Conclusion market side
In this chapter the value of three factors are assessed. The values are shown in the table below. These values of the factors will be used in the calculation of the preferred production location in the last stage of the PGP. The value for factor B, differences in market requirements, will be assessed, based on the performance of the order winners and qualifiers, in next chapter.
Factor value
A
Differences in expected and experienced operational performance
RA NP SA_uk 7,5 7,0 SA_nl 5,7 C Differences in demand P1 P2 P3 P4 P5 P6 P7 P8 P9 SA_uk 4,1 3,4 6,5 9,2 2,0 6,4 4,9 0,0 10,0 SA_nl 5,9 6,6 3,5 0,8 8,8 3,6 5,1 0,0 0,0 D
Relevance of “Made in Britain”
6
PERFORMANCE
In this chapter the relative difference in operational performance of both factories (factor E), differences in product architecture (factor F) and differences in factory specific cost (factor G) are assessed. The relative differences for each factor will be used in the calculation for the preferred production location, in chapter 7.
6.1
Differences in operational performance
The values of the indicators for each performance dimensions are given in the first five sections, together with the most essential of both factories. After assessing each level of performance the indicators are used to determine the relative difference of both operations in the last section. This will be used as the factor to represent operational performance of both factories. The score and the values to all indicators can be found in appendix 4
Quality
Royair was known for their quality, and the quality is still high and consistent. Quality is important to production staff. Especial the former RA employees are well skilled and experienced. At NP there are differences in professionalism of staff. Staff was seen as a potential saving of cost, so skilled staff is replaced for cheaper but lower skilled staff. The administration awareness is sufficient but quality awareness is not at equal level at all staff.
There are no or very little quality problems at RA. NP has some more quality issues. I.e. the paint job does not cover the mitred corners consistently. All indicators of the quality dimension are shown in table 11.
table 11: performance on quality
indicators Value RA Value NP
1 technical skills staff marked 7,5 marked 6,5 2 quality awareness staff marked 8,0 marked 5,5 3 logistics/administration awareness staff marked 6,0 marked 5,5 4 number of defects per unit marked 10,0 marked 6,0 6 level of customer complaints 99,8% 97,69% 7 level of serious complaints 99,8% 99,88%
8 scrap level 5% 10%
9 waste level 20% 31%
Speed
Royair’s information system shows an average production lead-time of standard diffuser of 14 days. RA schedules on weekly basis and delivery dates are given in weeks, but finished products can be despatched daily. The production lead-time of a standard diffuser is 3 days at NP.
Transport times are limited by a group production layout at RA. There is a lot of material handling and products pile up due to little storage space. At NP transport consumes a significant part of the half hour required for production. It is caused by the group functional layout. Transport not only causes transport time, but observations showed interruptions due to for instance social talks.
The lead-time for a special product is similar to a standard product at RA. At NP the lead-time for special products is much longer than standard products. When a special product is planned for production, what in some cases did take over one year of preparation, the supplied data is often not sufficient for staff to work with. Staff needs detailed and full information. They are not always able to calculate the missing elements them selves. Special products cause distortion in production by consuming up to 10 times more time and causing high levels of scrap. All indicators of the speed dimension are shown in table 12.
table 12: performance on speed
indicators Value RA Value NP
1 average time between generation work and start of work 2 days 1 days 2 average production lead-time 12 days 3 days 3 average external transport lead-time within 48 hours within 24 hours 4 theoretical throughput time production 165 minutes 180 minutes 5 average waiting time products 80 hour 21 hour 6 frequency of pickup and delivery (hours) daily daily
Dependability
Customers were loosing confidence in RA due to bad performance of dependability in the past. A new strategy was to make sure that every promise by RA was kept, by communicate a longer lead-time to customers. The result is a high score for order delivered on time.
performance of “on time and in full” improved up to 93.8%. Recently effort to monitor delivery status is incorporated in the information system and is used to control and inform production staff.
RA has little options to use stock, because the market requires many special products. The average stock on the involved standard products is 5,9% of the annual turnover at NP. All indicators of the dependability dimension are shown in table 13.
table 13: performance on dependability
indicators Value RA Value NP
1 % order delivered on time in home country 99,50% 93,8% 2 % order delivered on time to other market 7,11% 3 average lateness of orders 3,00 days 0,80 days 4 mean deviation from promised arrival 1,00 days 1,69 days 5 reliability of original promise date 99% 78% 6 percentage of deliveries on time in full 98% 93,8% 7 availability factory 275 days/year 260 days/year 8 proportion orders in stock 0,50% 5,90%
Flexibility
RA is set up for low product volumes. Machineries are old, not suitable for high volume and activities require manual handling. Batch sizes should be small because only limited storage space is available for work in progress (WIP). At NP batch sizes can be small or big where machinery setup-times are low, machine capacity is sufficient and WIP space is available.
Nijburg products is able to manufacture all standard a non standard diffusers without problems. It is possible to handle five different type of material (steel, sheet metal, aluminium and anodized aluminium, Stainless steel,) where RA can handle only sheet metal, aluminium and anodized aluminium. RA is flexible in powder coat products in different colours with low setup times to change colours. NP has a special paint factory for different colours that creates flexibility.
table 14: performance on flexibility
indicators Value RA Value NP
Products/service flexibility
1 flexibility in usage material 3 types 5 types
Volume flexibility
2 average order size 9 units 7 units 3 flexibility in skills of staff marked 9,0 marked 6,0 4 maximum capacity bottleneck resource (1 shift) 333 units/day 664 units/day 5 maximum overall turnover per day (1 shift) 7700 Euro/day 277000 Euro/day 6 maximum overall capacity assembly (1 shift) 2156 units/day 3046 pieces/day 7 machine change over time 5 minutes 2 minutes
Delivery flexibility
8 time to change schedules marked 7,0 marked 7,0 Cost
Direct cost of production is included within the unit, batch and product level activities, according to the Activity Based Costing method. The sales organisation sell their products conform the market standards. From the sales price they subtract their costs en profit and the remaining is assessed as unit costs. At RA the managing director is also the managing director of the sales organization. This balance and controls the market prices and the unit costs of making a product. At NP these are different persons with different objectives. In the past this method was sufficient because the margins were high. Today with more competition, this method can result in not covering full unit-costs for NP, but sales organizations still making profit. All indicators of the cost dimension are shown in table 15.
table 15: performance on cost
indicators Value RA Value NP
1 unit level costs € 26,09 € 21,83 2 batch level costs € 14,10 € 20,06 3 labour productivity marked 7,0 marked 6,5
6.1.1 Conclusion
In this chapter the performance of Royair and Nijburg Products is assessed. The relative performance of the five dimensions is summarized in the table 16. The calculation can be found in Appendix 4
table 16: Differences in operational performance
Quality Speed Dependability Flexibility Cost Average
RA 8,8 5,0 8,7 6,3 8,5 7,5
6.2
Performance on market requirements
The performance of the indicators set as qualifiers and order winners in chapter 5.2 will be compared in this paragraph. First the relative score, as determined in the previous section, of the order winners will be assessed per factory. This is shown, together with the average score in table 17. For the qualifiers it can be found in table 18.
table 17: Performance on order winners
SA_uk dimension RA NP SA_nl dimension RA NP
Unit costs (cost) 8,4 10,0 Lead time: order to delivery (Speed) 2,5 10,0 Quality of final products* (quality) 7,8 6,3 deliveries on time in full (dependability) 10,0 9,4 Range of services* (flexibility) 7,8 5,5 Lead time specials* (speed) 7,8 1,8
average 8,0 7,3 6,8 7,1
* Qualification used by lack of quantification.
table 18: performance on qualifiers
SA_uk dimension RA NP SA_nl dimension RA NP
Number of defects (per unit) (quality) 10,0 6,0 Unit costs (cost) 8,1 10,0 warranty claims (quality) 10,0 10,0 Quality of final products* (quality) 7,8 6,3 deliveries on time in full (dependability) 10,0 9,4 Consistency of quality (quality) 10,0 7,1 Range of products* (flexibility) 7,8 6,6 Time to develop new products* (speed) 7,8 3,3 Time to develop new
products*
(Speed) 7,8 3,3 Extent to which delivery dates can be brought forward*
(dependability) 7,8 8,9 Range of sizes, gauges etc* (flexibility) 10,0 6,6 Number of defects (per unit) (quality) 10,0 6,0
average 9,3 7,0 8,6 6,9
*=Qualification used by lack of quantification. .
Because order winners are more important than qualifiers, the total preference of the factor market requirements is a weighted average, what is shown in the table below.
Table 19: market requirements
The results indicate for both factories a preference for RA, where the preference at SA_nl is small. If the requirements related to special products (Lead-time specials, time to develop new products) are excluded from the performance of NP at SA_nl, the performance would improve from 7,0 to 9,0, what increases the preference for NP. The performance of NP for special products is bad, but for standard products is good for SA_nl.
SA_uk SA_nl
Weight RA NP RA NP
Order winners 67% 8,0 7,3 6,8 7,1
Qualifiers 33% 9.3 7,0 8.6 6.9
6.3
Differences in product architecture
Similar product families are compared in the table below on consumption of resources and ease to manufacture. One major cause for differences is excluded from the comparison. The fixing method of NP, a “corner crimp” is superior to RA’s welding method, according to production staff from RA and NP. Tests demonstrate that RA is capable of using the same method on all framed diffusers. This advantage is included in the performance of RA. Another adjustment is RA’s material consumption of the P1. RA’s original extrusion is double the thickness of NP. Because RA will use the less thick extrusion in the near future, this is compensated in the comparison. The comparison is only on usage of material, because NP purchases this item from a competitor. All absolute values of the indicators can be found in appendix 5. Comparison of the products is calculated with the weighted average of the four criteria.
table 20: comparison of products
usage of materials usage of staff usage of machinery ease to manufacture Product architecture score Weight 30 % 20 % 15 % 15 % RA 100 % 100 % P1 NP 100 % 100 % RA 100 % 100 % 81 % 92 % 95 % P2 NP 94 % 84 % 100 % 100 % 92 % RA 100 % 100 % 100 % 86 % 99 % P3 NP 100 % 95 % 81 % 100 % 95 % RA 59 % 47 % 36 % 100 % 54 % P4 NP 100 % 100 % 100 % 92 % 99 % RA 84 % 100 % 100 % 100 % 94 % P5 NP 100 % 56 % 98 % 86 % 83 % RA 75 % 63 % 100 % 75 % 76 % P6 NP 100 % 100 % 47 % 100 % 89 % RA 95 % 100 % 100 % 100 % 98 % P7 NP 100 % 97 % 98 % 93 % 98 % RA 100 % 100 % 100 % 100 % 100 % P8 NP 100 % 39 % 99 % 69 % 75 % P9 RA 100 % 100 % 100 % 100 % 100 %
The product architecture shows advantage by product architecture for RA with P2, P3, P5, P8 and NP with P4, P6.
table 21: differences in product architecture
P1 P2 P3 P4 P5 P6 P7 P8 P9
6.4
Differences in factory specific costs
In this chapter factory specific cost, that are hard to manage, are discussed. The costs of the tariffs per factory are summarized in table 22.
table 22: standard tariffs
Indicator Royair Nijburg
Products
weight value score value score source
Transport within home country (per pallet)
5,0% €35,00 10,0 €35,00 10,0 Interview Transport to other market (per pallet) 5,0% €45,08 10,0 €45,08 10,0 Interview Manufacturing labour hour cost 30,0% € 12,02 10,0 € 21,18 5,7 primary Cost of electricity (Euro/kWh) 15,0% 0,11 10,0 0,12 9,0 primary Cost gas per MJ (euro) 15,0% 0,022 4,3 0,010 10,0 primary Cost of aluminium (Euro/kg) 15,0% 3,69 9,4 3,48 10,0 primary Recycling return aluminium (Euro/ kg) 15,0% 1,60 10,0 1,40 8,8 primary
Overall cost 9,1 8,4
The factory specific costs of RA are preferable, especially caused by the lower cost of labour.
6.5
Conclusion operations side
In this chapter the value of three factors are assessed. The first factor, the operational performance of both factories, should be corrected by the benefit of a superior product architecture. The performance of RA was determined a 7,5 and NP a 8,4 in section 6.1.1. The differences in product architecture are used to correct the performance as shown in table 23. If a product architecture gives 10% benefit to one factory compared to the other, the performance of the factory using the superior product architecture will be reduced with that 10%.
table 23: corrected performance
The values of al factors of the operations side are now determined, and shown in table 23. These values of the factors will be used in the calculation of the preferred production location in the last stage of the PGP, what can be found in the next chapter.
factor Value
E+ F Differences in operational performance P1 P2 P3 P4 P5 P6 P7 P8 P9 RA 7,5 7,3 7,2 7,5 6,7 7,5 7,5 6,0 7,5 NP 8,4 8,4 8,4 5,8 8,4 7,3 8,4 8,4
B Differences in market requirements RA NP SA_uk 8,3 7,2 SA_nl 7,4 7,0
7
PREFERRED PRODUCTION LOCATION
The last stage of the PGP is used to select the preferred production location. In this chapter the results from the previous two chapters, where the requirements and operational performance were assessed, will be used to calculate the preferred production location for both markets. The weightings of the factors are shown in table 24 below.
table 24: Weightings factors for preferred production location
Factor Weight
A differences in expected and experienced operational performance 20% B differences in market requirements 25% C differences in demand between both markets 20%
D relevance of made in Britain 10%
E+ F differences in operational performance 15% G differences in factory specific cost 10%
conclusion (weighted average)
The first four columns in table 25 show the result when factors of the market and the resource side are combined. The calculations can be found in appendix 6. The ideal location for production is where the value is the highest. For SA_uk and SA_nl the outcome is the same. The production of P1, P2 and P5 is in favour to be at NP and the other products at RA.
table 25: preferred production location
For SA_nl there is made an additional calculation in the last column in table 25. The score on performance and the perceived performance of NP was influenced by the bad performance on special products. The NP* are calculations without indicators that only apply for special products. This calculation assumes all special products are produced at RA. This affects the preference for p7 and p8.
Product SA_uk SA_nl
The preference per standard product is the factory with the highest score. This is shown for both markets together in table 26.
table 26: Result of calculation for standard products
P1 P2 P3 P4 P5 P6 P7 P8 P9
Production at Royair X X X X X X
Production at Nijburg Products X X X X X
8
PRACTICAL REFLECTION
In the previous chapter the preference is calculated. The calculation gives answer to the question which product should be produced where. Some preferences are only small. In this chapter some practical reflection to the outcome of the calculation is given. Where differences are small, there might be practical aspects to reconsider the conclusions of the calculation. This is done in the following section. In the last section the conclusion of the preferred product allocation is checked to the practical restriction set by the available capacity in each factory.
8.1
Standard products
Each standard product is discussed in the following sections. 8.1.1 Standard P1
Choosing between NP and RA is the choice between buying or making the products. NP is the favourable production location, but the products are bought from a competitor. Where the differences are very low, it becomes a strategic question. Where the current workload at RA is low, RA should produce P1.
8.1.2 Standard P2
For SA_uk the preference is small. For the Dutch market the preference is clear. Total production at NP is an option, as well is a local for local strategy. To increase the workload at RA a local for local stagey is recommended.
8.1.3 Standard P3
Especially due to the differences in demand between both countries, the P3 should be produced at RA for SA_uk. A local for local strategy can be considered where the preference for NP is not that clear to RA. A reason to produce only at RA is that it releases a rather old, dedicated to P3 and floor space consuming resource from the NP factory.
8.1.4 Standard P4
press line from NP to RA is not an option where it is used for production of parts for several other products. A purchase of a press line is also not an option because it not only comes with high investments, but also the required floor space is not available at RA.
Because production of total product is a problem, serial production can be an option. Current production resources at RA for P4 consume a comparable floor space as what is required for the resource to assemble the NP version. Rough calculations showed that transferring all assembly activities could give cost advantages up to 30%. The parts required for assembling should come from NP, and assembly should be done at RA.
8.1.5 Standard P5
The preference for NP as production location is caused by the differences in demand. There is a gap when it comes to product architecture, where the RA method is superior. This method can be copied by NP, but does require new resources. This should not lead to problems and does not change the conclusion to produce P5 at NP.
8.1.6 Standard P6
RA is in favour of production location for the P6 and this product is more popular in the British market. There are major differences in architecture. RA is capable of producing the superior NP architecture, which makes it the right production location.
8.1.7 Standard P7
For this product there is a slight favour for production in its home country according the calculations. There are no practical reasons to change the preference resulting form the calculations. A local for local strategy still is considered the best option.
8.1.8 Standard P8
There is not a high preference for a production location for P8 at SA_uk, but there is at SA_nl for NP. A local for local strategy would be appropriate because this product is complementary to many other products. It requires a fit and synchronization with that product. The product architecture and especially the manufacturing at RA is superior. This should and can be copied by NP.
8.1.9 Standard P9
