TRANSPORTATION TRAYS

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TRANSPORTATION TRAYS

WITHIN PHILIPS DRACHTEN

“Improvement of the logistic process for the transportation trays”

Master Thesis to obtain the degree of

Master of Science in Technology Management

at the university of Groningen

Author: ing. Martijn W. Bosman De Dam 48 9351 AN Leek Student number: s1579398 E-mail: mwbosman@home.nl Mobile: 06-11006669 Date: 2009 November 12

Supervisor RUG: prof. dr. ir. J. Slomp

Co-assessor: dr. L. Zhang

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TRANSPORTATION TRAYS

WITHIN PHILIPS DRACHTEN

“Improvement of the logistic process for the transportation trays”

Master Thesis to obtain the degree of

Master of Science in Technology Management

at the university of Groningen

Written by

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Preface

This Master Thesis is the result of the research done at Philips Consumer Lifestyle B.V. in Drachten. It is the final piece of work to obtain my degree Master of Science in Technology Management at the University of Groningen.

After I obtained my MAVO certificate in July 1998, I started the MTS at the Alfa College in Groningen. When I obtained the certificate in June 2002 I realized I wanted more. Therefore, I started the HTS at the Hanzehogeschool in Groningen. In July 2005 I obtained my Bachelor electrical engineering. I decided to broaden my scope with the study Technology Management at the University of Groningen. I obtained my degree Bachelor of Science in Technology Management in September 2008. After six months of research within Philips Consumer Lifestyle B.V. in Drachten and another four months for finalizing my Master Thesis while I was already working, this chapter finally can be closed. When I look back, I’m very proud of myself in what I achieved.

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Management summary

The department Logistics management of Philips Consumer Lifestyle B.V. in Drachten has problems with the transportation trays. The absence of a well defined logistics process for the transportation trays result in several problems. Philips uses the lean philosophy, which aims at eliminate or minimize waste. These problems are examples of waste which, therefore, need to be eliminated or minimized. The goal of this research is: “Give advice to the department Logistics

Management of Philips Consumer Lifestyle B.V. in Drachten in how to improve the logistic process for the transportation trays.” The transition from SAP to Kanban for the planning and

control of production should be incorporated in the research. The research’s scope will be the order driven factory (ODF) part of the factory.

In the diagnosis phase the logistic process for the transportation trays was analyzed. The logistic process for the transportation trays exist of the physical flow, the information flow and the planning and control of this process. The influence of the primary process and its planning and control also were analyzed. The first step during the diagnosis phase was to analyse the production process to see where the trays are used. An important tool used in the lean philosophy is value stream mapping. Dependent on the type of shaver produced the transportation trays move along a particular routing through the factory. The value stream map gives a good insight in where the different trays are used in the production process, but does not give a good insight in how they travel through the factory and how they are handled. The next step was, therefore, to use process mapping to analyze the physical flow of the trays through the factory.

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Two different options for tray handling, that fit the future state of the factory, were analyzed during the design phase, these were: (1) the short circle option and (2) the long circle option. The short circle option was chosen as the best option. In the short circle option the transportation trays return to the supermarket where the WIP was withdrawn. The different trays travel many short circles through the factory. The results of the implementation of the short circle option are:

• The short circle option makes it financially possible to clean the trays with which quality issues exist. This results in higher product quality. The difference between the costs of cleaning the transportation trays and the eliminated costs of repairing quality issues should be seen as a decrease in costs.

• With the short circle option, trolleys with the right transportation trays and in the right quantities are standby in lanes of the supermarket. Because the supermarkets are relatively close, the delivery time is reduced to 5 to 10 minutes. This is respectively 5% - 17% of the current delivery time.

• Intermediate storage of sub-assemblies results in a lot of handling and movement of materials. All this handling and material movement are non-value added activities, and results in extra costs. Because the WIP and empty transportation trays are stored on the production floor, this intermediated storage is eliminated. This results in a decrease in meters travelled and a decrease in handling for the LOCE employees.

• A very important aspect of a kanban system is the fixed amount of WIP. Because of this, there is also a fixed and lower amount of transportation trays needed. The costs for stocking the surplus of transportation trays in the DDC for the year 2008 were approximately X euros. The costs for repacking and the transport costs are not included. These costs are expected to be eliminated.

• Employees from the VEGT need to check how many trays are present at the moulding department to determine the real demand for trays. These checks are done by physical rounds through the factory, which are very time-consuming. The short circle option for tray handling is self-regulating. The employees from the VEGT do not play a role in the short circle option for tray handling.

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anymore. The employees from the downstream processes should themselves place back the trays in the right manner when the sub-assemblies are used.

It seems to lay within the culture of Philips (at least at this moment) too quickly implement changes without thinking of the two most important stages of change: the unfreeze -and refreeze stage. It is recommended to devote more time to the first and last step of the change process. Not only for the implementation of the short circle option for trays handling, but also for the other kaizen evens.

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1 Introduction

This first section is the introduction into the project done at Philips Drachten. In the first paragraph, background information about Philips will be given. With this information it is possible to place the project within Royal Philips Electronics. The next paragraph will discuss the motivation for the project: the reason why the project is needed. Paragraph three discusses the problem definition with its objective, research question and boundary conditions. The next paragraph discusses the chosen methodology for the thesis. A conceptual model and sub-questions are discussed in the next paragraph. The last paragraph will give an overview of the thesis.

1.1 Background information

Royal Philips Electronics is the Netherlands-based parent company of the Philips Group, listed on the Euronext Stock Exchange in Amsterdam and the New York Stock Exchange (Philips, 2009). Philips was founded in 1891 and has its headquarters in Amsterdam, The Netherlands. Philips is one of the largest global diversified industrial companies with sales in 2007 of EUR 26,793 million (Philips, 2008). Philips has a multinational workforce of 13.200 employees (April 2008) and has manufacturing sites 28 countries and sales outlets in 150 countries.

Philips organized its business activities through Sectors, businesses, regional organizations and country organizations. Philips consists of a number of businesses, clustered into the following core sectors: (1) Healthcare, (2) Lighting, and (3) Consumer Lifestyle (Philips, 2009). The sector Healthcare develops and produces medical equipment. Philips Healthcare has activities in areas as remote healthcare, safe drink water, rural healthcare programs, home monitoring, etcetera. For example 70% of the top-50 US hospitals have chosen Philips cardiology (Philips, 2008). The sector Lighting develops and produces lighting for different applications, for example at home, outdoor, buildings, shops and automotive. Philips light 65% of world’s top airports and 30% of offices. One of three cars worldwide uses Philips automotive lighting (Philips, 2008). Finally, the sector Consumer Lifestyle develops and produces products for consumers. Examples are televisions, coffee machines, vacuum cleaners and shavers. Each day, more than a million of Philips’s consumer lifestyle products are purchased (Philips, 2008).

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Peripherals & Accessories, and (7) Professional and Business Solutions. Philips Drachten is involved in the business units Shaving & Beauty, Domestic appliances and Health & Wellness. The production of the shavers, where this project is about, is part of the business unit Shaving & Beauty. The business unit shaving & Beauty develops and produces electric shavers for males and devices for female depilation. Philips is number one globally in male electric shaving and a global leader in female depilation (Philips 2009). On May 9, 2009 Philips produced its 500 millionth electric shaver (Philips 2009).

1.2 Motivation

The department Logistics management of Philips Consumer Lifestyle B.V. in Drachten has problems with the transportation trays. Transportation trays are made of synthetic material and are used for the transportation and storage of sub-assemblies during the production process. For different sub-assemblies there are trays with different form and material. The absence of a well defined logistics process for the transportation trays, results in low traceability of the transportation trays during the production process. In addition, and as a result of the low traceability, logistics has a low insight in the demand (sort and quantity) from production for the transportation trays. Other problems arise with the lack of standards and standard work in the logistic process. Several problems are discussed below:

1. The low traceability of the transportation trays in combination with the low insight in demand result in high inventory levels. With these high inventory levels, Philips tries to buffer the variability in the production process. This high inventory level result in high costs (transportation-, handling- and stocking costs).

2. Formally, there are standards for the amount of transportation trays stored in roll-containers. These standards are not maintained by both production and logistics. This absence of maintaining standards results in a lot of extra workload.

3. There is no procedure what to do with damaged transportation trays. This results in inventory differences. Nothing is done to solve these differences because counting the trays is too much work.

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of the right sort and quantity of transportation trays also causes much stress for the manufacturing employees.

5. There are just a few people responsible for the demand for transportation trays from production, and the planning and control to fulfill this demand. The knowledge is insight the heads of the logistic employees. Because of this, Philips risk losing important knowledge of the logistic process for the transportation trays.

Philips uses the lean philosophy, which aims at eliminate or minimize waste. These problems are examples of waste which, therefore, need to be eliminated or minimized. The department Logistics Management already tried to solve several sub-problems, and made some adjustments. However, the problems still exist.

1.3 Problem definition

A problem definition has, according to de Leeuw (2003), three components: (1) objective, (2) research question, and (3) boundary conditions. The three components of the problem definition will be discussed in the next three paragraphs. In addition, a good problem definition must satisfy three requirements (de Leeuw, 2003). It must be (1) relevant, (2) researchable, and (3) efficient. The relevance of the problem definition is discussed in paragraph 1.2, where the motivation for the research was given. If the problem definition is not researchable, the research can never result in a good product (advice about what and how to improve). If the problem definition is not efficient, too much time is spend on gathering irrelevant information.

1.3.1 Objective

The project consists of executing a thorough research to get a clear insight into the problems with the logistic process for the transportation trays, and to find a suitable solution. The goal of this project is:

“Give advice to the department Logistics Management of Philips Consumer Lifestyle B.V. in Drachten in how to improve the logistic process for the transportation trays.”

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The main research question that needs to be answered in order to obtain the objective of the research is:

How should the logistic process for the transportation trays be structured, in order to improve the performance of this process?

1.3.3 Boundary Conditions

The research should be finished within a period of 6 months. The transition from SAP to Kanban for the planning and control of production should be incorporated in the research. The research’s scope will be the order driven factory (ODF) part of the factory.

1.4 Methodology

The methodology used for this research is based on the DOV-model of de Leeuw (2002) and exists of the following phases: (1) diagnosis, (2) design and (3) implementation. However, the implementation is not within the scope of the research. The DOV-model is a functional methodology which aim is analyzing the status quo, and improving this. It is assumed that the researcher can do this in an objective manner by using theory as a framework. The researcher assesses the problem situation during the diagnosis. In the design phase, possible alternatives are discussed and analyzed and a decision is made.

Although the implementation is not within the scope of this research, several aspects of the implementation are mentioned. This can be done because the system was implemented in a part of the factory during the research. During this implementation several aspects came forth that will need extra attention for future implementations. Bear in mind that a redesign only can be a success when it is implemented.

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1.5 Conceptualization and sub-questions

The main research question, defined in the previous paragraph, cannot be answered directly. A conceptual model is used to guide the research and define several sub-questions. In figure 1.1 the conceptual model for this research is given. The model consists of the scope of the project, which includes the logistic process and performance, and a context, which includes the primary process. Each of these concepts, and their relations, will be discussed below.

Figure 1.1, Conceptual model.

1.5.1 Logistic Process

The logistic process for the transportation trays can be defined as: the physical flow of transportation trays, the needed information flow and the planning and control of the logistic process. Each of these parts needs to be analyzed. This results in sub-question one, two and three:

Sub-question 1: How is the current physical flow of transportation trays?

Sub-question 2: How is the current information flow for the transportation trays?

Sub-question 3: How is the current planning and control of the logistic process?

1.5.2 Performance

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“… the five generic performance objectives have meaning for all types of operation and relate specifically to operations’ basic task of satisfying customer

requirements (Slack & Lewis, 2008, p. 37”

According to Slack & Lewis (2008) the five generic performance objectives are: (1) quality, (2) speed, (3) dependability, (4) flexibility and (5) costs. Philips places great emphasis on quality and dependability. Just as every company and especially high volume producers, Philips is also interested in lowering the costs of operations. These five performance objectives are used to assess the performance of the logistic process. This result in sub-question four:

Sub-question 4: What is the current performance of the logistic process?

1.5.3 Primary process

The logistic process and its performance cannot be analyzed in isolation. The logistic process has relations with its context. The primary process is expected to influence the logistic process for the transportation trays. The primary process exists of two parts: (1) the production process and (2) the planning and control of this process.

Production processes have several properties that directly or indirectly influence the performance of the logistic process. For some processes there are long setup times. These long setup times are the reason for production planning and control to plan long production runs for production. This results in high WIP levels. Thus, these long setup times indirectly influence the logistic process. This results in sub-question five:

Sub-question5: What is the influence of production on the logistic process?

Since production planning and control influence the logistic process this need to be analyzed as well. For example, the amount of inventory, which includes raw materials, WIP and finished goods, is determined by production planning and control. This result in sub-question six:

Sub-question 6: What is the influence of production planning and control on the logistic

process?

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sub-questions. Since these questions depend on the current situation of the logistic process for the transportation trays and the primary process, these design sub-questions will be given after the diagnosis.

1.6 Overview of the thesis

The next section after the introduction is the diagnosis. The diagnosis discusses the current situation of the logistic process for the transportation trays including the influence of the primary process. First the physical flow is analyzed. Because the factory is too big to analyze as a whole, the Merlin product family is chosen as the scope for the analysis. After the analysis, an attempt is done to generalize the results. The next two paragraphs discuss the information flow and the planning and control of the logistic process for the transportation trays. The performance of the current logistic process follows in the next paragraph. After this, a conclusion is given and the sub-questions for the design phase are formulated.

The design phase is the next section of this thesis. It discusses two alternatives for redesigning the logistic process for the transportation trays. After the choice is made, the planning and control of the logistic process for the transportation trays and needed information flow is discussed. This section ends with a discussion of the expected performance of the new logistic process.

As mentioned before, the implementation is not within the scope of this research. However, several aspects of the implementation are mentioned because these are important aspect Philips has to bear in mind. It includes a discussion of the theory of change management, and what Philips can do to improve the implementation of proposed changes. And it gives recommendations to Philips how to introduce the short circle option, because the system cannot be implemented in one time as a whole.

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2 Diagnose

In this section the diagnosis of the current situation will be discussed. The first three paragraphs that will be discussed are the three parts of the logistic process: (1) physical flow of the transportation trays, (2) information flow for the transportation trays, and (3) planning and control of the logistic process. After this discussion the performance of the logistic process for the transportation trays will be discussed. In the fifth paragraph, the influence of the primary process on the logistic process will be discussed. This section ends with a conclusion.

2.1 Physical flow of the transportation trays

This paragraph gives an answer to sub-question one: “How is the current physical flow of

transportation trays?” In other words: the way in which the transportation trays travel through the

factory. Because there is limited time for this research, and there are so many different transportation trays used within production, it is impossible to map all the different physical flows of all the different transportation trays used. Therefore, the choice is made to choose one product family for which the physical flow of the transportation trays will be mapped. Within Philips, there are four different product families: (1) peregrine, (2) cheetah, (3) SR1, and (4) Merlin. Because the last two product families are the newest, and their processes are the most advanced, the choice is between these two product families. Because at the moment of choice the SR1 line was out of production, the choice was made to follow the Merlin family, although this choice is made arbitrary.

To get a good insight in the physical flow of the transportation trays, the production process of the Merlin shaver is mapped first. This gives a good insight in which transportation trays are used for which sub-assemblies and where they are used. Second, the physical flow of the transportation trays, used in the production process of the Merlin shaver, where mapped. This gives a good insight in how the transportation trays move through the factory and how they are handled. In the third sub-paragraph, an attempt is done to generalize the results.

2.1.1 Production process of the Merlin shaver

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against waste. A value stream map consists of all the activities (value- and non-value adding) necessary to produce a product. It maps both the material- and information flow.

Normally, a value stream map begins with the customer and ends with the supplier (Rother & Shook, 2003). It is important to keep in mind that the objective of this mapping is to get insight in which transportation trays are used and where they are used in production. Therefore the value stream map begins when the first transportation strays comes into production and stops when the last transportation trays leaves production. The different types of Merlin shavers can be classified into four product types: the (1) High-end, (2) Mid-end, (3) Low-end, and (4) White-end. Since this difference has consequences for the flow of transportation trays, this difference should be considered in the value stream map. These four product types, on their turn, can be made specific for different counties. Although this results in several different products, it has no consequences for the flow of transportation trays, and therefore, will not be considered. These boundaries are summarized in figure 2.1.

Figure 2.1, the boundaries for value stream mapping.

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Dependent on the type of Merlin shaver produced, the transportation trays move along a particular routing through the factory. For the production of the Merlin shaver, 10 different transportation trays are used. These are summarized in table 2.1.

Tray number Used for Tray number Used for

7822 000 14331 Housing Merlin 7822 000 45143 Front panel Merlin

7822 000 45061 Housing Merlin 7822 000 45055 Shaving unit Merlin

7822 000 45011 Cover Merlin 7822 000 44998 Top cap Merlin

7822 000 45021 Additive tube Merlin 7822 000 15991 Protection cap Merlin

7822 000 45041 IM cap Merlin 7822 000 16611 Key module Merlin

Table 2.1, transportation trays used for the Merlin product family.

The value stream map gives a good insight in where the different trays are used in the production process, but does not give a good insight in how they travel through the factory and how they are handled. Therefore process mapping is used, and will be discussed in the next sub-paragraph.

2.1.2 Physical flow of the transportation trays

In the previous sub-paragraph the production process for the Merlin product family was discussed. One outcome was that there are 10 different transportation trays used in the production process. To see how these different transportation trays travel through the factory and how they are handled, these 10 different trays are mapped using process mapping.

According to Pojasek (2005) processes often contain duplication, inefficiencies, and wasted effort that can be easily corrected once the process is clearly documented and understood. He argues that all management initiatives for process improvement must be built on a solid foundation, which is an understanding of the process. The mapping tool also keeps the emphasis on the process itself. It takes what is called a “process focus”.

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When the quantity of trays in the roll-container is according to the standard it goes to storage M007 where it is stored. In addition to this process, there are two other processes: one to handle the surplus and one to handle the shortage of transportation trays.

An interview with an employee of the LOCE shows, that when there is a surplus of roll-containers containing empty transportation trays, they are brought to the Drachten Distribution Centre (DDC). The decision which transportation trays need to be moved is made based on the amount of time (measured in days) roll-containers with empty transportation trays are not moved. The trigger time is depended on the amount of space needed at the LOCE. The more space required the shorter the trigger time. The transportation trays are stored in the DDC on box pallets and in M007 in roll-containers. They first need to be repacked from roll-containers to box pallets and visa versa. This box pallet is transported to the DDC where it is stored. When there is a shortage of transportation trays, and they are available in the DDC, the transportation trays are moved from the DDC to the storage M007.

Since the different transportation trays of the Merlin shaver move along a particular routing through the factory, a process map is made for every transportation tray used in the production process of the Merlin shaver. These 10 different maps are given in appendix 1b – 1j. These different process maps will not be discussed because they speak for themselves. Only some general conclusion will be given in the next sub-paragraph.

2.1.3 Discussion and generalization of results

The analysis of the physical flow of the transportation trays used in the production process of the Merlin shaver delivered some useful insights of the current situation. In this paragraph, these results will be discussed. This discussion will give the answer to the first sub-question: How is the

current physical flow of transportation trays? An attempt is done to generalize the results to all

the transportation trays.

1. Empty transportation trays are stored in M007 if they are not used in production.

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For all the transportation trays used for the production of the Merlin shaver, the average number of days a roll-container with empty transportation trays is stored in M007 is 20 days, with a minimum of 7 days and a maximum of 125 days. The total number of roll-containers stored is 184, and the total number of transportation trays is 40.860. Even for transportation trays that normally travel between processes (for example the tray 7822-000-16611), there are transportation trays stored in M007.

Tray number Average days in M007 Number of containers Number of trays

7822 000 44998 27 4 1.728 7822 000 45041 16 13 2.496 7822 000 45021 28 4 1.008 7822 000 45011 26 14 5.208 7822 000 45061 10 3 360 7822 000 45055 39 10 4.320 7822 000 45143 7 5 1.740 7822 000 15991 22 55 14.960 7822 000 16611 125 4 160 7822 000 14331 12 74 8.880

Table 2.2, overview of transportation trays for the Merlin shaver in M007.

Tray 12 NC # trays in pallet # of pallets Total # of trays

7822-000-44997 420 8 3.360 7822-000-44998 432 3 1.296 7822-000-45021 1 300 300 7822-000-45041 228 3 684 7822-000-45011 396 1 396 7822-000-45061 120 1 120 7822-000-45055 0 0 0 7822-000-45142 420 12 5.040 7822-000-15991 280 111 31.080 7822-000-16611 40 2 80 7822-000-14331 120 483 57.960

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2. When more space is required in M007, transportation trays not used during a certain period are moved from M007 to the DDC.

Table 2.3 gives an overview of the number of box-pallets and transportation trays stored in the DDC for specific transportation trays used for the Merlin Shaver. There are 924 box-pallets with transportation trays used for the Merlin shaver stored in the DDC. In total these are about 100 thousand transportation trays. Some of these trays are also used for other product families. As can be seen, there are two other tray numbers (7822-000-45142 and 7822-000-44997). These are trays that already have a newer version and are not used anymore. However, Philips still stores the old trays. For the Merlin shaver this is about 20 box pallets.

Movement of empty transportation trays results in extra transportation- and handling costs. As mentioned before, the transportation trays are stored in the DDC on box pallets and in M007 in roll-containers. They first need to be repacked from roll-containers to box pallets and visa versa. This results in extra handling costs. To stock pallets in the DDC, the DDC charge a price to handle and stock each pallet. For every inbound- and outbound movement, the DDC charges the LOCE a price of X euros per pallet. To stock a pallet for a period the DDC charges a price of X euros per pallet per month. For the analysis data from July 2008 to December 2008 was used. During this period the costs were X Euros. Additionally to the costs to stock a pallet in the DDC, Philips rents its pallets from International Pallet Pool (IPP). These costs are X euros per pallet per month. See appendix 2A for an invoice from IPP. The cost for renting the pallets during this period was X euros. To obtain the cost for the whole year, the costs were multiplied by two. This is reliable because the costs for the last 6 months of 2008 were relatively stable. The costs for stocking the transportation trays in the DDC for the year 2008 were approximately X euros (see appendix 2B for an overview). Costs of transportation are not included in this calculation because there is no data available.

3. When the quantity of trays in the roll-container is not according to the standard it goes first goes to hall 1. Here the roll-container is completed according to the standard number.

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with a standard number of trays in a roll-container, but both manufacturing and logistics does not maintain this. The cost of this extra handling is the wage paid to the employee.

4. 70 percent of the sub-assemblies, and therefore the need for transportation trays, originate at the moulding department.

For the Merlin shaver these are the housing, the cover, IM cap, the additive tube, the front panel, the top cap and the protection cap. Thus, this is true for 7 out of the 10 transportation trays. The empty transportation trays that are needed by the moulding department are picked in M007 and stored in the VEGT storage. Here the moulding employees can get the empty transportation trays they need. After production, the transportation trays with the moulded sub-assemblies are brought back to the VEGT storage, from where they are transported to and stored in M007 by employees of the LOCE.

5. Almost all (+/- 90%) the transportation trays with sub-assemblies, produced in one production process and which is necessary later in another production process, are stored in M007.

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This intermediate storage results in a lot of handling and movement of materials. Take for example the IM-cap for the Merlin shaver, a tray starts in M007 from where it is transported to the VEGT storage. From here it is picked up by an employee of the moulding department. The IM-cap is moulded and it goes into the tray. The tray is brought back to the VEGT storage from where it is brought to M007 for storage. When lacquering needs the moulded product it is transported to the lacquering department where it gets its colour. After the process the lacquered IM-cap goes back into the tray and is again stored in M007. When the CUSTO line needs the lacquered IM cap for final assembly the tray with the IM-cap goes to the CUSTO line. The empty transportation tray returns to M007 for storage. See figure 2.3 for an overview.

6. The employees of the LOCE have an enormous task handling all the empty transportation trays and transportation trays with sub-assemblies. If we look again at the IM-cap example in figure 2.3, it can be seen that the LOCE (storage M007) has six times handling for just one trolley with (empty or full) transportation trays.

7. Transportation trays travel many meters through the factory which are not all necessary. Again the example in figure 2.3 of the IM-cap can be used to illustrate this. The transportation trays used for the production of the IM-cap travels 628 meters through the factory.

The above conclusions are not only true for the transportation trays used for Merlin shavers, but also for transportation trays used for other product families.

2.2 Information flow for the transportation trays

This paragraph gives answer to sub-question two: “How is the current information flow for the

transportation trays?” There are actually two different information processes: one for empty

transportation trays needed at the moulding department and one for empty transportation trays and transportation trays with sub-assemblies for other departments. These are discussed in the next two sub-paragraphs. In the third paragraph the way transportation trays are handled in SAP will be discussed.

2.2.1 Transportation trays for the moulding department

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materials that are needed at the moulding department, including transportation trays, are supplied by the VEGT group. In an interview with an employee of the VEGT group the following way of working came forth (see figure 2.4).

Amphora

24h / 48h

Physical round

Check the demand for trays every 24h / 48h

Check the physical presence of trays

SAP

Inventory M007

Check if the trays are on stock in M007. Based on real demand.

Real demand = demand amphora – physical presence

SAP Inventory DDC Not on stock in M007 Order Trays from M007 On stock in M007 Not on stock in DDC Order Trays from DDC On stock in DDC

Physical round Check the physical

presence of trays Check if the trays are on stock in DDC

Order trays from M007.

Order trays from DDC.

Figure 2.4., the information flow for trays needed at the moulding department.

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they are not present in the DDC the employee starts a physical round again to find the missing trays. Often, when there are not trays available in M007 and in the DDC the trays are already present somewhere in the factory.

2.2.2 Transportation trays and sub-assemblies for other departments

For the departments other than moulding, the empty transportation trays and transportation trays with sub-assemblies are ordered by the production employees themselves. They just enter their order in SAP and the employees from the LOCE deliver the order within an hour. How the trays are booked can be seen in the next paragraph about the information flow in SAP.

2.2.3 Information flow in SAP

When trays physically enter manufacturing and leave from M007 they are booked from SAP location “M007” to SAP location “BRET”. When, for example, moulding is finished working on the batch, they book the products to SAP location “M007”. An employee of the LOCE transfers the batch to M007. The products are in SAP at location “M007” and are also physically present in M007. The trays, on the other hand, remain in the SAP location “BRET” while they are physically in M007 (see figure 2.5).

Figure 2.5., the information flow a specific sub-assembly and transportation tray.

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In the analysis of the information flow two different processes became clear: one for the empty transportation trays at the moulding department and one for empty transportation trays and transportation trays with WIP for other departments.

1. The information flow for the transportation trays at the moulding department is at hoc organized. There is also no general way of working for al the departments.

The ordering of transportation trays (and also sub-assemblies) is standardized. Everybody knows how to do it. However, who is responsible for the ordering of the trays is not clear. For the moulding department the VEGT group does this. But they are not always available. For example, the VEGT group only works in two shifts, while other departments may work in three, four or five shifts.

2. The process of gathering information for the transportation trays at the moulding department is very time consuming.

Employees from the VEGT need to check how many trays are present at the moulding department to determine the real demand for trays. These checks are done by physical rounds through the factory. These physical rounds are very time consuming.

3. The information flow in SAP is not synchronous with the physical flow of the transportation trays.

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2.3 Planning and control of the logistic process

This paragraph discuss the third sub-question: “How is the current planning and control of the

logistic process organized?” In the first sub-paragraph the tray calculation used within Philips

will be discussed. The last sub-paragraph discusses the cleaning of transportation trays.

2.3.1 Calculation for the number of trays needed

It is important to know how much of a particular transportation tray is needed for production. To calculate the number of trays needed in the current situation, Philips uses a Microsoft Excel template (Behoefte Berekening Bretten). Appendix 3 gives an overview of the Excel template with typical data (for tray 7822-000-45031).

voudigheid jd doorloopti e dagbehoeft voudigheid flex svoorraad veiligheid runserie behoefte= + + + *

behoefte = the number of transportation trays needed per sub-assembly

runserie = the standard production run size

svoorraad

veiligheid = the size of the safety stock

ad

flexvoorra = this is not known (always set to zero)

voudigheid = the number of products in a tray

e

dagbehoeft = the daily demand

jd

doorloopti = the lead-time

For every transportation tray, the products that use it are determined. For each product that uses the tray the standard production run size, the size of the safety stock, the number of products in a tray (a fixed number for a tray), the daily demand and the lead time is determined. For every product, the demand for trays is calculated based on these variables. The above calculation is not reliable because the variables, where the calculation is based on, are arbitrary determined.

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In a conversation with an employee of logistic management, it became clear that “games” are played with ordering the transportation trays. When a new product is introduced, there is budged for the initial amount of trays needed. When in a later stadium strays are ordered, the production budget is used. Logistic management bases the initial amount of trays on the highest possible peak use of trays, because then the trays are accounted for the new product budget.

Also when stock has to be build up to buffer for a long lasting line changeover, it is not clear on which budget the costs of extra trays need to be booked. Some people argue that is a production matter while others argue that it is a consequence of the line changeover and a responsibility for that particular project.

2.3.2 Cleaning of the transportation trays

During the lifetime of the transportation trays, the trays become dirty. Once in a while, when transportation trays become too dirty they need to be cleaned or replaced. When the trays are not cleaned or replaced, quality problems occur. These quality problems occur mainly between the moulding and the lacquering department, the moulding and the printing department and between the lacquering and the printing department. The other departments do not have many problems with this.

Before this research started a machine was used to clean the trays once in a while. The machine broke down and is not used anymore. An employee from the Technical Support Group (TSG) made a business case together with an employee from the financial department to determine what to do. There are the three options to choose from: (1) leave the current situation, in other words do nothing, (2) tray washing by an external company, and (3) internal tray washing, here an investment is needed.

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Also the third option, internal trays washing, is not financially suitable. The alternatives two and three fit the lean philosophy because the trays are cleaned to prevent quality issues with the products. These alternatives also contribute to high product quality, which is seen by Philips as very important. However, because the financial result is not positive, alternative one is chosen.

2.4 Performance of the logistic process

In this section the performance of the logistic process will be discussed, it will give answer to sub-question 4: “What is the current performance of the logistic process?” As mentioned before the performance objectives of Slack & Lewis (2008) are used as a basis to assess the performance of the logistic process. Not only will the logistic performance be discussed in this section, but attention is also paid to the influence the logistic process has on the performance of the primary process.

Quality

Slack & Lewis describe two kinds of quality: (1) specification quality and (2) conformance quality. Specification quality means that a product is at the quality end of the market. Conformance quality is the ability of the internal processes to produce product according to the quality specifications. As Slack & Lewis (2008) argue:

“It [conformance quality] refers to the operation’s ability to produce goods and services to their defined specification reliably and consistently (Slack & Lewis, 2008, p.38).”

As mentioned before, dirty trays causes quality issues with sub-assemblies between some processes. Trays can be cleaned in order to prevent this from happening; however, in the current situation this is more expensive than accepting the quality issues. Recall the business case discussed earlier (appendix 4a). Thus, the way the current logistic process is organized has influence on the conformance quality of the primary process.

Speed and Dependability

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The figure tells us that the most of the orders for trays are fullfiled within an hour, see the bell shape at the left hand side of the figure. One hour is the delivery time that the LOCE quoted to the internal customers. In fact 71% of the orders for trays are fullfiled within 30 minutes, 85% within 45 minutes and 93% of the orders are fullfiled within 60 minutes, the time quoted to the internal customer. This is a good example of quoting long delivery times because of a lack of dependability of the process. As Slack & Lewis argue:

“One could achieve high dependability merely by quoting long delivery times. In which case the difference between the expected delivery time and the time quoted to the customer is being used as an insurance against lack of dependability within the operation (Slack & Lewis, 2008, p.39).”

Figure 2.6, the delivery of transportation trays.

Flexibility

Flexibility can mean two different things. At the one hand it can mean how much the operation can be changed, this is called range flexibility. On the other hand, it means how fast the operation can be changed. This is called response flexibility. Another distinction is the distinction in the form of flexibility. Slack identifies four examples of forms of flexibility:

• Product / service flexibility, the ability to cope with new product introductions. • Mix flexibility, the ability to cope with different production mixes.

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• Delivery flexibility, the ability to cope with changing delivery due dates.

The first three are discussed in table 2.4. The fourth is not relevant for assessing the performance of the logistic process for the transportation trays.

Type of flexibility Range flexibility Response flexibility

Product / service flexibility

When new products are introduced and new trays are needed, trays are relatively easy designed.

The trays can be fast enough designed. However the number of trays needed can lead to a discussion which delays purchasing the trays.

Mix- and volume flexibility

Different trays are needed when changes in mix occur. Trays are already available, so this will not be a problem.

However, an extreme increase in demand for a specific shaver can place a demand on trays that are not available.

More trays are needed when changes in volume occur. The number of trays is limited, so this can give problems.

The use of more general trays can be a solution. The demand for different trays can be aggregated.

The response flexibility is dependent on where the trays are stored:

When stored in the LOCE, trays can be delivered within one hour.

When trays are stored in the DDC, this can be one day. When trays are not available they should be ordered from an external supplier, which takes more time.

Table 2.4, a matrix for flexibility of the logistic process for the transportation trays.

Costs

Employees from the VEGT need to check how many trays are present at the moulding department to determine the real demand for trays. These checks are done by physical rounds through the factory. These physical rounds are very time consuming.

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Intermediate storage of sub-assemblies results in a lot of handling and movement of materials. The employees of the LOCE have an enormous task handling all the empty transportation trays and transportation trays with sub-assemblies. Transportation trays travel many meters through the factory which are not all necessary. All this handling and material movement are non-value added activities, and result in extra costs.

The costs for stocking the transportation trays in the DDC for the year 2008 were approximately X euros (see appendix 2B for an overview). Costs of transportation are not included in this calculation because there is no data available. In addition, the costs for repacking from roll-container to box-pallet and visa versa are also not quantified. The real costs of stocking trays in the DDC end up much higher.

2.5 Primary process

This section discusses the influence of the primary process on the logistic process for the transportation trays. First, the influence of production will be discussed. The next section discusses the planning and control of the primary process. The future state of the factory will be discussed in the third section and the consequences for the logistic process will be given as last.

2.5.1 Production

This section discuss the influence of production on the logistic process and answer sub-question 7: “What is the influence of production on the logistic process?” Because production is in fact the customer of the logistic process for the transportation trays, production has influence on the demand for trays.

The production is characterized, especially the moulding, SOLGEL and lacquering department, by the need for long production runs because of the long changeover and setup times. Management places a strong emphasis on efficiency. Long production runs are a way for production to reduce the need for changeovers and setups and make sure that efficiency targets are met more easily.

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trays. The trays are filled with products that are not yet needed. Because of the inaccuracy in the planning forecast, the demand can change and other products are needed. These products can have, for example, also a demand for the same trays. Because the trays are already used for the other product made in advance, there is a shortage of transportation trays.

To summarize, production influences the demand in trays and therefore the logistic process. The way production works results in high fluctuations in tray demand. The result is a higher amount of transportation trays that is needed for production.

2.5.2 Production planning and control

In this section the production planning and control and its influence on the logistic process will be discussed. This section gives answer to the fifth sub-question: “What is the influence of

production planning and control on the logistic process?” First the planning process will be

discussed. The next section will discuss the observed transition from MRP production planning to kanban based production authorization. Finally, the consequences of this transition for the logistic process are discussed.

The planning department of Philips Drachten exist of three departments: (1) International Support Group Shavers (ISGS), (2) Planning Support Group (PSG) and (3) Procurement. These three departments are responsible to plan and control the production of the shavers within the factory.

MOULD PAINT ASSEMBLY

ISGS NSO Weekly demand Weekly Planning PSG PROCUREMENT SUPPLIERS Daily Planning

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ISGS receives a weekly demand from the National Sales Organizations (NSO). They judge if this demand is realistic for the factory to produce. Sometimes this demand is adjusted downward and sometimes upward to maintain some stability in the factory. When the weekly demand is approved by ISGS it becomes a weekly plan and goes to the next department, PSG. For production a daily production plan is needed, this is made by PSG. The daily plan tells each production department what to produce each day. This daily plan is also used by procurement for ordering RAW-materials and packaging materials (see figure 2.7 for a high level VSM).

By analyzing the planning process discussed above, a transition from MRP production planning to kanban production authorization was observed. Because this transition is expected to have a big influence on the logistic process for the transportation trays, there is a need to know what the future state of the factory will be. This need resulted in the following extra sub-questions (sub-questions 8 and 9), that will be discussed in the next two sections:

Sub-question 8: What will be the future state of the factory?

Sub-question 9: What are the consequences of this transition for the logistic process?

2.5.3 Future state of the factory

This section will give an answer to sub-question 8: “What will be the future state of the factory?” It will shortly discuss the different projects (SPOS and black belt project) that run at the moment. After that, the future state of the factory will be discussed.

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The supermarket pull system used within Philips uses two types of kanban cards, a production kanban card and a withdrawal kanban card. Within a supermarket, a withdrawal card is attached to a trolley with WIP. When a trolley with WIP is pulled from the supermarket by the upstream process, the withdrawal card stays with the trolley. Only when the trolley is empty, the withdrawal kanban goes to the kanban post. This is a signal for the upstream process to start working to refill the supermarket. During the production a production kanban is attached to the trolley. When production is finished, the production card goes back to the kanban board and the withdrawal card is attached to the trolley. The trolley goes back to the supermarket, and the circle is complete. With this way of working, WIP is produced only when it is needed at a downstream process.

Products can be classified as high runners, medium runners and slow runners. High runners are products for which the demand is the highest. The demand for the medium runners is somewhat lower. The slow runners are products for which the demand is low or products that are, for example, one time specialties. In the supermarket pull system there is a specific amount of WIP for every sub-assembly. This is also the case for the slow runners. There is a specific amount of WIP, while the demand for the product is low. Since Philips want to decrease the amount of WIP, the supermarket pull system is not suitable to handle the slow runners. The sequential pull system is used to tackle the above problem of high WIP for slow runners.

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Figure 2.8, the hybrid pull model that will be used for the future state of the factory.

The combination of the supermarket pull model and the sequential pull model discussed above, results in the hybrid model given in figure 2.8. The future state of the factory is based on this hybrid pull model.

2.5.4 Consequences for the logistics process

The transition from MRP to kanban has serious consequences for the logistic process for the transportation trays. According to Hopp and Spearman (2001) it is useful to distinguish between push and pull. The authors argue that:

“In a push system, such MRP, work releases are scheduled. In pull systems, releases are authorized. The difference is that a schedule is prepared on advance, while an authorization depends on the status of the plant. In the kanban system, an operator requires both parts and an

authorization signal (kanban) to work. (Hopp & Spearman, 2001, p. 162)”

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Another important consequence is the decrease in material movement. In the current situation WIP is stored in M007 from where it is ordered when needed by a downstream process. In the new situation the WIP is placed in a supermarket (kanban location) somewhere between the upstream and downstream process. This result in a decrease of distance travelled and less handling for the LOCE.

The WIP cap forced by the kanban system and the decrease in distance travelled are the result of the hybrid-pull system. As mentioned before, the hybrid-pull system handles the flow of WIP but ignores the flow of empty transportation trays. The hybrid-pull system has a positive influence on the logistic process for the transportation trays; however, it is not a complete solution. The design of the logistic process of the transportation trays should be built on this hybrid-pull system.

2.6 Conclusions

In the previous paragraphs the current logistic process is analyzed including the physical flow, the information flow and the planning and control of this logistic process. The primary process, consisting of production and production planning and control, were also analyzed. In this paragraph, a summary of the conclusions will be given. After these conclusions it is possible to define the design sub-questions to improve the logistic process.

The current logistic process is organized in a way that fits the traditional production method Philips uses. Philips actually produces to stock. Products are produced by the different departments and are stored in a big warehouse. This means that there is a need to hold a lot of transportation trays, so products can be kept at stock. The high inventory also results in a lot of material movement, handling and the typical risks that inventory bring along. An aspect that is directly connected with this is the way production is used to produce. There is a strong emphasis on efficiency. This emphasis on efficiency results in even higher inventories because production employees just produce and store the products in the warehouse. Because of this overproduction, it is not possible to calculate the right amount of transportation trays. As a result, there are shortages for particular transportation trays.

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The way production is planned and controlled is an important aspect that cannot be ignored during this research. There is currently a transition from MRP based production planning to production authorization by kanban. With this, the current emphasis on efficiency is challenged. Authorization by kanban means that there is a maximum amount of WIP in the system, and when this limit is reached there cannot be produced anymore. This also leads to opportunities for the design of the logistic process for the transportation trays.

Most of the time, lean manufacturing has a focus on the primary process. This is also the case within Philips. However, the consequences of implementing kanban reach further than only the primary processes. As could be seen in the above discussion, support processes are also influenced by the choice for implementing kanban. In fact, the implementation of kanban is the reason for the decrease in the amount of trays needed and the distance travelled through the factory!

The future state of the factory is an important aspect for the design of the new logistic process for the transportation trays. The new sub-questions for the design of the new logistic process are as follows:

Sub-question 10: How should the physical flow of transportation trays be organized when

Philips implements the hybrid-pull system?

Sub-question 11: How should the information flow for the transportation trays be

organized when Philips implements the hybrid-pull system?

When the amount of WIP is controlled there is a stable amount of transportation trays that travels a predefined way through the factory and is stored in predefined locations. Because of this, the physical flow is much more transparent. Thus sub-question 11 can only be answered when the following sub-question is answered:

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For the design of a new planning and control system for the logistic process the sub-questions are as follows:

Sub-question 13: How should the amount of transportation trays that are needed be

determined?

Sub-question 14: How should be dealt with the transportation trays when an old product is

terminated or a new product is introduced?

Sub-question 15: How should be dealt with transportation trays that are scrapped?

In the future situation there can be situations that disturb the daily process. For example, long lasting planned reparation of tools or line changeovers. This kind of situation need a WIP build-up, to secure that other processes can continue their work.

Sub-question 16: How should be dealt with situations that disturb the daily production

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3 Design

In this section the design of the new logistic process for the transportation trays will be discussed. In the first section (Introduction) we defined the logistic process as: the physical flow of the transportation trays, the needed information flow, and the planning and control of this process. The design of these parts is discussed in the next paragraphs.

3.1 Physical flow of the transportation trays

In this paragraph a new design for the physical flow of the transportation trays will be proposed. This design is based on the future state of the factory, discussed in paragraph 2.5.3. In other words, it is designed for the hybrid pull system Philips wants to implement. When we look at the hybrid pull system, there are two options (see figure 3.1) to handle the flow of empty transportation trays: (1) the short circle option and (2) the long circle option.

Figure 3.1, the two options to handle the empty transportation trays.

In the first option the transportation trays return to the supermarket where the WIP was withdrawn. Since trolleys with transportation trays belong in this option to a particular supermarket and travel a short circle trough the factory this option is called ‘The short circle

option’. The second option is different in the sense that trolleys with transportation trays do not

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general tray supermarket and fills them up with WIP. The WIP travel through the factory and pass all the processes that a sub-assembly needs. At the last process, the trolley with empty transportation trays returns to the general tray supermarket. This option is called ‘The long circle

option’. Both options will be discussed below.

3.1.1 The short circle option

As mentioned before, in the short circle option the trolleys with transportation trays belong to a specific supermarket. The trays travel a short circle through the factory, from upstream process to downstream process and back (see figure 3.2).

UPSTREAM SUPERMARKET Down-stream process W Up-stream Process W W P Pull from supermarket Trolley with empty trays and

kanban card P Kanban post W Material flow Kanban card goes to post

Trolley and trays from upstream process

Trolley and trays from downstream process

W P P- and W-kanban from _{upstream process}

W P P- and W-kanban from _{downstream process}

Legenda: Empty transportation trays Transportation trays with sub-assemblies S

Special kanban card is introduced with a trolley and trays

S

Special kanban card is removed with a trolley and trays

LOCE

Empty trays

Material flow

Empty trays

S Special kanban card

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At the upstream process, the empty transportation trays are filled with WIP. The trolley with these trays with WIP are paired with a withdrawal kanban card and stored in the supermarket. A downstream process pulls this trolley from the supermarket when needed. When the WIP is used, the trolley with empty transportation trays goes back to the supermarket. The withdrawal kanban goes to the kanban post. When the upstream process wants to start production, it pulls a trolley with empty trays from the supermarket. From here the process repeats.

For the sequential pull system, some different way of working is required. When a slow mover or a special derivative needs to be produced, a special kanban card is introduced at the upstream process. Because it is possible that all the trolleys with transportation trays are filled with WIP, the special kanban card is paired with a trolley with empty transportation trays. This trolley can be stored in a special area in the supermarket. When the upstream process filled the trolley with the special WIP the trolley goes back to the special area in the supermarket. When the downstream process used the WIP the trolley with empty transportation trays are removed from the system. With this way of working the sequential pull system never disturbs the flow of trolleys with empty transportation trays for the normal supermarket pull system.

3.1.2 The long circle option

In the long circle option trolleys with empty trays does not belong to a specific supermarket. The trays travel a long circle through the factory, from the first to the last downstream process that uses the transportation trays (see figure 3.3).

TRANSPORTATION TRAYS

TRANSPORTATION TRAYS

WITHIN PHILIPS DRACHTEN

“Improvement of the logistic process for the transportation trays”

Master Thesis to obtain the degree of

Master of Science in Technology Management

at the university of Groningen

TRANSPORTATION TRAYS

WITHIN PHILIPS DRACHTEN

“Improvement of the logistic process for the transportation trays”

Master Thesis to obtain the degree of

Master of Science in Technology Management

at the university of Groningen

Written by

Preface

Management summary

Table of contents

1 Introduction

1.1 Background information

1.2 Motivation

1.3 Problem definition

1.4 Methodology

1.5 Conceptualization and sub-questions

1.6 Overview of the thesis

2 Diagnose

2.1 Physical flow of the transportation trays

2.2 Information flow for the transportation trays

2.3 Planning and control of the logistic process

2.4 Performance of the logistic process

2.5 Primary process

2.6 Conclusions

3 Design

3.1 Physical flow of the transportation trays