The effects of differentiating the delivery time policy for Neopost
Technologies Drachten on logistical performance
Rijksuniversiteit Groningen
Operations and supply chain management Final thesis
The effects of differentiating the delivery time policy for Neopost Technologies Drachten on logistical performance
Author: Maarten Alta
Supervisors RuG: Leonieke Zomerdijk Martin Land
Supervisor Neopost: Peter Molenkamp
Preface
This thesis is the final project of the Master study of Business Administration at the RijksUniversiteit Groningen. Within this study I chose the specialisation trajectory: Operation and Supply chains. My affinity for the logistics of production companies led me to Neopost Technologies where I could work at my thesis for approximately 5 months.
This thesis would not have this form without the knowledge and advice of my supervisors from the University: Leonieke Zomerdijk and Martin Land.
I would like to say a special thanks to the employees of Neopost Technologies which patiently provided me with information when necessary. Peter Molenkamp, my supervisor from Neopost Technologies guided me, supported me and gave feedback. The employees of the department resource planning provided me with most of the information in this thesis. There is much gratitude from my side for: Marco Zuiderveld, Laurens Metz and Agnes Lub for this.
I also would like to thank my parents, my girlfriend and my friends for giving the support I needed.
Maarten Alta
Groningen, July 2005
Management summary
Neopost Technologies is a Dutch enterprise, developing, producing and distributing mailing and document systems. Neopost Technologies produces systems for handling the incoming mail and the outgoing mail of a company. The systems used for the outgoing mail are capable of filling envelopes. These systems are referred to as horizontal, vertical or folding systems. Systems used for incoming mail are capable of emptying envelopes.
Neopost has two different customer order penetration points, one penetration point for the horizontal systems, letter extractors and stand alone folding system and one for the vertical machines. The horizontal systems, letter extractors and the stand alone folding systems consist of modules and are ‘made to stock.’ The vertical systems consist of building blocks and are ‘assembled to order.’
The need for this research came from the understanding that Neopost Technologies offers to its customer’s 10 different types of systems, which can be delivered in different variants. All of these systems have a policy of delivery within two weeks. When competing in a competitive market, a company intends to keep low delivery times towards the customer. However, Neopost Technologies has no insight in the relationship between the logistic performance and their delivery time policy. This is a problem because having no insight in this relationship can lead to too large efforts in different areas to realise the delivery promise. Therefore the goals of this research are two-fold:
(I) Investigating the consequences of the undifferentiated delivery time policy for the logistical performance per system on behalf of the management of Neopost Technologies.
(II) Giving insight in the possibilities of differentiation and their consequences possibly leading to an improvement of the logistical performance
To be able to reach this goal the following questions are asked:
1) How is the current logistical performance per system influenced by the undifferentiated delivery time policy?
2) Which possibilities are there to differentiate in delivery time?
3) What are the consequences for the logistical performance of differentiations in the delivery time policy?
4) What are the recommendations concerning the delivery time policy?
Question one has an analytical point of view and analyses the current performance per system and relates this to the delivery time policy according to goal I. To gather information about the performance of Neopost Technologies a set of performance indicators of Slack and the Nevem workgroup are combined together for measuring the performance. The set of performance indicators used are the delivery time, delivery reliability and the costs of inventory level finished goods and components. These performance indicators are stated to be in relation with the delivery time policy and therefore will change in the case of a differentiated delivery time policy. Question two guides the design of a possible new situation for the delivery time policy. Question three is concerned with the consequences for the logistical performance of these possible differentiations. The last question is concerned with the recommendations concerning goal II.
The analysis of the logistical performance of the current situation showed that the performance of the different types of systems varied considerably. Several types of systems perform well, but systems indicated as the SI 92 and the IM 3003 perform remarkably insufficient under the current delivery time policy of two weeks. The best performance is shown by the SI 68, SI 62 and the Folding system. This is shown in the following table.
The poor performance of the IM 3003 and the SI 92 is due to the fact that the systems shows a quite reasonable amount of inventory but the delivery performance is the worst of all systems resulting from a significant amount of assembly hours per system. The SI 62 and SI 68 show the best logistical performance. Their delivery performance is the best of all systems and their inventory costs of components are quite low. The remaining systems did not show a remarkable positive or negative performance and are therefore not described.
This research accounted for several factors when developing the different scenarios for the delivery time policy.
This was especially important for systems like the IM 3003 and the SI 92 which showed much potential for lengthening their delivery time. As a result a delivery time policy of three and four weeks was researched for
IM 30/35 SI 68 SI 62
Folding system
SI 65
SI 78 SI 92 IM 3003
SI 76 SI 82
Delivery reliability + ++ ++ + + - -- -
Delivery time - + + ++ + - -- -
Inventory costs + + + ++ + -- -/+ +
these systems. Also, the IM 3003 qualified for maintaining its delivery time policy because it is expected that a three or four week policy does not reap the anticipated benefits and problem solving will improve the current logistical performance. The remaining systems did not show such potential as the SI 62/68, SI 92 or IM 3003 do in differentiating. That is why they are not investigated in shortening or lengthening its delivery time.
Shortening the delivery time policy was especially interesting for the SI 68 and the SI 62. Their assembly time is low making it possible to deliver within one week and their delivery performance is the best of all systems. Also the competitive pressure is large. The SI 62 / 68 system is under a lot of pressure of the competition and shipment to the biggest customers in the USA takes on average one week, leading to a longer integral delivery time. The plan to deliver in one week should strengthen the competitive position of Neopost Technologies in this segment.
When determining the consequences for the logistical performance of the SI 62/68 the capacity of the assembly department is seen as the most determinant factor for the delivery performance. This research showed that its capacity allowed for a delivery time policy of one week for all SI 62/68 systems. However when a sudden, or structural, rise in demand arrives Neopost Technologies can consider to make a differentiation per customer or a customer group. This means that the customers from the USA will be confirmed on a delivery time of one week and the remaining customers on a delivery time of two weeks. All in all, it seems that Neopost Technologies has the capability of a delivery time policy of one week for the SI 62/68 and the benefits of this are quite significant;
changing the delivery time policy to one week for the SI 62/68 should certainly be considered.
This research also showed that the SI 92 has much potential concerning its logistical performance when differentiating the delivery time policy to four weeks. This includes shifting the customer order decoupling point upstream to a ‘assemble to order’ situation. By shifting the customer order decoupling point, the inventory finished goods of the SI 92 is no longer necessary and the finished goods balance can be lowered. It seems that lengthening the delivery time policy and shifting the customer order decoupling point should certainly be considered by Neopost Technologies when considering the SI 92.
Maintaining a two week policy seems to have the most benefits for the logistical performance for the IM 3003.
An increased delivery performance can be realised without changing the delivery time policy. This is possible when having flexible personnel and realizing a better delivery reliability of the suppliers. Realizing flexible personnel can be reached by cross training the employees and a better delivery reliability of the suppliers can be reached by active monitoring the procurement orders of the IM 3003, consequently, the delivery reliability of the suppliers is bound to improve. Creating a performance indicator and giving the personnel of the department Material Management insight in the performance of the delivery reliability of the suppliers of parts of the IM 3003 is an important step in awareness of performance. This way the responsible department, Material Management, will act more as a guide of the process. By appointing process-owners the area of responsibility will be clearly stated and targets can be set for example for the supplier. This will result in less stock out situations and ultimately in a shorter delivery time and better delivery reliability towards the customer. This investigation on the IM 3003 showed that it is possible to deliver within two weeks and realising an important improvement in delivery performance without differentiating. Lengthening the delivery time policy would underestimate the possibilities of the current situation and would put unnecessary pressure on the competitive position of the system.
All in all, Neopost Technologies can profit significantly from several types of systems when differentiating their delivery time policy. Making use of the capability to deliver in one week leads to an improved competitiveness.
Lengthening the delivery time in combination with a shifting of the customer order decoupling point can lead to a significant reduction of inventory. Differentiating the delivery time policy has great potential and should most certainly be considered by Neopost Technologies.
CHAPTER 1 INTRODUCTION ... 7
1.1 INTRODUCTION... 7
1.2 THE CONTEXT OF THIS RESEARCH... 7
1.2.1 The Neopost Group ... 8
1.2.2 Neopost Technologies ... 8
1.2.3 The products ... 9
1.2.4 The customer order decoupling point ... 9
1.2.5 The material flow ... 10
1.2.6 The planning process ... 11
CHAPTER 2 RESEARCH DESIGN ... 12
2.1 THE GROUNDS FOR THIS RESEARCH... 12
2.2 DEFINITION OF THE PROBLEM... 12
2.3 OPERATIONALISING THE PERFORMANCE... 13
2.3.1 Set of performance indicators of Slack ... 13
2.3.2 Set of performance indicators of the Nevem Workgroup... 13
2.3.3 Operationalising the two sets of performance indicators... 14
2.3.3.1 Performance indicators not in relation with the delivery time policy ... 15
2.3.3.2 Performance indicators in relation with the delivery time policy ... 16
2.4 DATA COLLECTION... 17
2.4.1 Data collection and interpretation of data concerning sub question 1 ... 17
2.4.1.1 Delivery reliability ... 18
2.4.1.2 The delivery time ... 18
2.4.1.3 Costs of inventory finished goods and components ... 18
2.4.2 Data collection and interpretation of data concerning sub question 2 ... 19
2.4.3 Using and interpreting data concerning sub question 3... 19
2.4.3.1 Delivery reliability ... 19
2.4.3.2 Delivery time... 19
2.4.3.3 Costs of inventory finished goods and components ... 19
2.4.4 Using and interpreting data concerning sub question 4... 20
2.5 THE STRUCTURE OF THIS RESEARCH... 20
CHAPTER 3 THE LOGISTICAL PERFORMANCE... 21
3.1 DELIVERY RELIABILITY... 21
3.2 DELIVERY TIME... 22
3.3 COSTS OF INVENTORY LEVEL FINISHED GOODS, COMPONENTS... 23
3.4 CONCLUSIONS... 24
4 THE POSSIBILITIES IN DIFFERENTIATING AND THE CONSEQUENCES OF DIFFERENTIATION ... 26
4.1 THE POSSIBILITIES IN DIFFERENTIATION... 26
4.2 THE CONSEQUENCES OF DIFFERENTIATING... 28
4.2.1 The SI 62/68... 28
4.2.1.1 Differentiating to one week for all customers ... 28
4.2.1.2 Differentiating per customer or a customer group ... 29
4.2.2.1 Two week policy IM 3003 ... 30
4.2.2.2 Three week policy IM 3003 and SI 92 ... 31
4.2.2.3 Four week policy IM 3003 and SI 92 ... 32
4.3 CONCLUSION... 33
5 CONCLUSIONS AND RECOMMENDATIONS ... 34
5.1 THE IM30/35, FOLDING SYSTEM,SI65/78, AND THE SI76/82... 34
5.2 THE SI62/68 ... 34
5.3 THE SI92 ... 35
5.4 IM3003 ... 36
5.5 ROOM FOR FURTHER RESEARCH... 37
5.6 OVERALL CONCLUSION AND RECOMMENDATIONS... 37
Chapter 1 Introduction
The first section of this chapter presents the introduction towards this research and the second section describes the context of this research. This is necessary to comprehend the nature of this research to the fullest extent.
1.1 Introduction
This research covers the delivery time policy of Neopost Technologies. Since 2002 Neopost Technologies offers to all its customers a delivery time of two weeks for all its products: while products show a significant difference in sales, while products have different customer order decoupling points, while products show different assembly times, while products show a great variety in performances, and so on. It is therefore not unusual to ask oneself the question if a delivery time policy of two weeks for all products is worth the effort. It is possible that a great deal of inventory has to be maintained for a system not frequently sold because of a policy which is based on the fastest selling systems. It is even possible that the customer is not in need of such a delivery time for certain products.
Even though the previous paragraph paints a somewhat pessimistic picture of the policy of Neopost Technologies concerning its delivery time, this might be the actual reality. By investigating such a trivial subject the possibility might arise that great potential is found in changing the delivery time.
Therefore, this paper will attempt to investigate the influence of the delivery time policy on the logistical performance of the organisation. This research has two main goals, which are;
(I) Investigating the consequences of the undifferentiated delivery time policy for the logistical performance per system on behalf of the management of Neopost Technologies.
(II) Giving insight in the possibilities of differentiation and their consequences possibly leading to an improvement of the logistical performance
In order to reach these goals this investigation needs an analysis phase and a design phase. In the analysis phase the influence of the current delivery time policy is investigated and the design phase incorporates different scenarios of the delivery time policy and its consequences.
This paper is structured in the following way; first of all, some background information on the firm will be provided, followed by the research design. Subsequently, the analysis of the current situation is performed, this forms the basis for the possibilities in differentiating, and the consequences of each alternative option. Finally the recommendations will be provided along with the conclusions.
1.2 The context of this research
The first section describes the Neopost group formed by 13 subsidiaries. One of these subsidiaries is Neopost Technologies. This subsidiary will be introduced in the second section. The subsequently following sections describe Neopost Technologies’ products, its customer order decoupling point, its material flow and the planning process of Neopost Technologies.
1.2.1 The Neopost Group
The Neopost Group sells mailing, document and logistics systems, and provides customised mail processing solutions covering both letters and parcels to a wide range of customers in the corporate, public and professional sectors. The head office is located in France and subsidiaries are situated in 13 different countries: Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan, Netherlands, Norway, Spain, the UK and the USA. Furthermore, the Neopost Group has R&D centres, assemble centres and logistic platforms. These logistic platforms offer solutions in mail processing all around the world. The Group makes use of an international network of 90 distributors and official partners in 70 different countries worldwide. For a visual display of this network, see figure 1.1. The Neopost Group has one large competitor and a number of small competitors in a competitive and innovative market.
1.2.2 Neopost Technologies
Neopost Technologies is a
Dutch enterprise, developing, producing and
distributing mailing and document systems.
Neopost Technologies houses an R&D centre and an assembly centre. The sales of 2004 amounted to
53 million, and 5% of the sales were invested in innovative activities. The organisational structure of Neopost Technologies is presented in figure 1.2, depicting a functional organised company. The supply chain management department is subdivided in the departments Resource Planning, Material Management and Physical Distribution. Resource Planning is responsible for the tuning of the available resources with the customer orders, including the forecast. The department Material Management is responsible for the operational planning, warehouse management, internal transport and procurement. Physical Distribution is responsible for the customer order dispatch, including the order intake, acknowledgements and invoicing. Preparing of shipments and external transport are also some of the tasks of Physical distribution. Finally, the department of Product Management is responsible for catching relevant signals from the market and translating these into sales forecasts.
Figure 1.1 the international network of distributors
Figure 1.2 the organisational structure
Management Assistent HSE Co-ordinator
HRmgt Finance, adm & ICT
Product planning Export product support R&D
Purchasing & faclity mgt
Resource planning Material mgt Physical distribution
SCM Manufactering Management
Product management Int. Bus. Support Director
Type title here
1.2.3 The products
Neopost Technologies produces and develops systems for handling the incoming mail and the outgoing mail of a company. The systems used for the outgoing mail are capable of filling envelopes, systems used for incoming mail are capable of emptying envelopes.
Outgoing mail
The systems for the outgoing mail are capable of filling envelopes by folding documents, filling the envelope and closing the envelope. These machines are referred to as the vertical, horizontal and folding machines.
The horizontal machine owes his name to the horizontal transportation of the paper. These systems are modular, which allow customers to customise their systems to their needs. The horizontal systems are fast, however they are space consuming. The horizontal systems are indicated as the SI 65, SI 78 and the SI 92. The SI 65 and the SI 78 are quite similar. Nevertheless, the SI 65 has lesser options to insert modules. The SI 92 is different in functionality and in size.
Vertical systems are less space consuming because of their vertical structure. They are also sold substantially more than the horizontal machines The SI 76 and SI 82 are vertical systems very similar in functionality. However, the SI 82 is more powerful and also faster than the SI 76.
Other vertical systems are specified as the SI 62 and the SI 68. The SI 62 is the smaller and cheaper version of the SI 68, with the main differences that it has fewer options and smaller output.
In order to fold paper Neopost produces standalone folding systems. These systems allow for fast and precise folding.
Incoming mail
To process the incoming mail Neopost produces letter extractors like the IM 30- or IM 35, separating the envelope from its content. A larger version of these systems is the IM 3003, also called the Stielow, operating fast and quiet. However this is a more professional system and is very space consuming.
1.2.4 The customer order decoupling point
The customer order decoupling point is the point which indicates how far, upstream in a supply chain, a customer order penetrates in the producers- or distributors process of the product or service.
(Hoekstra & Romme, 1993)
Neopost has two different customer order decoupling points, one decoupling point for the horizontal systems, letter extractors and stand alone folding system and one for the vertical machines. The horizontal systems, letter extractors and the stand alone folding systems consist of modules and are
‘made to stock.’ The vertical systems consist of building blocks and are ‘assembled to order.’
However the SI 76 and the SI 82 are partially assembled to order. The tower, depicted on the right side of the SI 82, is assembled to order and the inserter (left) is made to stock.
Picture 1.1 the horizontal SI –92 and the vertical SI - 82
Table 1.1 gives a summary of the relevant characteristics of the systems mentioned and provides information about the sales of the systems.
1.2.5 The material flow
The material inflow starts with the intake of raw materials and procurement parts. There is a possibility of checking the goods on quality, depending on the supplier. After the order intake goods are shipped to the central warehouse, the production department or the Stielow facility. The Stielow facility is used to make only this type of machine.
Raw materials are transported to the department parts production, where the production process has the characteristics of a job shop. This department produces on behalf of the assembly department.
Semi-products can be directly shipped to the assembly department or stored in the central warehouse.
Within the department parts production there are two main material flows: machining and ‘other than machining.’ There are four turning centres within the machining section, with the possibility of operating the machines unmanned. Within the ‘other than machining’ section the first process is punching. Within this section parts are made from a plate by punching with one of the three punching machines. The processes following the punching varies and can consist of scouring, drumming, setting, tapping, riveting, sinking, spot welding and pressing. In times of high loading there is a possibility to outsource the punching and machining.
The central warehouse and the parts production provide the assembly line and the Stielow facility with material. The materials are located in cans in the assembly line. Other parts are stored in the central warehouse due to the scarcity of space. Within the assembly department the hall is subdivided in assembly lines, each one dedicated to one or two systems. After the assembly, the end products are transported to the department expedition and samples are taken for a quality check and will be packed and transported.
IM 30/
35
SI 68 SI 62 Folding
system
SI 65 SI 78
SI 92 IM 3003 SI 76 SI 82 Type of
system
Letter Extractor
Vertical System
Vertical System
Folding System
Horizontal System
Horizontal system
Letter Extractor
Vertical System Decoupling
point
Made to stock
Assemble to order
Assemble to order
Made to stock
Made to stock
Made to stock
Made to stock
Assemble to order Sales per
year 350 2400 4000 250 155 450 100 1600
Table 1.1 Characteristics of the systems mentioned in this research
1.2.6 The planning process
Six months planning
The long-term planning covers a period of six months and gives an indication of the number of systems of every distinct type that has to be sold per week. The department Product Management makes this sales-forecast in accordance with the operational companies and retail companies. The operational companies and the retail company provide forecasts once a month on how much they plan to sell per product type. The department Product management designs a concept of the forecast of sales and the department Resource Planning makes use of this forecast together with the history in sales to create the final forecast. The forecast is used for calculating required capacity and materials in the upcoming six months and is entered into the master production schedule.
Nine week planning
The eight week planning gives the exact number of systems produced in the upcoming eight weeks.
This number of systems is derived from the forecast and was already entered into a master production schedule. Neopost Technologies works with a time fence, depicted in figure 1.3. Within this time fence the output cannot be adjusted, securing the supply of production and procurement parts.
However, in the monthly ‘resource meeting’ the departments Material Management, Resource Planning and Physical Distribution decide about a possible downsizing of the output. This happens in the situation when the sales are lower than the forecast of sales. This way output can be adjusted over two or three weeks. The supply of the parts is determined through the formula of Camp in the case of production parts and in the case of procured parts a variant on this used.
The department Material Management makes sure that all the materials are secured for the production and assembly of goods. This means that Material Management performs procurement and order release for the assembly and the parts production departments. These activities generally happen within week 3, 4, 5 and 7. Advice concerning the procurement of parts and release of orders is taken from the Material Requirements Planning.
Two week planning
Received customer orders are booked at the cost of the numbers from the forecast entered into the master production schedule, this way never booking more orders than planned. The customer gets an acknowledgement of their order from the department Physical Distribution. Order release takes place once a week as well as for the assembly and the parts production. Machines ‘made to stock’ are supposed to be delivered from stock, but in practice this situation is different. These systems exist of modules and usually not all the ordered modules are in stock and will have to be assembled to order, just like the vertical systems. Neopost Technologies has the policy of delivering in two weeks.
However, the delivery date can be longer than two weeks. This can have three reasons, the first one is that Neopost Technologies agrees with the customer that the delivery time is longer due to under capacity. The second reason is that the customer asks for a delivery time longer than two weeks and the last reason is that Neopost Technologies is unforeseen not able to deliver in two weeks.
It is possible to place rush orders for their customers however, this usually happens at the cost of normal orders. This means that orders without priority need to give up their capacity on behalf of the rush orders.
Raw materials
Semi-finished productsProcurement parts Safety Week Assembly Distribution
1 2 3 4 5 6 7 8
8
Figure 1.3 The time fence
Chapter 2 Research design
This chapter is dedicated to the design of this research. Section 2.1 will start out with the grounds for this research which in turn is followed by the definition of the problem in section 2.2. In section 2.3 supportive theories for this research are presented which state the different variables which need to be explored. Section 2.4 is dedicated to the collection of data used for answering the sub questions. It describes which data is measured, how it is measured and when. The final section describes the overall structure of this research.
2.1 The grounds for this research
Neopost Technologies offers 10 different types of systems to its customers, which can be delivered in different variants. All systems are offered with a delivery time of two weeks. Neopost Technologies thrives in a competitive market, therefore Neopost Technologies strives to keep low delivery times towards the customer. However, Neopost Technologies has no insight in the relationship between the logistic performance and their delivery time policy. This is a problem because having no insight in this relationship can lead to too large efforts in different areas to realise the delivery promise. Eventually through researching this problem, insight must be gathered on this relationship.
2.2 Definition of the problem
The goal of this research is two-fold:
(I) Investigating the consequences of the undifferentiated delivery time policy for the logistical performance per system on behalf of the management of Neopost Technologies.
(II) Giving insight in the possibilities of differentiation and their consequences possibly leading to an improvement of the logistical performance
The resulting research questions are:
What are the consequences for the logistical performance of Neopost resulting from two weeks of delivery time per system?
Can the logistical performance per system be improved by adjusting the delivery time policy?
The area to be researched is depicted in figure 2.1 below, which can be considered a conceptual model. The delivery time policy is presumed to have consequences for the logistical performance per system.
The next sub questions are derived from the conceptual model and act as a guideline in performing research:
1) How is the current logistical performance per system influenced by the undifferentiated delivery time policy?
2) Which possibilities are there to differentiate in delivery time?
3) What are the consequences for the logistical performance of differentiations in the delivery time policy?
4) What are the recommendations concerning the delivery time policy?
Delivery time policy
Logistical performance per system
Figure 2.1 the area to be researched
2.3 Operationalising the performance
To gather information about the performance of Neopost Technologies, the need arises to search for a theory that proposes logistical performance indicators, after all, the logistic performance per system has to be measured. This section describes two different sets of performance indicators applicable in this situation. The first set which will be described is the set of performance indicators of Slack and the second set of performance indicators are derived from the Nevem Workgroup. Section three operationalises the two sets of performance indicators for Neopost Technologies.
2.3.1 Set of performance indicators of Slack
Performance indicators well suitable for this research are the performance indicators of Slack (Slack, operations management, 2001, p.43). The performance indicators of Slack are a useful classification of the performance objectives which any operation might pursue. These performance indicators are:
quality, speed, dependability, cost and flexibility:
Quality is concerned with doing things right. Meaning that the less quality errors the better the performance on quality.
Speed is concerned with how long customers have to wait to receive their products from the moment they order. Meaning that the higher the speed of delivery the better the performance on speed.
Dependability means doing things in time for customers according to the promised date and time agreed upon with the customer. Meaning the more orders delivered on time the better the performance on dependability.
Costs are incurred in several areas. The operation will spend money on:
Staff costs, the money spend on employing people
Facilities, technology and equipment costs (the money spent on buying, caring for, operating and replacing the operations hardware)
Material costs, the money spent on the materials consumed or transformed in the operation.
The less costs are made in these different areas the better the performance on costs.
Flexibility means being able to change the operation in some way. There are different forms of flexibility according to Slack:
Product / service flexibility is the operation’s ability to introduce new products and services
Mix flexibility means being able to provide a wide range or mix of products and services
Volume flexibility is the ability of the operation to change its level of output or activity
Delivery flexibility is the ability to change the timing of the delivery of the service The higher the flexibility in these areas the better the performance in these areas is.
2.3.2 Set of performance indicators of the Nevem Workgroup
The Nevem Workgroup (Nevem Worgroup, 1989) works with four performance indicators: delivery reliability, delivery time, inventory level and flexibility. These four different areas together make up the logistical performance of a company. About this subject they point out the following: The objectives concerning delivery time, delivery reliability and flexibility are directly related to customers’ demands. Inventory level can be seen as a derivation of these objectives.
The Nevem Workgroup makes a differentiation between criteria of performance indicators in different situations, being useful in the different production situations of Neopost Technologies. This can be seen in the table 2.1. The customer order decoupling points were already described in section 1.4 and showed that there are two different production situations within Neopost Technologies. To make this distinction per production situation the Nevem Workgroup provides the characteristics per production situation.
The horizontal machines, the inserters of the SI 76 and SI 82, the stand-alone folding system and the letter extractors are ‘make to stock.’ The level of the stock is directed by market forecast. These characteristics are according to the production situation ‘to stock.’
The vertical machines are characterised as ‘assemble to order.’ These are the inserters of the SI 76 and the SI 82 and the SI 62 / 68 systems. These are according to the production situation ‘from stock.’
The table 2.1 points out the different production situations possible in a production company. In addition, essential measurement criteria within these performance indicators are provided. From this table comes the understanding that the delivery time consists of different phases varying per production situation. Also different criteria within the inventory-area are mentioned per production situation. It shows that within the ‘make to stock’ situation, the value of the finished goods are relevant. Within the ‘assemble to order’ situation the raw materials and the subassemblies are relevant.
The flexibility of a company can be measured by taking all these criteria mentioned in table 2.1. The criteria mentioned to measure the area of delivery reliability remain somewhat vague, but it is clear that the delivery reliability is also a performance indicator which can give insight in the logistical performance of Neopost Technologies.
2.3.3 Operationalising the two sets of performance indicators
The theory of Slack and the Nevem both show similarity in some performance objectives. Delivery reliability is similar to the dependability and the speed is similar to the delivery time. The forms of flexibility of Slack and the Nevem are quite similar; therefore because of simplicity the forms of flexibility of Slack are chosen to determine the relationship with the delivery time policy. The different forms of costs of Slack are also chosen because its completeness and involving also the inventory costs of the Nevem. Not all criteria mentioned by Slack or the Nevem are relevant for this research, after all there has to be a possible relationship with the delivery time policy. Section 2.3.3.1 describes the performance indicators which are not in relation with the delivery time policy. Section 2.3.3.2 describes the performance indicators which are in relation with the delivery time policy.
Essential measurement criteria Performance indicators Production situation
‘to stock’
Production situation
‘from stock’
Production situation
‘to order’
Delivery reliability: Customer order (Assortment / demand) Lead time
Quantity
Customer order
(Specification / delivery time) Lead Time
Quantity
Customer order (based on specifications) Lead time Delivery time/ lead time: Planning
Delivery
Planning Production Delivery Installation
Planning Development Production (preparation) Purchasing Delivery Installation Inventory level Finished goods Raw materials /
subassemblies
Work in progress Flexibility Assortment
Volume Finished goods
Capacity Components
Assortment and volume
Reaction speed all processes
Table 2.1 Performance indicators of the Nevem Workgroup
2.3.3.1 Performance indicators not in relation with the delivery time policy
This section describes the performance indicators that are not directly related to the delivery time policy. Quality is described first, followed by the different forms of flexibility and costs according to Slack.
Quality
Quality is not mentioned further in this research due to the lack of a relationship between the delivery time policy and the quality of the product for Neopost Technologies. It could be possible that a short delivery time leads to errors in quality due to the shorter time available to assemble. However, this is not the case because Neopost Technologies assembles in a line, which is not influenced by the delivery time. Each system has its own assembly time and a shorter delivery time will not result in a shorter assembly time.
Flexibility
The product / service flexibility has no relationship the delivery time policy, because a change in the delivery time policy will not influence the ability of the operation to introduce new products. The mix flexibility has no relationship with the delivery time policy through realising that the flexibility of the range of products produced in a certain time period is not related to the kind of delivery time policy Neopost Technologies has.
The volume flexibility has only a relationship with the delivery time policy for Neopost Technologies when the delivery time policy is shortened. In this case customers expect orders faster and there is no room for smoothing demand in two weeks of delivery time. There is however no relationship with the delivery time policy and the volume flexibility when a large order arrives, this is because large orders do not arrive unexpected. Sales companies placing large orders usually order to replenish their stock.
These large orders are placed weeks before the shipment has to be made and delivery can take place spread out over several weeks. The remaining orders are anticipated through their forecast given out by the sales companies and retail companies. Because the volume flexibility is very hard to quantify and only relevant when shortening the delivery time this will not be measured in this form. However when a system qualifies for a delivery time shorter than two weeks the capacity of the assembly department will be considered in order to determine if the Neopost Technologies is able to deliver in time.
A change in delivery time policy can result in change in the number of rush orders because it may be expected that customers will place more rush orders when the delivery time is lengthened. However, the influence of this on the logistical performance indicators mentioned in this thesis is very limited.
The number of rush orders within Neopost Technologies is very limited and it can be expected that this also stays very limited when choosing a delivery time not too much longer than the current delivery time. And as mentioned before, rush orders are exchanged with non-rush orders when possible. However, the assembly time of the rush order stays the same, leaving the logistical performance indicators unchanged and thus the delivery performance towards all of the customers unchanged. Thus the delivery flexibility is not considered in this research.
Costs
Costs are incurred, according to Slack, in the area of facilities, staff and material. Changing the delivery time policy will not influence the costs made for facilities or the staff costs. This is because a changed delivery time policy will not lead not to a change in the size of facilities or the amount of effort from the staff. The material costs, or inventory level, of Neopost Technologies consists of the inventory finished goods, work in progress in assembly and production, production parts and procured parts.
Work in progress is not influenced due to the fact that the assembly department assembles in a line production. Changing the delivery time policy will not change operation time and the waiting time, which determines the work in progress. The production department is irrelevant due to its place before the customer order decoupling point and produces therefore on forecast.
Although the amount of the production parts and procured parts is influenced by the delivery time policy it is in the light of this research not feasible to reduce the size of these amounts of inventory with another delivery time policy. This is because the main way to reach a decrease of inventory in production and procured parts is to change the customer order decoupling point to a complete make to order. However, this is impossible to realise because this would mean that the delivery time must amount to eight or more weeks which is impossible to implement considering the competitive position of Neopost Technologies. The inventory finished goods is however influenced by the delivery time policy. The relation between these is described in the following section.
2.3.3.2 Performance indicators in relation with the delivery time policy
This section describes performance indicators in relation with the delivery time policy. Starting with the delivery reliability and followed by the delivery time and the costs of inventory finished goods and components. Every section starts with the definition of the logistical performance indicator; followed by and explanation of the extent to which the criteria have a relationship with the delivery time policy.
Delivery reliability
The definition of the delivery reliability is:
To what level the planned output has been realised (Nevem workgroup, 1989, Appendix 3)
The delivery reliability is influenced by two factors according to Bertrand Wortmann and Wijngaard, (Bertrand, Wortmann and Wijngaard, 1990, p.220.):
The delivery date rules: these are the rules determining the delivery date.
The internal management characterised by the detailed planning and the capacity allocation and priority rules.
The first factor is crucial in this context: ‘the rules that determine the delivery date’ are stated by the delivery time policy. Thus this factor indicates a relationship between the delivery reliability and the delivery time policy. In other words: the average delivery reliability has a direct relationship with the delivery time policy through realising that the delivery reliability is higher when the delivery time is lengthened and lead-time and the order release moment of a product stays the same.
The second factor pleads that the delivery reliability is also influenced by the internal management, characterised by planning, allocation and priority rules. In other words: a well performed planning, allocation and prioritisation is in favour of the delivery reliability performance.
The delivery time
The definition of delivery time is according to the Nevem Workgroup:
Comparison of real start and finish moments of activities (Nevem workgroup, 1989, Appendix 3 )
The relation between the delivery time policy and the delivery time is supported by the first factor determining the delivery time policy according to Bertrand, Wortmann and Wijngaard: the delivery date rules determine the delivery date. This is quite logic in the sense that a changed delivery time policy of for example one week will result in an actual delivery time of around the one week.
The costs of the inventory level finished goods and components
The inventory level of the finished goods is influenced through realising that a short delivery time policy implies a large amount of inventory at the finished goods site. But also a long delivery time can imply a more upstream place of the customer order decoupling point, this way there is no need for an inventory level of finished goods. Thus the length of the delivery time influences the level of the inventory at the customer order decoupling point. This means for the systems ‘made to stock’ that the finished goods are influenced and for the systems ‘assembled to order’ the amount of components is influenced.
The height of the inventory costs does not at itself say something about its performance related to the delivery time policy of Neopost Technologies. The height of the costs of the inventory must be seen in combination with the other performance objectives to conclude if there is a logic relationship with other performance indicators. For example: high inventory costs related to their sales can imply a short delivery time.
Table 2.2 summarises the previous sections in which the performance indicators are mentioned by Slack or the Nevem. The most right column shows the performance indicators measured in this research.
2.4 Data collection
The previous section already described the areas in which the logistical performance is measured; this section describes which data is gathered to measure the logistical performance in these areas and how this data is used to get answers to the sub questions.
Neopost Technologies has a number of different systems in its assortment, to prevent that the performance of every system type must be measured some systems are combined with each other.
The systems which are combined are very similar in functionality and price, these are the displayed in table 2.3. The left side of the table tells which systems are combined and the right side of the table tells how these systems are indicated throughout this research.
Systems Indicated as
SI 68 and SA 3003 SI 68
SI 76 SA 5005, SI 82 and SA 6006 SI 76 / SI 82
IM 30 and IM 35 IM 30 / 35
SI 65 and SI 78 SI 65 / 78
SI 62 SI 62
SI 92 SI 92
IM 3003 IM 3003
Folding system Folding system
2.4.1 Data collection and interpretation of data concerning sub question 1
How is the current logistical performance per system influenced by the undifferentiated delivery time policy?
The following sections describe which data is collected and how this data is interpreted to get an answer to the first sub question. Getting an answer to this first sub question means that firstly, the current logistical performance needs to be described. And secondly, describing the influence of the delivery time policy on this current performance. Every section starts out with a description of the data that is collected, followed by a paragraph describing how the data is interpreted to get an answer to the sub question.
Slack Nevem Workgroup In this research
Quality - -
Speed Delivery time Delivery time
Dependability Delivery reliability Delivery reliability
Costs Inventory level Costs of inventory level finished
goods and components Flexibility Flexibility -
Table 2.3 the systems mentioned in this research Table 2.2 the performance indicators used in this research
2.4.1.1 Delivery reliability
The criteria measuring the delivery reliability in this research are the promised delivery date and the number of promised products in a certain period. The delivery reliability is measured for Neopost Technologies by dividing the part delivered before or at the promised delivery date by the total number of deliveries. This is measured as a percentage and gathered from internal documentation on the delivery reliability. The data is gathered from the Resource Planning department concerning week 47 of 2004 until week 19 of 2005.
When the delivery time policy influences the delivery reliability to a great extent, the promised delivery time would lay around or under the two weeks. However, this is not the case due to the fact that Neopost Technologies can promise the customer a delivery time which is longer than two weeks.
Investigating the difference between the percentage of orders which are delivered within two weeks and the delivery reliability gives an impression of how much orders are promised later than two weeks by Neopost Technologies. A large difference shows that a great deal of orders agreed upon a later date than the usual two weeks, indicating less influence of the delivery time policy on the promised delivery time than when the difference is small.
2.4.1.2 The delivery time
The delivery time or lead-time is measured by calculating the time it takes from the confirmation date until the invoice date The phases in the delivery time process, differ per production situation, as is shown in table 2.1. However, due to the undifferentiated delivery policy and the fact that in practice numerous modules need to be assembled to order the delivery time consists many times of all three phases. The orders which are requested by the customer with a delivery time later than two weeks are not taken into account because these would influence the lead time greatly. Internal documentation from the Resource Planning department is the most important means to derive this information, measured in weeks. The data is gathered from week 47 in 2004 until week 19 of 2005.
The delivery time policy acts as a goal to which Neopost Technologies strives to achieve. When Neopost Technologies suspects that two weeks is not reasonable for a specific system, orders are agreed upon on a later date. If the delivery policy has a great influence on the actual delivery time, the average delivery time would theoretically be around two weeks or lower because there would be a lot effort from Neopost Technologies to deliver within these two weeks.
2.4.1.3 Costs of inventory finished goods and components
A possibility to measure the value of the finished goods and the components is to determine the value per system on the balance sheet, however this is to a great extent subject to the demand at that moment resulting that the value per system would not be representative. Another way to determine the value of the finished goods and the components is to make use of a formula which is used by Neopost Technologies. Neopost Technologies uses a formula that guarantees that an additional quantity of systems is planned in the master production schedule, in order to account for errors in the forecast.
The outcome of the formula is thus on systems level and all the necessary parts for the systems are ordered this way. This means that in the assemble to order situation components are stocked up and in the case of a ‘make to stock’ situation finished goods are stocked up. When the demand is equal to the forecast the number of systems in inventory finished goods and components are equal to the outcome of the formula. When using this formula for determining the value of the components and the value of the finished goods it is thus presumed that the actual sales can be above or below the forecast but are on average equal to the forecast therefore the formula represents the average level of inventory.
2.4.2 Data collection and interpretation of data concerning sub question 2 Which possibilities are there to differentiate in delivery time?
The data concerning the second sub question is derived from the information gained from sub question one and interviews with employees. Concerning the information from sub question one: when assessing the possibilities in differentiating, the current performance of the systems must be taken into account. For example a poor delivery performance in the current situation is not an ideal situation for shortening the delivery time policy to one week. The history of the delivery time policy, the competitive circumstances and the preparation of the customer for a new system are also factors in determining the feasibility of the differentiation.
2.4.3 Using and interpreting data concerning sub question 3
What are the consequences for the logistical performance of a differentiation in the delivery time policy?
The upcoming sections describe which data is used to get an answer to the sub question 3 concerning the consequences for the logistical performance of a differentiation in the delivery time policy. It also describes how this data can give information concerning the logistical performance in the situation of a differentiation in delivery time policy.
2.4.3.1 Delivery reliability
A low influence of the delivery time policy on the current delivery reliability, resulting from data concerning sub question two, shows that probably other factors determine the delivery reliability.
When lengthening the delivery time these factors will get less grip on the performance of the delivery reliability and the delivery time policy can have more influence on the delivery reliability. For example, in the current situation the total assembly time of a system determines whether the delivery time of two weeks is feasible. When lengthening the delivery time policy to four weeks, the assembly time is not a dominant factor any more and more time is available for problem solving, resulting in a better performance in delivery reliability.
2.4.3.2 Delivery time
Systems with a longer delivery time than two weeks, resulting from data concerning sub question two, are not to a great extent influenced by the delivery time policy, apparently there are other factors determining to a greater extent the resulting lead time. Lengthening the delivery time policy will result that these factors are not as determinant as they were. Thus the delivery time policy will have more influence on the total delivery time. When shortening the delivery time it is necessary to determine the effect of the order intake on the required capacity. Data about the amount of systems which can be additionally assembled per week must be gathered. When the fluctuations in order intake per week are not higher than the maximum additional capacity of the assembly department it is possible to shorten the delivery time policy.
2.4.3.3 Costs of inventory finished goods and components
Section 2.4.1.3 already stated that a formula makes sure that an additional quantity of components or finished goods is planned in the Master Production Schedule to resolve for fluctuations in demand being different from the forecast. When, for example, the current delivery time policy is changed to a one week policy than there is little room for solving the forecast error which will result in a stock out situation. This would imply more inventory of finished goods and components. Thus, when the effects of the forecast error become larger in the new situation; the inventory of the finished goods and the components needs to be enlarged. The formula used by Neopost Technologies to determine the level of inventory can be used to determine the level of inventory finished goods and components in the new situation.
2.4.4 Using and interpreting data concerning sub question 4
What are the recommendations concerning the delivery time policy?
When looking at sub question three, recommendations can be made concerning the delivery time policy. The logistical performance for each possibility is considered and recommendations are made based on this performance.
2.5 The structure of this research
This section describes the content of the upcoming chapters in this research. The upcoming chapters are further building on the previous described introduction to Neopost Technologies and the research design. Also, the research design described which logistical performances are influenced by the delivery time policy for Neopost Technologies.
Chapter three
When investigating the consequences of a certain delivery time policy on the logistical performance, the current logistical performance must be described. Chapter three answers the 1st sub question concerning the way in which the current logistical performance per system is influenced by the undifferentiated delivery time policy.
Chapter four
Designing a new situation takes the development of different scenarios in terms of delivery weeks, resulting in varying logistical performances. This chapter gives an answer to the sub questions 2 and 3 asking for different possibilities in developing scenarios and the consequences of these scenarios in logistical performance.
The chapter five
This chapter describes the conclusion and recommendations of this research. The recommendations follow from the 4th sub question.
Chapter 3 The Logistical performance
This chapter answers the first sub question concerning how the current logistical performance per system is influenced by the undifferentiated delivery time policy. The structure per section, describing the indicator, starts with describing the way the performance indicator is measured, presenting the results and how this is influenced by the delivery time policy.
3.1 Delivery reliability
The delivery reliability for Neopost Technologies is measured by comparing the actual delivery date with the promised delivery date. The promised delivery date is the date agreed upon with the customer and the actual delivery date is the date on which distribution takes place. This means that the confirmation date starts the measurement and the invoice date completes the measurement. This way Neopost Technologies does not have to take into account the varying distribution time per destination.
By dividing the orders in time with the total number of orders the delivery reliability rate is measured, this is visually displayed in table 3.1. The data concerns all the shipped orders, including the orders requested by Neopost Technologies with a longer delivery time. An example of the calculation of the data of the SI62 on reliability is depicted in Appendix A.
Folding SI 65 SI 76
IM 30 /35 SI 68 SI 62 System SI 78 SI 92 IM 3003 SI 82
Delivery reliability 91% 97% 98% 91% 89% 81% 63% 86%
Shipments 180 1194 2228 141 98 249 44 768
In time 163 1152 2182 129 87 196 31 647
When looking at the delivery reliability performance per system, one can see that this varies greatly and is for most of the systems not according to the goal of Neopost Technologies to have a delivery reliability of 95%. The SI 92, IM 3003 and the SI 76/82 show the worst performance in reliability.
When the delivery time policy influences the delivery reliability greatly, the promised delivery time would lay around or under the two weeks. Afterall, Neopost Technologies than succeeds in delivery within two weeks and works according to a policy resulting in a large amount of orders delivered within two weeks. Table 3.2 shows the percentage of orders delivered within two weeks. Because the delivery reliability at itself does not say anything about when the delivery is made, this table shows when deliveries are actually made within two weeks. The SI 92, the IM 3003 and the SI 76 / 82 are in a small extent in relation with the delivery time policy of two weeks concerning their delivery reliability performance in comparison with the other systems. The folding system, the SI 62/68, the IM /35 and the SI 65/78 are most of the times delivered according to policy.
Folding
Im 30 / 35 SI 68 SI 62 system SI 65 / 78 SI 92 Im 3003 SI 76/82
LT<=2 57% 64% 65% 66% 68% 41% 19% 43%
In conclusion: not only is the delivery performance of the SI 92, IM 3003 and the SI 76 / 82 poor, they are also most of the times delivered later than two weeks. The remaining systems perform rather good in delivery reliability and are most of the times delivered according to policy.
Table 3.1 delivery reliability per system
Table 3.2 The percentage of orders delivered within two weeks
