Improving the production
process of gift wrap paper
a study into the improvement possibilities
of the production process at Hoomark
Paul Deuring
ii
Improving the production process of gift
wrap paper
a study into the improvement possibilities of the production process at Hoomark
Paul Deuring
Rijksuniversiteit Groningen
November 2006
Author: Paul Deuring
StudentID: 1271180
Faculty: Management & Organization Programme: Technology Management 1st Graduate Instructor: Prof. Dr. Ir. G.J.C. Gaalman 2nd Graduate Instructor: Drs. C. de Snoo
Company: Hoomark Gift-Wrap Partners B.V. Company Tutor: J. K. Brinkman
iii
Preface
This thesis describes the study I made as my graduation assignment for the study programme technology management taught at the management and organization faculty of the Rijksuniversiteit Groningen. The study has been carried out at Hoomark Gift Wrap Partners B.V. stationed in Hoogeveen, the Netherlands.
My time with Hoomark has been a great experience from which I have learned a lot, both on the theoretical front as on the practical front. It has made me eager to end my time as a student and enter into a new world.
I want to thank Johan Brinkman for allowing me to carry out this study at Hoomark and thereby making it possible for me to graduate and for his input and advise and also for giving me the possibility to start my career at Hoomark.
Furthermore I want to thank Fred ten Caat, Jan Prins, Nico Stryker, Wim de Weerd and other personnel at Hoomark for their help, input and feedback and Joop, Marleen, Wim and Jeanet for the fun time I had in our office.
I also want to thank my two graduate instructors, Gerard Gaalman and Cees de Snoo, for their feedback and assistance in completing this study.
Paul Deuring November 2006
iv
Management Summary
Background
This thesis describes a study that was made into the improvement possibilities in the production process of gift-wrap paper at Hoomark Gift-Wrap Partners B.V. Hoomark’s goals for the future are to further increase output and further improve the performance of the production process. But it is unclear how performance can be improved. This led to the following research goal:
The goal of this study is to identify possibilities how the performance of the production process of gift wrap paper at Hoomark Gift-wrap Partners BV can be improved and mark these possibilities for further investigation.
The theory
The concept of performance in this study was defined using five performance objectives; speed, quality, flexibility, dependability and cost. Through an analysis of the market requirements and Hoomark’s performance on each of these objectives it is determined that improvements for the cost objective are most urgent. With this information the primary research question was determined
How can the cost objective for the process of printing and winding gift wrap paper at Hoomark Giftwrap Partners BV be improved?
Using a research approach based on the planning stage of the PDCA-cycle an attempt was made to answer this research question. This approach uses performance measurements to measure different parts of the relevant performance objective and determines what factors influence the level of performance of these measurements. These influential factors are in turn used to develop ideas that could improve the performance of the relevant performance objective.
The analysis
This approach was used to analyze the two departments within the production process of gift wrap paper; the printing department and the winding department. Through a global analysis of the primary process and task structure of both departments and an analysis of the cost objective, valid performance measurements were determined. The Overall Equipment Effectiveness and material efficiency are used to measure and analyze the performance of the cost objective. With the use of quantitative data analysis and cause and effect analyses influential factors were determined that were used in the idea development process.
The results
In conjunction with the management of Hoomark a range of ideas were developed based on the influential factors determined in the analysis. These ideas were evaluated using a cost and benefits analysis that measured the potential costs and benefits of the each idea. Based on this evaluation all ideas where assigned to one of these three categories:
- 1: ideas that receive immediate attention - 2: ideas that may receive attention in the future
- 3: ideas that will not be further researched at this point
Ideas listed under the first category will be assigned to projects that will be carried out in the months following this study, these projects deal with the following subjects and ideas:
v Equipment improvements
This study has shown that by simplifying the attachment devices on machinery, improving the storage and handling of machine parts and standardization of the winding machine setup process, the setup time for both departments can be reduced. Resulting in an increase in capacity and a more flexible production process.
Other equipment improvements consist of increasing the tube storage on winding machines increases the production speed for tube wound gift-wrap paper rolls, thereby increasing capacity. And by placing an extra axel stand on winding machines material handling time can be shortened further increasing capacity.
Increase of output during low season
During the analysis is was determined that 1/3 of all winding machine hours is not used due to the
seasonal demand of gift-wrap paper. Two ideas were developed to compensate for this problem. The first is to stimulate cost-driven customers to place there orders early in the year, which increases output during the low season and increases capacity during the high season. Secondly by producing products other than gift-wrap paper for which, depending on the product, a capacity of 50 to 100 million meters is available.
Design collection optimization
The analysis has shown that the annual average production speed is for 50% dependent on the designs that are used. Through substitution and lay-out alterations of designs with large outputs the average production speed can be increased. The design collection can be further optimized by reducing the amount of designs with small outputs, hereby reducing investment costs and reducing the amount of setups needed annually.
New printing press
A lot of problems in the printing department arise from the use of aged machinery and investment in new machinery is needed in the near future. By investing in one new printing press the printing capacity is increase with 80%. Depending on the investment cost and increase of 11% to 25% is needed however to improve the performance for the cost objective.
Automating the sorting process
This study has determined that by automating the sorting process for the winding department the production speed for the winding department can be increased with 10%. The investment costs needed to automate this process are covered by the decrease in annual personnel costs due to the decrease in personnel requirements.
Outsourcing the weekend stop
By outsourcing the weekend stop for the printing department a increase in printing capacity of 6,3% can be attained against an increase in annual costs of 2,4%. Success of this proposition is however dependent on the capabilities of the cleaning crew hired to perform this task.
vi
Contents
Part 1: Introduction
1 Hoomark Giftwrap Partners B.V. ... 3
1.1 General Description of the company... 3
1.2 Customers and Market... 3
1.3 Production Process ... 4
1.4 Planning and Control... 5
1.5 Organizational structure ... 6
1.6 Problem Motivation... 7
1.7 Research Goal... 8
1.8 End notes ... 8
2 Theoretic Framework ... 9
2.1 What constitutes performance ... 9
2.2 How can ideas be found to improve performance... 14
2.3 End notes ... 19
3 Evaluating The Current Performance... 20
3.1 The Market Requirements ... 20
3.2 The Current Performance ... 22
3.3 Room for Improvement ... 23
3.4 End notes ... 24
4 Research Approach ... 25
4.1 Primary research question ... 25
4.2 The research approach... 25
4.3 End notes ... 31
Part 2: The Printing Department
5 Analysis of the Printing Department ... 335.1 Products ... 33
5.2 Organizational Structure... 34
5.3 Planning and Control... 35
5.4 The Primary Process... 35
5.5 Task Structure... 36
5.6 Cost Structure ... 37
5.7 Valid Performance Measurements ... 37
5.8 End Notes ... 40
6 Analysis of the Performance Measurements... 41
6.1 Availability... 41 6.2 Speed efficiency ... 44 6.3 Quality Rate... 48 6.4 Material Efficiency... 48 6.5 End Notes ... 49 7 Generated Ideas... 50 7.1 Availability... 50 7.2 Speed Efficiency... 57 7.3 Material Efficiency... 59
vii
Part 3: The Winding Department
8 The Winding Department... 62
8.1 The products ... 62
8.2 Organizational structure ... 63
8.3 Planning and Control... 63
8.4 The Primary Process... 64
8.5 Task Structure... 65
8.6 Cost structure... 66
8.7 Valid performance measurements ... 66
9 Performance Measurements... 67
9.1 Availability... 67
9.2 Speed efficiency ... 69
9.3 Material Efficiency... 73
10 Ideas for Improvement ... 74
10.1 Availability... 74
10.2 Speed Efficiency... 79
Part 4: Conclusions
11 Research results... 8311.1 Ideas that receive immediate attention ... 83
11.2 Ideas that may receive attention in the future... 86
11.3 Ideas that will not be further researched at this point... 87
11.4 End notes ... 87
12 Conclusion and recommendations ... 88
12.1 Summary of the study... 88
12.2 Conclusion... 89
12.3 Recommendations ... 89
12.4 End notes ... 90
13 Reflections upon the study... 91
13.1 The theory ... 91
13.2 The cost objective... 92
13.3 The performance measurements... 92
13.4 The analysis... 92
13.5 The results ... 93
13.6 The study ... 93
Used Literature... 95
Appendixes ... 96
Appendix 1 - Organizational structure ... 97
Appendix 2 - More information on the printing department... 98
Appendix 3 - S.M.E.D. Analysis of a printing press setup ... 103
Appendix 4 - S.M.E.D. Analysis of a printing press feeding roll change ... 106
Appendix 5 - Calculations for the printing department... 108
Appendix 6 - More information on the winding department ... 113
Appendix 7 - S.M.E.D. Analysis of a winding machine setup... 116
1
Improving the production process of
gift wrap paper
2
Hoomark Giftwrap Partners B.V.
3
1 Hoomark Giftwrap Partners B.V.
This chapter gives a overall description of the company where this study is performed, consisting of the customers and market, the production process, planning and control and the organization of the company. And this chapter gives the motivation why this study is performed and the goal of this study.
1.1 General Description of the company
For over 25 years Hoomark has been a well-established manufacturer of gift-wrap paper. The company was established in 1980 in Hoogeveen where it still resides. In 2002 the company was taken over by Mr. Brinkman, the current managing director, and the NOM (investment and development-company for the northern Netherlands) from the Firgos group. Due to shady bookkeeping of this Firgos group, which stated the value of the company much higher then in reality, Hoomark had to file for bankruptcy late 2002. Early 2003 the company was started up again and is growing since. In January 2004 Hoomark became part of the listed English company International Greetings PLC (IG), which led to extra growth opportunities. Last year Hoomark moved from its old building to a new, and much bigger, building to cope with the growth in demand.
1.2 Customers and Market
In the Netherlands Hoomark is considered the biggest manufacturer of gift-wrap paper and on the European market it has a share of around ten percent. Last year Hoomark printed around 170 million metres of gift-wrap paper and the forecasted output for next year is around 200 million metres. Hoomark has acquired several licenses from Disney and Warner Brothers and establishes itself as the biggest license company in Europe. Besides gift-wrap paper Hoomark also has an extensive range of other gift related products, such as bags, ribbons, bows, and Christmas cards. Hoomark acquired these products when it became part of IG but Hoomark does not manufacture these products and Hoomark acts strictly as a wholesaler concerning these products. Gift-wrap paper is manufactured for the home consumer, in the form of consumer rolls, and for commercial use, in the form of counter-rolls and semi-finished products, or jumbo-rolls. The distribution of these products based on forecasts for this year is as follows:
Sixty percent of the gift-wrap paper manufactured at Hoomark is for the December holidays, which mean Christmas and Sinterklaas. Sales for this market only start in the last three to four months of the year. The other forty percent is for the what is called the ‘everyday’ market; this market has a steady demand throughout the year
Hoomark Giftwrap Partners B.V.
4
1.3 Production Process
The production of gift-wrap paper consists of two separate stages, the printing of the paper and the winding of the paper; this separation is clearly visible in the functional layout of the factory. During the printing stage a specific design is printed on blank raw materials using a printing press, this press also cuts the material into the desired width. After the printing stage the material is wound onto separate rolls using a winding machine, the winding machine cuts the paper into the desired length and winds it into a roll using an inlay-material. The inlay material is either a cardboard tube or a paper sheet. After the rolls are wound they are transferred into a machine that pack the rolls into plastic foils after which they are manually placed in boxes and made ready for shipment. (see figure 1.3)
1.3.1 The products
Figure 1.2 gives a representation of the variety of consumer products Hoomark in theory can produce every year.
Each year Hoomark has around 800 active designs, this includes a standard collection as well as customer specific designs. Each design can be printed using a multiple of colour schemes on a range of different materials; the most used materials are plain paper in different qualities, metallic paper and holographic paper. There are more material options then the six mentioned here but these are only ordered occasionally. The paper is usually cut at 46.5, 70 or 100 centimetres but different widths are possible if the customer desires it. From this point the paper is either sold as semi-finished product or wound as either consumer rolls or counter rolls, here the options for consumer rolls are displayed. During the winding process the printed paper is cut in to the desired length, the standard lengths are 2, 3, 5, 8 and 10 metres, and wound onto using inlay material, either a cardboard tube or an inlay sheet and occasionally no inlay material is used. From this point the order is customized to the customers wishes with a custom label and a custom mix of designs, usually 5 or 10 different designs, that go into one box. As the diagram shows the theoretical number of different products is endless.
Hoomark Giftwrap Partners B.V.
5
After the rolls are placed in boxes most of them are placed on a pallet and stored until delivery. A small percentage of rolls undergo a further processing step before they are palletized and stored for delivery. These rolls are either packed into packs of multiple rolls, called multi-packs, or combined with ribbons and bows in one pack as a gift-wrap kit.
1.4 Planning and Control
This large variety of potential products makes it almost impossible to produce to stock, whether it is finished product or semi-finished product. Only Hoomark’s standard collection, for which the output per design is relatively high, is printed to stock. This thus means that Hoomark’s Client Order Decoupling Point for most of its orders lies after the intake of raw materials which means the larger part of Hoomark’s output is printed to order and everything is wound to order (see figure 1.3).
Because the sales for the Christmas market happen in the last three months of the year and Hoomark doesn’t have the capacity to fill that demand at that point it needs to build stock by using free capacity during the other months of the year. The following diagram shows the rise in finished product and total inventory, which is raw materials, semi finished and finished product, during the early months of the year and the sudden rise in sales during the last months (see figure 1.4).
Hoomark Giftwrap Partners B.V.
6
1.5 Organizational structure
Hoomark has permanent workforce of 100 FTE (full time equivalents), during the second half of the year, when demand and production output increases, the workforce is complemented with part time employees. The organizational is divided in a marketing & development department, sales department, production department, operational department and financial department (see figure 1.5).
Hoomark Giftwrap Partners B.V.
7
Design management consists of compiling the annual design collection, through purchasing of new designs and recolouring of old designs, and quality control. Within Hoomark this is done by the marketing & development department. This department also determines the decoration and ornamentation of the business stand during trade fairs.
The sales department consists of four sales managers, each responsible for their own European regions, and a sales support team. The sales managers tasks are customer relations and acquisition and sales forecast for their respective region. The sales support team deals with order acceptance and delivery dates.
The production department is split into three different production units, the printing department, the winding department and the machine shop. The printing department is in charge of printing the gift-wrap paper, they work in three shift 24 hours a day except for the weekends. The gift-wrapping department winds the printed-paper onto separate rolls and prepares them for shipment; they work the same hours as the printing department. The machine shop is in charge of machine maintenance and the annual overhauling of all the machinery. Every production shift always has at least one machine shop employee around in case of machine failures.
The purchasing department is in charge of planning, purchasing and logistics. The financial department does the administration and IT services for the company.
(full organizational schema can be found in appendix 1)
1.6 Problem Motivation
After its Bankruptcy, Hoomark has done a lot to lower the costs of production; Hoomark has shifted its focus to a more efficient and productive way of making gift-wrap paper without losing its artistic integrity. This has lead to an increase in output and a decrease in operational costs. Evidence of this is the fact that output for the year 2005 was already twice as much as it was three years ago with approximately the same amount of people.
Hoomark forecasted output for this year, the year 2006, is rated at 200 million to 220 million metres of gift-wrap paper. The total European market is in the billions of metres and Hoomark has set a goal for itself to continue their growth and attain a market share of 300 million meters within 5 years.
IG Europe, the division of IG that Hoomark is a part of, is in the process of setting up a gift-wrap paper factory in Latvia. IG believes that the lower cost of labour and the lower cost of housing will reduce their production costs and will give them a stronger position in the European market and give them a foothold situation in the Eastern European market, thereby increasing the total market share of IG Europe.
Hoomark disagrees with this opinion and believes that with a good strategic policy, using optimum involvement, presence, knowledge and experience it can deliver a better performance here in the Netherlands than in a low-salary country. Hoomark believes that the factory in Hoogeveen should remain the main European manufacturer of gift-wrap paper for the IG Group.
These are the main motivations for Hoomark to further improve the performance of their production process. However Hoomark does not have a clear picture on how the performance can be further improved. The goal of this study is therefore to analyze the production process and identify possibilities where improvements are possible. Based on this analysis it is determined on what parts of the production process Hoomark should focus its future improvement projects.
Hoomark Giftwrap Partners B.V.
8
1.7 Research Goal
The goal of this study is to identify possibilities how the performance of the production process of gift wrap paper at Hoomark Gift-wrap Partners BV can be improved and mark these possibilities for further investigation.
1.8 End notes
In this chapter a global introduction of the company’s production process is given as well as the products and the organization. Based on a number of motives stated by Hoomark the research goal of this study is determined.
In the following chapters this goal is operationalized into a detailed research approach with the use of theory, methods and techniques.
Theoretic Framework
9
2 Theoretic Framework
This chapter gives a description of the theoretic framework used during this study. This framework answers two questions needed to be answered before the research goal can be operationalized.
- What constitutes performance? - How can performance be improved?
The first question describes how the concept performance is defined and interpreted during this study. The second question describes a method, based on this definition of performance, how the performance of the production can be improved, and how possibilities for improvement can be identified.
2.1 What constitutes performance
In this study performance is a measurement that determines how well the production process performs (Slack et al. 2001), or realizes its goals. Daft describes three contingency approaches to measuring performance (or organizational effectiveness): a resource based approach focussed on the input side of the process, an internal process approach focuses on the process itself and a goal approach focussed on the output side of the process (see figure 2.1).
The goal of this study is to identify possibilities for performance improvement in the production process. The purpose of these improvements are to increase the output of the production process, therefore a goal approach is used to further describe what constitutes performance.
The goal approach consists of identifying the output goals, or objectives, of the production process and assessing how well the process has attained those goals. Slack et al. state that on the operational level there are five basic performance objectives, or goals, which apply to all types of operation, that together determine the overall performance of a production process, they are: cost, speed, quality, flexibility and dependability (Slack et al 2001). These objectives are used to give a generic description of performance and are explained in the next paragraph.
Theoretic Framework
10
2.1.1 The performance objectives
The quality objective
Quality means doing things right, producing error free goods which are fit for their purpose and satisfy the customers demands, and producing them without making mistakes.
The speed objective
Speed is concerned with how long customers have to wait to receive their products. This means the time between the customer ordering the product and the customer receiving the product.
The dependability objective
Dependability means doing things in time for customers to receive their goods when they were promised. A dependable company delivers its products to its customers exactly as promised.
The flexibility objective
Flexibility means being able to change the operation in some way. This means changing what the operation does, how it is doing it, or when it is doing it. Flexibility can mean four different things.
- Product flexibility, the ability to introduce new products
- Mix flexibility, the ability to provide a wide range of products and varieties - Volume flexibility, the ability to change the level of output
- Delivery flexibility, the ability to change the timing of the delivery of the good The cost objective
The last objective is doing things at low cost or the ability to sell products at a low sale price while still making a good profit. This is a universal objective and is attractive to all companies. The cost objective can be translated into cost per product produced, or the total costs of the inputs divided by the quantity of produced products.
When high levels of performance for these objectives are obtained they have positive effects on sales, margin or customer satisfaction. These are external effects of the five performance objectives. Slack et al. argue that these objectives also have internal effects that all affect cost (see figure 2.2). They mention:
- Fast operations reduce the level of in-process inventory - High quality operations need less re-work, due to less errors - Dependable operations do not spring any unwelcome surprises
- Flexible operations adapt to changing circumstances quickly without disrupting other operations.
Theoretic Framework
11
The internal effects stated here give the positive effect of having a fast, dependable, flexible or high quality operation on cost. These internal effects relate to the internal workings of the production process and are useful when using an internal process approach. From a goal approach however, it is more interesting to look at the external effects, and how resources should be distributed amidst the different performance objectives to result in the best overall performance. Or in others words; what level of performance should the performance objectives have to get the best results
2.1.2 Priority of the performance objectives
The priority of the performance objectives determines for the most part the level of performance needed for each objective to satisfy the market requirements. Slack et al state that the priority of the performance objectives is often influenced by two particular factors:
- The specific needs of the organization’s customer groups - The activities of the organization’s competitors
In different markets customers have different expectations, which leads to different priorities for each of the objectives and this leads to different competitive factors. From this Slack et al. determined that there are three types of performance objectives (see figure 2.3) based on customer perception:
- Order winning objectives, these objectives significantly contribute to winning business and are the key reason for customers to purchase the product
- Qualifying objectives, these objectives need to be of a particular level just to be considered by customers
Theoretic Framework
12
Competition influences the importance of the objectives by their level of performance, which makes it necessary for an organization to either match their level or distinguish itself from the competitor. Competition can turn an otherwise less important competitive factor into an qualifying one by setting a standard for the market.
2.1.3 The right level of performance
With this the right level of performance for a qualifying objective is easily determined, it is the qualifying performance level. A performance level that is lower than the qualifying level will have disastrous effects on customer satisfaction and eventually on sales, as can be seen in figure 2.3. A performance level that is higher than the qualifying performance level will not have any substantial effects on customer satisfaction and is therefore a waste. The right level of performance for winning and less important objectives is more difficult to determine. Slack et al. describe this as a linear relationship (see figure 2.3), which would mean that as the level of performance increases, the value customers allocate to it will increase at a constant rate. Hill (Hill 1993) states however that the increase in value to the customer will decrease as the performance level increases and the cost of attaining a performance level will increase as the level of performance increases (see figure2.4).
Theoretic Framework
13
The right performance level is thus the point where the gap between cost and perceived value is the greatest. This is when the marginal increase in cost is the same as the marginal increase in value. In economics this is called allocative efficiency, this means that scarce resources (input) are allocated to meet the customers wants and needs in the best possible way. It must be noted here that once this best performance level is achieved it is not a constant due to ever changing conditions in perceived value as well as in cost.
The level of performance for the cost objective stem from the level of performance of the other objectives. The amount of value customers assign to each objective determines how customers value the cost objective.
2.1.4 Performance
Based on the goal approach, delivering performance is thus to meet the requirements of the market based on the five performance objectives: speed, quality, flexibility, dependability and cost. And that different markets expect different levels of performance for these objectives based on the needs of the customers and the activities of the organizations competitors.
Improving the performance of a production process is thus to better meet the requirements of the market. Or in other words, to better match the level of performance attained by the production process with the level of performance expected by the market.
Theoretic Framework
14
2.2 How can ideas be found to improve performance
This paragraph describes a generic method for developing ideas and solutions to improve the performance of a production process, based on the five performance objectives, speed, quality, flexibility, dependability and cost, as stated by Slack et al. (Slack et al 2001).
2.2.1 Foundation of the method
The foundation of the method is based upon the concept of continues improvement, or Kaizen. Kaizen applied to the workplace means: continuing improvement involving everyone - managers and workers alike, as defined by Masaaki Imai (Imai 1986). Kaizen is aimed at continues and incremental improvement with the current technology already available in the organization and thereby reaches a higher level of performance than radical change or breakthrough improvement (see figure 2.5).
It must be noted though that breakthrough improvements are not excluded from this study. Because, if the concept of continues improvements can be applied upon these breakthrough improvements the actual improvement pattern as depicted in figure 2.5 need not occur.
The method itself used in this study is based upon the PDCA cycle (see figure 2.6) and, the similar but more modern, Continuous Strategic Improvement process or CSI, defined by Hudson et al. (Hudson et al. 2001). The PDCA cycle was originally developed in the 1930’s by Walter Shewart and was made popular by William Edwards Deming in the 1950’s1 and is still used today (see Slack et al. 2001 and Nicholas 1998). The cycled aspect of both the PDCA cycle and the CSI process shows these methods complement the concept of continues improvement.
1
Theoretic Framework
15 The PDCA cycle consists of four stages, namely:
- Plan stage, in this stage problems are identified and solutions are created to solve these problems
- Do stage, in this stage the solutions are implemented into the production process on a small scale
- Check stage, in this stage the proposed solution(s) are evaluated and confirmed if they had the expected results
- Act stage, if the solution had the expected results it is standardised and if the solution was a failure lessons must be learned before the cycle starts again
The CSI process follows a similar approach, were in the ‘name’ stage the objective marked for improvement is determined, in the ‘act’ stage ideas and solutions are developed, in the ‘use’ stage the solutions are implemented and in the ‘learn’ stage the solutions are evaluated and lessons are learned. The method described here only covers the planning stage of the PDCA cycle because the other stages fall beyond the scope of this study. Within the CSI process this is the ‘name’ and ‘act’ stage. The steps taken within these stages, the ‘plan’ stage for the PDCA cycle and the ‘name’ and ‘act’ stage for the CSI process, can be summarized as follows:
- Step 1: identify objectives that need improvement - Step 2: prioritise objectives
- Step 3: develop and evaluate ideas to improve an objective for which improvement is most urgent
- Step 4: develop and evaluate solutions to improve this objective
These same steps are used within Value Analysis, which is generally used to lower the production cost of an existing product. Here an actual state is determined, a target state is determined and ideas are collected to improve the actual state to meet the target state. These ideas are in turn developed into solutions. (see Pahl & Beitz 1996, page 22-23). The method described in the next paragraphs make use of the same steps.
Theoretic Framework
16
2.2.2 Determining which objective(s) to improve
The first stage in devising an method to improve the performance of a production process is to know how well the company is doing already, or to what degree it realizes its goals. The urgency, direction, and priorities of improvement are determined by whether the current performance of each of the performance objectives is judged to be good, bad or indifferent. (Slack et al. 2001). This first stage determines which objectives need to be improved and for which objective improvement is most urgent. In the CSI-cycle (Hudson et al 2001) this is called the ‘name’ stage (see figure 2.6). The following figure shows a schematic overview of this stage (see figure 2.7).
First step is determining the appropriate performance levels for each of the performance objectives, this means determining what the market needs and expects and how it values its needs. Determining this however is not an easy task, due to limited available information, changes over time in customer needs and expectations and also the changes in performance of competitors (see figure 2.8). This step is therefore an ongoing task and an important factor in improving the performance of a process and keeping the performance of a process at a high level. Sources for information can be market research, benchmarking and experience.
Second step is mapping how well the company currently performs for each of these objectives. To determine the current performance in relation to the market requirements performance measurements are used. The five performance objectives mentioned throughout this framework are all composites of many smaller measurement. All of these measurements give a partial view of an operations performance in each of these objectives, and there is also overlap between these measurements and the information they include. Performance measurements can measure the internal or external effects of the performance objectives. To determine the current performance in relation to the market requirements, measurements are used that measure the external effects of the performance objectives, this include measurements as: the number of customer complaints, order lead time and sale prize of a product. The reason for this is that customers care less about the internal workings of the process as long as the output is satisfactory, i.e. a customer cares about the sale prize of a product, not the efficiency of a plant. This is in line with the goal perspective used in paragraph 2.1.
These steps can be illustrated using a polar diagram developed by Slack (Slack et al 2001). A polar diagram shows the relative importance for each performance objective for a given market and shows to which degree an operations fulfils these performance objectives (see figure 2.8).
Theoretic Framework
17
The diagram shows for which objectives there is room for improvement and for which objectives there is excess performance and the resources devoted to achieving such a performance can be used elsewhere, possibly to improve the other objectives. Over time the performance has changed but also the requirements of the market.
The urgency of improvement is determined based on the different types of performance objective (see figure 2.3). The sequence of importance used in this study is first qualifying, second winning and third less important objectives. Reason for this is that a qualifying objective determines whether customers consider the company in the first place, a performance below qualifying level would disqualify the company from being considered by many customers (Slack et al. 2001). The reason why winning objectives take precedence over less important is obvious because they serve a greater competitive benefit. When the urgency of improvement is determined, one objective is marked for immediate action and further steps must be taken to improve the performance of this objective. These steps are described in the next section.
Theoretic Framework
18
2.2.3 Improving a performance objective
When the objective for which improvement is most urgent is determined the method starts focussing on the production process, during this second stage of the improvement method an internal process approach is used. The second stage in this method, called the ‘act’ stage in the CSI-cycle (Hudson et al 2001), consists of three steps:
- develop ideas and suggestions to improve a performance objectives. during this step ideas are developed that could improve the relevant performance objective.
- evaluate and select the appropriate ideas. each idea is evaluated, and based on these evaluations ideas are selected that are further developed into solutions.
- develop implementable solutions. the ideas are developed into solutions that can be implemented into the production process.
Two steps are added to this stage that aid in the process of developing ideas. These steps make use of performance measurements that measure the internal effects of the performance objectives. These steps increase the number of entry points from where an idea can be developed from one point, the performance objective, to many points, namely all factors that influence the performance measurements. This is in line with the PDCA cycle, where measurement is fundamental (Nicholas 1998). The following figure shows a schematic overview of this stage (see figure 2.9).
As mentioned, performance objectives are composites of many smaller measurements. First step in this approach is to determine the correct performance measurements that measure the internal workings of a process for the relevant performance objective, for example: number of defects per unit, cycle time, efficiency. The measurements that are valid to measure a specific performance differ per operation and per objective and it should be carefully evaluated if the used measurements constitute the right performance objective. The aim of these measurements is not so much to determine the level of internal performance for the objective in question, but to increase the number of entry points from where an ideas can be developed. These measurements have no relation to the measurements used in the previous stage to measure the external performance.
Second step is measuring the level of each of these performance measurements and determining what factors influence the level of performance of these measurements. This step is labelled as a continues process because not all factors might be known at one time, new factors may arise and factors may
Theoretic Framework
19
change and become more or less important. There are several methods and techniques to perform this step, such as: quantitative data analysis and cause and effect analyses.
By determining what factors influence performance of the selected measurements the number of entry points is further increased. By developing ideas that change the influential factors so that they improve the performance of their relevant measurements the performance of the objective can be improved. Several methods and techniques can be used to aid in the process of idea development.
These ideas need to be evaluated. This is done by determining the potential results of an idea on the external effects of the performance objectives and evaluating them based on the following criteria.
- The improvement in performance must be asked for by the market and
- The improvement must not affect performance that is not in excess or
- The improvement in performance in one objective must compensate for the decline in performance for a different objective
2.3 End notes
In this chapter a method is devised to develop ideas that improve the performance of a production process in relation to the market requirements. This approach consists of two stages where first the objective is determined for which improvement is most urgent and secondly, ideas are developed to improve this particular objective.
The focus of this study is on implementing the second stage of this improvement approach, where the actual ideas are developed. In order to proceed with this stage it is however necessary to know for which performance objective improvement is most urgent. The next chapter answers this question by using the knowledge of Hoomark’s management about the requirements of the market and Hoomark’s current performance.
Evaluating the Current Performance
20
3 Evaluating the Current Performance
In this chapter the results of the first stage of the improvement method determined in the previous chapter are described. The information to complete this stage was gathered during a (brainstorm) session with the management of Hoomark where the author acted as the ringleader. This stage follows the steps described in depth in the second chapter (see paragraph 2.2.2).
3.1 The Market Requirements
In paragraph 2.1.2 it was stated that the levels of performance required by the market were influenced by two particular factors:
- The specific needs of the organization’s customer groups - The activities of the organization’s competitors
These factors determine the relative importance of each of the performance objectives.
3.1.1 The importance of the performance objectives
The Speed Objective
The management of Hoomark agreed that the speed objective currently is a less important objective and relatively it is the least important objective in the gift-wrap paper market. Main reason for this is that the orders for the December holidays, which is 60 percent of the total market, are placed in the months May to August and delivered in the months November and December which results in long lead times. And because the capacity currently available to produce for this market is fully used there is no need to be able to make rapid last minute deliveries during the last months of the year.
It is noted however that if the available capacity was to change and excess capacity would become available during these last months, the speed objective could become a winning objective.
The Quality Objective
It was determined that the general level of performance required by the market for the quality objective is relatively low, but of a qualifying level. This means that customers do not demand the highest quality possible when it comes to gift-wrap paper but a certain level of quality is needed for the company to be considered by the customers.
When taking a closer look at the composition of the finished product as a whole, which means the product printed, wound, packed and stored on a pallet, some factors influence the qualifying level, i.e. the level needed to be considered by the customers, more than others and the quality of these factors should be of a relatively higher level. The following figure shows the composition of a finished product ready to be delivered with the relative importance of these factors.
Evaluating the Current Performance
21
As shown the factors that determine the clearly visible exterior aspects of the product, the box the foil and the print, are more important than the other factors. It is noted that the actual qualifying level differs per customer or customer group.
The Flexibility Objective
It was established that the flexibility objective was a winning performance objective, which, except for cost, is valued highest by the market. As mentioned in paragraph 2.1.1 there are four types of flexibility, namely: product flexibility, mix flexibility, volume flexibility and delivery flexibility. Mix flexibility and product flexibility are valued high by the market because many customers want client specific designs and the annual design collection needs refinement every year. Volume flexibility, meaning here the ability to produce in small quantities, is also valued high by customers. The Dependability Objective
It could not be determined if dependability was either winning or qualifying but it was established that the level of performance should be high for this company. This is due to the fact that a large part of the output is for the seasonal market; Christmas and Sinterklaas. This means that the shelf-life of these products is limited and a late delivery could result in an unmarketable product for Hoomark’s customers.
The Cost Objective
Evaluating the Current Performance
22
3.2 The Current Performance
Because there is limited available information present at Hoomark about the current performance in relation to the market requirements, the level of current performance is based upon the perception of Hoomark’s management about their current performance.
The Speed Objective
Because the speed objective is a less important objective Hoomark’s performance for this objective is adequate
The Quality Objective
The number of complaints by customers concerning the quality of the delivered product is used as an measurement to determine Hoomark’s performance for this objective. The management of Hoomark has stated that these complaints are sporadic and therefore the performance is sufficient. The fact that Hoomark uses one quality level for al its customers, which complies with the highest customers expectations, indicates a certain amount of excess performance for this objective because many customers have lower quality standards.
The Flexibility Objective
Hoomark’s ability to introduce new products is sufficient in relation to the market requirements this is due to Hoomark's ability to buy new design annually and redesign old designs and also Hoomark innovativeness concerning new products types such as multiple packed rolls.
Hoomark’s ability to produce a wide range of products is limited by Hoomark’s use of old machinery, which result in long changeover times, this also limits the volume flexibility because small volumes are inefficient to produce.
Because of the long lead times and Hoomark’s large storage facilities the ability to change to timing of delivery is high but this type of flexibility is less valued by the customer.
This results in an overall flexibility performance that is less than the requirements of the customer. The Dependability Objective
The number of orders that are not delivered on time is used as an indicator to judge Hoomark’s performance for the dependability objective. The planning director stated that occasionally orders are not delivered on time. The performance is thus not completely sufficient but the lack of performance is not alarming.
The Cost Objective
The cost objective is determined to be the most lacking in performance in relation with the specific needs of the customers and the activities of the competitors.
Evaluating the Current Performance
23
3.2.1 Polar Diagram
Figure 3.2 contains a polar diagram depicting how Hoomark’s current performance relates to the market requirements. It must be noted that the requirements of the market as well as Hoomark’s current performance is not based on detailed data. This figure therefore does not show the absolute performance of Hoomark on each of these objectives, but only the relative importance of these objectives and the perceived performance for these objectives.
3.3 Room for Improvement
The diagram shows three objectives that lack in their performance: - Cost
- Dependability - Flexibility
The dependability objective meets its qualifying level but occasionally the predetermined delivery date is not met, the level of performance is therefore not precisely at the market requirement level but performance can be judged good so there is no urgency for improvement. The performance of the cost objective and the flexibility objective however must be judged insufficient and both objectives require improvement.
Because both objectives are winning objectives, the urgency of improvement is decided based upon the relative importance and the relative performance of these objectives. As was determined the cost
Evaluating the Current Performance
24
objective is valued higher by the customers and the performance of the cost objective is worse than the performance of the flexibility objective. Improvements for the cost objective are therefore considered more urgent than for the flexibility objective.
3.4 End notes
From this is concluded that improvement for the cost objective is most urgent. The remainder of this study is thus aimed at improving the performance of the cost objective. With this information the primary research question for the remainder of this study can be determined. The primary research question is stated in the next chapter along with the research boundaries and a detailed research approach based on the method described in chapter 2.
Research Approach
25
4 Research Approach
In this chapter the research goal is translated into a primary research question. Based on the method described in chapter 2, this research question is divided in to several sub questions that need to be answered in order to answer the primary research question.
4.1 Primary research question
Before the research goal can be translated into a research question the research scope is defined. This means boundaries are set and assumptions are made.
In the previous chapter it is determined that for the cost objective improvement is most urgent. Improving the cost objective thus becomes the aim of the primary research question. Hereby it is assumed that the information about the market and the current performance stated in the previous chapter is correct.
The domain for which performance improvements are developed is limited to the printing of the paper and the winding of consumer rolls. The tube making section, the multi-packing section and the winding of counter rolls is not dealt with in this study.
It is not the goal of this study to produce established solutions ready for implementation but to generate a range of ideas that are marked for further investigation.
The primary research question
How can the cost objective for the process of printing and winding gift wrap paper at Hoomark Giftwrap Partners BV be improved?
Research Boundaries and Assumptions
- This study assumes the knowledge about the market brought forward by Hoomark to be correct
- The study is limited to developing ideas for the printing and the winding department
4.2 The research approach
The course of this study consists of several stages that will be outlined in this research approach. Each stage will attempt to answer one or more sub questions that need to be answered in order to fulfil the research goal and answer the research question.
Every paragraph consists of:
- A short description of the relevant stage
- The sub-question(s) needed to be answered in this stage
- The data, methods and techniques used to answer the sub-question(s) - The people involved in answering the sub-question(s)
Because of the clear separation between the printing department and the winding department, the process of developing ideas is performed separately for these departments.
Research Approach
26
4.2.1 Analyzing the current production process of producing gift-wrap paper
The first step in stage two of the method used in this study is to determine the valid performance measurements with which to measure the internal performance of the relevant performance objective, in this case the cost objective. But before valid measurements can be determined an analysis of the production process is needed. This analysis is also needed to get an understanding of the production process and all aspects of the process for which improvements are possible.
The following sub-questions will be answered in this stage:
- What is the current process of printing gift-wrap paper at Hoomark? - What is the current process of winding gift-wrap paper at Hoomark? Data, methods and techniques
Data for answering these sub questions are obtained by observations made by the author, analysis of documented procedures and information provided by the management and personnel of Hoomark. This information is used to further describe the aspects mentioned in the first chapter; this includes a description of the products made by both departments, the organization of both departments and the planning and control of both departments. These issues give insight into what products are made, by whom they are made and why they are made.
Second the primary process of both departments will be analyzed. The primary process is the goal-orientated system of activities that legitimizes and realizes the distinctive transformation and transaction process from which the organization (or part of the organization) derives its reason to exist, unregarding the occurrence of interference and all that is needed to maintain the process, as defined by De Leeuw (De Leeuw 2000). The primary process thus gives insight into what steps need to be performed to transform raw materials into output.
To get a clearer understanding of the role of personnel in this process the task structure is analyzed using the following classification (from Vaas et al. 1995)
- performing tasks, tasks that form the core of the function.
- preparing tasks, tasks that need to be performed before performing tasks can be executed - supporting tasks, tasks that are performed in order to maintain the process
Because the goal of this study is to improve the cost objective the cost structure is also analyzed. All costs that are made to print and wind the paper are sorted using the following cost classification (from Heezen 1999):
- Variable costs, cost that vary in relation to a change in the number of products produced - Constant costs, cost that remain constant no matter how many units are produced The total cost per unit produced is then calculated using formula 4.1.
N C C C = var + con (4.1) Where:
C = total cost per unit Cvar = annual variable cost
Ccon = annual constant cost
Research Approach
27 The people involved
To get the correct information everybody involved in the production process is approached to provide information, this means the management of Hoomark as well as (a selection of) the workers of the relevant department.
The management of Hoomark consists of: - J.K. Brinkman, Managing Director - F. ten Caat, Planning Manager - J.W. Prins, Purchasing Director - N. Stryker, Production Manager - J.W. de Weerd, Financial Director
4.2.2 Determine valid performance measurements
Determining valid performance measurements is the first step into developing ideas for improvement. The measurements that are valid for this study must measure (a part of) the cost objective and must fit with the production process of gift-wrap paper at Hoomark.
This stage will answer the following sub-question:
- What are valid performance measurements to use? Data, methods and techniques
The measurements determined here must measure (a part of) the relevant performance objective, in this case the cost objective. A theoretical analysis of the cost objective is thus the first step in determining valid performance measurements. From this analysis numerous measurements can be determined.
The measurements that are valid for this study must fit with the production process and must fulfil the goal of this step, which is to divide the cost objective into several smaller segments. The choice for which performance measurements to use is therefore based upon the analysis made in the previous step and an evaluation of the performance measurements if they fulfil the goal of this step.
The people involved
This analysis is made by the author.
4.2.3 Determine the level and the influential factors of the performance measurements
With this step it is determined what the level of performance of each measurement is and what factors influence the performance of each measurement. This step aids the process of idea-generation as each influential factor acts as a starting point or incentive to generate ideas for improvement.
This stage will answer the following sub-questions:
- What is the current level of performance for each measurement? - What factors influence the performance measurements?
Data, methods and techniques
A great deal of information is obtained by analysing quantitative data. Throughout the organization data is available, in writing and in digital form, about the use of time, production speed, order sizes
Research Approach
28
and setup times. The data used for answering the relevant sub questions can be found in the excel sheets accompanying this thesis.
For elements where the availability of data was limited or not present, subjective data is used. This data is obtained through observations by the author and personal and group interviews with the workers of each department. This data was used, with the assistance of the workers of the relevant department, to make an Ishikawa diagram (Ishikawa 1985), which is a type of cause and effect analysis (see figure 4.1).
Slack et al. (Slack et al. 2001) stated a four step process to correctly fill in such a diagram:
- State the problem at hand, in this case the non optimality of the performance measurement, as a question in the effect box
- Identify the main categories for possible causes of the problem
- Use systematic fact-finding and group discussion to generate possible causes of the problem. - Record all potential causes on the diagram under each relevant category, and discuss each
item in order to combine and clarify causes
When the influential factors are determined it is worthwhile to distinguish between the factors that have a large influence on performance and the factors that have little influence on performance. This determines which factor to attack first and which factors can yield the greatest benefit. A Pareto analysis is a way to accomplish this. A Pareto analysis makes use of Pareto’s Law (after the person who described it), Pareto’s Law states that 80 percent of the effects is accounted for by only 20 percent of the causes (Slack et al. 2001). A Pareto diagram is used as a visual aid to assist the Pareto analysis (see figure 4.2).
Research Approach
29 The people involved
Because proper knowledge about the workings of the production process is needed to find the real causes of the problems the workers of both departments serve a prominent role in this stage. Management is mainly involved in discussing, combining and clarifying the influential factors and with the making of the Pareto analyses.
4.2.4 Developing ideas
This stage is concerned with the question: how can an influential factor be changed to improve the performance of a measurement. This means developing numerous ideas, executable or not, that could potentially improve the performance of the cost objective.
This stage will answer the following the sub-question: - How can the cost objective potentially be improved?
The word potentially is important in this sub question because at this point it is still uncertain if an idea actually improves the cost objective. The primary research question is thus not answered with this sub-question. The goal of this step is merely to develop a large amount of ideas that could possibly improve the performance, and these ideas are evaluated in the next step.
Data, methods and techniques
The ideas in this stage can come from two sources: ideas already present in the organization and ideas that have not been thought of yet. This stage thus consists of two steps (from Pahl & Beitz 1996):
- Gather existing ideas - Finding new ideas
Research Approach
30
Both existing ideas and new ideas are obtained through personal interviews and group discussions where the results obtained in the previous step are used as an incentive to generate these ideas. Other sources of ideas are methods that analyse a certain part of the process and identify points of improvement. In this study the S.M.E.D. method is used to further analyse machine setups. This method is performed with the assistance of the workers of the relevant department and representatives of the machine shop.
S.M.E.D. or Single Minute Exchange of Dies
This is a method developed by S Shingo (Shingo 1985) to reduce setup times; it consists of four distinct steps:
- Step 1: Identify internal and external steps. This step identifies steps that need to be performed while the machine is stopped, internal steps, and steps that can be performed while the machine is in operation, external steps.
- Step 2: Convert internal steps to external. This step reduces the internal setup time, the time that the machine is not in operation, by converting internal steps to external steps. - Step 3: Improve all aspects of the setup operation. By improving both internal and external
steps the time needed for the setup process is reduced
- Step 4: Abolish setup. By reducing the need for machine setups time and thereby money is saved
The people involved
The concept of Kaizen states that everyone should be involved in the improvement process, this is especially useful in this stage because good ideas can come from every part of the organization. During the process of developing ideas management, the personnel of the relevant department and the foreman of the machine shop served prominent roles.
4.2.5 Evaluating ideas
After ideas are determined they need to be evaluated. This is to determine if an idea would potentially improve performance or not. Evaluation is based on the criteria described in paragraph 2.2.3
This stage will answer the following the sub-questions:
- Which ideas could improve the performance of the cost objective? - Which ideas should further studied and developed into solutions? Data, methods and techniques
The evaluation consists of a cost and benefit analysis in terms of performance, which lists the potential benefits obtained when implementing the idea and the accompanying costs. Operational consequences are not dealt with in depth here, because this would require a too broad analysis of each idea which is falling beyond the scope of this study.
The data used in the evaluations come from a number of sources, these are:
- data from inside the company: order data, product statistics, margin information, wages etc. - data from outside the company: brochures, product offers etc
- assumptions and estimates
When an idea requires an investment that needs depreciation the Net Present Value (See formula 4.3) is calculated to evaluate the idea.
Research Approach 31 = + + − = n t t t k CF I NPV 1 0 ) 1 ( (4.3)(from Shapiro 2005) where
NPV = Net Present Value I0 = initial cash investment
CFt = net cash flow in period t
k = cost of capital for the investment or discount rate n = economic life of the investment
From this analysis a conclusion is drawn whether the potential benefits outweigh the potential costs and it is determined which ideas are marked for further investigation. In conjunction with the management of Hoomark three categories where determined to which ideas are assigned.
- 1: ideas that receive immediate attention - 2: ideas that may receive attention in the future
- 3: ideas that will not be further researched at this point
Ideas are assigned to these categories based mainly on the potential improvements they generate or operational consequences. Implementing one idea might disqualify or lower the need for implementation of a different idea. When this is the case priority is also based on the subjective preference of the management of Hoomark.
The people involved
The author is responsible for determining the potential costs and benefits of each idea. Based on these potential cost and benefits, conclusions are drawn in conjunction with the management of Hoomark. And the author and the management of Hoomark decide together which ideas are marked for further research.
4.3 End notes
This chapter has stated the primary research question for this study and the research approach how this question is answered. Part 2 of this thesis, chapters 5 to 7, covers the idea development process for the printing department, where the printing process is analysed, valid performance measurements are determined, influential factors are determined and finally ideas are developed and evaluated. Part 3 of this thesis, chapters 8 to 10, covers this process for the winding department. In the last part of this thesis, part 4, the results of this study are clarified and conclusions are drawn from these results. Part 4 also contains a reflection upon this study and the theory and method that is used throughout this study.
32
