Control for control

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Control for control

An investigation into the management control of operations at

Friesland Campina Kievit

Master Thesis

MSc. Business Administration – Operations and Supply Chain University of Groningen

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August 2012 Master thesis: MSc Operations and Supply Chain 2

Control for control

An investigation into the management control of operations at

Friesland Campina Kievit

Master Thesis

Study: MSc. Business Administration

Specialization Operations & Supply Chain

Institute: University of Groningen (RuG) Faculty Economics and Business Nettelbosje 2

9747 AE Groningen

First supervisor: Prof. Dr. D.P. van Donk Second supervisor: Drs. J. Drupsteen

Company: Friesland Campina Kievit

Oliemolenweg 4° 7944 HX Meppel www.kievit.com

Company supervisor: H. van Genne

Student: Klaas Anne Huisman

S1919083

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Preface

As completion of my Master in Operations and Supply Chain at the University of Groningen, I have conducted a research project at Friesland Campina Kievit. During a period of 6 months I have conducted a study into the relationship between organizational behaviour and the operational performance management at the supply unit Meppel.

In this section I would like to thank the persons who helped me during the process of writing this research paper. First of all, I would like to thank H. Van Genne who gave me the opportunity to perform the research at the supply unit Meppel, she supervised me and gave me useful feedback on my research. Secondly, I would like to thank Prof. Dr. D.P. van Donk, who was my supervisor during my research process, kept me on track and gave me useful feedback each time that he reviewed my work. Also, I would like to thank the co-supervisor Drs. J. Drupsteen, which also gave me useful feedback on my research and sharpened my research. Next to the supervisors of my research, I would like to thank the operating personnel, team leaders and other persons I have worked with at the supply unit Meppel who gave me the opportunity examine the organization and provided me with useful information to complete this research.

On personal level, I want express my gratitude to my family, friends and my girlfriend, who supported me during the hard times of finishing this research. A special thanks goes to my friend F.J. Jansen who supported, criticized, and checked my work several times in order to help me write this paper.

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Abbreviations

CI = Continuous Improvement CSF = Critical Success Factor

EFQM = European Foundation for Quality Management ERP = Enterprise Resource Planning

FTR = First Time Right

Kievit = Friesland Campina Kievit KPI = Key Performance Indicators OEE = Overall Equipment Efficiency OMT = Operational Management Team PMA = Performance Management Analysis PMS = Performance Management System SMED = Single Minute Exchange of Dies TLO = Team Leaders Meeting

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Content

Preface ... 3 Abbreviations ... 4 1. Introduction ... 6 2. Problem statement ... 7 3. Theoretical framework ... 10

3.1 Characteristics of the process industry ... 10

3.2 Performance management ... 12

3.3 Organizational behaviour ... 14

3.4 Theoretical conclusion ... 17

4. Methodology ... 18

4.1 Research design ... 18

4.2 Data collection and analysis ... 18

5. Results ... 21

5.1 Operational performance management ... 21

5.2 Conclusion on operational performance management ... 24

5.3 Organizational behaviour results ... 25

5.4 Conclusion on organizational behaviour ... 35

6 Managerial recommendations ... 36

6.1 Operational performance management ... 36

6.2 Organizational behaviour ... 36

7 Conclusion ... 38

8 Discussion, limitations and future research ... 40

8.1 Discussion ... 40

8.2 Limitations ... 40

8.3 Future research ... 40

References ... 41

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1. Introduction

This thesis is the completion of the MSc program in Business Administration with the specialization Operations and Supply Chain management. The aim of this thesis is to solve a business challenge of Friesland Campina Kievit (Kievit) in the field of Operations Management. Some recommendations will be given to address this challenge. The business challenge of Kievit is formulated below:

“The current measurement of the production by Key Performance Indicators (KPI’s) are insufficient to provide the Operational Management Team (OMT) and the production teams with adequate information to guide them on the corporate mission. The data of the production process is gathered, but the organization is unable to deal adequately with this information in order to achieve structural improvements. According to Forza and Salvador (2001) it is relevant that operators receive real-time performance information in order to execute their processes to the best. Currently, the KPI do not provide the organization with performance information that improves the operational processes.”

First of all an introduction of the organization will be given.

Kievit is an international player in food-processing encapsulated dry sprayed industry. The products are used in the business-to-business market. Some of the Dutch products, that contain ingredients that are produced by Kievit, are: cup-a-soup, coffee creamers and infant nutrition. Kievit operates and distributes the products worldwide. To supply the customers, Kievit has several supply units around the world.

Figure 1: Kievit headquarter and supply units

Figure 1 presents Kievit and its supply units over the world. Each supply unit has its own production location and distribution to its market. This master thesis focuses on the supply unit Meppel (green). The supply unit Meppel is a medium sized company with approximately 200 employees and contains the following departments: Logistics, Quality Control, Process Technology, Maintenance and Operations. The company produces high quality products, which are demanded by the customers. These customers require quality products and a partner which focus on innovative products.

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2. Problem statement

The corporate strategy to reduce the operating cost and improve the efficiency is quite common in the process industry. According to Rajaram and Karmaker (2001) a typical process industry is a single capital intensive, highly specialized process which produces a few products. In order to achieve the maximum efficiency of the capital intensive specialized process, the installation must be running for 24 hours a day, seven days a week. In this case, the Supply Unit Meppel has installed a system with five production teams continuously monitoring and controlling the production. To sustain and improve the production, these teams have to monitor, act on inefficiencies and report the efficiency of the production process. To monitor the production process information is gathered from the process and provided to the management in order to make decisions on efficiency.

According to de Waal (2009) a management control and information system helps managers to influence the members of the organization to be able to coordinate them to the organization’s mission. The current measurement of the production by Key Performance Indicators (KPI’s) are insufficient to provide the OMT and the production teams adequate information to guide them on the corporate mission. The data of the production process is gathered, but the organization is unable to deal adequately with this information in order to achieve structural improvements.

Inadequate actions, based on inadequate information are related to the organizational behaviour that influences the control of the production process (Neely, 1994). Issues with organizational behaviour surrounding performance management are well known in theory (Bartlett and Ghoshal, 1994). Those issues derive from the traditional view of measurement, which are seen as naïve (Neely and Bourne; 1992, de Waal; 2009). When those issues appear in the organization, the employees start to manipulate the measurement rather than improving the performance (Neely, 1998).

We can learn that performance measurement is influenced by organizational behaviour, which influences the decision-making process that is necessary for daily process. The framework that an organization uses to organize the performance management on operation management thus has an influence on overall performance. This has been suggested by Bartlett and Ghoshal (1994) Forza and Salvador (2001), Anand et al. (2009), de Leeuw and van den Berg (2011), and de Waal (2009). These studies conclude that the organizational behaviour and the employees have a major influence on the performance of the organization and the manner in which the organization keeps improving. Figure 2 shows the research model which is used in this research.

Figure 2 : Research model

Organizational behavior

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Explanation of factors

The definitions of the research model (figure 2) are explained beneath in order to understand the relationship between them. The organizational behaviour factor can both positively or negatively influence the operational performance management. Making improvements or adjustments with regards to this factor should positively influence the operational performance management.

Operational performance management:

Operational performance management is defined by de Leeuw and van den Berg (2011) as: ‘implementation and use of performance measures on the level of day-to-day operations executed by shopfloor operators.’ Anand et al. (2009) state that organizations that achieve a high operational performance management level surpass organizations that do not manage their operational performance. It will give organizations a competitive advantage to exceed competitors in operational performance management. Managing and measuring operational performance with a standard framework is advised by Bourne et al. (2002). A framework provides a visible link between strategy, purpose and organizational goals. A standard framework relies on Key Performance Indicators or Critical Success Factors, those are metrics who measure the performance. These metrics provide managers with performance information on which they can steer and control their operations.

Organizational behaviour:

Organizational behaviour is ‘the efficient and effective steering and control over the organization and the behaviour of its members that is derived from it’ (Neely 1998). According to de Waal (2009) effective and efficient management control can be achieved by stimulating performance-driven behaviour. Barnes and Radnor (2008) argue that the success of performance management lies in stimulating the desired behaviour on the shopfloor. Simons (1995), Neely (1998), Bauer et al. (2004) and de Waal (2009) state that the organizational behaviour is can be measured on five behavioural aspects: Accountability, Management style, Action oriented behaviour, Communication, and Alignment.

Relationship between factors

The study of Bartlett and Ghoshal (1994), and de Leeuw and van den Berg (2011) concludes that when organizations decentralize their control over the operations, this leads to empowerment of the operators to make decisions on operations management (daily decision-making), and this will result in a positive effect on the performance management. In addition, Stratton et al. (2005) state that the combination of performance-driven behaviour and the continuous usage of performance management lead to improved organizational results. To establish whether the supply unit Meppel’s organizational behaviour, the current framework on operations management, and the daily decisions that are made influences the overall performance of the organization, the following research question is adopted:

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This research question is divided into three sub questions; a fourth sub question is added pertaining to recommendations for the management of the supply unit.

1. How can organizational behaviour and the operational performance management be analysed? 2. What is the current operational performance management of the supply unit Meppel?

3. What is the current organizational behaviour at the supply unit Meppel?

4. What are the recommendations to change the organizational behaviour to increase the operational performance management?

Reading guide

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3. Theoretical framework

In this chapter the literature on the two aspects that are related with operational performance management will be investigated using the research model described in chapter 2. Before we look at the relationship between the two factors, the external environment is explained in order to detect the characteristics of the process industry. These characteristics can indirectly influence the operational management of the organization. Also this will give insight on why strategic or operational decisions are made. The first factor that is examined is performance management. Theory on performance management provides useful information on how organizations can improve their performance. To implement a successful performance management system in an organization the organizational behaviour must be known. The organizational behaviour is the second aspect that will be theoretically explored. The theory on these aspects is used in order to investigate the research question.

3.1 Characteristics of the process industry

In order to align organizational strategy with the external environment, the characteristics of the process industry are examined. Schönsleben (2007) states that manufacturers that produce products by process manufacturing is a type of production that adds value by mixing, separating, forming, and/or chemical reaction. Rajaram and Karmaker (2001) and King (2000) define the process industry as a single capital intensive, high specialized process such as a refinery, manufactures only produce a few products.

In order to establish which operational concept is used in the process industry, figure 3 presents (page 10) the characteristics of the process industry based on the processor-oriented concept of Schönsleben (2007). Each feature is explained below in order to grasp the planning and control logistic network of organizations in the process industry. To establish these characteristics is necessary for assessing the indirect influence on the decision making process when choosing a performance framework and its metrics.

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produced on an order. In this industry, efficient production is achieved by means of long production batches. The inefficiency will be caused by the long preparations or cleaning times between products. King (2000) and Schönsleben (2007) confirm this feature of the process industry and state that if product changeovers are long or costly, there is a tendency to run long campaigns before changing to the next product to minimize the overall cost and increase the efficiency. The last two features deal with traceability and with loops in order structure. In this industry the production batches are traceable. Loops in order structure refer to by-products that are made during the production process, which will re-enter the production process. In this case there is no use of by-products.

Figure 3: Processor-oriented concepts of the process industry, Schönsleben (2007) p. 402

From the eight features of the processor-oriented concept we have established that the production process contains large batches, long lead-times, restricted capacity of equipment, products produced on forecast and relative long setup times for product changes.

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3.2 Performance management

Now the characteristics of the process industry are examined and the planning and control features are explained, the literature on performance management will be analysed to understand the theoretical background. Beer et al. (2005) state that organizations that want to be successful and compete in a highly competitive environment must have the capability to align their strategy with their environment. The organizations strategy must be aligned with its objectives. In the field of Logistics and Operations management, organizations have to choose a specific objective in order to excel in this area (Slack and Lewis,2008).

Figure 4 presents the four areas in which organizations can excel in order to gain a competitive advantage. According to Slack and Lewis (2008) organizations can only focus on one area in order to gain this advantage, they refer to this as ‘order winners’. The five areas in which an organization can excel are: Quality, Speed, Dependability, Flexibility and Cost (Slack and Lewis, 2008). Schönsleben (2007) presents (figure 4) strategy profiles by each order winner in order to understand the conflicts that organizations face when organizational goals and strategies are formed. Looking at the process industry characteristics as mentioned in the previous section, these organizations are inflexible; the delivery of high quality products has a high degree of relevance. In addition, these products must have a low cost for production in order to serve the market. The strategy profile of an organization in the process industry does not completely match with the standard strategy profiles from Schönsleben (2007). Profile 1 and 4 are conflicting in this type of industry. The trade-off between the objectives of high quality and low cost must be made by the organization in order to gain a competitive advantage. When an organization makes their decision on its order winners, it has to align the operational management in this direction in order to gain the benefits.

In order to be competitive organizations need to align their operational processes with its strategy. In the past decades a lot of management practices have been developed in order to achieve higher performance results. According to Bourne et al. (2005) it is generally acknowledged that structuring metrics according to a framework is advisable. Standard frameworks in the field of Operations Management which ensure a link between strategy and operations are: the SCOR model, The Balanced Score Card (Kaplan and Norton,1996), European Foundation for Quality Management model (EFQM), Total Quality Management (TQM), Continuous Improvement (CI), Total Productive Maintenance (TPM) and Six Sigma programs. These standard frameworks measure the organizational performance with Key Performance Indicators (KPI) or Critical Success Factors (CSF). These can provide managers with metrics to steer and control their operations. All metrics combined will give a

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manager a dashboard on which he can manage the performance. Such a dashboard is called a Performance Management System (PMS). According to Zairi and Jarra (2000) a management control and information system help managers influence other members of the organization in a manner as to assure that the organization’s mission and strategy are implemented, while simultaneously ensuring that resources are used effectively and efficiently. Leeuw and Berg (2011) as well as Groen et al. (2012) and Li and Tang (2009), state that organizations that apply performance management practices have a major advantage over organizations that do not measure and manage their performance.

Earlier research of de Waal and Coevert (2008) and Teece (2007) on performance management and standard frameworks made clear that challenges are experienced when organizations try to install a PMS. Not only measuring performance is a challenge, also the installation of a standard framework is hard, so it is difficult to get the benefits from the systems. A Study of Ernst and Young and the American Quality Foundation (1992) found that organizations which have adopted a standard framework do this often in an inappropriate way, which results in ineffective performance. A study of Pay (2008) among the US manufacturers revealed that 70% of the organizations tried to implement an improvement program (CI, TQM, or Six Sigma), where 74% of these organizations were dissatisfied with the results that the program gives. According to Wruck and Jensen (1998) the challenge lies in making major changes in: allocating the decision rights, performance measurement information, reward and punishment systems and the effective use of science in decision making at all levels of the organization. Mendelbaum (2006) studied the success of CI frameworks and concluded that only 11% of the organizations had successfully implemented an improvement program. Schonberger (2007) examined the implementation of CI programs. He concluded that organizations that do not change their organizational behaviour and structure, and only use the tools and best practice approaches to achieve desired results, fail to gain the benefits of an improvement program.

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Figure 5:: Top ten problems according practitioners, de Waal and Cournet (2008), p. 377

Based on figure 5, the practitioners have the most difficulties with the organization adopting the change in the organizations (culture, commitment, management style, resistance of organizational members and change of processes).

Earlier study of Zairi (1994) and Beer (1997) came to the same conclusion: they claimed that an implementation of technical or structural solutions depends on organizational behaviour and the attitude of the employees. Holliway et al. (1995) remarks that the success rate of PMS depends on understanding and accommodating the human behaviour in management control. According to Luckett and Eggleton (1991) it is essential for organizations to understand the behavioural aspects of performance management in order to successfully design and implement performance management.

3.3 Organizational behaviour

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Adverse effects of performance management

De Waal (2009) has studied the adverse effects of performance management in organizations. He categorized them in five categories, each of them will be explained below in order to understand why these effects have a negative influence on the implementation of performance management systems.

In the first place, behavioural displacement, where the system creates a behaviour which discourages the organization to comply with their strategy and objectives. This behavioural displacement can be caused by several reasons: managers favour short-term goals in expense of long-term goals, managers only focus on results instead of underlying objectives.

Secondly, gamesmanship, where resources are used in order to improve the performance without any economic benefit. In this case, actions are taken to improve the performance indicator with no effect to the performance of the organization. This can also be called “creative reporting”, where managers manipulate the performance information for their own benefits. Causes of gamesmanship are manipulation of data and making wrong decisions based on misinterpretation.

In the third place, Operating delays, where the organization has a bureaucratic system in place which delays information. Causes of operating delays are lack of accountability which causes losses to be made, and through solving the easy problems instead of the difficult problems with more relevance to the efficiency of the production process.

The fourth adverse effect, Negative attitude, where the system represents negative figures or controlled situations. In this case employees want to prevent that these results will be presented to the management, which causes negative attitudes clouding the real performance or problems. The fifth, Structural deficits, where too many indicators are in place to measure the performance. This can be happen when the organization implements a performance management system and wants to keep track of all kinds of performance.

These five adverse effects of PMS are caused by incorrect use of these systems by organizations that do not understand the behaviour of its employees. Where PMS is needed to learn and improve the organizations, when organizations do not learn or use performance information it is meaningless to monitor the performance, because no adequate actions are taken (de Waal, 2009)

Performance Management Analyse Tool

De Waal (2009) invented a Performance Management Analysis (PMA) tool to measure and evaluate organizational attitude towards performance-driven organization. This tool is based on the structural side and the behavioural side of the organization in order to establish to what extent the organisation is performance-driven.

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in the content dimension. The integrity aspect involves the correct use of performance information that is gathered, analysed and shared with the organization. Manageability involves the user-friendly usage of information, comprehensibility of information, and access to information for the shopfloor. The behavioural aspect focuses on the organizational members and their use of PMS. The behavioural aspects are according to Simons (1995), Neely (1998), Bauer et al. (2004) and de Waal (2009): Accountability, Management style, Action oriented, and Communication & Alignment. Each of these aspects will be further investigated in order to detect which factors are important to create an organizational behaviour which supports the use of a performance driven organization. Accountability

According to Euske et al. (1993) accountability is the degree to which employees actual feel responsible for the results, and their support to obtain and use the performance information to obtain better results. A key condition for this factor is the degree in which the operator understands the shop floor performance (de Leeuw and van den Berg; 2011). Research by Forza and Salvador (2001) claims that shop floor performance has a major impact when figures are provided to operators and are accurate and understandable for them. In addition in relying on the operator to be responsible for his performance, this will result in proactive actions from the operator in order to influence the performance positively. Hence, the organization must provide the operator with this freedom in order to establish a smooth performance management system.

Management style

The second behavioural factor in establishing PMS is the management style. According to de Waal (2004) management that steers effectively is able to explicitly steer on results while giving support to the organizational members to achieve desired results. The study of Van Herpen et al. (2005) shows that when management is more transparent in target setting and sharing results, they will achieve higher employees motivation, which will result to manage their performance. A Study of Bartlett & Ghoshal (1994) showed huge competitive advantages in twenty large organizations where the top-management stopped focusing on controlling the organization and instead stimulated the workforce to learn from their mistakes. The core message from this study is that people are eager to learn something that can motivate them and satisfy them. Anand et al. (2010) describe this kind of management style as organic, the people are used as resources to learn from their processes and adjust processes which will result in improved overall performance. When the management style can be more described as organic, a clearer strategy must be established and a stable improvement plan must be made in order to guide to organization to the desired results.

Action oriented

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the decision-making process. The second principle is the effective use of science in an everyday decision-making process by employees at all levels of the organization. The effective use of science is to look at each process and improve it every day. When all layers of the organization will use this knowledge the organization will become a self-regulating system which continuously improves itself and also the performance. According to Bourne et al. (2005) when organizations implement performance management, the expected results will be an increased focus on improvement action which foster proactive behaviour to solve future issues.

Communication & alignment

The last behavioural aspect to achieve a good PMS system is the use of optimal communication on several points. The direction of the organization must be clear. The organization must provide clear rules on the level of decision-making and what results must be achieved (de Waal; 2009). To reduce the information and communication flow in the organization, decisions have to be made where the problem-owner can solve it and have the rights to it. According to Forza & Salvador (2001) when the level of decision-making is not where the problem arises it will create three disadvantages for the performance management: information overload to managers, a longer control loop, loss of job specific knowledge. In addition to the communication, when clear direction is set and management lowers control it should also share the results with their employees in order to motivate them to keep alert on future inefficiencies and lessons learned from earlier mistakes.

Research by de Waal (2002) shows that those organizations with a performance-driven behaviour and those that make regular use of the performance management systems will have improved results. Therefore it makes sense to test whether organizational behaviour aspects influence the performance management system at the supply unit Meppel.

3.4 Theoretical conclusion

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4. Methodology

This chapter explains how the research has been performed. In the first place the research design will be given in order to understand the nature of the problem. The second part contains the data gathering methods that are used in this research.

4.1 Research design

This study is designed as problem solving research. Problem solving research aims to understand, analyse and identify a real time problem. In this case the business challenge of the supply unit Meppel needs to be solved. According to Jonassen (1997) the most important difference in problem solving research is the difference between well-structured and ill-structured problems. The first type of problem is a clear problem, with limited rules, predictive and prescriptive arrangement and contains a prescribed solution. The latter type of problem has to deal with alternative solutions, vaguely defined or unclear goals and contains multiple criteria for analysing and solving problems, which makes it harder to solve ill-structured problems. The business challenge at the supply unit Meppel can be defined as an Ill-structured problem, since the problem is vaguely defined, multiple factors can influence the problem, and there are many alternatives to solve the problem. The vaguely defined business case can be used as positive input for the researcher in the way that the research possibilities have not been established. The researcher has conducted his research in the organization during a period of five months (April - September 2011). The advantage of the researcher being involved with the organization is to understand the causes behind the business challenge because he is confronted with the limitations of the organization. This research will contribute to the field of operations management with respect to the influence of organizational behaviour on performance management.

4.2 Data collection and analysis

To obtain general information on the relation between performance management and the organizational behaviour at the supply unit Meppel, multiple data sources have been used. In order to measure improvement on KPI’s or CSF, the use of quantitative data is useful; for this purpose secondary data sources of the organization are used. Those numbers and figures might indicate where the organization faces challenges. To understand the behavioural aspect of the KPI’s, performance measurement and actions taken on issues by the organization the use of qualitative data is needed. Therefore qualitative data is collected from meetings, observations and two sets of semi-structured interviews.

Secondary data source

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The second dataset, consists of notes of the action list made by the OMT each morning. On this action list the (operational) problems and action takers are listed. The period of December 2010 till June 2011 is used to analyse which actions are taken and which department is responsible for it. The aim of this data source is to detect where the decisions are made and who solves the (operational) problems.

Interviews

In this study, three sets of interviews are held (see appendix A, B, C, and D). The first set (Appendix B), with the operators and the team leaders who are involved and responsible for the daily production process. Interviews have been held with eighteen operators and five team leaders. The content of these interviews are “information flows”, “control of the production”, “performance indicators”, “daily problem solving” “decision making”, and “shift handovers”. These interviews were face-to-face in order to gather in-depth information about the performance and the organizational behaviour within each department. These interviews were semi-structured in order detect the wide-range of problems which are relevant to understanding the situation. The aim of this interview is to establish which information is relevant to the organization, which performance is measured, and how the organization deals with problems that cause inefficiencies in the process.

The second set of interviews (Appendix C),was held with the departments that are related to the operational process. Those are: Maintenance, Quality Control and Process technology. These departments have no direct influence on the primary process but are relevant to the primary process with respect to quality, maintenance and product recipes. This interview has been held with seven people, four maintenance engineers and three lab analysts. The content of the interviews were “information flows”, “inefficiencies at the primary process” and “communication between departments”. The aim of these interviews is to detect how the information is shared between the primary process and the other departments which have influence on the performance of the primary process.

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Meetings and observations

To understand how the supply unit Meppel detects and solve (operational) problems, which influence the performance, the researcher observed the daily decision making process. This process starts with data gathering, data generated by the control rooms of production by the operation manager and team leaders and continues with the decision making process at the OMT. This process takes place every morning at the supply unit Meppel. Two kinds of data sets are used. The first data is the action list that is made from each morning from a time period of 22-11-2010 till 3-6-2011. The second data set is the observations of 2 weeks (27-5-2011 till 10-6-2011) production meetings by the researcher. The aim of both data sets is to understand which actions are discussed and which actions and decisions are made based on this process. This explains the daily decision making process at the supply unit Meppel, and input on the performance.

The three different sources of data (secondary data, interviews and meetings and observation) have provided the researcher with useful information about the current performance of the supply unit Meppel, the process of decision making and executing of decisions. In addition, the opinions that the various members of the organisation have about the organizational behaviour and about decision making and performance management can be constructed from the interviews and the meetings and observations.

Relationship between factors

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5. Results

From the theory discussed in chapter 3, it can be learned that organizations in the process industry have to deal with an efficient usages of the expensive equipment in order to be competitive. Theory suggests that a standard framework provides a good base between strategy and operational performance management. The first section, operational performance management, will look into the current framework, the productivity results and the metrics. Second section contains the measurement of the performance-driven behaviour of the supply unit Meppel based on the PMA tool from de Waal (2009).

5.1 Operational performance management

The corporate strategy that Friesland Campina has delegated to the supply unit Meppel is to keep growing with limited resources. The organization must look whether they can produce smarter. Continuous Improvement programs provide a framework in which organizations have to deal with waste and have to utilize the resources that are in place. The supply unit Meppel has chosen to follow the Total Productive Maintenance (TPM) approach, which is a variant of a CI program. This approach focuses on improved machine availability through better utilization of maintenance and production resources. This choice fits with the utilization of the expensive machines that are installed at the supply unit Meppel. This approach also uses a pro-active approach where the aim is to identify inefficiencies in the process before they occur. The supply unit Meppel has four dry spraying towers, which are measured with the Overall Equipment Efficiency (OEE) metric.

This approach has a tool to measure the operational performance by monitoring and measuring the utilization of the equipment. The tool, OEE, which measures the productivity of the operation, it is a metric which provides a consistent way to measure the effectiveness of improvements on the machines and the production resources. The metric generate the productivity from three core areas: availability, performance and quality. These areas help the organization to categorize the performance of the production and more important distils the operational losses of production into useful categories.

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Figure 6: Overall productivity of the Supply unit Meppel.

Table 1: Overall productivity results

Figure 6 and table 1 provide useful information about the productivity of the supply unit Meppel. Table 1 presents the facts of the measurement from the first 25 weeks of 2011, the average is 81.2% and a large standard deviation of 5.5. Because the productivity line floats between 70% and 90%, and the high deviation, it is wise to look at the results per week.

Table 2: Overall productivity figures per week

Table 2 presents the productivity figures per week, the highest overall productivity is 90,4% (week 10) and the lowest overall productivity is 68,8% (week 25), a difference of 21,6%. In addition it can be seen that 10 boxes are highlighted in green, this means that the productivity is beneath the average desired productivity of 80,0%. What can be drawn from those results is that the overall productivity figures of the supply unit Meppel are rather unstable. Figure seven presents the performance areas per factor.

Figure 7: Overall performance per productivity factor

From figure 7 it can be learnt that the area ‘availability’ has the most fluctuations in the process. This result shows that the large difference of 21,6% can be explained by the available time for the process. To detect where the deviation might come from, all the towers are investigated.

N Mean StDev 25 81,2 5,5 productivity results 1 2 3 4 5 6 7 8 9 10 11 12 13 89,5% 77,3% 77,2% 79,2% 86,7% 87,0% 81,7% 82,2% 89,5% 90,4% 78,8% 74,7% 77,2% 14 15 16 17 18 19 20 21 22 23 24 25 85,5% 81,8% 76,5% 86,7% 81,2% 77,9% 82,7% 84,6% 73,0% 84,3% 77,7% 68,8% Week (1-13) Week (14 -25) 70,0% 75,0% 80,0% 85,0% 90,0% 95,0% 100,0% 105,0% 110,0% 1 3 5 7 9 11 13 15 17 19 21 23 25 P e rf or m anc e

Overall core areas of productivity

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Min Max Diff. Min Max Diff. Min Max Diff. Min Max Diff.

71,3% 86,7% 15,4% 46,7% 89,8% 43,1% 66,8% 95,4% 28,6% 63,1% 91,7% 28,6%

97,8% 106,7% 8,9% 97,6% 120,4% 22,8% 97,3% 105,7% 8,4% 97,6% 111,9% 14,3%

92,6% 99,8% 7,2% 96,7% 100,0% 3,3% 97,2% 100,0% 2,8% 95,0% 100,0% 5,0%

64,5% 92,3% 44,1% 108,1% 63,2% 100,8% 58,5% 102,6%

Tower 4

Tower 1 Tower 2 Tower 3

OEE Availability Performance

Quality Core area's

To analyse where the difference of 21,6% comes from, figure 8 and table 3 are presented. Both figures show the productivity figures of each tower and the table provides the facts of the productivity figures.

Figure 8: productivity per production tower

Table 3: OEE average and deviation per tower (confidence level of 95%)

Figure 8 presents the graph of the performance of each tower, what can be seen from table 3 is that production tower 2 has the lowest average productivity(73,2%) and the highest average deviation (12,8). Another point can be drawn from table 3 is the N=23 of tower 1, this means that this figure has only 23 productivity figures. This is due to the fact that Tower 1 has been shut-down for maintenance for two weeks.

To provide more details on where the productivity losses are made in the organization, the core areas of each production tower will be represented in table 4.

Table 4 presents the facts of each core area which influence the productivity per production tower. Multiple things with relation to productivity can be drawn from this table. In the first place, the area that performs the worst is the availability area, with also the largest difference between minimal and maximal performance on each tower. Second, it demonstrates that tower two has the most productivity issues, based on the large differences in availability and performance . Thirdly, the results rise above the 100% line. Each point is examined beneath.

50,0% 60,0% 70,0% 80,0% 90,0% 100,0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 O ve ra ll Eq u ip e m e n t Ef fi ci e n cy

Productivity per tower

Tower 1 Tower 2 Tower 3 Tower 4

Productivity results N Mean StDev

Tower 1 23 81,2 5,3

Tower 2 25 73,2 12,8

Tower 3 25 86,1 8,5

Tower 4 25 83,6 9,3

Week

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The inefficiencies in the area “availability” might come from several issues: first, down-time, whereby the machine is down due preparations for setup or cleaning. Secondly, technical failures, where the machine stops producing due to mechanical reasons. Thirdly, due to production failures, whereby operators make the wrong decisions or errors in receipts. Table 5 presents the facts of each issues.

Table 5: Inefficiencies in availability

What can be drawn from table 5 is the inefficiency in the “Setup and Cleaning part”. At each tower this factor costs a 16% productivity hours; Especial for tower 2 where a quarter of the total production time is consumed. This explains the lowest average productivity for tower 2. This is also indicated by the theory of the characteristics of the process industry.

The third point what is drawn from table 4 are the results that are above the 100% line. This indicates that the KPI metrics for the supply unit are not good defined or not well calibrated. When the parameters are not well established, the results will not be reliable and causes can be missed, which might lead to an inefficient process. This might implicate that in the current situation the organization might make wrong decisions based on actual performance information.

5.2 Conclusion on operational performance management

From the results about the operational performance management several points can be concluded. In the first place, the existence of a standard framework that fits with the characteristics of the process industry to utilize the capacity of the process. Secondly, that the organization has an high average performance of 81,2% but a large difference between best and worst performance (21,6%). A detailed analyses performed on the production towers claim that tower 2 performs the worst on average (73,2%). In addition, the core area availability performs the worse on each tower, in which “cleaning and setup” consumes most of the ineffective production hours. Lastly it the KPI metrics are not properly defined or not calibrated because they exceed the 100% performance line.

Overall it can be stated that the operational performance management framework and metrics are in place but that the process is rather unstable which might lead to the conclusion that the control over the operational process is lacking.

Total available hours 4200 Tower 1Tower 2 Tower 3 Tower 4

516 1029 546 676

92 119 70 64

73 81 57 51

Availabilty inefficencies 681 1.229 673 791 Overall of 25 weeks production (hours)

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5.3 Organizational behaviour results

In order to detect whether the framework of TPM is fully incorporated at the Supply unit Meppel, the performance-driven behaviour of the supply unit Meppel must be measured. Therefore the PMA tool is used to measure and evaluate this behaviour. The five behavioural points will be evaluated: basted on the questionnaire which can be found at appendix F.

Accountability

The degree to which the organizational members are made to feel responsible for their own results is evaluated in this section. According to de Waal (2009) there are two elements which stimulates this: “relevance to control” and the “freedom to act on figures”. To detect how the supply unit Meppel acts on those elements questions related to these elements are discussed below.

1. Relevance of information provided towards the organizational members

It is relevant that real-time performance information is directed towards operating personnel that executes the processes (Forza and Salvador 2001). In order to test whether the operates receives the desired information is provided, on time, and understandable , question related to performance measurement indicators from appendix B are asked on operators and team leaders.

Operator K ‘The information about OEE and FTR are provided on the Works board and sometimes by the team leader, the information is not up-to-date, it is two weeks or older Operator A ‘The information is old and 95% of the operators do not understand them’ Operator O ‘Information is provided but I do not read them in detail because the information is old’

Operator H ‘the information is provided and I read them in order to detect errors which can be prevented’

Team leader T ‘Information is provided once a week on the Works boards, but it is two or three weeks old’

Team leader W ‘ The figures are provided, but it is not well facilitated and hard to understand for the workforce’

The data gathering method of the supply unit Meppel is presented in figure 9. KPI will be extracted from the gathered data over one week production.

Figure 9: Performance information time fence

What can be drawn from figure nine is that the performance information is provided after three weeks. The data gathering process is based on the whole production week from Sunday till Sunday it

Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue WedThu Fri Sat Sun Mon Tue WedThu Fri Sat Days 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Provided to managers Provided to team leader Status

Data gathering

Week 1 Week 2

Processing

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contains 168 hours. The second week is needed to process the information whereby the information is presented on Monday in the third week towards the management and after that towards the operators.

What can be concluded from the figure and the quotes from the operators and team leaders is that currently the information is not provided within 24 hours and some operators do not understand or read the figures.

2. Managers usage of KPI’s , influences on results and commitment

Beside the fact that the information is provided by the management towards the team leaders and operators it is needed managers to use the figures to make decisions and convince the operators why it is necessary that the process is monitored.

From the previous section we can learn that the information is provided each week toward managers, team leaders and operators. The dashboard on which the figures are presented are given in table 6. The KPI are based on 168 hours of production and the efficiency losses are given in hours.

Table 6: Detail information Overall Equipment efficiencies (Dryer = Tower)

Table 6 provided detailed information of each tower to the OMT and team leaders, operators do not receive the detailed information only the figures. The process will be described globally in order to understand the table and the logic.

In total 168 hours can be used to produce (operating time). Product changes (short stops), the

OEE

Tower 1 Tower 2 Tower 3 Tower 4

T. Total time 168,0 168,0 168,0 168,0

Factory closed 0,0 0,0 0,0 0,0

A. Available time 168,0 168,0 168,0 168,0

Revision/planned stoppages 0,0 0,0 0,0 0,0

O. Operational Time 168,0 168,0 168,0 168,0

Miscellaneous (short stops) (8,2) (6,8) (5,3) (12,6)

Cleaning 0,0 (14,5) 0,0 0,0

Weekend finishing (10,9) (6,8) (14,9) (16,2)

Routine Stoppages (sum) (19,1) (28,1) (20,2) (28,8)

P. Production Time 148,9 139,9 147,8 139,2

Production losses (4,7) (0,8) 0,0 (3,3)

Miscellaneous 0,0 0,0 0,0 0,0

Maintenance 0,0 0,0 0,0 0,0

Technical Breakdowns (sum) (4,7) (0,8) 0,0 (3,3)

Supply Failures 0,0 0,0 0,0 0,0 R. Running time 144,2 139,1 147,8 136,0 Speed gain/(loss) (0,7) 4,9 7,7 8,2 S. Specified time 143,5 144,0 155,5 144,2 Off spec (FTR) (2,1) (0,0) (0,0) (2,2) E. Effective time 141,5 144,0 155,5 142,0

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cleaning of the tower and other stops are inefficient hours of production, this is subtracted and called production time. Failures in production and technical breakdowns and supply failures can cause other inefficiencies. Speed gain/loss depends on the weather, which can influence the capacity of the production towers. The last inefficiency has to do with the quality losses, of production. When all the inefficiencies are subtracted, the productivity figure will give the performance of the tower. Table 6 looks rather detailed but there is one problem with the provided information. The causes of the inefficiencies are not tracked which makes it hard for the operations manager and the team leaders to make appropriate actions only based on the losses in hours.

Team leader U ‘the information that is provided by the dashboard are only hours, it is hard to track what caused these inefficiencies over 168 hours and after two weeks.’

Team leader T ‘there is little done with the information, stupid or structural problems will be reported but cannot be drawn from the OEE or FTR results’

Operator C ‘OEE is too hard to understand, no proper explanation is given and miss details on errors, although it is useful to measure the performance’

Operator B ‘KPI information adds no value for the operators, you know on your intuition how your team has performed the last shift’

The operation manager (appendix D) remarks that ‘team leaders are responsible for the productivity results of their tower and my task is to support them in achieving this, but the team leaders must provide information on inefficiencies and have to solve them in order to improve the productivity results’

From Table 6 it can be concluded that there is detailed information on inefficiency of the production process per tower. Each core area (availability, performance, quality) is presented and non productive hours are given. From the interviews it can be learned that information sharing is not the only problem, also the causes of the inefficiencies are not tracked and it is hard to find the cause of the problem. Further it can be learned that the operators cannot learn from the figures due to poor explanation or missing details.

Organizations involvement in improving the accountability

In order to create commitment by the workforce it is necessary to understand the problems and errors that occur in production. In order to create commitment the operators and team leaders have been asked how the current measurement system adds value to their productivity and how it might be improved.

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operators to make them responsible for the results, also they have to discuss it and describe it in the shift reports’

Operator A ‘Up-to-date information and details about quality issues because operators feel responsible to that’

Operator K ‘ More focus and information provided to the operators’

From these interviews it can be drawn that the workforce and the team leaders desire more relevant information about the process which they can influence. Currently the support is low due to the tardiness of relevance information. Also the Team leaders claim that the information sharing between teams is not optimal during the shift handovers and that causes are not well described. sub conclusion accountability

Accountability deals with the responsibility that operators and team leaders have over the performance results that are generated. In the current situation the operators and team leaders feel less responsible for the figures due to the tardiness of information and due to the fact that causes of productivity losses are not properly tracked.

Management style

The way management deals with the performance management systems has considerable impact on the daily operational decisions that are made by the operators. It is important that the management clearly shows to their operators that they support the system. In order to show their support, management has to steer on the desired results while supporting their operators. According to de Waal (2009) management can show this support based on three dimensions: visible commitment, clear steering and a coaching support from the management. To detect how the supply unit Meppel act on those elements questions related these elements are discussed.

1. Visual commitment to results & intent to employees results

In the first place, management must commit themselves to honour the agreements that are made in the course of the daily activity of the plant. . This is important because this means that they commit themselves to understand what kind of problems the operators face in production and where the losses are made.

At the supply unit Meppel, the management commits itself to be present each morning at the production meeting. In this meeting, the last 24 hours of production are discussed, with the emphasis on how the production has performed, what kind of issues are related to operators problems, and what kind of inefficiencies have occurred.

This discussion of the production results is based on the shift reports and the production board is manually filled. This information is based on experiences of operators during their shift.

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Operator B ‘The operation manager and team leader and all the departments are present in the meeting each morning to retrieve information and show commitment’

Team leader V ‘Production round each morning is good, it provided commitment and operators can report their problems’

Team leader O ‘ Each morning each department is refreshed with information concerend the last 24 hours’

Maintenance engineer AB ‘ the responsible person from engineering must be available, problems are discussed and when possible solved by the persons’

From the interviews it can be learnt that each department, team leaders and operations manager are committed to retrieve useful information from the production each morning. Information is shared about problems and actions are reported. The drawback in this process is the manual reporting and problems are discussed based on experiences.

2. Targets, steering and type of management style

Secondly, management must clearly indicate which direction they want and what the desired results are. In addition, when the targets are clearly formulated management must visibly act on the desired results and should support their operators in making decisions in favour of the desired goals.

The managers of the supply unit Meppel have a clear goal for the next years. The goal for the coming years according to them is “to deliver excellent quality at the lowest possible cost”. Here the focus is on efficiency improvement and the development of organizational members.

The team leaders stated that they are aware of the goal that has been formulated, their role in obtaining this goal is to manage and improve the efficiency of their production tower. From the interview with the operators can be concluded that they are also aware on the formulated goals, they stated that producing good quality is the most important factor when producing product. They have also stated that besides producing good quality the efficiency usage of the production tower is also important.

In order to steer on the formulated goals, the supply unit Meppel has installed two systems: the first system, a dashboard which provides them with the information on the performance of the plant. The dashboard provides the plant performance and gives the productivity figures for each production tower. At each tower the responsible team leader must explain which losses have occurred during the measured period.

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The managers of the supply unit Meppel state that the dashboard information that is provided (table 6) is good enough for them to measure the performance over the supply unit. For them it gives insight where the problems are and which actions must be taken. The operation manager states that the information is available but you can only look afterwards when the problems have already occurred.

The results on the second system are positively rated because the information they receive from this process they can be used to make decisions on the current process and to take actions.

The team leaders stated that the first system, the dashboard, does not provide them useful information on the performance of their tower. Firstly because the information is provided too late. Secondly, the indicator is hard to translate into useful information on the process. Finally, because no actions are taken based on these results. With the second system, the production meeting, they are satisfied. In the first place because operators can explain what happened, and secondly because actions are being taken from this meeting. But the second system is not perfect due to the fact that it creates an overload of information towards team leaders and managers which makes it harder for them to take proper decisions. Besides the overload of information, the provision of information based on taken actions towards the operators is missing.

The operators state that the first system do not provide them with useful information, because they do not know how they can influence the performance and the facts are two weeks old. The second system is being judged as moderately useful. The advantage of the system is that the management listens to the operators. The negative experience with the system is that the operators miss feedback on the taken actions. In addition, most of the daily decisions are made on a higher level than by the operator.

Based on interviews with all layers in the organization we can learn from it that on top-level of the organization the objectives are clearly described but that on operator level no clear goals are provided. In addition, the team leaders cannot make proper decisions based on the dashboard and based on the second system only reactive actions can be taken. The actions based on the second system will be discussed on higher level.

From the actions taken by the management it can be judged that the management style is traditional. This is based on three points:

1. Due to the fact that the results are measured and not the process causing the performance, team leaders have to explain the losses but no actions are taken.

2. Because the information is late, it takes two weeks to present the performance, then it is too late to use the performance figures to learn from it.

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3. Coaching by management

The third part of management style where I will focus on is the coaching style. Coaching style of management is referred to as letting organizational members think about their own opportunities for influencing the results favourably. At the supply unit Meppel this kind of support has been granted towards the organizational members in two different work groups. The first work group is called SMED, which is referred to the method Single Minute Exchange of Dies. This group is formed to reduce the cleaning times of the towers, which will result in a higher productivity performance. The second work group is called Kievit Works, in this group the focus is on continuous improvements for the supply unit Meppel. Each tower has its own Works group and each organizational member can drop their initiatives at this group. Those groups will look into the initiatives and can implement them on approval of the management.

To detect whether the systems are in place and work properly the number of Kievit Works and SMED meetings are examined. Figure 10 presents the amount of meetings held of Kievit Works per tower.

Figure 10: Amount of Kievit works meetings

From figure 10 it can be learnt that in the period of 7 months in the most preferable case only five Works meetings per tower are held. This means that the throughput time of an initiative is longer than one month, which makes this structure a slow structure to make improvements. In the seven months that Kievit Works is operating 71 initiatives are gathered by the four Works groups. Figure 11 presents the status of the initiatives.

Figure 11: Kievit Work initiatives over a period of 7 months

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Also the team leaders and operators are being questioned about SMED meetings, which concern the cleaning process of the towers. After each time a tower is cleaned a meeting should be held which evaluated the cleaning process. During the 6 months, 20 times the towers were cleaned, and only one SMED meeting was held to evaluate it. During informal meetings with the team leaders and operators I learned that the meeting doesn’t exist anymore.

Based on the two project groups that are in place at the supply unit Meppel it can be learnt, that there are improvement initiatives ongoing but that the information is slow and also the decision making based on this information. Another point can be drawn is the SMED meeting that doesn’t exist anymore, the belief in the group is gone and no meetings are held anymore. The management of the supply unit Meppel tries to support its team leaders and operators but due to the inertia of the organization it fails to make real progress in improving the performance

Sub Conclusion management style

Based on the three questions related to management style it can be concluded that the style is rather traditional. The organizational goals are formulated and aligned by the managers of the supply unit Meppel for each level on the organization, without influence of team leaders or operators. Secondly, steering based on results lacks due to the delays of information provision. Finally, the commitment of the management to coach the organization is in progress but due to the inertia of the organization it fails to implement good initiatives by the operators.

Action oriented

The degree of action orientation represents how the organizational members use performance information to stimulate them to improve the efficiency. De Waal (2009) states that the degree which this factor has can also be directed towards the effectiveness of the performance management. He argues that if information on performance does not lead to actions than the organization fails, and also the system. The three elements that together form the degree of action orientation are: Integration, corrective management and preventive management.

1. Integration of performance information on daily decisions

At the previous section, management style question two, is stated that the supply unit Meppel has two systems installed to understand the performance of the supply unit Meppel. The first system does not provide the organization with actual information, thus is not used in the integration of the performance information on daily decisions.

The second system that is in place, production meeting, can be concluded that the performance is measured based on feelings and manual reports. Actions that are discussed in these meetings are observed during a period of two weeks.