Diagnosing the pre-production stage of a
medium-size engineer-to-order company
Master thesis, MSc Technology and Operations Management University of Groningen, Faculty of Economics and Business
June 21, 2013
JAN WILLEM VINKE Student number: 1998730 Email: JanWillemVinke@gmail.com Supervisor – University Dr. G.D. Soepenberg Co-assessor – University Dr. X. Zhu
Supervisor / field of study Paul Luning, COO
IMDS, Roden
Public version
ABSTRACT
CONTENT
1 Introduction ... 3
2 Theoretical Background and Research Questions ... 4
2.1 Engineer-to-order companies ... 4
2.2 Complicating factors for engineer-to-order companies... 5
2.3 Knowledge Gap and Conceptual model ... 7
3 Research Design ... 9
3.1 Objective ... 9
3.2 Case selection ... 9
3.3 Data collection and analysis ... 10
4 Case Description ... 11
4.1 The case company ... 11
4.2 Managing the pre-production stage... 13
4.3 The complicating factors and delay problems ... 14
5 Conclusions and Recommendations ... 17
5.1 Research Question 1 ... 17 5.2 Research Question 2 ... 17 5.3 Research Question 3 ... 19 5.4 Research Question 4 ... 19 5.5 Overall conclusions ... 19 6 Reference list ... 22 7 Management Samenvatting ... 24 7.1 Achtergrond ... 24 7.2 Onderzoeksvragen ... 24 7.3 Onderzoeksmethode ... 25 7.4 Resultaten en conclusies ... 25
Appendix A: Case study protocol ... 27
Appendix B: Interview questions... 29
1 INTRODUCTION
New insights and developments make that business customers demand more specific products all the time. This demand for customization makes high volume make-to-stock (MTS) production less suitable for a lot of products and raises the need for production or even engineering-to-order. Hereby tight delivery performance and low costs are very important (Hicks, Earl and McGovern, 2000). Making these customer specific products is performed by make-to-order (MTO) and engineer-to-order (ETO) companies. Many of these MTO and ETO companies are small or medium-size enterprises (SMEs). Since these MTO and ETO companies do not produce to stock but to customer order, the timeliness of the production process is complex but still important to satisfy the customers’ whishes for on-time completion of the order (Shridharan 1998).
Although there are a lot of different production planning and control methods, they are only designed to control the physical production process. This ignores the fact that the on-time delivery of orders by MTO/ETO companies depends to a large extend on the timely finish of the pre-production stage (Land and Gaalman 2009). According to Land en Gaalman (2009), engineering, process planning and procurement are examples of processes that take place in the pre-production stage. Recent research of Land and Gaalman (2009) shows that performance problems are often related to this pre-production stage. According to their research, there are two areas in which the problems can be classified. The first is related to the ability to plan and share the necessary planning and capacity information within the company. The second problem area concerns uncontrolled delays in the engineering. The order progress in the pre-production stage is much harder to plan and control than in the production stage. Land and Gaalman (2009) based their conclusions on a case research of seven SMEs, using a diagnosing method which was introduced by Soepenberg (2008). They stress the need for further research, which should ultimately lead to a Production Planning and Control (PPC) concept for MTO SMEs that considers the pre-production phase.
This research is performed to investigate how the pre-production stage can be managed in such a way that the uncontrolled delays are prevented or decimated to a minimum. Therefore, I performed a single case-study. This approach perfectly fits the aim to investigate causes and cause and effect relations. The case study is performed at a SME which produces medical devices. Because of the innovativeness of the products of this company, the pre-production process is very extensive and well organized. Therefore the way the pre-production stage is organized at this company could serve as an example on how other companies should organize it.
2 THEORETICAL BACKGROUND AND RESEARCH QUESTIONS
In this section, the literature is discussed that serves as the theoretical background of the study. First, the concept and challenges of MTO/ETO SMEs are introduced, followed by a description of activities which can be grouped under the pre-production processes. Next, the complicating factors for ETO companies will be discussed. The information is then gathered into a conceptual model.
2.1 Engineer-to-order companies
According to McGovern, Hicks, and Earl (1999), engineer-to-order companies are mostly involved in the design and production of low-volume capital goods. ETO companies differ in the extent to which they perform stages of the production processes. There are companies that can manufacture practically everything by themselves but there are also companies that only do the engineering and organize contracts with suppliers for making the parts and assemble the products. Most ETOs are involved in the design and production of low-volume items, however, there are also companies that design and manufacture products which are required in medium or large quantities. Additionally, there are differences in the degree of customization. Where some ETO companies can settle with changing a limited number of properties of a product, others design products that are highly customized.
According to Bertrand and Muntslag (1993), the markets of ETO companies are most often low volume markets. This is a reason to organize the internal processes in a flexible way, giving the company the possibility to adapt to changing customer demands (Hicks, McGovern and Earl, 2000). The aforementioned study from McGovern, Hicks, and Earl (1999) reveals also that the planning and control of the pre-production stage is more important for the customer satisfaction compared with MTO companies. Part of this pre-production stage is the purchasing of materials. But many ETO companies do not have trust-based strategic alliances with suppliers. Instead, most trading is based on multi-sourced adversarial basis, “characterized by ‘win-lose’ transactions and mutual mistrust”. Due to the low volumes of the orders and the infrequent basis, the power in this relation is biased towards the suppliers. So because the customer of an ETO company is exposed to the lead time of the product including all the stages and activities which need to be finished before the actual production can take place, the planning and control of the pre-production stage is difficult but very important.
- In the enquiry stage, the customer gives an invitation-to-tender or requests a quote. From this moment on production planning and control becomes relevant, since the customer will ask for a due date. It is complex to quote a realistic due date, because of outstanding tenders to other customers. The offered due data must keep this potential load into account.
- The design and engineering stage is especially relevant for ETO companies and not so much for MTO companies, since in this phase the engineering takes place. For an engineer-to-order company this might be the most value-adding step in the process. Although, this depends on the extent to which engineering is needed.
- In the job entry stage, the order is confirmed, the production is planned and the needed materials or parts are purchased.
- In the last two stages, the job release stage and the shop floor dispatching stage, the actual production of the order takes place and after completion the finished product is delivered or send to the customer.
Actual Production Planning and Control concepts mainly focus on the last two stages, and not on the first three stages. The first three stages are what Bertrand and Muntslag (1993) call non-physical stages of the production process. Bertrand and Muntslag (1993) make a distinction between physical and non-physical processes. The first three stages are mostly non-physical processes, only in the last two stages the process gets a physical character. Land and Gaalman (2009) call these first three stages the pre-production phase. According to them, little research was performed on this phase. The few results when one searches for literature on this subject confirms this. Therefore, the current study is aimed at identifying problems and exploring solutions to improve the timeliness of the pre-production stage.
As examples of pre-production stage processes, Land and Gaalman (2009) mention engineering, process planning, and procurement. It will differ from company to company which processes can be distinguished as pre-production processes. In this research, all process steps that are taken before an order is ready for release into production are considered to be part of the pre-production stage.
2.2 Complicating factors for engineer-to-order companies
The production process of a physical product needs the same planning and control at an engineer-to-order company as at a make-to-stock or make-to-engineer-to-order company. However, the planning and control of an ETO is more complicated. Bertrand and Muntslag (1993) describe the complicating factors which ETO companies have to cope with, compared with MTS companies. In their article, they explain that the control of ETO companies being more complex has to do with three aspects: dynamics, uncertainty and complexity.
this translates into excess capacity in periods of low demand, which will cause uncovered costs. Therefore, it requires flexibility of a company to cope with the fluctuations in demand. This has also been stated by Konijnendijk (1994).
Uncertainty. Uncertainty is the difference between the amount of information which is needed to perform a task, and the amount of information that is available in an organization (Galbraith, 1973). Bertrand and Muntslag distinguish three sources of uncertainty:
Mix and volume of the future demand: The future demand of a product is not only dynamic,
but also uncertain.
Uncertainty of product specifications: Especially in the beginning of a project, when the
product specifications are still unclear. During the design or engineering process the customer might change its whishes and even change them again.
Production process uncertainty: Because the product is customer specific, and these
specifications are uncertain, it is hard for a company to tell how much effort or capacity is needed to engineer the product.
Complexity. According to Bertrand and Muntslag (1993) there are three factors which can lead to complexity.
The goods flow: The first is what they call the structure of the goods flow. The good flows
which need to be controlled are not only the flows of physical goods (which is often more complicated since most ETOs have job-shops and no production-lines), but also the flow in the non-physical stage. It is difficult to control this flow, because the work is difficult to formalize. Therefore, it is hard to determine the progress of an order in the engineering stage.
Multi project character: The second complicating factor results from the multi-project
character of the situation; in most departments is often worked on multiple projects at the same time. Each of these projects consists of a number of tasks, of which the processing time might not be known. As a result it becomes very complicated to, for example, name the bottleneck process.
The assembly structure of products: The third complicating factor is the composite structure
of products. Often a product consists of a lot of parts that all have their own specifications, such as a specific material. When an exotic material needs to be used, it might have a long lead-time, resulting in a situation in which the material was needed to be ordered before the details of the project were known.
process of an MTO company, makes the management of the first type of company even more complicated. Especially the product lead time will increase when the product needs to be engineered before production can take place. In their article, Hendry and Kingsman (1989) presented a table with a comparison between MTS and MTO companies, see table 1.
Characteristic MTS companies MTO companies Product mix Many standard products Few standard products
Resources Special machinery and workforce
Multi-task machinery and workforce
Product demand Demand can be forecasted Demand is volatile and can rarely be predicted
Capacity planning Based on forecast, planned in advance
Based on received orders. Cannot be planned far in advance
Product lead times Unimportant to customer Vital for customer satisfaction
Prices Fixed by the producer Agreed with customer before production
Table 1 – Comparison between MTS and MTO (Hendry & Kingsman, 1989)
2.3 Knowledge Gap and Conceptual model
In this research I will investigate the pre-production stage at an engineer-to-order company. Land and Gaalman (2009) stress the need for ETO SMEs to focus on the pre-production stage to improve the on-time delivery rates. They have concluded that unrecoverable delays in the pre-production stage are one of the main reasons why some of these companies have so many late orders. In their own case study, six out of seven companies deliver more than 25% of their orders late, with one company even delivering 70% of the orders too late. According to the authors, based on their experience these figures are not uncommon. Therefore the first research question is:
R.Q. 1: What delay problems can be found at the case company, what are the causes of delays?
The complicating factors as described by Bertrand and Muntslag (1993) give direction on what aspects have to be investigated to find possible causes of delays. Therefore the second research question is:
R.Q. 2: Are dynamics, uncertainty and complexity problems for the case company?
Land and Gaalman (2009) provided a hint towards the development of a production planning and control method for the pre-production stage. Therefore the third research question is:
Research of Nahm, Vonderembse and Koufteros (2003) linked the structure of an organization to the plant performance. The organizational structure and culture affect the performance of an organization. Therefore the fourth, and last, research question is:
R.Q. 4: Which organizational characteristics prevent for uncontrolled delays?
Figure 1 shows the expected causal relation between the three complicating factors and the effect on processing and waiting time. Increasing dynamics, uncertainty, and complexity are expected to lead to an increase in processing and waiting time causes, which causes the throughput time to enlarge.
3 RESEARCH DESIGN
A case study at an ETO SME is performed to get empirical data, since the subject of this research is the pre-production phase of such a company. In this section the objective of this case study is explained, the company is shortly introduced, and the used methods for data collection and analysis are described. As a guideline during the case study, a protocol is used; this is included in appendix A.
3.1 Objective
The purpose of this empirical study is to answer the research questions posed in the research framework, and additionally, to collect data and information on the pre-production stage that is not available in the literature at this moment. Therefore, a case study is the most appropriate method. According to Hartley (1994), a case study is a tailor-made method for exploring new processes, behaviors, or other phenomena that are little understood. By having only one case in the study, there is maximal opportunity for in-depth investigation. The disadvantage of having only one case is the limitation on generalizability, as well as the possible presence of information-processing biases (Eisenhardt 1989). By using a single case study, I aimed to discover if there are any independent variables -that cannot be found in the literature- which have impact on the timeliness of the pre-production stage.
3.2 Case selection
Since the research questions focus on the business processes of ETO SMEs, the unit of analysis is such a company. The company that was selected is IMDS: Interventional Medical Device Solutions. This is a young company, and was established around five years ago. Since the company makes medical supplies, the demand for quality is very high. Therefore, the pre-production stage is very important and extensive. Most engineering orders are worked on in project form, with a project team. The lead-times of the orders (projects) are 6 to 18 months, which makes clear that the company does not process large quantities of small orders, but a few, large orders.
It is a single case study, thus only one company was studied. Furthermore, a holistic design was used. According to Yin (2003), there are several reasons to perform a single case study. In this case, I believe the company is not an extreme or an unique case. There are plenty other ETO SMEs which have similar characteristics. On the other side, this company is extreme since the processes that take place in the pre-production stage have similarities to research and design processes. Therefore, this case is not representative or typical for all ETO SMEs. However, other companies may be able to learn from this case.
the high degree of integration throughout the organization. Indicated by Yin (2003), a risk for such a study is that it might be conducted at a very abstract level, lacking any clear measures or data.
3.3 Data collection and analysis
I have used a quantitative approach to get the maximal amount of information out of the case company. Sources for data collection within this case study are the employees, and the data was collected by two rounds of interviews and conversations, as well as observations at the company. For this aim, I have visited the company for a number of weeks.
The two rounds of interviews with the project leaders form the basis of the study. These interviews have been prepared as semi-open interviews. This allows the interviewed person to elaborate on the subjects that he or she considers important, while, at the same time, the interview provides a handle to return to the subjects that are important for this study. The interview questions are based on the theoretical framework presented in the previous chapter. The scripts are included in appendix B. The interviews lasted for between 45 minutes and one hour. They have been recorded and transcribed, see appendix C. The analytical terms of this study (the keywords of the research questions, introduced in section 2.3) have been used to compare and link to the terms used by the interviewed people. The reading of the transcripts and analysis of what has been said was performed by two persons, independently of each other. The statements that were related to the analytical terms of this study are collected in a table to provide an overview and filter out data that is not related to the subject.
Additionally, observations were made during the weeks of the company visits. These observations are used to confirm or invalidate the statements that were made in the interviews. Since early in the research the organizational culture and communication structure appeared to be a large factor in how the company deals with the complicated pre-production stage, observation is an appropriate way to investigate this aspect. Therefore, the observations were focused on the way in which colleagues communicated with each other, the power distance in the organization, and how is dealt with problems. Finally, conversations with employees in various positions within the company have added to the insights in the processes at the case company.
The information obtained from these three sources is combined and used for the holistic analysis that is provided in chapter 4 of this report. Meyer (2001) praises the case study method for the opportunity to use this holistic approach and cites Gummesson (1988:76): ”The detailed observations
entailed in the case study method enable us to study many different aspects, examine them in relation to each other, view the process within its total environment and also use the researchers’ capacity for ‘verstehen’.” Yin (2003) mentions the strategy “developing a case description”. I have
4 CASE DESCRIPTION
In this section the results of the case study are presented. First the case-company is introduced, using the models and classifications which were introduced in the theoretical background (section 2). Sub-section 4.2 describes the way in which the pre-production stage is managed. Sub-section 4.3 discusses the aspects that make the management of an ETO complex: dynamics, uncertainty, and complexity. The last sub-section (4.4) provides research data on the possibilities to shorten the lead-time of projects at the case company.
4.1 The case company
The company which was studied, Interventional Medical Device Solutions (IMDS), is active in the development and the production of medical devices. The company was established in 2008, and since the start, IMDS has grown from a small number of employees to approximately 50 employees at the beginning of 2013. The company was started by former employees of a US-based enterprise (Cordis) that decided to stop its activities at this location. A number of employees decided to start their own company, which had to be active in the same sector but with new developed products. As an engineer-to-order company, the main part of the products is developed on customer request. Customer orders can result in a product or in manufacturing equipment. The physical production of products can be performed by the customer self or by IMDS. The development department spends around 80 percent of its time on working on projects for customers. The remaining 20 percent is invested in the development of own product ideas (‘internal products’).
McGovern et al. (1999) mention that most ETO companies are involved in the design and production of low-volume, capital products. This is certainly true for IMDS. Of the eight engineering projects that where started in 2012, four projects concern the development of production equipment, of which only one or just a view machines were the result. The other four projects were started to develop products. So the number of projects is very low. The volumes of products that are manufactured after the engineering is finished are not included in this research. However, because products of IMDS are medical devices that are only used in specific treatments, the quantities must be low compared to consumer products that are produced in make-to-stock or make-to-order environments.
suppliers, which minimizes delays and cost that are associated with outsourcing of these activities. For companies that have to outsource these processes, delays can occur because negotiating with external stakeholders can take a lot of time, and extra costs because the bargaining power in the relationship ETO – supplier is often biased towards the supplier (McGovern, Hicks and Earl, 1999).
Products. The extent to which products of IMDS are customized is very high. The projects that they deal with range from catheters, parts of catheters, highly efficient syringes used for expensive medication, and sealing equipment used for the packaging of drugs to an innovative brain implant used to confine the effects of Parkinson’s disease. Since catheters and related products have been the core business of the IMDS employees at its predecessor, this can be considered its root. So catheter products which the company works on at this moment can be considered low customized. Other products or projects of IMDS, however, have nothing in common, except that they are medical devices. So these products are very customized. Most of the products are so-called ‘class 3’ products: products that impose the highest class of risk on the patient if they would fail. This puts high quality requirements to the products and the processes.
Due to the specific applications, the company works with all different kind of materials, such as plastics, metals, and silicones. Most of the products are very small, giving an extra complicating factor when it comes to making dependable, high quality products. For example, when it comes to connections, this puts an extra demand on the quality of the connection made. Since all products have their individual properties, all products are manufactured on product-specific production lines. Generally, all products that are developed for customers are very customer specific. IMDS does not have products that are customized by for example just changing or adding a small item or label. The one product that is developed for customer A, will differ significantly from the second product that is developed for customer B.
Market and competitors: The products are on the one side capital goods, such as production equipment delivered to industrial firms. On the other hand, IMDS also makes consumables, which can be used a single time due to safety requirements. Nevertheless, these products are produced to meet such high requirements that these consumables are very expensive.
4.2 Managing the pre-production stage
This section describes the pre-production stage at IMDS. To manage the pre-production stage, IMDS has created a schema, known as their ‘Roadmap’. In this roadmap the product development process is described, and the deliverables are defined. Aspects that are included are related to the business opportunity, the technical requirements, regulatory demands, clinical tests, manufacturing (operations) and project management. The pre-production stage is split-up into five phases: the define, the analyze, the design, the verify and validate, and the base business phase.
Define phase. In this first phase, the Define phase, the design input is created. Examples of activities which are described in the roadmap are:
- The technology and capability needs are assessed. - Strategic suppliers are identified.
- The strategy on how to get the final product approved by the regulatory bodies is made. - The design and development plan is created as a part of the project management aspect. In more descriptive terms, the define phase consists of idea generalization with the purpose to create enough ideas to develop a small number of concepts. Therefore, at the beginning of this stage it can be described as diverging from the initial ideas that the customer has. Creative thinking is used to develop a number of concept products. These processes are hard to plan, and how long it will take is therefore not know. The customer needs to trust IMDS to grant an order. The concepts that are developed, are developed to such an extent that they can prove that the design is viable. So at the end of this stage, the customer can decide which concept is the preferred one. After this decision, the project gets a more executing character, since the creative processes such as idea generalization are finished. Therefore, the company is able to make a reasonably good calculation on how much engineering capacity is needed to finish the project, and consequently it can give a reliable due date.
Remaining phases. In the remaining phases of the process, after a concept is selected and the rest of the pre-production phase is planned, the engineering work is executed. From this moment the process is converging, since one concept was chosen, or elements of multiple concept designs were chosen and combined in one design.
In the Analyze phase, the roadmap prescribes activities such as process and equipment prove of concept, product component prove of concept, supplier component development, and regulatory filing preparation.
In the Design phase, the process design characterization and the product design characterization is dealt with. This means that the major part of the engineering work is executed in this phase. Engineers also start with the preparation of the manufacturing equipment, and the preparation for the regulatory filing need to be finished.
The final phase is Base Business, in which sustaining and engineering (improving the production process) are the only activities on the roadmap. These activities are a responsibility of the operations organization.
The projects are dealt with by teams, so all tasks get portioned over a certain number of employees (mainly engineers). These teams are supported by specialists, when there is a need for this. The majority of the tasks, however, are performed by a number of dedicated people. This organizational design prevents for the need for handovers of projects. The team members are seated within each other proximity, to support the communication and the collaboration. Therefore, when questions or points of discussion arise, it is possible to use ad-hoc communication with the result that problems do not lead to delays.
The amount of time that is reserved for in the planning is based on a work-breakdown structure. Based on the complexity of a task an estimation is made of the amount of time that is needed to complete the task. The complexity of a task is a substantiated estimation, based on knowledge of previous projects or on knowledge obtained in the define phase.
4.3 The complicating factors and delay problems
This paragraph describes the manifestation of the complicating factors; dynamics, uncertainty and complexity at the case company. Per subject is discussed how the company deals with the effects and what the impact is on the throughput time of the projects.
Dynamics. The company deals with projects that run 6 to 18 months. This reflects the complexity of the projects, since these 6 to 18 months do not consist of a lot of waiting time. Instead, project teams work on the projects continuously. However, the long lead-times give the company an advantage over ETO companies that deal with much shorter lead-times, since it gives more opportunity to catch up any delays by for example increasing the number of team-members on a project.
The company makes a distinction between ‘Internal’ and ‘external’ projects:
Internal projects: These projects descend from internal alternatives. IMDS is working on a
product line of internal developed products. These products are mainly in the core business of the company, instruments for cardio vascular treatment. The products are used and evaluated by medical doctors. IMDS uses their feedback to improve the products and introduce new products.
External projects: These projects are initiated by companies such as Philips, Edwards, and
The problem of customer dynamics is an efficiency problem. A company can increase the production capacity, but this will increase the amount of unused capacity. When one decides to keep the capacity low, the amount of idle capacity will be lower, but the company will also more often be unable to satisfy customers, since all capacity is used and there is no capacity available for extra orders. IMDS uses the internal projects to work on when the external projects are on track. The internal projects are important to the company, but the employees working on these projects will be transferred to the projects for external customers when this is needed. The way the company works in this respect, is conceptually close to the Double Speed Single Production Line (DSSPL) as proposed by Stagno, Glardon and Pouly (2000). This double speed, single production line allows orders to overtake, depending on their priority. At IMDS, this principle is applied on the engineering work.
Uncertainty. When it comes to the uncertainty, this problem is absolutely visible and recognized by the project managers and employees of IMDS. However, not all sources of uncertainty are recognized.
Mix and volume of future demand: For the external projects, the uncertainty of the future
demand is a small issue or no issue at all, since most of this risk is with the customer. However, when the project is finished and the product has to be manufactured at IMDS, this uncertainty can pose a risk. This risk however is at the production organization and is not investigated. The same applies for the internal projects. Although the market is international and there is a lot of market share to capture, the demand is not certain and is therefore a factor for uncertainty.
Uncertainty of product specifications: The risk regarding the unknown product specifications
is very large. Customers come to IMDS with product ideas, without knowing how the product idea can be realized. It is the task of IMDS to translate these ideas into technical solutions. As one can imagine, not every product idea can be translated in a concept product, others only after serious investigation of the possibilities with certain materials or production techniques. Often conflicting or incompatible product properties are required, giving the need for weighing the interests and consulting the customer to find out what the customer considers more important. Due to the developmental character of the projects that IMDS accepts, the uncertainty in product specification is high, which increases the demand for customer contact. From the interviews it is clear that the customers are often considered to be delaying the process, since the customers are not able to react quickly at questions posed by the engineers of IMDS.
Production process uncertainty: The reason why the project managers of IMDS recognize
Another example is the situation when IMDS was applying for a product approval at the notified body. Since this was performed for the first time, the lack of knowledge on how to supply the necessary documents to prove the quality of the product caused a delay of several months.
This illustrates the uncertainty in the engineering process. When beforehand not is known how something can be realized, it is hard to make any predictions on how long it will take to develop a product, and how much it will cost. Instead, it will need creativity and maybe some luck to make the right innovation that is the solution to a problem.
To manage these difficulties, the projects are divided into a number of phases, as discussed in paragraph 4.2. In the first period, the creative, explorative and research work needs to be finished. In the second period, only calculable engineering work needs to be done. So this phase is characterized by low risk, manageable, executive work.
Complexity. Due to the jumbled workflows and hard-to-formalize work, it is hard to determine the progress of projects or orders in the pre-production phase at many engineer-to-order companies. The project managers of IMDS, however, are able to plan the second stage of the pre-production phase reasonably good. At this stage the work is to a great extent formalized. By seating project teams together, it is clear who is working on what project. The size of the company, combined with the culture of open and direct communication, and the relative small amount of large projects, make it relatively easy to manage the projects. Especially the observations and the conversations with employees show that the culture and the organizational structure of the organization are invaluable in this aspect.
5 CONCLUSIONS AND RECOMMENDATIONS
In the last section of this report the conclusions of the case study are presented. The Research Questions drawn up in section 2.3 will be dealt with one by one. In the end, the overall conclusions are given, including theoretical and managerial implications, the limitations of this study, and avenues for further research.
5.1 Research Question 1
In answer to the first research question; R.Q. 1: What delay problems can be found at the case
company?
It is apparent that there is little evidence found of delays. Three specific cases of project delays were found:
- On case company request left out of this public version. - Idem.
- After a packaging line was designed and build, the customers’ management didn’t accept it, although the customers’ company was represented in the project group that developed the product. Internal problems in the customers’ organization on the product specification were the underlying problem.
Other cases of delay in the completion date have not come forward in the interviews. Of course each project has its own problems, but usually these problems can be solved in the available time. This is clearly an advantage of the relatively long duration of the projects.
5.2 Research Question 2
The before described delays can clearly be linked to the complicating factors as given by Bertrand and Muntslag (1993). Which gives answer to the second research question; R.Q. 2: Are dynamics,
uncertainty and complexity problems for the case company?
To prevent the projects of deviating from the planning due to the complicating factors, the following matters are important:
With respect to dynamics:
- The internal projects are used as a buffer. Therefore, capacity can be used for external projects when needed and on internal projects when there is less external demand.
- The duration of projects is 6 to 18 months. This gives the company, compared to ETO companies that have to do with projects that must e.g. be completed in a matter of weeks, a relatively long time to react on brief disturbances.
With regard to uncertainty and complexity:
- The goods flow of projects can be complicated when multiple people work successively on a project. However, at IMDS project-teams work together on a project that is functionally divided across different disciplines.
- The limited number of projects ensures that no problems arise if one loses sight of orders, which then could come to a standstill. So the problem of multi-project character described by Bertrand and Muntslag (1993) is not an issue.
- Notwithstanding the previous two bullets, IMDS has to deal with a lot of uncertainties. The main cause of these uncertainties lays in the design issues. On the one hand, it has to do with situations in which a choice needs to be made between different options, such as incompatible specifications. In these situations the customer needs to provide a decisive answer on which option is preferred. These situations often cause waiting time for IMDS. On the other hand, uncertainties arise because of the developmental character of projects. Specific customer problems need specific developed solutions. The innovation process that therefore is needed is difficult to manage, because the number of unknowns matters. The fact that IMDS performs this innovation distinguishes IMDS from other ETO companies. The case company is therefore actually in part a research and development company.
- The uncertainty of these processes translates into uncertainty about the length of a project; the lead-time. That is why IMDS, depending on the amount of uncertainty, is not always able to agree on a delivery date of a project. However, in general the customers of IMDS do understand this, and agree with the planning that IMDS makes.
- A due date will, in these situations, only be agreed upon when the uncertainties are largely eliminated, and IMDS has a good idea of the amount of work that needs to be performed to complete the project.
5.3 Research Question 3
To continue, the answer on the third research question can be short: R.Q. 3: Is there a need for a
Production Planning and Control method for the pre-production phase?
At the case company there were no problems with delays at the pre-production stage. So there is no need for an improvement in the planning and control of this stage. PPC methods that are aimed at prioritizing the orders or projects would not even work, since members of a project-team work on one project for a long period of time, and there are no or view handovers.
5.4 Research Question 4
The fourth research question is: R.Q. 4: Which organizational properties ensure that no uncontrolled
delays occur?
Remarkable at IMDS are the short communication lines, and the way that problems are discussed in an ad-hoc way. The company is relatively small, and the office space is large enough to seat all the engineers and other people who are involved in the pre-production in one room. This plan office allows fast communication. The owners and project managers are seated in the same office space, so the executives do not have private offices, what illustrates the small power distance within the organization. The relation between these organizational properties and time based management (an aspect of lean manufacturing that recognizes the importance of time and aims to reduce the level of unproductive time in an organization) was proven by Nahm et al. (2003). Their research shows that: “firms with a nature of formalization that encourages creative and autonomous work and learning,
few layers in the hierarchy, and a high level of horizontal integration tend to have low locus of decision-making as well as easy, fast and abundant communication”. This case study illustrates this
statement and shows that not just the communication is fast, but as a result the engineering-process is fast as well.
5.5 Overall conclusions
Figure 2: Empirical model
The main theoretical implication of this study is that it provides evidence that not all ETO companies have a need for a PPC concept for the pre-production stage, as suggested by Land and Gaalman (2009). According to the project managers, IMDS has no problems with completing the projects on time. It should be noted that IMDS is a company with a high degree of horizontal integration and a small number of projects with a relatively long lead time. Land and Gaalman (2009) aim probably at the kind of ETO’s that have to deal with many orders, shorter lead-times, and more handovers. The managerial implication of this study is that it shows how a company that has to deal with complex development processes can finish them in time, i.e.: before the agreed delivery date. The case shows that this is not realized by just keeping tight hold on the planning of the development project, but also with managing the risks and the organizational structure and culture. When projects consist of too much unknowns, the risk is too high to agree on a schedule. Therefore, the unknowns need to be filled in before a due date can be agreed upon. After this, the communication and organizational culture, a high degree of horizontal integration, and a flat organizational structure are factors that contribute to the timeliness of the pre-production stage.
the effects of the organizational factors on the performance of the organization are the same for every company. This is supported by the research of Nahm et al (2003). The degree to which the organizational factors lead to positive results will probably depend on other factors. IMDS has the benefit of long lead times and a small amount of orders, other companies do not have this, and therefore, may be forced to arrange the organization in functional departments. In addition, project managers of IMDS indicate that quality and reliability are much more important to the companies’ customers than speed or timeliness. The customers of ETO companies that have orders with a much shorter lead-time, are probably more focused on the timeliness of orders.
Next, most of the research is performed by only one person. The analysis of the interview transcripts was performed by two persons, but there is quite some possibility for personal bias to be included. Would the research have been performed by more persons this risk would be smaller. However, in the setting of this thesis project this was not possible.
Finally, as Yin (2003) states, the risk of a holistic single case study is that the study might be conducted at an abstract level, lacking any measures of data. This is absolutely true for this case study. The company, where this case study is performed at, does have high standards for documenting the products and the production process, but does not document the engineering processes. Therefore, it was not possible to obtain hard data on for example the timeliness of the pre-engineering stage. Due to the lengthy nature of the projects, it was also not possible to collect these data during the period that was available for this research.
An interesting avenue for further research can be derived from this study. In the analysis, several times it becomes obvious that certain aspects of this case are not one on one transmittable to other ETO companies. In the literature, multiple criteria are used to classify ETO companies. However, I did not find a classification that makes a clear distinction between companies such as IMDS, that develop really new technology, and companies that do the same trick over and over again. Although the amount of uncertainty that the first category of companies has to deal with is much more than the latter one. Therefore, a multiple-case study including a lot of various ETO companies could be used to make a better distinction between ETO companies based on known and maybe yet unknown characteristics. Furthermore, the conclusions of this research are based on the results of one case. It would be interesting to see the relation between the timeliness of the pre-production stage and the factors that emerge in this study to be tested at more cases.
6 REFERENCE LIST
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Bertrand, J.W.M. and Muntslag, D.R., 1993. Production control in engineer-to-order firms.
International Journal of Production Economics, 30/31: 3-22.
Eisenhardt, K.M. 1989. Building theories from case study research. Academy of Management Review 14(4): 532-50.
Galbraith, J.R., 1973. Designing complex organizations. Boston: Addisson-Wesley Longman Publishing Company.
Gummesson, E., 1988. Qualitative methods in management research. Lund, Norway: Studentlitteratur, Chartwell-Bratt.
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methods in organizational research: A practical guide, London: Sage, pp 209–29.
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McGovern, T., Hicks, C., Earl, C.F., 1999. Modelling Supply Chain Management Processes in Engineer-to-Order Companies. International Journal of Logistics: Research and Applications, 2(2): 147-159 Meyer, C.B., 2001. A Case in Case Study Methodology. Field Methods, 13: 329-352.
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7 MANAGEMENT SAMENVATTING
7.1 Achtergrond
Eerder uitgevoerde onderzoeken hebben aangetoond dat Engineer-to-Order (ETO) MKB bedrijven vaak problemen hebben met het op tijd opleveren van orders. Bij een onderzoek, gehouden bij zeven ETO bedrijven in noord Nederland, werd vastgesteld dat er slechts één van deze zeven bedrijven meer dan 75% van de orders op tijd leverde. Het slechts presterende bedrijf leverde 70% van de orders te laat. Volgens experts zijn dit geen ongewone cijfers en komt dit bij veel meer ETO - MKB bedrijven voor. Ditzelfde onderzoek wijst het voortraject, alles wat gebeurt voordat de productie van start kan gaan, aan als de veroorzaker van deze problemen.
Ander onderzoek wijst er op dat het niet heel vreemd is dat ETO bedrijven minder goed op leverbetrouwbaarheid scoren dan Make-to-Stock (MTS) of Make-to-Order (MTO) bedrijven. Dit is logisch omdat MTS bedrijven uit voorraad leveren en MTO bedrijven producten maken die eerder gemaakt zijn, men kan dus de productie inplannen. Bij ETO bedrijven moet echter het product niet alleen nog geproduceerd, maar ook nog ontworpen worden. Hierdoor is het proces dus complexer en neemt de kans op vertragingen toe. Eerder onderzoek wijst op de dynamiek van klantvraag, de onzekerheid t.a.v. het product en het productieproces en de complexiteit onder andere doordat er vaak aan meerdere projecten tegelijkertijd gewerkt wordt, aan als oorzaken voor vertragingen.
7.2 Onderzoeksvragen
Dit onderzoek is uitgevoerd met als doel te onderzoeken hoe het voortraject georganiseerd kan worden op een dusdanige manier dat de onbeheersbare vertragingen voorkomen, of tot een minimum terug gebracht kunnen worden.
De onderzoeksvragen zijn:
1. Wat voor vertragingsproblemen zijn er bij het bedrijf waar de case-study gedaan wordt en wat zijn de oorzaken van de vertraging?
2. Vormen dynamiek, onzekerheid en complexiteit problemen voor het bedrijf?
7.3 Onderzoeksmethode
Om antwoord te vinden op deze vragen is een case-study gedaan bij een dergelijk bedrijf, Interventional Medical Device Systems (IMDS) in Roden. Bij dit bedrijf zijn semi-gestructureerde interviews afgenomen en is de manier van werken geobserveerd. De interviews zijn opgenomen en uitgeschreven. Alle verzamelde data en kennis zijn holistisch (kijkend naar het geheel) geanalyseerd.
7.4 Resultaten en conclusies
Antwoorden op onderzoeksvragen
1. Bij IMDS is er niet vaak sprake van ernstige vertragingen die door de klant gemerkt worden. Deze conclusie kan helaas alleen gemaakt worden op basis van getuigenissen van de projectleiders, omdat dit soort gegevens niet bijgehouden worden in een systeem.
2. Ja, de complicerende factoren dynamiek, onzekerheid en complexiteit zijn te merken. Bijvoorbeeld toen onkunde op het gebied van het aanvragen van product certificering (proces complexiteit) leidde tot 5 maanden vertraging, of toen een onderdeel te ingewikkeld ontwerpen werd (product complexiteit), waardoor problemen ontstaan bij de productie.
3. Nee, de organisatie structuur en het geringe aantal projecten zorgt ervoor dat dit geen toegevoegde waarde zou hebben. Projecten worden uitgevoerd door een team van ingenieurs en andere medewerkers, die fulltime aan één project werken. Daardoor zijn er weinig momenten waarop er werk wordt overgedragen. Er zijn dus ook geen buffers op afdelingen waarin projecten of orders liggen te wachten. Het management besluit aan welke projecten gewerkt wordt en door wie. Deze personen werken voor langere tijd aan dit project.
4. Door de korte lijnen, het ontbreken van tussenlagen in de organisatie, de open communicatie en de ‘can-do’ mentaliteit worden problemen snel opgelost. Hierdoor wordt de bewerkingstijd en vooral de wachttijd van projecten kort gehouden.
Om eventueel verder te lezen:
Over de problemen in het voortraject bij MKB bedrijven:
Land, M.J. and Gaalman, G.J.C., 2009. Production planning and control in SMEs: time for change.
Production Planning & Control, 20(7): 548-558.
Over het verband tussen organisatie structuur en de prestaties van een organisatie:
APPENDIX A: CASE STUDY PROTOCOL
1a: Background
The complicating factors as indicated by Bertrand and Muntslag (1993) form a threat to the timeliness of the production process of ETO companies. The research of Land and Gaalman (2009) shows that the pre-production stage is often to blame for delays. This study is aimed at identifying
problems and exploring solutions to improve the timeliness of the pre-production stage
1b: research questions:
1. What delay problems can be found at the case company, what are the causes of delays? 2. Are dynamics, uncertainty and complexity problems for the case company?
3. Is there a need for a Production Planning and Control method for the pre-production phase as indicated by Land and Gaalman (2009)?
4. Which organizational properties ensure that no uncontrolled delays occur?
2A: Design
A single case study with a holistic design will be used. In this way all organizational aspects can be considered in the case study. There is not enough time available to investigate multiple cases, therefore one case is used. The way the subjected organization is organized makes holistic design the best. The organization is very flat and integrated, making it impossible to investigate separate departments. To use multiple orders or projects is impossible due to the time constraint, projects take more than 6 months.
2B: The object of study
The object of study is the company IMDS, a SME ETO working on the development and production of medical devices.
2C: Propositions
- There are delay problems at the company. (Test the difference between planned and realized finish dates for projects).
- Dynamics, uncertainty and complexity are factors that cause difficulties. (Use qualitative information).
- The occurrence of delays will not only be related to capacity and planning issues, but also to organizational culture. (Qualitative information will be used to describe organizational functioning).
3A: Data that needs to be collected
- Finish data of projects (Planned and realized).
- Qualitative information on the occurrence of problems that can be related to dynamics, uncertainty and complexity.
- Qualitative information on the organization and the organizational culture.
3B: Data collection plan
- Data on the progress of data will be requested.
- Information on the projects will be collected by means of interviews. - The organization will be investigated by use of interviews and observation.
4. Analysis
The analysis will take place as the case study tasks progress. So that preliminary research results can be used for further investigation.
5. Validity
Construct validity: Internal validity: External validity:
6. Limitations
Due to the fact that the case company does not record a lot of data on the pre-production process most of the data needs to be collected via the project managers. Therefore a personal bias is impossible to exclude.
7. Reporting
APPENDIX B: INTERVIEW QUESTIONS
Questions for the first round of interviews:
1. Bij welke projecten bent u betrokken geweest, en in wat voor rol?
2. Wat was de van te voren geplande doorlooptijd van het project, van het moment waarop de opdracht gegund werd tot het moment dat het product in productie zou gaan?
3. Is er sprake geweest van vertraging, zo ja hoeveel vertraging, en is de productie hierdoor later van start gegaan dan initieel gepland of is de vertraging in de geplande doorlooptijd weer ingehaald?
4. Wat was de oorzaak van deze vertraging(en)?
5. In welke fase(n) (van de project Roadmap) deed/deden de vertraging(en) zich voor? 6. Welke processen / afdelingen waren hierbij betrokken?
7. Met wie zou ik verder zou kunnen praten om de vertragingen of de processen waar deze zich voordoen verder te onderzoeken?
Questions used for the second round of interviews:
1. IMDS (b)lijkt er goed in te zijn om de klant op tijd te leveren. Waardoor is dit mogelijk en waarom hebben andere bedrijven hier meer moeite mee.
2. Heeft het relatief geringe aantal (grote) orders hier ook mee te maken? 3. En de grootte van de organisatie?
4. En de lengte van de doorlooptijd van de orders? 5. Voorkomt de bedrijfscultuur vertragingen?
6. Wat als Cordis er niet was geweest, had IMDS dan kunnen bestaan? Waarom? (kennis niveau, professionele manier van werken, 6sigma, etc.)
7. Hoe worden nieuwe projecten gepland? Waar is de levertijd op gebaseerd?
8. Hoe wordt de inschatting of berekening gemaakt hoelang iets gaat duren / hoeveel capaciteit er voor nodig is?
9. Zouden projecten sneller afgerond kunnen worden door meer zaken parallel te laten uitvoeren? (Dus meer medewerkers tegelijk bezig met het project)
10. Waar liggen hiervoor de mogelijkheden? Hoe zouden dingen sneller ontwikkeld kunnen worden?
11. Weten medewerkers de deadline van hetgeen waar ze mee bezig zijn? En van het project als geheel?
12. Wat is belangrijk voor de klant van IMDS?
13. Wat is de juiste volgorde: Quality, Dependability, Flexibility, Speed, Cost?
