A standard approach for the flow re-engineering process of Company X

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A STANDARD APPROACH FOR THE FLOW RE- ENGINEERING PROCESS AT

COMPANY X

Bachelor thesis Industrial Engineering and Management

Author Ilse Super

University University of Twente Internal Supervisor Anonymous

University supervisor Dr. Peter Schuur

Date 02-07-2020

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I

Colophon

AUTHOR

Title A standard approach for the flow re-

engineering process at Company X

Author Ilse Super

Student number S1971646

Study Industrial Engineering and Management

University University of Twente

Date 02-07-2020

COMPANY SUPERVISOR

Name Anonymous

Company Company X

Position X

UNIVERSITY SUPERVISOR

Name Dr. P.C. Schuur

Faculty Behavioural Management and Social Sciences

SECOND SUPERVISOR

Name Dr. I. Seyran Topan

Faculty Behavioural Management and Social Sciences

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II

Preface

Before you lies the thesis ‘’A Standard Approach for the Flow Re-engineering Process at Company X.’’, the result of a research within Company X on standardisation of one of their key processes. This thesis has been written to illustrate the last part of the graduation requirement of the program Industrial Engineering and Management at the University of Twente. I have been working on the research and writing for this thesis in the period of February to July 2020.

The research was performed at the request of Company X, where I took place in an internship. My internal supervisor, Anonymous, introduced me in the company and made me familiar with the team and the process. Together we have formulated the research question of this thesis. Various meetings and interviews with the Department A team and conducting investigation through benchmarking and literature allowed me to answer the research question. The journey to this answer was challenging, but fortunately, my supervisors were always available to help me and create new thoughtful insights.

I would like to thank my internal supervisor Anonymous for always giving me very clear and helpful guidance during my research. Next to that I want to thank the team of the Department A for always making time for me to answer my questions and giving their personal input for the research.

I also want to thank my university supervisor, Peter Schuur, for always cheering me up when the research got challenging. He was always available to answer my questions about my thesis and anything else that came to mind.

And at last, I want to thank my parents and my boyfriend for their good advice and helping me stay motivated during the challenging times of the corona crisis.

I hope you enjoy reading my thesis.

Ilse Super

Enschede, July 2020

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III

Glossary

Notation Description Page

Department A The department engineering the transport network of Company X

Page 12

Flow re-engineering Reviewing a flow for improvement

Page 12 Production unit (PRU) Company X

manufacturing fabric

Page 12

Flow Transport of parts

from the supplier to PRU

Page 12

Direct flow Transport direct from a supplier to a PRU

Page 13 Milkrun flow Transport with

multiple stops at supplier to PRU

Page 13

Crossdock flow Collection of parts from suppliers at a distribution centre with full trucks leaving the centre to the PRU

Page 13

Pre-collection Collecting all parts from suppliers at a crossdock

Page 13

Trunkload The truck that leaves from the crossdock to a PRU

Page 13

Material Planning (MP) Daily optimizers of the material orders

Page 14 Transport Planning (TP) Daily optimizers of

the transports from the suppliers to the PRU

Page 14

Fill rate The percentage of capacity of the truck that is used

Page 14

Pulse session Meeting of 30 minutes to fill each other in on problems in the transport network

Page 14

COMPANY X management

Management group of all engineering departments at Company X

Page 21

Tender The creation of new

transport routes

Page 22

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IV Connee code A code for the exact

delivery point at the PRU

Page 23

Payweight A number which is

created with a conversion factor that decides whether a flow is a weight flow or a volume flow

Page 24

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V

Management summary

The purpose of this thesis is to standardise the flow re-engineering process of Company X. Company X is the logistic service provider for the manufacturing of Company X trucks and other vehicles. The flow re-engineering process is a continuous process to improve the transport between suppliers and production units by changing the way of transport or the amount of pick up days. This thesis is written in order to fulfil the last part of the bachelor Industrial Engineering and Management.

Problem identification

The current flow re-engineering process is done based on ‘common sense’ of each individual engineer. Because of this the process is different for all engineers and optimization is different for each flow since there are no clear decision values used. This causes the process to cost more time because each engineer has to handle each problem manually and over time the KPIs are not optimized to its full potential because of the different opinions of engineers.

Central research question

The objective of this research is to improve the process of flow re-engineering, which is currently done differently per person by using common sense, to a standardized process which is data driven.

To reach this goal the central research question of this thesis is answered. The central research question is:

‘’How can the flow re-engineering process be standardized by using available data?’’

The central research question is answered by answering several sub questions about the current process, the bottlenecks in the process and the future process.

Methodology

In the first part of the research, observation was done at Company X to define the objective of the research. After that when the objective was set, the general phases of the flow re-engineering process which is to be standardised were mapped out in seven phases by the team in a discussion meeting. After that each engineer filled in a survey to find the general steps of each phase. Because the current process is different per engineer the individual processes were defined through an individual interview with all engineers. In this interview the individual strategies of the engineers became clear. Next to that the bottlenecks of the process were indicated through the interviews.

Next to the interviews for the engineers of Location 1 the interview was conducted at Company X Location 2 to create a benchmark for the future process. After the interviews the engineers also filled in a survey to search for parameters for pro-active flow re-engineering. These parameters have been decided on by a discussion meeting and a ranking of all possible parameters. With all this information the future process was created with the use of literature research on flow re-engineering trade-offs, vehicle routing problems and process standardisation.

Results

The solution that is proposed for the standardised flow re-engineer process is given in the form of a general flow chart. By following the flow chart all important steps of the flow re-engineering process are done the same for all engineers and without waste. This is useful to improve the overall flow re- engineering process and for communication between engineers. The flowchart is depicted in figure M1.

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Figure M1 Flow chart of the general process for flow re-engineering

In this flowchart is referred to a tool, the flow engineering format. This tool is created to standardise the analysis and format for flow re-engineering. In this tool first the information is collected. Then the forecast data is used to visualise the forecast and filter the forecast from outliers. This

visualisation then gives the input of the data for the analysis. In the analysis all possible options for the flow are written out and the KPIs are calculated. Then the possible solutions for the re-

engineering problems are filled in in the weighted decision matrix. This matrix can be used to make challenging decisions when there are trade-offs using weights for multiple criteria.

Another proposed solution for standardisation are the defined parameters and targets. With these parameters the performance of a flow can be put in perspective for all engineers. With that

information the engineers can search for less performing flows themselves and start with pro-active flow re-engineering. The parameters and targets are depicted in table M2, M3 and M4

Table M2 The parameters of the fill rate

Parameters Fill rate

Bad Neutral Good

What should be the maximum fill rate that goes from one supplier to the crossdock?

50% - 100% 30% - 50% 0% - 30%

What should be the minimum fill rate of the trunkload to the PRU?

0% - 70% 70% - 90% 90% - 100%

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VII What should be the

minimal fill rate for a direct flow?

0% - 70% 70% - 85% 85% - 100%

What should be the minimal fill rate for a milk run flow?

0% - 65% 65% - 85% 85% - 100%

Table M3 The parameter for levelled flow

Parameter Levelled flow

Bad Neutral Good

What should be the maximal decrease of pick up days at once?

50% - 100% 20% - 50% 0% - 20%

Table M4 The targets for flow re-engineering

Targets

Cost per transported tonne Baseline (the average of the quarter one year ago)

Price elasticity 0,90

The last proposed solution for the standardisation is a central documentation place for all flow re- engineering activities. This creates better communication and makes it easier to understand and find each other’s work. In this documentation all flow re-engineering solutions are also registered in a registration sheets. With this registration sheets the performance of flow re-engineering can be tracked after time.

Recommendations

From the results of the research some recommendations are made. The recommendations are clustered in recommendations to implement and recommendations for further research.

Recommendations to implement:

• Use of the flow chart for all engineers.

• Start a pilot to set up the tool for use and create weights to make decisions with.

• Introduce the central documentation map structure.

• Introduce the parameters for the use of pro-active flow re-engineering.

Recommendations for further research:

• Research for measurement and calculation for the KPIs stock costs and CO2 emission.

• Investigate the possibilities for adopting an algorithm for vehicle routing problems.

The roadmaps in table M5 and M6 create a guide to implement the recommendations for the short term and the long term.

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Table M5 Roadmap for short term proposed implementations.

Priority Actor Action

1 Department A Manager Introduce the standardised

process and documentation to the team to get familiar with.

2 COMPANY X Management,

Department A team

Start a pilot for the tool to find the right weights for the decision matrix.

3 Department A Manager Introduce the flow re-

engineering parameters for pro-active flow re-engineering.

4 Project group within

Department A team

Start with research on stock cost measurement and CO2 measurement.

Table M6 Roadmap for long term proposed implementations.

Priority Actor Action

1 COMPANY X Management Create constraints for an

algorithm on all KPIs and other decision values.

2 Project group within

Department A team

Do research on vehicle routing problems and develop an algorithm customized to Company X needs.

3 COMPANY X Management Implement an algorithm which

calculates and optimizes all routes in the flow re- engineering network

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1 Introduction

In order to fulfil the last part of the bachelor Industrial Engineering and Management at the University of Twente this research is conducted in the form of a thesis which aims to find a standardised process for the flow re-engineering process at Company X.

The thesis is composed of 6 chapters, each of them dealing with different aspects of the research.

Chapter 1 is introductory and describes what is researched in this thesis. The chapter is divided into three parts. Part 1.1 gives an introduction to the company where the thesis takes place, Company X.

Part 1.2 addresses the problem that needs to be tackled and in Part 1.3 the research questions and the design of the research are defined.

Chapter 2 focusses on the current situation of the flow re-engineering process. The chapter consists of four parts. Part 2.1 defines the stakeholders within the process. Part 2.2 describes the current process. Part 2.3 reviews the interview results and part 2.4 addresses the data sources which are used in the process.

Chapter 3 gives a theoretical framework which is divided into three subparts. The first part, 3.1 focusses on the trade-offs within flow re-engineering. Part 3.2 reviews vehicle routing problems and part 3.3 considers models and theories for standardising a continuous process.

Chapter 4 concentrates on the bottlenecks which is divided into two parts. Part 4.1 gives the bottlenecks of the process and part 4.2 describes the improvements that are suggested for the standardised process.

Chapter 5 presents the to be process. The chapter is divided into two parts. Part 5.1 deals with the challenge of the trade-off and part 5.2 deals with the challenge of communication.

Conclusions are drawn in Chapter 6. The main aim of the thesis has been reached and recommendations for implementation and further research are given.

1.1 Company X

Company X is a leading manufacturer of heavy commercial vehicles, busses and industrial and marine engines. In the Netherlands, Company X counts two production units (PRUs) in Location 1 and Location 3. Production Location 1 is the biggest Company X factory in the world.

Company X is a logistic service provider of Company X. In 2011 Company X started producing and shipping construction kits for Company X trucks, which could be shipped to different locations worldwide to be assembled to a truck. The rising demand for construction kits and the need for centralisation of logistic activities brought Company X to life.

Company X is in the centre between different suppliers worldwide and the assembly factories of Company X. The suppliers and transporters which deliver the parts for Company X are outsourced companies. Company X provides the communication between these companies and the Company X PRUs. They make sure that the right parts are available at the right time so the trucks can be manufactured.

Within Company X this thesis takes place at the Department A. They engineer the logistic service for central Europe which has around 500 inbound suppliers and 320 inbound transports per day to focus.

They have to work closely together with the logistic service for Location 2 and Location 4.

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1.2 Problem description

The problem description is given by first defining the current situation at Company X Logistic in which we are conducting the research. This is done in section 1.2.1. Then we focus on the problem analysis to indicate the core problem and formulate the problem statement in section 1.2.2. After that we present the problem solving approach in section 1.2.3, the deliverables of the research in section 1.2.4 and the description of the time scope in section 1.2.5.

1.2.1 The current situation

One of the activities of the Department A is re-engineering flows. A flow is the transport of parts from the supplier to the PRU. Re-engineering implies that the flows are reviewed and improved if the transport flows from a supplier to the assembly factories are not optimal. For example, a truck does not use all of its capacity when transporting directly to the factory.

There are three objectives that have to be considered within the transport network during flow re- engineering.

• Quality

• Sustainability

• Costs

With quality we mean that the parts are delivered within desired timespan to their final destination, so there are no late deliveries or speed deliveries. With sustainability is meant the minimization of CO2 emission and increasing transport efficiency, this can be managed by choosing different modalities or minimizing the amount of trucks. And the last objective is costs. By costs we mean minimization of the transport costs but keeping in mind the cost of owner ship. The cost of ownership is what it will eventually cost in the big picture of Company X.

Figure 1.1 Three main objectives: Quality, Sustainability and Costs. Source: Company X internal document.

Flow re-engineering was triggered about a year ago when Company X Production suffered a big volume drop and the flows at that moment were not optimal anymore for a lot of transports. At that moment the engineers of Department A each covered a part of all the flows and optimized the flows manually by changing the way of transport. This can be changed in two ways, change type of transport flow or change of pick-up days.

Change the type of transport flow:

There are three different ways of transport from the supplier to the factory: direct flow, milk run flow or cross-dock flow. A direct flow is transport directly from the supplier to the factory. This is usually used for high volume flows. A milk run flow is combining the load of two or three suppliers close to each other by picking them up one after another and then deliver that directly to the factory. For this type of flow it is usual to have medium volume flows. The medium volume flows then share a truck so the capacity of the truck is fully made use of. A cross-dock flow is a collecting point in the middle

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between the suppliers of a specific region. This is usually used for low volume flows. The low volume loads of suppliers can be pre-collected at the cross-dock and from there the parts are re-assigned to trucks so each truck leaves there with full capacity to the factory. The three types of transport flows are visualized in figure 1.2. In this figure pre-collection means a small milk run of different suppliers delivering the parts to the cross-dock. Trunkload means a truck which is leaving the cross-dock to a PRU.

Figure 1.2 The three types of transport flows: Direct, Cross-dock and Milkrun. Source: Company X internal document.

Change the pick-up days:

The amount of pick-up days are the days of the week a transporter can pick up parts from a supplier.

By closing or opening pick-up days the amount of parts that have to be picked up every day can be controlled. For example, a truck leaves half full 4 times a week. This is a waste of capacity so it is more efficient to pick up twice a week. Pick-up days should preferably be spread evenly over the week but the costs have to be minimized as much as possible.

When changing the flows, the flow re-engineers have to find a balance between three pillars.

• Levelled flow

• Transport cost

• Stock levels

These three pillars all have to be taken into account equally when flow re-engineering.

Figure 1.3 The three pillars of flow re-engineering: Levelled flow, transport cost, stock levels. Source: Company X internal document

After re-engineering due to the sudden volume drop in 2019 the amount of flows that had to be re- engineered staggered. From there on the Department A works on continuously improving the

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transport flows that are optimized by the Material Planning (MP) and Transport planning (TP) departments.

Every day the MP department checks on the planned orders if all orders will be on time and if there are no problems with the ordered parts. Then they look at the orders for the next week and how the orders should be planned, so that there is a minimal amount of trucks used and the fill rate is as high as possible. The fill rate of a truck is the percentage of the truck capacity that is filled with parts.

After that the TP department makes a planning for the transporters to pick up the parts and gives them the locations where the parts should be picked up and delivered and they also provide the transporters with timeslots for picking up and delivering. This is also based on minimizing the transport costs and optimizing the fill rate. Together Department A, MP and TP discuss all the performance of the day in a pulse session. Then Department A uses the information of this pulse session to re-engineer the flows that were discussed and need improvement.

1.2.2 Problem analysis

Now that the needs for flow re-engineering staggered after the volume drop (2019), there appeared an opportunity to improve the flow re-engineering process. Because there is no work related stress from the volume drop (2019) anymore to flow re-engineer, the process itself can be reviewed.

Anonymous, the Department A manager, assigns me with the task to research the re-engineering process and improve it by standardization. In the orientation phase multiple conversations with employees from Department A, MP and TP take place and with this we create an overview of what is currently happening. With that information it becomes clear what are the expected variables to improve and what problems/challenges were an obstacle to improve previously. With this information we create a problem cluster. A problem cluster shows the different problems and their relationships to each other. (Heerkens & van Winden, 2017, pp. 42-43)

Figure 1.4 The problem cluster

The problem cluster consists out of the following components:

1. Available data on flows being unused.

2. No pre-defined decision values for re-engineering flows.

3. Unstructured flow re-engineering process.

4. Challenging to forecast flow engineering problems.

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5. Slow re-engineering process.

6. Unused optimization potential.

7. Different use of software within Company X network.

8. Material planning done at production units.

9. Decreased productivity.

10. Increased transport costs.

11. Increased costs for Company X.

In the problem cluster all 11 indicated problems above that are discovered in the orientation phase are placed in relation to each other which is visualized in Appendix A. During the orientation phase problem 5 was mentioned the most. A lot of the re-engineers indicate that the re-engineering process could be faster because a lot of time is spent on thinking of a strategy to tackle the flow re- engineering problem. Some of the engineers also note that the optimization within the current re- engineering process, problem 6, could be improved by using data. By deepening into these problems, the problems 1, 2, 3, 4, 7 and 8 were discovered as possible causes for these problems which were mentioned earlier. In discussion with the Department A Manager we deduct the consequences of the problems mentioned mostly by the engineers. These consequential problems are problem 9, 10 and 11.

After the identification of the problems in the orientation phase we want to focus on a specific core problem which can be researched. A core problem can be identified if the problem does not have a clear cause. (Heerkens & van Winden, 2017, pp. 43-44) In this case, not using the available data is selected as the core problem. We choose this problem since the other possible core problems, problem 7 and 8 are hard to influence or take too much time for the time scope of this thesis.

After identifying the core problem we can formulate the problem statement. Currently the flow re- engineers at Department A all use their own way of doing things by using common sense. They want this process to be standardized by making it data driven. Therefore the problem statement is.

The Department A at Company X wants to improve the process of flow re-engineering, which is currently done differently per person by using common sense, to a standardized process

which is data driven.

1.2.3 Problem solving approach

To approach the problem we use the managerial problem-solving method (Heerkens & van Winden, 2017, p. 12). The managerial problem-solving method exists out of 7 phases. In this problem solving approach all phases are tailored to our problem.

The first phase is defining the problem. We define the problem by stating what is the current situation.

In this research it is of importance to have an overview of the process of flow re-engineering and how all individuals of the Department A define the process for themselves. Next to that the available data needs to be identified and sorted so it is known what we can work with during this research.

The second phase is formulating the approach to get grip on the problem. In this phase the theory that applies to flow re-engineering, vehicle routing problems and standardization of processes has to be collected and researched.

The third phase is analysing the problem. Here we get to the point where we analyse what we have found in the theory and how we can implement this in the current process. Also the different approaches of individuals is analysed for differences and similarities.

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The fourth phase is formulating solutions. Here the found information from the previous phases are used to create alternative standardized process solution.

The fifth phase is choosing a solution. Together with the Department A we choose the best solution.

We first discuss together what is the best practice and then combine these into one optimal solution.

Because it is not up to me what the decision will be phase 5 is coloured grey in figure 2.5.

The sixth phase is implementing the solution. In this phase a plan is made to implement the solution.

With this also an overview of changes is made and what consequences these changes have.

In the seventh phase we will evaluate the solutions. Here the solution will be reflected on and further research will be recommended if needed.

This research the phases are clustered in three main stages. The first stage explains the process as-is.

This mainly focusses on the current process at Company X. The second stage is the bottleneck of the process. This mainly means what needs to change in order to improve the process. The third stage is the to-be process. These are all the phases that have to do with the process solution and what steps to make when implementing and evaluating the new process. How these phases are used during the process is made clear in chapter 3. The managerial problem-solving method with the 3 stages is visualized in figure 1.5.

Figure 1.5 The managerial problem-solving approach of Hans Heerkens and the categories for research.

1.2.4 Deliverables

At the end of the research we deliver all the results to the problem owner. The deliverables consist of:

• A flow chart model of the standardized process.

• A tool which can be used to do the flow re-engineering analysis.

• A data sheet of the new parameter rules which can be used during flow engineering.

• A documentation structure and registration sheet

• An advisory report about the use of the new process and the follow up steps for further research.

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1.2.5 Research Scope

The research is conducted in a period of 10 weeks total. For this maximum amount of time limitations have to be set. The first limitation of the research is that there will only be worked with data that is already available at Company X. No new data on their internal processes is created by me because the time scope for this data to be reliable is too small. Another limitation is that with the information that will be gathered in this research there cannot be made a perfect solution to the research question. The process of flow re-engineering still has a lot of flaws since it is a rather new process. This research is only presenting the best options which can be created in the time span of 10 weeks. The focus for this research will be on integrating theory and available data at Company X into the already existing process of flow re-engineering. In the end my focus will not be on creating as many options for solutions as possible, but I focus on the options with the most potential.

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1.3 Research questions and design

In this section we formulate the central research question of the research which has to be answered to solve our problem. The central research question is presented in subsection 1.3.1. As previously mentioned the research is divided into three parts, as is, bottleneck and to be. To answer the central research question we first focus on the smaller research questions which are presented in subsection 1.3.2 As-is questions, 1.3.3 Bottleneck questions and 1.3.4 To-be questions. The questions guide us through the search for information which is needed to answer the central research question.

1.3.1 Central research question

In this section the central research question is mentioned.

1. How can the flow re-engineering process be standardized by using available data?

To give a solution to the problem statement, we have to answer the central research question. The answer to this question gives a process model to use the new standardized process for future flow re- engineering problems. This question is answered by systematic collection of information in the other research questions. The other deliverables are stated in section 2.4.

The central research question is answered in chapter 6.

1.3.2 As-is questions

In this section all research questions from the as-is stage of the problem solving approach are mentioned.

2. What does the current flow re-engineering process at Company X look like?

a) Who are the stakeholders?

b) What key performance indicators are currently used?

c) What data is currently available to use for flow re-engineering?

d) What are the individual differences per engineer?

The first research question is about the current flow re-engineering process. To gain knowledge on the current flow re-engineering process we need information from the Department A team on what happens in the process and how decisions are made. This will be done by qualitative research in three steps. The first step is an orientation meeting with the whole team to get a broad overview of the phases within the process. The second step to deepen into the process is an online survey about the steps within each phase is conducted. And as a third step the individual decision processes are collected by individual interviews. Next to the Department A team the interview will also be conducted at Company X in Location 2. This information will be used as a benchmark for the to be process. The key performance indicators and available data for flow re-engineering are verified through observation of what is done in the process during the interviews. The outcomes will be analysed and visualised in a process model. The process model is verified for reliability by the problem owner and the Department A team.

3. What literature is available on flow re-engineering?

a) What are the trade-offs within flow re-engineering?

b) How is flow re-engineering related to a vehicle routing problem?

4. What literature is available on standardizing a process?

a) Which models and theories are useful when standardising a continuous process?

To gain knowledge on flow re-engineering and standardisation of a process we are creating a theoretical framework by using literature sources on the subjects. The collected information is used

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for improving the process into a standardized process. Next to that the information on flow re- engineering could improve the existing strategy and be included in the to-be process.

Question 2 is answered in chapter 2, question 3 and 4 are answered in chapter 3.

1.3.3 Bottleneck questions

In this section all research questions from the bottleneck stage of the problem solving approach are mentioned.

5. What is lacking in the current flow re-engineering process at Company X?

a) What does the Department A think is a bottleneck in the process?

b) What does the Department A want improved in the to be process?

Both questions of the bottleneck we answer by a combination of qualitative and literature research.

An ideal model of what the process should look like can be created using literature sources on what is important in a standardized process and what is important during flow re-engineering. To make it fit in the team of Company X we adjust and verify this information into a new ideal process model.

Question 5 is answered in chapter 4.

1.3.4 To-be questions

In this section all research questions from the to-be stage of the problem solving approach are mentioned.

6. What parameters can be used in the flow re-engineering process?

To create the parameters in the process we also make use of a combination of qualitative information gathered through surveys and meetings and a data analysis of the available data for flow re- engineering at Company X. With that information the parameters can be chosen.

7. How can the flow re-engineering process be standardised?

a) What steps should be included in the to-be process?

b) How can the decision on trade-offs be standardised?

The answer to this question is created by the outcomes of the previous questions. In this answer the information is filtered and put into perspective with each other. From this a tool which can be used by the flow re-engineers can be created. This tool can be used by following the flow chart of the standardised process. The tool also consists out of a method to standardise decision making on the trade-offs for the flows.

8. How can the solution be implemented?

9. What further research can be done?

The experience of the research and the observations during researching give us enough information to create a fitting implementation plan. We also give an advice on further research to improve in the future.

Question 6 and 7 are answered in chapter 5 and question 9 is answered in chapter 6.

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2 Current flow re-engineering process at Company X

In chapter 2 we research what is the current process in place for flow re-engineering. In section 2.1 we define the stakeholders which are connected to the flow re-engineering process. In section 2.2 the general process is described in seven phases of a continuous process and the focus phases of the process are described in more detail. In section 2.3 we discuss the interview results and in section 2.4 we give a clarification about all the data that is used during the process.

2.1 Stakeholders

During flow re-engineering the department needs to know their stakeholders. Making changes in the flows can affect others so there needs to be good communication about this. The stakeholders of the Department A can be divided into four categories: Stakeholders to satisfy, Stakeholders to work with, Stakeholders to monitor, Stakeholders to inform.

Stakeholders to satisfy

The stakeholders that need to be satisfied are the ones that have high influence at the flow re- engineering process and that perceive low impact. In this category falls the COMPANY X Management.

The COMPANY X management is the management group that stands over the Department A.

Stakeholders to work with

Stakeholders to work with have high influence and perceive high impact on the flow re-engineering process. In this category are the Material Planners and the Transport Planners. There has to be close contact in order to work effectively with these stakeholders.

Stakeholders to monitor

In the monitoring category are the stakeholders Department A location 2, Department A location 4, the suppliers and the transporters. They have low influence on the process and perceive relatively low impact. Changes made by the Department A still have to be communicated but this is done by implementing the changes.

Stakeholders to inform

The Stakeholders that have to be informed are the production units. They perceive high impact but have relatively low influence on the process. Therefore there needs to be good communication with the production units to have successful changes in flows.

THIS FIGURE HAS BEEN LEFT OUT BECAUSE OF CLASSIFIED INFORMATION

Figure 2.1 Stakeholder analysis of the Department A.

2.2 Organisational flow chart

The Department A has many stakeholders and with these stakeholders come a lot of information flows. To get a better understanding of where the Department A actually stands within the organisation we take a look at the flow chart in figure 2.2. The information flows start at the production units which have the demands for the parts so they can manufacture the trucks. This information goes to Material planning which makes an optimization planning of when the parts should be collected from the suppliers. This planning is sent to the suppliers so they can prepare the loads for pick up. After the optimization of Material Planning, Transport Planning makes an

optimization of how the ordered parts are transported. This planning of the transport is then sent to the transporters so they know where to pick up the parts, in what order and at what time to pick up and deliver. Within this optimization the suppliers and transporters are in close contact with Material

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Planning and Transport planning. If there are any challenges within the material and transport optimization this is communicated with the Department A in the daily pulse sessions. These sessions are there for the flow re-engineers to know what are new flow re-engineering problems but also to discuss if the solutions that are created are working and optimal. Another information flow is the flow from RMC management to the Department A. They provide the Department A of targets for flow re-engineering so the engineers know to some extent what should be the aim of flow re- engineering. The last information flow that goes to the Department A are requests from purchasing.

If purchasing wants to add transporters or suppliers to the network the flow re-engineers have to re- engineer the flows which sometimes leads to changes in the network. After flow re-engineering all stakeholders are kept up to date about the new setup.

Figure 2.2 Organisational flow chart of Company X

2.3 Current process

This section is divided in two subsections. In subsection 2.3.1 the seven phases of the flow re- engineering process are generally described. In subsection 2.3.2 we take a closer look at the phases 2,3,4 and 5 where we lay the focus of this research.

2.3.1 General flow re-engineering process

In a meeting with the Department A we discussed in general steps what the process of flow re- engineering looks like. During the meeting it quickly becomes clear that the general process of the engineers is the same and that the differences are in the approach of each phase. The approach of these general steps take the form of the managerial problem solving method from Hans Heerkens but the method is costomized to the needs of flow re-engineering problems. (Heerkens & van Winden, 2017, p. 12) The general steps of the flow re-engineering department can be described in almost the same seven phases. All phases are verified with the Department A through an online survey.

General flow re-engineering process:

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1. Problem identification.

2. Problem approach.

3. Analysing the problem.

4. Formulating solutions.

5. Propose the best solution.

6. Evaluate the solution.

7. Implement the solution.

The first phase is the problem identification. The problems that have to be solved can be identified in various ways. Sometimes the problem comes in as a request during a regional pulse meeting or from the Purchasing department. It is also possible that a tender meeting or a project gives the trigger to re-engineer a flow. Another possibility for a problem to show are changes in the flow, this could for example be a new supplier or pick up location, a new production unit, new parts added, or a new connee code. In this case it is a clear flow problem that has to be re-engineered. The last possible way to identify a problem is an increase or decrease in transport volume, this could either be a forecast of future volume or something that is noticed during optimization at the Material Planning department or the Transport Planning department.

The second phase is the problem approach. During the problem approach the goal is to map out what is the problem and collect all the information on the problem. To get an overview of all the information a current state analysis is conducted on the concerned flows.

The third phase is the problem analysis. In this phase the first step is checking with the stakeholders if there is any special handling on the flow or if there are sequence of component parts in the flow.

The second step is gathering data on the performance of the flow and information of the flow.

The fourth phase is formulating solutions. For this the alternative options to change the flow have to be specified and the future scenarios on these alternative options have to be calculated in terms of performance and impact on the network.

The fifth phase is proposing the best solution. The engineer chooses the best solution on the basis of the future scenarios. Then the best solution gets proposed to the stakeholders.

The sixth phase is evaluating the solution. If any of the stakeholders do not agree with the proposed solution the solution either gets adjusted to the needs of the stakeholders or the engineer starts a conversation with the stakeholder to convince them of the solution. If the solution has to be adjusted the engineer goes back to phase 3 of the cycle

In the last phase of the cycle, phase 7, the solution is implemented. To implement a solution the engineer has to decide for a start date of the new set up and communicate the date with the stakeholders. To decide on a start date the current situation, pick up days and lead time have to be taken into account. After implementing the solution the changes have to be updated in the systems.

Next to that a follow-up with the stakeholders has to be planned to receive feedback on the results of the solution.

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Figure 2.3 General flow re-engineering process based on a combination of flow re-engineering approach and the managerial problem solving method (Heerkens & van Winden, 2017)

2.3.2 focus phases

In the online survey the most significant differences within the flow re-engineering process can be found in the phases 2,3,4 and 5. Therefore, we take a closer look at these phases to later define where the bottlenecks of the current process are located.

In phase 2 the current situation is mapped out. To do this all information on the current situation needs to be collected. This information can be collected from several data sources of the systems that are used at Company X or files which are located on the internal servers. The information which is useful about the current situation is the current (annual) cost, the actual fill rate, what type of trailer the parts are transported in, restrictions on specific parts (for example unstackable parts), the supplier numbers, the connee codes, the current transport type of the flow, and the current pick up days. The restrictions on specific parts are in the packaging instructions or are mentioned by the Material Planning Department or the Transport Planning department.

In phase 3 the information on the problem has to be analysed. For this data has to be gathered about the previous weight, volume and costs and on the forecasted weight, volume and costs. In this phase all the current key performance indicators need to be collected. Next to that a check on the rates which are of importance for the flow to calculate the costs needs to be collected.

In phase 4 the alternative solutions have to be formulated. To formulate solutions all options for solutions should first be analysed. For this the possibilities to change the flows or pick up days need to be researched. Then by using the forecast data and the rate sheets the costs for each option can be calculated. CO2 and stock is also taken into account by creating an overview of the impact of the option on these aspects. Something which is important to keep in mind when doing calculations is to calculate the payweight to check if a flow is a volume flow or a weight flow. Next to that the key performance indicators are calculated for the different options to see how the options will perform.

In phase 5 the best solution has to be chosen. This is done by choosing the option which has the best impact on the cost, CO2 and stock. This decision can be very easy when all aspects are positively

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changed, but it can also be more difficult when a trade-off between the three aspects needs to be made.

Figure 2.4 Focus phases of the research

2.3 Interview results

To gather information on how flow re-engineering is currently done per person, individual interviews with the Department A team were conducted. All participants agreed to sharing their personal strategies and methods for flow re-engineering. Next to the Department A team the same interview was conducted for at the flow re-engineering team in Location 2. The Swedish team exists out of two persons who focus on flow re-engineering. One of the two is still very new to flow engineering and does not have the experience to share the knowledge so that is why only one person answers is included in the results. The results from Location 2 deliver a benchmark for the future process of flow re-engineering. All interviews are transcribed and can be found in appendix A.

During the interviews with the six flow re-engineers from Location 1 it becomes clear which key performance indicators are used in the current process. All six report that they use the key performance indicators transport costs, fill rate, CO2 and stock. For CO2 and stock should be noted that all engineers make use of this key performance indicator by making an estimation using common sense. One engineer also mentions to use the key performance indicator quality/flexibility based on common sense.

The KPIs that are used by the engineer in Location 2 are transport costs, fill rate, CO2 emission and stock using common sense.

The KPIs of the current process:

• Costs

• Fill rate

• CO2 emission

• CO2 emission (using common sense)

• Stock (using common sense)

• Quality/Flexibility (using common sense)

In figure 2.5 the interview results are visually represented.

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Figure 2.5 Interview results of KPIs used by flow re-engineers

Even though all engineers clearly state what key performance indicators are used during flow re- engineering the values which are alarming during flow re-engineering are not clearly defined among the engineers. These results are depicted in figure 2.6. The engineers declared which values are alarming for them.

For costs there is a clear target which is a price elasticity of 0,90. This can be easily calculated and gives a very clear indication about how good a solution is. This is also a target which is set by the management of Company X. However, only four engineers answered that they actually used the target during flow re-engineering. Also some engineers manage a minimal fill rate, which can be useful to determine when a flow should be re-engineered. Some other limits which are mentioned are the minimum volume in a pre-collection and a maximum volume over a cross-dock. These limits can also be very helpful during flow re-engineering to base decisions on. In Location 2 there is not made use of any alarming values during flow re-engineering.

The alarming values and the KPIs which are mentioned here form a basis for the parameters which will be defined in the future process.

Figure 2.6 Interview results of alarming values for flow re-engineers

Something that is still very varying among the engineers is the amount of time one looks back at historical data in INET TA and how far to look upfront at the forecast data in IFOT. Below in figure 2.7 and 2.8, the interview results show a bigger variation in looking at historical data than looking at forecast data. Though most of the engineers use different amounts of time to look back or forward, all engineers mention that weeks or days which are not representable, like Christmas or holidays, should be removed from the data before choosing how far to look back and forward.

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In the future process a standard period of historical data and forecast data will be chosen by the team and implemented.

Figure 2.7 Interview results of period of historical data used by flow re-engineers

Figure 2.8 Interview results of period of forecast data used by flow re-engineers

When the actual flow re-engineering starts the engineers have to calculate what are the alternative options and whether they want to change to another flow type or set of pick up days. For this process each flow re-engineer has his own strategy and approach of the problem. For this is asked to all engineers to describe what their strategy is. Then in the results the steps were categorised and collected in table 2.1 below. For each engineer the X marks if the step is part of that engineers process.

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The steps that were described by the engineers are used to start a standard approach for all engineers in the future process.

Table 2.1 Interview results of individual flow re-engineering steps per engineer where R represents an engineer.

2.4 Data network

During flow re-engineering several data sources within Company X are used. The networks exists out of the following data sources.

INET TA

In INET TA historical data on the flows can be retrieved. For flow re-engineering it is useful to gather data from INET TA about the previous weight, volume and what type of flow it was.

IFOT

IFOT is an optimization tool for the material planning department. For flow re-engineering it is interesting to download the forecast on the flows which is simulated by this tool. The forecast gives information about the upcoming weight and volume. After flow re-engineering the changes made in a flow need to be updated in IFOT.

Rate Sheets

The rate sheets are a set of excel files which contain the agreed upon rates for the transports. The rates say something about the prices per truck or per loading meter. It also makes a difference for which type of transport is used. With these sheets the costs of a flow can be calculated.

Power BI reports

At Company X the KPIs are visually represented in Power BI reports. These reports can help with making choices in flow re-engineering. Very useful reports are the filling rate report and levelling report. In the filling rate report all flows and their filling rates can be found and in the levelling report can be seen how many packages and boxes come in at the PRU so the engineers can better decide which pick up days to consider.

Teams

Teams is a software tool which is used within and cross all departments of Company X. With this tool everybody communicates with each other and work in shared documents. For flow re-engineering this tool is very useful to stay in contact with Material Planning and Transport Planning but also with the PRUs

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Webstars

Webstars is a tool which is used by Transport Planning. After flow re-engineering it is important to update the information about the concerning flows.

Vista

Vista is a tool which is used by Transport Planning. After flow re-engineering it is important to update the information about the concerning flows.

MC

MC is a tool which is used by Material Planning. After flow re-engineering it is important to update the information about the concerning flows.

Figure 2.5 The data sources for flow re-engineering

For flow re-engineering INET TA, IFOT and the Rate Sheets are the most important data sources which are used by all flow engineers.

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3 Theoretical framework

In this theoretical framework we conduct an exploratory research. This means that along the way of researching at Company X, new findings will be added which are useful for the research and create a better understanding of the subjects in this research. This framework merely consists out of the subjects around flow re-engineering, vehicle routing problems and standardisation. The literature about the subjects puts the research into perspective to other researches and is used as a guideline for decisions made further in the research. Section 3.1 consists of information around the trade-offs within flow re-engineering. This can be further defined into section 3.1.1 about transport costs, section 3.1.2 about stock cost, section 3.1.3 about the trade-off between transport cost and stock cost, section 3.1.4 about the trade-off between cost and sustainability, section 3.1.5 about the trade-off between cost and quality and section 3.1.6 about the trade-off between cost and levelled flow. Section 3.2 consists of information about vehicle routing problems and section 3.3 consists out of models and theories which are useful when standardising a continuous process.

3.1 Trade-offs within flow re-engineering

As explained in section 2.1 where the current situation of flow re-engineering is described there are two triangles which are used during flow re-engineering. One of the triangles consists out of the pillars CO2, Quality and Cost. This triangle is used by the management as the pillars which need to be focussed on by Company X. The other triangle consists of the pillars Transport costs, Stock levels and Levelled flow. The second triangle is more focussed on flow re-engineering because these can be somewhat measured when changing a flow. However the first triangle also needs to be taken into account when flow re-engineering.

The pillars of these triangles are very closely connected to each other and on some points contradict each other. When the pillars contradict each other this causes a trade-off which can sometimes cause challenging decisions. Therefore it is good to know these trade-offs and how they should be handled.

Before taking a look at these trade-offs we will further define the pillars of the triangles. In section 5.1.1 we discuss the pillar transport cost. Section 5.1.2 discusses Stock costs. In section 5.1.3 sustainability is discussed and in section 5.1.4 the pillar quality is discussed.

3.1.1 Transport cost

Company X uses three types of transport strategies:

1. Direct 2. Cross-dock 3. Milk run

The first transport strategy is direct shipment. This type of transport is direct delivery of the parts from the supplier to the concerned PRU. The benefits of direct shipment are that is a quick type of transport because there are no stops, no extra handling costs of a cross-dock (Simchi-levi, Kaminsky, & Simchi- Levi, 2007, p. 230)This strategy is financially the most beneficial if full truck capacity is used (Kocaoglu, Cakmak, Kocaoglu, & Taskin-Gumus, 2020, p. 1)

The second strategy is cross-docking. A cross-dock is a distribution centre which does not hold inventory longer than a day. At a cross-dock the raw material is received and collected and is then sent directly to the concerned PRU. The parts which are sent to the cross-dock usually have a low volume and are sent by pre-collection. Pre-collection is the collection of the parts from different suppliers which need to go to the same PRU, to the cross-dock. The cross-docking strategy is an efficient strategy that reduces transportation and holding costs. (Kocaoglu, Cakmak, Kocaoglu, & Taskin-Gumus, 2020,

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p. 3)This type of transport is the most cost beneficial if there are only small volume shipments. Other benefits of cross-docking are faster product flow and improved customer service. Cross-docking gives a better control over delivery schedules and therefore is well suited for a Just-In-Time manufacturing environment (Hosseini, Shirazi, & Karimi, 2014, p. 567)

The third transport strategy is a milk run which reduces transport costs by combining shipments from multiple suppliers with a single truck so the distances travelled and the amount of trucks get reduced.

(Kocauglo, Cakmak, Kocauglu, & Gumus, 2020, p. 1) Making a milk run trip can avoid inventory holding costs and also creates a faster product flow. (Hosseini, Shirazi, & Karimi, 2014, p. 567)

The main objective in flow re-engineering is reducing costs. This objective can be satisfied by keeping the transport costs as low as possible. By choosing between the three transport strategies the transport network can be optimized and the transport costs are reduced.

3.1.2 Stock cost

Another cost that has to be considered within the supply chain is stock costs. Stock costs can be defined by looking at the inventory. Inventory can appear in several places in the supply chain and in different forms. There are three types of inventory: Raw material inventory, Work-in-process inventory and Finished product inventory. (Simchi-levi, Kaminsky, & Simchi-Levi, 2007, p. 31) During flow re- engineering the main focus is on reducing the raw material inventory costs.

In an ideal world there would be very low inventory cost because everything can be manufactured just in time. But there are a few good reasons to have inventory. One of these reasons is unexpected changes in customer demand. This could happen for any reason and when it happens you want to have an inventory buffer so the production does not stop. Another reason are that there are lead times so the raw material is not directly available when it is ordered. The last reason are economies of scale offered by transportation companies. This means that the transportation companies offer a discount on the transportation if the truck is fuller. Therefor it is more profitable to order in larger quantities.

(Simchi-levi, Kaminsky, & Simchi-Levi, 2007, p. 31)

Inventory costs include three main components: Handling costs, Fixed costs and Storage costs.

Handling costs are labour costs at the warehouse. Fixed costs are mostly proportional to warehouse size but in a nonlinear way. Storage costs represent inventory holding costs consisting of state taxes, property taxes, insurance on inventories, maintenance costs, obsolescence cost (item loses some of its value because of changes in the market) and opportunity cost (liquidity). (Simchi-levi, Kaminsky, &

Simchi-Levi, 2007, p. 88)

3.1.3 Trade- off between transport cost and stock cost

For the Department A economies of scale offered by transportation companies invoke a trade-off between inventory costs and transportation costs. To make the best choices with regards to the trade- off you want to have a balance between the two. For that you need to have clear insight in the inventory costs and the transportation costs to make a calculation. Another way to handle this trade- off is combining the smaller quantities from many different suppliers onto one truck destined for a particular production unit. This can be done through a cross-dock. (Simchi-Levi, Kaminsky, & Simchi- Levi, 2007, p. 168)

Looking at these logical steps in dealing with this trade-off like implementing the cross-dock strategy is already considered at Company X but it is still hard to make a good choice for this trade-off because there are no clear insights in the inventory costs.

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3.1.4 The trade-off between cost and sustainability

At Company X sustainability can be summarized in two segments.

1. The minimization of CO2 emissions of transports and handling operations by usage of renewable energy, alternative fuels or increasing of transport efficiency.

2. Fair and competitive working conditions for drivers and workers within Company X’s supply chain.

For the Department A the focus is on the first segment. If there are agreed upon rates for transport with renewable energy or alternative fuels there is an option to change that in the flow. However increasing the transport efficiency is a more obvious solution for the engineers.

The government and consumers are now a days more concerned with the environmental effect, which is caused due to supply chain and manufacturing processes. a sustainable supply chain is defined as effective operational management with minimal negative environmental effect. The main problematic area of the transportation process as a sustainability factor is the CO2 emission level. So in order to reduce CO2 levels the transportation network has to be adapted. This can be done by decreasing the driven kilometres and optimizing the fill rate to increase the transport efficiency, but the other effective minimization opportunities are using innovative technologies and clustering processes. These CO2 minimizing opportunities are not always economically beneficial which causes a trade of between cost reduction and CO2 emission reduction. (Gruzauskas, Baskutis, & Navickas, 2018, pp. 709-710) In a green supply chain network optimization the best activities for the coordination and design of a green supply chain over time, provide crucial support to decision-making. In the optimization of the supply chain, most problems involve research trade-offs among incompatible objectives. This makes it hard to make decisions on the trade-off between environmental and economic performance.

Therefore, the environmental and economic objectives both need to be measured (Tognetti, Grosse- Ruyken, & Wagner, 2015, p. 387) For flow re-engineering to have the objectives of cost and CO2 compatible for a trade-off the annual cost and CO2 emission should be considered and optimized as much as possible by looking at the best possible transport efficiency and use of fuel and modality.

3.1.5 The trade-off between cost and quality

Reducing inventories and transportation costs typically comes at the expense of customer service. The level of customer service can be maintained while decreasing the costs by using information and appropriate supply chain designs. (Simchi-levi, Kaminsky, & Simchi-Levi, 2007, p. 168). Within Company X Logistic it is very important to communicate with the stakeholders in order to have an as high as possible quality of transport and supply chain while still minimizing the costs. This is also important to take into account when standardising the process because this is an important step that has to be done multiple times during the process.

3.1.6 The trade-off between transport cost and levelled flow

Something that is of importance at Company X is to not over load the PRU with trailers that come in at once. It is good to spread the amount of parts per week day as much as possible for the people that work at unloading at the PRU. Because it is sometimes economically beneficial to go to a lower amount of pick up days, it always has to be kept in mind that lowering the amount of pick up days can also have negative impact on flexibility and quality.

3.2 Vehicle routing problem

The problems which are dealt with during flow re-engineering can also be specified as vehicle routing problems. A vehicle routing problem is a combinatorial optimization problem and is concerned with the optimal design of routes to be used by a fleet of vehicles to serve a set of customers. (Golder,

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Raghavan, & Wasil, 2008, p. 3)There can be found a lot of research on vehicle routing problems which can help solving a flow re-engineering problem very fast. What makes creating an optimization for a vehicle routing problem very challenging is that each optimization is very specific for each network considering the difference in constraints and objectives.

In literature there are various studies on vehicle routing problems with a milk run option and vehicle routing problems with an option. However there are only very little studies on vehicle routing problems witch a milk run and cross-dock option at the same time. To our knowledge there can be two studies found with such a similar network.

The first study proposes a ‘’modified’’ savings-based genetic algorithm which is named ‘’distribution strategy selection and vehicle routing hybrid algorithm’’ which contributes as a new algorithm to solve a mixed delivery network problem with the three types of transport. This contributes as one of the first solutions to guide researchers and practitioners in this matter. It decides the best distribution strategy and also optimal routes using a heterogeneous fleet of vehicles at minimum cost. (Kocaoglu, Cakmak, Kocaoglu, & Taskin-Gumus, 2020, p. 1)

The second study proposes a novel integer programming model for the transportation problem with the three types of transport. This is done by developing a hybrid of harmony search and simulated annealing based heuristics. The objective is to minimize the total transport cost in the network by reducing the number of required vehicles. (Hosseini, Shirazi, & Karimi, 2014, p. 1)

Solving a flow re-engineering problem by using algorithms like these would speed up the process and makes a good optimization. This method of standardising the process is still too complex to apply to the transport network of Company X because of the many restrictions of the current network, like contracts with suppliers and because there are no constraints for the performance of the flows. The standard of this research could however be a starting point for such a method.

3.3 Models and theories for standardising a continuous process

In an optimization process the focus is on reducing costs while maintaining a high level of quality. This is also the case for a continuous process which is always trying to improve but there are pitfalls which need to be avoided. One of those pitfalls is insufficient sharing of development in the process. This can be caused by not passing through new information and communication errors. (Arita, Nakayama, &

Awata, 2007, p. 97) The flow re-engineering process is a continuous process like this and undergoes the same problems. All Material Supply Engineers are working with their own process to flow re- engineer but do not share all their work or ideas for the process.

According to the Capability Maturity Model Integration the process of flow re-engineering is still low in capability. There are 6 capability levels to measure process improvement. The levels 0 to 5 are respectively incomplete, performed, managed, defined, quantitatively managed, optimizing. To get to a higher level steps need to be taken to go to a more standardized process. (CMMI Product Team, 2002, p. 18) Currently the process of flow re-engineering finds itself in level 2 which means that the process satisfies the specific goals of the process. There is known what is the input and what is needed to produce an output. By standardising and defining the process the process can go up in maturity level. For this the process needs to be clearly mapped out, standardised for all employees and quantitatively managed. If all of this is done and there is a very clear process from beginning to end the process can only be optimized by the whole team which is the optimizing stage, level 5.

Standardized processes help to reduce uncertainty and unpredictability. A standardized process also makes sure that resources are efficiently used: human, financial and material. Next to that a

A standard approach for the flow re-engineering process of Company X

A STANDARD APPROACH FOR THE FLOW RE- ENGINEERING PROCESS AT

COMPANY X

Bachelor thesis Industrial Engineering and Management

Colophon

Preface

Glossary

Management summary

Table of Contents

1 Introduction

1.1 Company X

1.2 Problem description

1.3 Research questions and design

2 Current flow re-engineering process at Company X

2.1 Stakeholders

2.2 Organisational flow chart

2.3 Current process

2.3 Interview results

2.4 Data network

3 Theoretical framework

3.1 Trade-offs within flow re-engineering

3.2 Vehicle routing problem

3.3 Models and theories for standardising a continuous process