Volume Flexibility in the manufacturing environment

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Volume Flexibility in the manufacturing environment

Master thesis: Supply Chain Management

University of Groningen: Faculty Economics and Business

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Abstract

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1. INTRODUCTION

Flexibility is an increasingly important factor in today’s manufacturing environment. Currently, the business of manufacturing is becoming highly uncertain and is undergoing continuous change (Ajai et al., 2013). The improvement of a company’s flexibility, therefore, becomes an important method to achieve competitive advantage (Beckmann, 1990). Many managers have recognized that manufacturing flexibility is important to compete in today’s marketplace, but the understanding of how to apply flexibility as a competitive edge is limited (Chang, 2011).

Flexibility is a very ambiguous term that can be interpreted in several ways, which makes it important to use a common definition. This paper adopts the following definition: Flexibility is the ability to change or react with little penalty in time, effort, cost or performance (Upton, 1994). Sethi & Sethi (1990) distinguish eleven different types of flexibility. The type of flexibility that will be primarily discussed in this paper is Volume Flexibility, which can be defined as follows: Volume Flexibility of a manufacturing system is the ability of the system to be operated profitably at different overall output levels (Sethi & Sethi, 1990). In most settings, Volume Flexibility can be dealt with in with use of keeping (finished goods) inventory. However for a Make To Order (MTO) company this is not feasible due to the wide variety of products that are manufactured. There are several papers that contribute to the knowledge of Volume Flexibility, but little research has been done on how specific Volume Flexibility measures (to increase Volume Flexibility) can be applied in a MTO setting and what their influence will be on a firm’s delivery performance.

The research of Jack & Raturi (2002), with their combination of a case-study and survey research, already identifies several sources of Volume Flexibility, however these sources are not focused on the specific characteristics and limitations found in a MTO setting. Within the manufacturing environment, there is a large number of organizations that operate specifically with a MTO policy instead of, for instance, a Make To Stock (MTS) or an Engineer To Order (ETO) policy.

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5 Research Question: How can sources of Volume Flexibility be used in a Make To Order (MTO) company?

Hereby, the three elements of range, mobility and uniformity will be used to analyze the dimensions of Volume Flexibility (Slack, 1983, 1987; Upton, 1994). By researching this question, the most applicable and interesting sources of Volume Flexibility for the MTO setting will be defined, which may lead to a greater understanding among managers of how to incorporate Volume Flexibility into their companies’ operations. From a theoretical standpoint, the aim of this research is to produce extra insights into which, how and why Volume Flexibility measures can be applied in a MTO setting.

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2. THEORETICAL BACKGROUND

This section will give a short, current review of the main findings in the existing scientific literature. First, Volume Flexibility will be discussed, followed by several articles that identify sources of Volume Flexibility. Then, a combined list of sources of Volume Flexibility will be made and framed according to the model introduced by Oke (2005).

This paper will focus on the first-order flexibility types, as identified by Suarez et al. (1996), since these are the types of flexibility which are actually perceived by customers and thus have a direct influence on a company’s competitive position.

2.1. Volume Flexibility

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7 dimension focuses on the uniformity of performance indicators such as quality and delivery reliability. Cox (1989) defines Volume Flexibility as “the capacity to quickly expand the capabilities of a given product mix”. In this paper, the focus will lie on the short-term sources of Volume Flexibility, and therefore the short-term definition of Khouja (1997) and Jack & Raturi (2002) will be adopted.

To ensure the link between Volume Flexibility and delivery reliability, the reasoning of Oke (2005) is followed. Oke argues that a firm that possesses Volume Flexibility is by definition capable of delivery time flexibility. Therefore, volume and delivery flexibility are interchangeable to some extent (Oke, 2005). Additionally, Yazici argues that, as volume ﬂexibility increases, delivery is faster (Yazici, 2005). So, when improving the Volume Flexibility, the delivery time flexibility and therefore the delivery reliability will automatically also improve. Which makes it worthwhile to further investigate sources of Volume Flexibility.

2.2. Sources of Volume Flexibility

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2.2.1. Make To Order

When assessing the various sources of Volume Flexibility in a Make To Order (MTO) setting, a common definition must first be created. For the concept MTO, the characterization introduced by Hendry (1998) will be adopted. The MTO sector consists of those companies that manufacture products of high variety in relatively low volumes. Often the volumes are low even at the component production stage, as there is little opportunity for use of common components since products are manufactured to customer design and specification (Hendry, 1998).

Because of the high variety in products, it is not possible for an MTO company to store all end-inventory products due to the enormous costs that are associated with storage of a wide range of products. Even the storage of semi-finished products or raw materials might not be possible due to the immense variety and therefore numerous stock and high costs associated with it, but this depends on the characteristics of the products that are produced. Therefore, the inventory slack as suggested by for instance Jack & Raturi (2002) is at first glance not possible in these kinds of settings. Another source of Volume Flexibility suggested by these researchers that might not be applicable is batching (to reduce the number of setups), due to the high variety and low quantities of the end products.

2.2.2. Strategies

Jack & Powers (2004) have developed a framework in their paper on Volume Flexibility in a healthcare setting that suggests four different Volume Flexibility strategies: shielding, absorbing, containing and mitigating. The healthcare setting is in some ways quite similar to the Make To Order production industry, that also no inventory can be applied and every treatment is specific to a patient and thus ‘made to order’. Therefore, the research of Jack & Powers is, in large part, comparable with the other papers on Volume Flexibility.

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9 There are several actions that are proposed as fitting with these strategies. When an organization is faced with a high level of uncertainty in demand and the organization chooses a low level of response in terms of Volume Flexibility, management may choose to respond with a strategy designed to shield the organization from the negative effects of demand uncertainty (Jack & Powers 2004). Such actions are numerous pricing and rationing strategies such as differential pricing strategies, product and service rationing and creation of dual markets, among others. Organizations can also rely on more sophisticated technological capabilities such as demand management models to help shield themselves from demand uncertainty (Sasser, 1976). Furthermore, they also suggest removing demand uncertainty in a healthcare setting.

Another strategy, according to Jack & Powers (2004), is to absorb uncertainty. This can be accomplished in two ways, with time buffers and/or slack capacity. Health care organizations use several capacity buffering capabilities to absorb demand uncertainty in basic processes such as admissions scheduling, or in the scheduling of operating rooms (Egger, 2000).

The third strategy they define is the containing strategy. With this strategy, organizations may use flexible workforce policies that make innovative use of their human resources, such as the deployment of overtime and temporary employees to increase capacity, use of innovative shift schedules, and creative use of existing employees through cross-training (Bloom, 1997). Other containing strategies are to increase their flexibility by focusing on processes that enhance their efficiency and improve internal planning and control systems (Jack & Powers, 2004), or use information technology to enhance flexibility.

The final strategy Jack & Powers observe is the mitigating strategy, used to reduce the need of Volume Flexibility, which implies restructuring to mitigate the effects of uncertainty in demand or pooling the risks of several products with opposite demand patterns. Organizations are also increasingly using outsourcing and strategic alliances to mitigate demand uncertainty.

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10 also much consistency. However, there are also some very interesting differences among the various articles. For instance, Jack & Raturi (2002) make a very clear distinction between internal sources of Volume Flexibility and external sources. The other researchers didn’t make this distinction but do make suggestions about both internal and external sources of Volume Flexibility.

2.3. Development of a combined list

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Table 1: combined sources of Volume Flexibility

Oke 2005 Time span Sources of Volume

Flexibility Actions/tools

Supply chains

Short-term Outsourcing Subcontractors

Risk pooling

Long-term

Strategic alliances Joint product development Knowledge sharing

Vendor supplier

relationships

JIT

Vendor managed inventory

Process

technology Long-term

Slack capacity Flexible equipment Over capacity

Set-up

Set-up time reduction Product modularity Batching Automated manufacturing technology Computer-integrated-manufacturing FMS

Facilities and equipment Layout Equipment Information

technology

Short-term/long-term

Production planning and control system Scheduling slack Sales forecasts Order entry Remainder Short-term Inventory End-inventory Semi-finished inventory Raw material inventory Work in progress

Short-term/long-term Employment terms

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2.4. Time span

The list provided in Table 1 contains sources that are applicable to different time scales. Some of these sources influence the Volume Flexibility in the short-term, while others are more suitable for a longer period of time. In this study, long-term is defined as more than a half work year. In the column at the far right of Table 1 are examples of actions that could be undertaken or tools that could be used to implement the sources to which they are attributed. The most explicit actions are mentioned in the table, but for specific situations other actions might be (more) appropriate.

Within the generic factor Supply chains, the Volume Flexibility source outsourcing is most applicable in the short-term since those measures can be applied to temporarily increase the production capacity of the firm by letting another firm produce some of the demand; a prerequisite for this is that agreements are made in advance to implement the source in the short-term. The sources strategic alliances and vendor-supplier relationships are, however, much more applicable to a longer time span. For example, the strategic alliance source involves joint development of products to make them fit the production processes and/or internal processes. While the vendor-supplier relationships reflect the capabilities of the supplying firm to follow the needs of the buying firm in terms of quantities and quality, when the buying firm operates at different volume outputs.

In the Process technology factor, all sources are for the longer timeframe. Slack capacity, set-up, automated manufacturing technology and facilities and equipment are all sources for long(er) periods of time. This is either because they are expensive to modify (such as facilities and equipment, automated manufacturing technology and slack capacity) or because they create the most benefits when they are applied for longer time periods. For instance, the set-up source can provide a lot of benefits when for instance Single Minute Exchange of Dies (SMED) techniques are applied, but in the short-term the capacity will only increase marginally. The benefits from SMED techniques, for instance, need to come in time that the utilization of the machines will go down, which will lead to increased ability to cope with differences in volume.

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13 such as the sales forecasts, can be applied for longer periods of time and to look ahead to the future.

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3. METHODOLOGY

The aim of this research is to gain insight in the possible sources of Volume Flexibility, their applicability and why these sources are used in an MTO setting. In order to provide answers, a case-study approach is used to investigate how sources of Volume Flexibility can be applied in a MTO setting. The advantages of this approach are the availability of rich data gathered by visiting the company, having access to company data, ability to make observations within the company and have face-to-face meetings and interviews with representatives of the company, and the exploitation of the contextual richness offered (Sousa & Voss, 2008). A case-study approach is needed for this research since the special characteristics of MTO companies might involve mechanisms that have not (yet) been described in literature and therefore can best be discovered through an in-depth case-study.

3.1. Case selection and unit of analysis

To investigate how Volume Flexibility is achieved in a MTO setting, a case-study is conducted at a production company in the northern part of the Netherlands. The production company was found through the network of the University of Groningen and was selected based upon its MTO characteristics and discrete production. This case-study is conducted using the company VDL Wientjes located in Roden, the Netherlands.

Karlsson (2008) defined the unit of analysis as being the “level of data aggregation during the subsequent analysis”. Because this research focuses on Volume Flexibility measures on the short-term or operational level, analysis is conducted at the plant aggregation level, while zooming in to the factory at the department level in order to further deepen the analysis.

3.2. Data collection

During the data collection stage, the four principles of Yin (2009) must be considered: use of multiple sources, creation of a collective database of all compiled data, maintenance of a chain of evidence, and careful use of data generated by electronic sources.

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15 employees face. These interviews are recorded with permission of the interviewee, and anonymity is guaranteed.

Moreover, field notes of visits to the company are taken, especially concerning observations on the shop floor and general impressions. These notes may result from talking to the blue-collar employees as well as observations made while generally being at the company.

Hard data will be collected using the internal registration system of the organization. This data is already available within the company for various reasons, partly for the company’s planning activities but also for several quality checks and financial reasons. This data will primarily consist of the order output of the factory, order acceptance, throughput of orders, delivery dates of orders, and amount of hours worked. These types of data are presumed to be crucial for analyzing the amount of and the need for Volume Flexibility within the company.

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3.3. Data analysis

The data gathered by the various data collection methods must, of course, be analyzed. The data analysis consists of two phases: the display phase and the phase in which conclusions are drawn. The first phase includes conducting and summarizing the interviews. The interviews are analyzed based on the notes taken during the interviews as well as the recordings of the interviews. From the various interviews, an overview is constructed of how the interviewees perceive sources as well as the actions they take to become volume flexible. This confidential overview helps show the differences and similarities among anonymous employees in various layers of the organization and will be used to come to the results of this research.

The hard data on the order output fluctuations and, in general, hard data of the total throughput of orders are analyzed using Microsoft Excel. These data are examined for patterns and the amount of fluctuations over time.

The second phase consists of case analysis. This case analysis is done on the overview and summaries made during the first phase of the data analysis, along with observations and other sources of information gathered. All these sources of information are analyzed and, ultimately, conclusions will be drawn and presented.

3.4. Reliability and validity

Conducting proper research means that it is essential to produce reliable and valid research in order to contribute to the academic field. Reliability and validity in case research is defined according to Yin (1994) for four items: construct validity, internal validity, external validity and reliability.

The existence of construct validity is ensured by using multiple sources of evidence as described in the triangulation part of the methodology. Furthermore, key informants will review the draft case-study report to ensure that no mistakes are made. Internal validity is explanation building to establish a causal relationship. Thus, in this research, several sources of evidence will be used to establish relationships between various concepts and to explain how and when they will influence each other.

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17 Reliability is ensured by the use of a case-study protocol, as well as the development of a interview protocol. In addition, during this research preference has been continuously given to peer-reviewed articles and citations. Only articles and reports from established and internationally recognized journals and institutions have been used in this study.

3.5. Triangulation

In order to achieve the necessary triangulation (Meredith, 1998), a verbal summary at will be given at the end of the interview on the main topics that where discussed, to see whether the interviewee still agrees with what he or she has said. Furthermore a short written summary of each interview is given to the interviewees along with any possible remaining or unanswered questions from the researcher. Based on this document, the interviewees are able to correct any inaccuracies or inconsistencies and answer any remaining questions. Another factor that helps in achieving triangulation is the fact that multiple interviewees from different layers in the organization are asked to reflect (if possible) on all Volume Flexibility sources and the reasons for their use in the case company. This reflection helps the researcher to gain accurate and multiple insights into the issue at hand and, together with scientific literature, to achieve the necessary triangulation.

3.6. Limitations

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4. CASE STUDY RESULTS

The case-study was performed at VDL Wientjes Roden in Roden, the Netherlands. This is a production company with approximately 50 employees, of which 35 are located in the production area of the company, implying that 15 employees are involved with tasks other than the actual production: the indirect employees. VDL Wientjes Roden performs processes on (mostly) plastic products in small and medium-sized batches. A large number of the products VDL Wientjes produces are labor-intensive products that require several subsequent production activities. These product are primarily intended for the medical device industry. According to Oke (2005), there are two different estimators of Volume Flexibility. These indicators are actual production volume fluctuation and percentage of change in unit cost of labor within a year. In the case of VDL Wientjes Roden, the percentage of change in unit cost of labor within the year is quite constant, according to the employees who were interviewed on this matter; the ratio of highest weekly output to lowest is 3.48 for the past 57 weeks (see Table 3). The higher this ratio, the more likely it is that the firm is volume flexible. However, this achievement must be balanced against the costs of reaching such output and the impact on quality, among other factors. The costs for this flexibility are, in the case of VDL Wientjes, relatively low because the unit costs of labor during the year are quite constant, meaning low changes in the percentage of labor costs since there is no clear seasonal pattern. At first glance, this implies that VDL Wientjes Roden is relatively volume flexible. However, as can be seen in the following table, there are issues with the delivery reliability of the company, since it delivers only an average of 61% of all orders on time and there is a large variation in the percentage of late deliveries during the past 57 weeks.

Table 3: Delivery reliability

Number of

deliveries per week

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19 The percentage of deliveries that are delivered on or before the confirmed delivery date is 61% of all orders. The average number of delivered orders is 56.38 orders per week. Furthermore, the average number of late deliveries is 22.69 per week, with a standard deviation of 10.11 orders. The full distribution varies between 90% and 28% of the weekly orders that are delivered on time.

In Figure 1, the total number of orders delivered on or before the delivery date is represented by the blue line. The red line gives the number of orders per week that are delivered too late. And the green line indicates the total number of delivered orders in each specific week.

In Figure 2, the percentage of orders delivered late is plotted against the total order output for the various weeks. The total number of orders delivered in each week is measured by the left vertical axis and the percentage of orders is shown against the right vertical axis. As can be seen in the figure, the purple line of the percentage of orders delivered late follows the green line of the total output of orders fairly well. This pattern indicates that even though the Volume Flexibility indicators as identified by Oke (2005) indicate that the firm is relatively volume flexible, the firm is not able to fully absorb the variations demanded by the

0 10 20 30 40 50 60 70 80 90 100 18 16 14 11 9 7 5 3 51 49 47 45 43 41 39 37 35 29 27 25 23 21 19 16 14 12 10 8 6 N u m b e r o f o rd e rs d e liv e re d Weeknumber,

start week 18 2014 end week 5 2013 Figure 1: Order output

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20 marketplace and is not volume flexible enough to keep their delivery reliability fairly constant. This finding indicates that the firm is not able to fulfill the uniformity dimension of Upton (1994). The case company is able to produce different volumes, but at the cost of its delivery performance, which might be detrimental to the future performance of the firm; therefore, the company is not volume flexible. By further integrating the various sources of Volume Flexibility, the firm can become more delivery reliable while remaining able to produce the range of volumes, as suggested by Oke (2005) and Yazici (2005). Furthermore, the ends of each quarter are depicted in the graph with a blue vertical line. These lines indicate that, much of the time, fewer orders are delivered too late near the end of a quarter. When a quarter ends or is about to end, many times the number of late deliveries drops compared to other parts of the same quarter.

4.1. Sources of Volume Flexibility

The sources of Volume Flexibility that are observed within the case company, VDL Wientjes Roden, are indicated in Table 4 with an “X”. Each of these sources will be discussed and their links to Volume Flexibility will be further elaborated according to whether they are long-term sources, short-term sources or unused sources. The observed characteristics of the case company will be discussed, followed by a more general discussion towards Volume Flexibility. 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 10 20 30 40 50 60 70 80 90 100 18 16 14 11 9 7 5 3 51 49 47 45 43 41 39 37 35 29 27 25 23 21 19 16 14 12 10 8 6 Per ce n tage o f o rd e rs d e liv e re d N u m b e r o f o rd e rs d e liv e re d Weeknumber,

start week 18 2014 end week 5 2013 Figure 2: Delivery reliability

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Oke 2005 Time span Sources of Volume

Flexibility Actions/tools Used at VDL

Supply chains

Short-term Outsourcing Subcontractors -

Risk pooling - Long-term Strategic alliances Joint product development - Knowledge sharing - Vendor supplier relationships JIT - Vendor managed inventory - Process technology Long-term

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4.1.1. Long-term

To start discussing how the various sources of Volume Flexibility are used within the case company VDL Wientjes Roden, the focus will be on the time aspect: when can the sources be applied and how long could the effects last. The long-term sources that are used within VDL Wientjes Roden are slack capacity and set-up. The source employment terms is both long as well as short-term but, as will be discussed later in more detail, the short-term component is mainly used.

Slack capacity from the process technology factor is used within VDL. The company has no excess or over capacity available but they do have (very) flexible equipment, since most of their products can be produced on more than one machine and these machines are all able to produce different products or types of products. This is a phenomenon that is often seen in factories that operate under a job shop type of production layout. This type of production also results in a very complex flow throughout the factory, since products do not always necessarily follow the same routing through the factory and the routings can be altered whenever deemed necessary or preferred. This increases the volume flexible abilities of a firm since the multiple routings allow the firm to increase production volume by routing products over multiple machines, even though it might not be the most efficient route. Therefore, the total capacity of producing certain products increases when compared to a situation where no alternative routes are available. This source therefore mainly applies to the elements of mobility and range. The element of range is affected by the number of possible routes within the factory. Mobility to change is partly affiliated with routings through the factory, since the cost of changing is also dependent on the routing of the products and the needed set-up times, among other factors.

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23 set-up (times) and project modularity is the fact that when the total number of set-ups or the time per set-up decreases, the utilization of those machines also decreases. This allows for a larger production with the same resources and, therefore, the firm becomes more volume flexible. These factors are closely related to the elements mobility and range; when the set-up time needed is decreased, for instance, by introducing SMED techniques, the cost of changing decreases. Furthermore, the machine will also be operating again sooner, which benefits the total range of outputs the firm can produce.

The last long-term Volume Flexibility source is also a short-term source: the employment terms. The part of the employment terms that has to do with the long-term timeframe is the hiring of additional temporary workers. These workers can be used to increase production for a certain period when the need for extra capacity is recognized early enough, since some time is also needed to find and hire flexible employees with the appropriate skills and knowledge. At VDL, the flexible employees are used in a fairly limited manner. Most of the time that a flexible employee is hired, it is to replace an employee who is ill or absent for a longer period of time, but flexible workers are rarely used to cope for long(er) periods with high demand. A mixed form of long and short-term applicability is the cross-training of (certain) employees. Cross-training allows the firm to relocate employees to different machines or departments and to prevent employees becoming idle in one part of the factory while another part of the factory is overloaded during a certain period. With the hiring of additional flexible workers, the range of volumes that a firm can produce increases.

4.1.2. Short-term

All other Volume Flexibility sources that VDL Wientjes Roden uses are within the short-term timeframe. These short-term sources are: inventory, employment terms, and the production planning and control system.

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24 products in inventory will not be ordered (within a reasonable amount of time), which will result in high costs and the possibility of obsolete products. But since VDL realizes that this action results in less set-ups needed and thus higher delivery reliabilities, since more production time remains for other products, it is currently trying to integrate this practice into its operations. In addition to the planned semi-finished inventory, VDL always has one week of work in progress as inventory for each of its machines. There is quite a lot of work in progress in the factory since the Productie Besturings Systeem or Production Control System (PBS) they use to plan is only able to plan one production step in one week, with the next production step planned in the following week. Therefore, there is always one week of production as work in progress for each of the machines within the factory. Inventory as a Volume Flexibility source is primarily concerned with the smoothing out of production even though the range of end volumes differs. By maintaining inventory, a part of the variation in end-products can be smoothed by using the products kept in inventory. The work in progress, can mainly be used to smooth out the workload and prevent machines or workstations becoming idle whenever a problem or breakdown occurs upstream of that machine.

Employment terms are the main source contributing to the Volume Flexibility at VDL Wientjes Roden. The main source of Volume Flexibility used in the short-term is the workforce/labor flexibility. This means that changes in the volume are mostly absorbed by overtime and sometimes with the use of flexible workers, however due to ad-hoc planning VDL is frequently late in arranging flexible workers. The flexible workers are hired primarily when fixed personnel are ill or when a long period of high demand is expected. The use of this source of flexibility is currently based on a common sense approach: when the observation is made that the company doesn’t make one or more deadlines, it will try to use overtime to keep order delivery dates. In addition, when some rush orders need to be produced the concept of overtime comes into the picture. Labor flexibility allows the firm to quickly effect a shift in the number of employees or the amount of employees’ working hours in order to anticipate the requirements for products that must be delivered, which results in a more volume-flexible firm compared to those with solely fixed employees.

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25 workers towards parts of the factory that deal with high demands in certain periods and it allows the firm to shift workers away from less busy parts of the factory. The source employment terms primarily concerns the mobility to change. The availability of overtime and the relocation of employees are actions that can be taken on very short notice and with fairly limited costs, while the hiring of extra temporary workers is much more costly and requires more time to put in place. The range of volumes that can be achieved is mainly affected by the use of overtime and the hiring of additional flexible workers, since those extra hours are used to produce additional products.

The production planning and control system currently used is VDL Group’s PBS system. This system is quite old and is currently only able to provide a basic weekly schedule. The system is not sophisticated enough to make a detailed schedule; the system is only able to plan on a weekly basis, and the automatic planning function allows for only one production step per week per order. In addition, the production and set-up times inserted into the system are not always accurate enough on which to base the schedule and are not corrected when they are incorrect. This results in problems in the production when, for instance, the planned set-up times are shorter than the actual set-up times required. The production planning and control system is used to create the schedule for the production area(s) and set the pace of production. In addition, the hiring of extra (temporary) workers, for instance, or other sources for increasing or decreasing the production is planned based on this schedule. Therefore, it is essential that this production planning and control system is suitable for making sure the company can produce the required products and therefore be able to keep its delivery performance stable.

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26 Another characteristic of the planning process within the company is the fact that the planning is very ad-hoc, even though most orders are received approximately eight weeks before their respective delivery dates. A striking example of the ad-hoc planning is the fact that, for instance, national holidays and work reduction (ATV) days are not incorporated into the schedule. Therefore, the planning is much too optimistic in weeks containing these days, since there is a capacity gap of 20% during that week that has to be filled in the period afterwards, which has not been incorporated into the planning. This leads to a backlog and ultimately to overtime in order to compensate for the 20% loss of production in the weeks with a loss of one production day. Even the mandatory holiday period when the entire company is closed is not incorporated into its PBS system. The planners have to manually plan these weeks as being free; when this is not done correctly, the weeks after the holiday begin with a backlog of orders. With respect to Volume Flexibility, this phenomenon is devastating since capacity gaps of 20% are not easy to compensate for and, therefore, the delivery performance will drop. If these issues were addressed in the planning of the respective weeks, measures could be taken to counteract these capacity gaps or other sources of problems. For instance, the decreased delivery reliability achieved when a higher volume is produced (see Figure 2) results (partly) from the scheduling issues and have much to do with the uniformity dimension. When a greater volume is needed, the schedule needs to integrate all aspects of this larger volume and prevent the loss of uniformity. The loss of uniformity is, in the case company, mostly seen in the reduced delivery performance when increased volumes are produced. Not only are more orders delivered late when production is increased, but also a larger percentage of orders is delivered late when production is increased (Figure 2).

4.1.3. Unused sources

The Volume Flexibility source outsourcing is currently mostly not possible for the case company VDL Wientjes Roden, due to special legislation regarding medical products. For the products that are not medically related, it might be possible to utilize this Volume Flexibility source but hard to realize. Therefore, this source is not utilized within the case company. However, if these legislation issues did not exist, it would be possible to absorb fluctuations through outsourcing a part of the production in order to keep delivery reliable when the company’s own production is not capable of producing such quantities.

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27 production lines. These sources are not used since VDL Wientjes produces a wide and constantly changing mix of products. Therefore, the production process is not suitable for automated machines and specific production lines.

The other sources that are listed within the supply chains factor are strategic alliances and vendor-supplier relationships, and these are currently not used within VDL Wientjes Roden. The strategic alliance source involves, for instance, joint development projects in which the collaboration starts in the earliest phases of product development in order to make the production process better fit the situation, also for the supplier’s production processes. The vendor supplier relationships are concerned with the ability of supplier firms to cope with the fluctuations in demand due to the volume changes in the buyer’s production process. When the suppliers cannot deal with these changes, the buyer firm’s production process might grind to a halt and therefore hinder the abilities of that firm to be volume flexible and ultimately affect its delivery reliability.

4.2. Summary of the results

The main results that arise from the case-study are mixed. The case company is relatively volume flexible according to the indicators identified by Oke (2005). However, when plotting the current delivery reliability against the number of orders, it appears that volume changes occur at the cost of delivery reliability or performance and therefore affect the uniformity element of flexibility. Thus, the case company is not volume flexible, even though it is able to produce a wide range of volumes.

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28 case company but is mainly based upon the intuition of the planner and/or operator of the specific machine. A very basic PBS system is used to make the weekly schedule within the information technology factor. This system primarily affects the range of the change since the products have to be planned in such a way that they still can be produced, however currently the uniformity of these products decreases when producing extra volume, mainly in the delivery performance field. From the supply chain factor, none of the sources that are identified are used; this is because all of these sources require extensive collaboration and the development of a detailed plan. However, the case company misses an excellent opportunity to increase its own Volume Flexibility by cooperating with other firms. Such a cooperation could not only increase the range that could be handled but also decrease the costs of mobility and increase the uniformity, specifically the uniformity and delivery performance.

Currently, the inventories are kept only as work in progress. However, a process has been initiated to keep semi-finished inventory of several strategic items. When implemented correctly, this can be a good way to increase the uniformity during periods of higher volumes and, at the same time, increase the range of volumes that could be produced.

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5. DISCUSSION

There are some limitations to the data and interviews conducted during this research. There was very little hard data available within the case company. This makes the results more sensitive to subjectivity. Therefore, most of the insights that have been developed during this research came from observations and from interviews with various employees. The order delivery data were not always recorded on the same day. Thus, it is possible that this data is not 100% accurate, however it gives an indication of how volume flexible and delivery reliable the firm has been over the past 57 weeks. The exact percentages are less important than the pattern observed, which follows the total number of orders fairly well. The same pattern holds for the data gathered in the various interviews: some inconsistencies in the statements of various employees occurred, for instance on the matter of the set-up times, and whether they are correct in the PBS system. When these inconsistencies occurred, either the statement that was supported by the most employees was considered true or the statement that was best substantiated or observed by the researcher was considered to be reliable and true.

6. CONCLUSION

The main research question of this study is: How can sources of Volume Flexibility be used in a Make To Order (MTO) company?

To be able to answer this research question, an initial step of investigating possible sources of Volume Flexibility had to be made. Table 1 provides a list developed from the current literature that describes Volume Flexibility sources for an MTO setting. These sources were established by reviewing the current academic literature on Volume Flexibility and were ranked according to the flexibility guidelines proposed by Oke (2005) and further divided into short-term and long-term timeframes. These sources can be used as guidelines in analyzing the sources of a company’s Volume Flexibility. Furthermore, these sources can provide inspiration to businesses that are looking to further develop their Volume Flexibility abilities and serve as a guideline within the rest of this research is framed.

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30 planning of these Volume Flexibility sources. However, in organizations that have given the matter of Volume Flexibility or flexibility in general more thought, there will be a strategy concerning (volume) flexibility. The sources for Volume Flexibility that require a lot of planning and coordinating, such as outsourcing (parts) of the production in peak periods and forming strategic alliances, were not considered at the case company or, with regards to outsourcing, not allowed due to legislation regarding medical products. These sources were not considered both due to (the lack of) planning but also from a cost perspective. Regarding costs, at first glance the sources do not seem desirable, however when looking at the long-term they may be beneficial because delivery agreements might be better kept, which will possibly result in more future orders or fewer potential penalties. Thus, at first glance the mobility decreases since higher initial costs are applied, but at the same time the range and uniformity increases, which makes it a beneficial solution in the long run.

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6.1. Case conclusion

Many of the conclusions drawn from the research regarding the case company can be traced back to the fact that the firm operates in a quite ad-hoc manner. This reflects the fact that there is no strategy or vision concerning Volume Flexibility within the organization. In an organization that is more aware of its strategy and/or vision on (volume) flexibility, this might be less obviously recognizable. Moreover, issues regarding scheduling cannot be seen in each company and so too the results of which sources of Volume Flexibility might be different due to a firm being better able to plan its operations. However, when the volatile environment in which the Make To Order companies operate is viewed, it is quite sensible to not make alone long-term agreements, since these companies do not know whether the market conditions will change and they will need the extra capacity in the future. Often, short-term contracts are used in these businesses; therefore, they are quite reluctant to invest in Volume Flexibility. However, there should still be a balance between long and short-term sources of Volume Flexibility, to be able to cope with the changes while maintaining product uniformity.

7. FURTHER RESEARCH

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8.

REFERENCES

 Adegoke Oke, (2005) "A framework for analysing manufacturing flexibility", International Journal of Operations & Production Management, Vol. 25 Iss: 10, pp.973 - 996

 Ajai, J., Jain, P.K., Felix, T.S., Shailendra, S., 2013, A review on manufacturing flexibility. International Journal of Production Research. 51 (19), pp.5946-5970

 Beckman, S.L., 1990. Manufacturing flexibility: the next source of competitive advantage. In: Moody, P.E. _Ed.., Strategic Manufacturing. Dow Jones, Irwin, pp. 107–132.

 Bloom, J. R. 1997. [title], Nurse staffing patterns and hospital efficiency in the United States. Social Science & Medicine 44(2) pp.147–156.

 Carmines, E. (1979). Reliability and Validity Assessment (p. 70). Sage.

 Chang, A., 2012, Prioritizing the types of manufacturing flexibility in an uncertain environment. International Journal of Production Research. 50 (8), pp.2133-2149

 COX,JR., T. (1989), “Toward the Measurement of Manufacturing Flexibility,” Production and Inventory Manage- ment Journal, 30, 1, pp.68–72

 Egger, E. 2000. Hospitals are beginning to make creative use of excess capacity. Health Care Strategic Management 18(4) pp.16–20.

 Hendry, L. C. (1998). Applying world class manufacturing to make-to-order companies: problems and solutions. International Journal of Operations & Production Management, 18(11), pp.1086–1100.

 Hopp W.J., Spearman M.L., (2001). Factory physics: foundations of manufacturing management. 2nd edition. Irwin/McGraw-Hill

 Jack, E. P., & Powers, T. L. (2004). Volume Flexible Strategies in Health Services: A Research Framework. Production and Operations Management, 13(3), pp.230–244.

 Jack, E. P., & Raturi, A. (2002). Sources of Volume Flexibility and their impact on performance. Journal of Operations Management, 20(5), pp.519–548.

 Karlsson, C. (2008). Researching operations management, Routledge

 Khouja, M. (1997), “The scheduling of economic lot sizes on volume flexible production systems”, International Journal of Production Economics, Vol. 48 No. 1, pp. pp.73-86.

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 Messick, S. (1990). Validity of Test Interpretation and Use. Princeton. p. 33

 Moattar Husseini, S. M., O’Brien, C., & Hosseini, S. T. (2006). A method to enhance Volume Flexibility in JIT production control. International Journal of Production Economics, 104(2), pp.653–665.

 Raturi, A. S., & Jack, E. P. (2004). Creating a volume-flexible firm, 2004(December).

 Sasser, W. E. 1976. Match supply and demand in service industries. Harvard Business Review 54(6) pp.133–40

 Sethi, A.K. and Sethi, S.P., 1990. Flexibility in manufacturing: a survey. The International Journal of Flexible Manufacturing Systems, 2 (4), pp.289–328.

 Slack, N., 1983. Flexibility as a manufacturing objective. international Journal of Operations and Production Management 3, pp.4-13

 Slack, N., 1987. The flexibility of manufacturing systems. International Journal of Operations and Production Management 7 (4) , pp.35-45

 Sousa, R., & Voss, C. (2008). Contingency research in operations management practices. Journal of Operations Management, 26(6), pp.697–713.

 Suarez, F. F., Cusumano, M. A., & Fine, C. H. (1996). An Empirical Study of Manufactuing Flexibility in printed circuit board assembly. Operations Research, 44(1), pp.223–240.

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

 Upton, D. (1994). The management of manufacturing flexibility. California Management Review, 36(2), pp.72–89.

 Yazici, H. J. (2005). Influence of flexibilities on manufacturing cells for faster delivery using simulation. Journal of Manufacturing Technology Management, 16(8), pp.825–841.

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9.1. Appendix A

Table 5 :sources of Volume Flexibility

Jack & Raturi 2002

Internal sources Comment

Product and process technologies

Automated manufacturing technology (AMT) such as Computer integrated manufacturing increases Volume Flexibility

Batching

Large production batches require more automated equipment; which restricts Volume Flexibility

Production planning and control systems

Scheduling slack supports Volume Flexibility

Capacity

Slack capacity allows larger orders to be processed without negatively impacting on-time delivery performance

Setup-time/cost

High setup cost reduces Volume Flexibility

Facilities and equipment

Facilities and equipment influence production cycle time which has an inverse relationship with Volume Flexibility

Workforce/labor flexibility

Work-time slack, cross-training, overtime, multiple shifts, seasonal labor supports Volume Flexibility

Layout

Dedicated processes and production equipment increases Volume Flexibility

Product design

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35 Overhead cost

Overhead cost is inversely related to Volume Flexibility in the long run

Inventory slack

Higher inventory of parts, materials, and finished goods facilitate upward adjustment in volume

Range of products

Smaller product range/mix require higher Volume Flexibility

External

Vendor/supplier networks

Impacts the lead-time for orders and the volume range for orders obtainable within a given lead time

Supplier relationships (outsourcing)

Subcontractors/suppliers can absorb volume fluctuations

Network of plants

Chaining multiple plants increases product mix and Volume Flexibility

Off-shore plants

Off-shore plants provide surge capacity and support Volume Flexibility

Strategic alliances in the distribution network

Improves delivery reliability, streamlines the supply chain and supports Volume Flexibility

Raturi et al 2004

Labor

Using overtime and temporary workers (temps)

Cross-training workers Giving mandatory days off

Hiring temps through agencies for non-critical tasks

Equipment

Creating and maintaining slack resources

Buying flexible equipment

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36 partners Management planning and control systems

Improving planning and control systems

Improving sales forecasting methods Improving the order entry system

Coordinating sales and

manufacturing more closely Leveling manufacturing flow

Reducing planning and

manufacturing lead times

Reorganizing the parts management system

Optimizing inventory holding levels Developing complementary product portfolios

Suppliers and vendors

Leveraging the firm’s ability to negotiate on volume

Synchronizing purchasing and manufacturing

Adopting quick response pull systems (such as kanban)

Risk-pooling by using multiple suppliers and vendors

Contract manufacturing and outsourcing

Subcontracting work outside during peak demand

Jack & Powers 2004

Shielding Pricing and rationing

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37 Absorbing Time buffers

Capacity slack buffers Containing workforce flexibility

Information technology Efficiency measures Mitigating Restructuring

Risk Pooling

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9.2. Appendix B

Interview protocol:

First explain Volume Flexibility and ask permission to record the interview, the interview recordings will be handled with care and are confidential and anonymous. This protocol is a general framework for the topics that will be discussed during the interviews along with whatever comes up during the interview. The questions that will be asked will consist of whether the organization uses the following sources of Volume Flexibility, why they use these sources of Volume Flexibility and when they (start) using them.

Volume Flexibility (short-term) manufacturing system can rapidly change its gross output while maintaining cost-effectiveness.

Oke 2005 Time span Sources of Volume

Flexibility Actions/tools

Supply chains

Short-term Outsourcing Subcontractors

Risk pooling

Long-term

Strategic alliances Joint product development Knowledge sharing

Vendor supplier

relationships

JIT

Vendor managed inventory

Process

technology Long-term

Slack capacity Flexible equipment Over capacity

Set-up

Set-up time reduction Product modularity Batching Automated manufacturing technology Computer integrated manufacturing FMS Facilities and equipment Layout

Equipment Information

technology

Short-term/long-term

Production planning and control system

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39 Order entry Remainder Short-term Inventory End-inventory Semi-finished inventory Raw material inventory Work in progress

Short-term/long-term Employment terms

Labor flexibility Labor skills

Internal Volume Flexibility measures: Capacity

Slack capacity: Do you have over capacity, and if yes how much in percentages of the average demand? How do you use this slack capacity?

Setup time: How large are the setup times in respect towards the actual production times, and how often do these set-ups occur?

Batching: What are your optimal batch sizes or which batch size do you work with now? And what are minimal and or maximal batch sizes, and how do you change these batch sizes? Product and process technologies: do you use automatic manufacturing technologies and if yes how do you use them?

Workforce flexibility: how often do you need to work overtime and do you use seasonal labor? And when do you start using this and why?

Layout: how dedicated are the production machines and or lines?

Facilities and equipment: how high are the lead times and cycle times within the factory? Time:

Production planning and control: how do you currently use your planning system?

Workforce flexibility: how often do you need to work overtime and do you use seasonal labor? And when do you start using this and why?

Inventory:

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40 External, Capacity:

Supplier relationships (outsourcing): do you have contracts with other factories to outsource (part) of the production? And if so how do you use these contracts and when?

Off-shore plants: do you have other plants that are also available to make these products? If so when do you use them and how do you use them?

Time:

Vendor/supplier networks: do you have multiple suppliers of raw materials and on what notice are they able to deliver? How do you use these different suppliers and their delivery times? Strategic alliances in the distribution network: do you have strategic alliances with members within the supply chain? And if so how do you use these strategic alliances and for what purpose?

Inventory:

Volume Flexibility in the manufacturing environment