LOAD OUT OR OUT OF LOAD?

LOAD OUT OR OUT OF LOAD?

A

-

C

A

B

A

K

U

G

F

B

Public Version:

Company confidential information has

been left out.

L OAD OUT OR OUT OF LOAD ?

A

-

OUT FACILITY OF

C

A

A

: A

K

S

: U

G

F

B

A

E

: C

A

U

: M

.

. D. V

M

.

. J. R

C

: M

. E. D

G

, A

2005

This thesis is for educational purposes only. The author is responsible for the contents of the thesis; no part of this publication may be reproduced, stored or transmitted in any form or by any means, without the explicit prior written permission from the author.

Preface

Presented in front of you is my graduation thesis. These final words I’m writing are the first one’s you are reading. This makes me think about the message I would like to give to you. Do I wish to trigger you in wanting to know more about the subject or do I want to let you know what this research has meant to me. A little bit of both I presume.

Load-out or out of load, that’s the question. This was basically the question that was presented to me by Cargill seven months ago. At that time it was clear that the problem concerned the performance of the load-out system of the soybean meal production plant. Storage tanks were filled up to their max and extra storage needed to be found in barges on the water. On the other hand not all product qualities were available at the moment the customers needed them. Cargill also suspected that customers were not satisfied about other product or service characteristics. All together it seemed very challenging to conduct this research to complete my business studies at the University of Groningen. And a challenge it has been, a very instructive one.

When I came to Cargill, a lot was to be learned about the business they pursued, the market they operated in and last but not least about the load-out facility. I would like to thank everyone within Cargill who I kept bothering with questions about all sorts of things. Their patience and time have made this research possible. I’ve been particularly struck by the openness of everyone within Cargill, making me feel very welcome from the very first moment! Special thanks go out to my supervisor at Cargill, Edwin Dominicus. Edwin has reflected my work throughout the entire research and has been very enthusiastic and cooperative during the whole process.

Many thanks also go out to my first supervisor at the university, Dennis Vegter, who has always reflected my work very precisely, asking triggering questions to help me move forward. I’m especially grateful for the flexibility and willingness he has shown in commenting my thesis in various stages. Also Jan Riezebos, in his role of second supervisor, earns my gratitude. He surprisingly quickly managed to overlook the entire problem, giving me helpful comments at a later stage.

Finally, I would like to thank my parents and family for giving me their unconditional support and great motivation throughout my whole study. I would also like to thank my friends for the great time I had in Groningen and for keeping me on track during the sometimes difficult times of writing this thesis!

Anna Ketting

Amsterdam, April 2005

Management summary

Introduction

This research is executed on behalf of the BU European Grain Oilseeds Soybean crush location of Cargill Amsterdam. Within the process of supplying customers with soybean meal, the research focuses on the performance of the load-out facility. The logistics department has experienced problems concerning this system. Dissatisfaction of customers, a very static planning system and higher costs for Cargill are results of these problems.

Research setup

Conducting a problem exploration revealed that instrumental problems where found in the allocation of the eleven qualities of meal to the six storage tanks, the growing production capacity next to the kept the same load-out capacity, waiting times, the speed of meal flow through the system and communication between the commerce and logistic department. These instrumental problems result in two functional problems: a declining service level and rising costs. Based on this exploration the following research question is formulated:

In what way can the load-out system of the Cargill soybean crush location in Amsterdam be adjusted, in order to improve the systems performance to enable providing customers with the products and services they require while reducing costs for Cargill?

An answer to this question is found by the use of a theoretical framework, which has been divided into four functional areas: customer needs, process & layout, planning &

control and information flows. Customer needs are researched by doing a customer questionnaire among eight of Cargill’s customers. The process & layout are analyzed by the performance indicators of Slack and the planning & control is described and diagnosed by the framework of Bertrand, Wortmann & Wijngaard. A Data Flow Diagram makes the information flows transparent.

Diagnosis

The diagnosis is conducted in four stages, answering the following questions: what do customers need?, what can Cargill offer?, does Cargill fulfill the customer needs?, and what is the cause or this (in)ability?

A short market description showed that the soybean meal industry is operating in a very uncertain market, transportation market included. The latter showed a trend towards transporting batch sizes of 3500 tons. The questionnaire revealed that customers need stability of meal quality, flexible logistics in especially volume and delivery time, reliable service with a maximum lead time of 2 hours for trucks and 24-30 hours for ships, a variety of product qualities and low costs. It also became clear that Cargill couldn’t comply with these needs. They are failing in all performance indicators the customers need and cannot load ships larger than 2500 tons.

Causes for this inability on a process & layout level are not the process speed factor,

but the limited storage capacity. Planning & control is also influenced a great deal by

this cause, not being able to handle the uncertainties, among which the many changes

made by customers. This makes Cargill unable to deliver the specific needs. The order

acceptation is done based on the expected production and orders already accepted, little

caused by insufficient knowledge of the One-World data processing system meant to connect different levels and departments to the same information flows.

Design

The next question asked was: What does Cargill have to change in order to improve this? Since the available storage capacity does not match the demanded storage capacity to enable flexibility towards customers, the solution directions are aimed at adding more storage capacity or accelerating the process speed. Starting with the basic requirements, that 3500 tons batches can be loaded within 24 hours and the performance on the customer needs increases. Based on this, five solution directions were formulated. By scoring the 5 alternatives on the relative positive or negative change they cause for each performance indicator, and calculating the investment needed minus the costs savings, a choice is made for alternative 4: Adding

and information areas as well. Order acceptation should be done based on the expected production and the planning made of already accepted orders. Capacity planning can move to infinite loading. The new tank should primarily be used for loading large ships.

One tank will remain being reserved for 20S product and batches smaller than 750 tons can be allocated to one of the other five tanks. Caution should be taken that delivering larger batches need very long production runs. Other products demanded during these long runs should be produced and stored at forehand. A better understanding of the One-world system along with the installment of formal information lines should enable efficient and effective information flows through the organization.

Conclusion

The conclusion can be drawn that the answer to the research question is to add x tons of storage capacity to fill the gap between the available storage capacity and the demanded storage capacity. The planning and information systems also need to be adjusted. This way, customers are supplied with the service level they need and Cargill reduces the unnecessary costs made trying to reach this level in the old situation.

Recommendations

•

The production process should be investigated in order to analyze if adjustments should be made to align the production process to the load-out redesign.

•

Transportation by train should be outsourced to the IGMA Company.

•

Because of feed safety reasons, quality norms are tightening making it possibly necessary to create a second covered truck load-out instead of the train load-out.

•

A consideration must be made if loading ships with 3500 tons is profitable taking into account the decreased flexibility of the production process.

•

Measuring the contents of the storage tanks could be automated, providing more specific data about the contents on which the planner makes its plans.

•

Training employees and extending the system’s capacities can intensify the use of the One-World information system.

•

Formalizing communication lines and putting employees from different departments, dealing with the same product on the same table, can realize communication improvements. Employees of the load-out facility could be encouraged to improve communication skills, especially linguistic skills.

•

Planning can give the commerce department more insight by providing a

continuity of the planning procedure and a daily insight in the current situation.

T

C

P

... 3

I

4

R

4

D

4

D

5

C

5

R

5

L

A

T

... 9 I

... 10 C

1. I

... 11

1.1 H

11

1.2 M

V

12

1.3 O

12

1.4 P

&

13

1.5 I

-

13

2.1 M

16

2.2 P

16

2.3 P

18

2.4 R

18

2.4.1 Research objective 18

2.4.2 Conceptual model 19

2.4.3 Research question 19

2.4.4 Sub questions 20

2.4.5 Scope of research 20

2.4.6 Research plan (DOV/DDI) 21

2.4.7 Data collection 21

2.4.8 Preconditions 22

C

3. T

... 23

3.1 I

23

3.2 C

:

23

3.3 P

23

3.3.1 Process flow 23

3.3.2 Process description (performance objectives) 24

3.4 P

C

24

3.4.1 Customer Order De-coupling Point (CODP) 24 3.4.2 Materials management vs. Distribution management 25

3.4.3 Planning structure model 25

3.4.4 Capacity planning; Theory of Constraints 25

3.5 D

F

D

: I

25

3.6 R

26

3.6.1 Redesign methodology 26

3.6.2 Design alternatives of Galbraith 26

3.7 C

27

4.1 I

28

4.2 M

28

4.2.1 Current Market 28

4.2.2 Market prospects 29

4.2.3 Transportation market 30

4.3 C

’

: W

C

’

31

4.4 D

31

4.5 C

: W

? 32

4.6 C

34

C

5. D

-

: W

C

? ... 35

5.1 I

35

5.2 D

-

35

5.2.1 Introduction 35

5.2.2 Lay-out 35

5.2.3 Process 36

5.2.4 Restrictions of the load-out process: 39

5.2.5 Disturbances/ switching production 39

5.2.6 Bottlenecks 40

5.2.7 Process performance in terms of Slack 41

5.3 D

&

43

5.3.1 Introduction 43

5.3.2 Customer Order De-coupling Point (CODP) 43 5.3.3 Materials management vs. Distribution management 44

5.3.4 Planning structure model 45

5.3.5 Capacity planning 46

5.3.6 Order acceptation & delivery terms 47

5.3.7 Work order release 47

5.3.8 Work order detail planning 47

5.3.9 Capacity allocation 48

5.3.10 Production capacity vs. sales 49

5.3.11 Degree of uncertainty 49

5.4 D

50

5.4.1 Introduction 50

5.4.2 Data Flow Diagram 51

5.4.3 Description information flows 52

5.4.4 Quality of information flows in terms of Slack 53

5.5 C

53

C

6. C

: D

C

?... 55

6.1 I

55

6.2 F

55

6.3 W

C

56

6.4 T

57

6.5 C

57

C

7. L

-

: W

? ... 59

7.1 I

59

7.2 P

: S

59

7.3 P

60

7.4 P

60

7.5 P

62

7.6 I

63

7.7 I

63

7.8 C

64

C

8. S

D

: W

C

? ... 66

8.1 C

66

8.2 D

66

8.2.1 Goal 67

8.2.2 Performance requirements 67

8.2.3 Restrictions and starting points 67

8.3 R

67

8.3.1 Alternative 1: Accelerate and align the process speed 68 8.3.2 Alternative 2: Extra storage capacity while reserving two tanks of the current silo capacity for loading large ships. 69 8.3.3 Alternative 3: Extra storage capacity while reserving one tank of the

current silo capacity loading large ships. 71

8.3.4 Alternative 4: Extra storage capacity to load large ships while keeping

the current silo capacity in tact. 71

8.3.5 Alternative 5: Combining alternatives 1 & 4 72

8.4 C

73

C

9. R

-

... 76

9.1 R

76

9.1.1 Process redesign 76

9.1.2 Planning & control redesign 77

9.1.3 Information & organization redesign 78

9.2 E

: D

’

? 79 C

10. C

&

... 81

10.1 C

81

10.2 R

82

10.2.1 Process and Layout 82

10.2.2 Planning and Control 82

10.2.3 Information flows 83

10.3 E

:

83

R

... 86 A

1: C

....E

! B

. A

2: C

...E

! B

. A

3: G

-

.. E

! B

NOT DEFINED

.

A

4: L

T

...E

! B

.

A

5: I

- S

...E

! B

.

List of Abbreviations and Terms

Barge: Storage capacity on water, also appropriet for transportation on rivers CIF:

Cost, Insurance and Freight: A delivery term stating that Cargill is

responsible for transportation to the place of destination, insurance costs Included.

Compound feed:

COPD:

Animal feed for cattle, pigs and poultry.

Customer Order Decoupling Point; Divides the order-based activities from the planning based activities in the organization.

Demurrage:

Costs for a ship or barge to lie on the wharf longer than agreed upon.

DFD:

Data Flow Diagram

Efficiency:

The ratio of the output to the input of any system.

FOB:

Free on Board: A delivery term saying that the customer arranges the transportation from the load-out site to the place of destination

themselves by ship.

FOT:

Free on Truck: A delivery term saying that the customer arranges the transportation from the load-out site to the place of destination

themselves by truck.

GMO:

Genetic Modified Origin: Soybeans are genetically modified in order to generate more crop.

IP:

Identity Preserved; the beans have not been in contact with

Lead-time:

The time between the recognition of the need for an order (arrival truck, ship or train) and the receipt of goods.

Load-out:

Order delivery

Logistic flexibility:

The flexibility of the logistic system to react on the rapid variation in customer demand.

Margin:

Difference between the costs of the purchased soybeans and crushing, and the price the meal is sold for.

MTO:

Make to Order; starting production when the customer already ordered

Non Identity Preserved

One-World system: A data processing system, Enterprise resource planning concept.

Performance:

Performance of the load-out system is measured by the indicators of Slack; speed, flexibility, dependability, quality and costs.

Pipeline:

Planning sheet of the logistic department in which already released and forecasted orders are shown.

Positive release:

Delivering the meal when it is tested and the results are known to the supplier and customer.

Ship list:

An extension of the pipeline in which a specification is made of the planned arrival and loading of ships.

SIP:

Soft Identity Preserved

VMI:

Vendor Managed Inventory: Supplier is responsible for managing the customer’s inventory within mutually agreed minimum/maximum levels based on the customer’s gross forecast, consumption, actual stock level and goods received.

Yield:

The percentage of soybean meal left after crushing the soybeans.

Introduction

As a consequence of increasing global competition and higher market demands organizations are forced to act more and more customer-oriented. As a result, the classical conflict between external objectives such as delivery reliability, speed and the necessity of a broad product range on the one hand and internal objectives like low stock levels, short throughput times and low costs on the other hand seems to become obvious within companies. In trying to find a proper balance between the internal and external objectives many efforts have been made to improve logistical interfaces both within and between organizations.

Cargill, Incorporated is an international marketer, processor and distributor of agricultural, food, financial and industrial products and services with 105,000 employees. Being a global player, Cargill is dealing with finding this balance between internal costs and external customer focused objectives. Logistics therefore plays an important role in the every day activities of Cargill.

This thesis focuses on the logistics system of the load-out facility of the soybean crush location of Cargill Amsterdam. More specifically on its current inability to provide the customers with what they need while aiming for low costs for Cargill as well. Problems on this behalf have occurred on the premises of the planning department and the load- out facility itself, having created a very static planning situation and customer complaints. Investigating the causes and possible solutions for this problem is necessary to keep the soybean crush location competitive and give it a right to exist in the future.

The structure of this thesis is as follows. First an introduction of the company is given before looking specifically at the load-out facility itself. Then a research plan is set-up in which the research question and the structure for the remaining thesis are formed. A theoretical framework is created by which the research is analyzed. Knowing what the problem is and having set the structure, customers are questioned about their needs in chapter 4. Chapter 5 will then give a description of the current load-out setup. Chapter 6 compared these customer needs and load-out possibilities and shows where the gap between these two is situated. Causes and possible improvement points are given in chapter 7, which automatically will lead to the redesign solutions given in chapter 8.

Having scored these, the chosen redesign is further described in chapter 9. The

conclusion and recommendations concerning the research are given in chapter 10.

Chapter 1. Introduction company

1.1 History

Cargill is a large family-owned food business with its roots in the pioneer farming lands of America's Midwest. Its origins can be traced back over 139 years to a simple grain storage facility.

Starting at the close of the American Civil War in 1865 with one grain storage warehouse in Conover, Iowa, Cargill followed the expansion of the railroad system throughout the newly settled prairie. As grain and the railroads moved west, Cargill followed with new country elevators, as well as major terminals in the Minnesota towns of Minneapolis, Buffalo and Duluth. Besides the growing number of elevators, Cargill was involved in insurance, flour milling, coal, farming, real estate, lumber, and a railroad. The success of the business required reliable financing, innovation in moving and storing grain and a solid business reputation.

Still largely a regional grain trader, Cargill grew steadily and established offices in Canada, Holland, and Argentina. The company weathered the financial turmoil of the 1930s, as well as a major legal battle with the Chicago Board of Trade. It introduced new innovations to the industry, including a teletype wire system, a new style of grain terminal (first constructed in Omaha, Nebraska), and the establishment of a grain laboratory. Many of these innovations originated directly from Cargill's new leader, John MacMillan, Jr. By the 1940s, Cargill had diversified into feed, soybean processing, seed and vegetable oil.

In the 1950s, Cargill emerged as a major international merchandiser and processor of agricultural and other commodities. Cargill began global initiatives with grain-and- oilseed exports and the development of a transportation and grain elevator system that enabled it to respond to worldwide demand for basic agricultural products. In 1964, Cargill issued its first formal annual report to stockholders, which reported sales near two billion dollars; over 5,000 employees; expansion of a soybean plant in Spain, two feed mills and a seed plant in Argentina; and expansion of Cargill's feed operations throughout Europe. Grain handling and merchandising, soybean processing, flour and corn milling, seed and animal feed production, and salt processing fuelled domestic growth and continued to play an active role beyond North America.

Cargill diversified with new operations in beef, pork and poultry processing, steel making, citrus processing, petroleum trading and merchandising, international metals, fibres and tropical commodities origination and trading and fertilizer production. By its 125th anniversary in 1990, Cargill, its subsidiaries and affiliates were found in 57 countries representing nearly 55,000 employees - over ten times the number twenty-five years earlier.

By the end of the 20th century, Cargill differed greatly from its beginnings as a grain trader. It had taken its fundamental skills in trading, processing and managing risk and supply chain logistics, and applied them to several new businesses around the world, including the trading of energy, futures and financial instruments. But changes in the food industry, including consolidation and tightening commodity margins, meant Cargill could not prosper if it kept commodity transactions at the centre of its business.

Cargill began forming closer relationships with customers to provide them with

solutions to their pressing business concerns. It recognized that its success was

inextricably linked to its customers' success. Cargill's goal of becoming the premier

global food and agriculture company, pushed a renewed emphasis within the company on innovation and technology. Cargill moved even further up the value chain. The company evolved from trading soybeans, to processing them into meal and oil, to producing high-value natural vitamin E from a soybean by-product. And it moved from trading corn, to processing corn into ethanol and fructose, to creating a whole new family of renewable products - from plastics to fabric - made from corn. Cargill intends to be the global leader in nourishing people

1.2 Mission and Vision

The vision of Cargill Crop & Livestock is to deliver world-class performance through customized solutions to help you meet your goals.

Cargill’s mission is to provide customized animal productivity solutions to commercial producers across the Americas, Europe, and Asia. Rather than focusing on standardized nutrition products, they create customized ingredient blends and management programs to fit each situation. The research-proven management and nutrition technologies suit the specific needs of our diverse array of customers. And the animal nutrition and management experts offer the scope and creativity to serve the unique needs of each customer.

Looking at Europe, Cargill’s mission is to create distinctive value for the customers they serve in the following sectors: Raw Material Origination & Feed processing, Animal Nutrition and Bio-Energy. To be the leading European supply chain value provider for customers (inside/ outside the business unit & platform). To contribute additional value to customers of other business units both inside the GOSC platform (America’s, Asia, WTU) and outside the GOSC platform (Roe, Dry Milling, Sweeteners, Cargill Animal Nutrition, Sun Valley, Protein, Tsf and Crmpg.

1.3 Organizational structure

Cargill has initiated a worldwide reorganization of their organisational structure. First they focused on large volumes, low prices and the streamlining of their supply chain.

Since approximately five years this strategy has changed to a value adding strategy, a customer focused one, changing their organizational structure into the following:

Figure 1: Organizational structure

Business Unit EGO (European Grain & Oil seeds)

UK Benedu Spain/ Portugal France Trade

Accounting Logistics Production Commerce

Soy crush location Grain & Oil seeds platform

As can be seen from the organizational structure, the G&O-platform is classified by geographical area. The European G&O seeds business unit consists of all west and east European countries and is divided in smaller geographical areas. These have the responsibility for the area they are assigned to as well as the coordination of one subject for all countries involved. The Benedu, for example, is responsible for all activities within the Benedu as well as the feed-industry for the UK, Benedu, Spain/ Portugal and France. The geographical area is divided in functional areas: Commerce, Accounting, Logistics and Production. Commerce has the overall responsibility.

1.4 Products & services

Cargill, Incorporated is an international provider of food, agricultural and risk management products and services. Their products can be divided into five categories:

Crop & Livestock, Food, Health & Pharmaceutical, Industrial and Financial & Risk Management. The Agriculture Services provide crop and livestock producers worldwide with customized farm services and products.

The Food Ingredients and Applications department serves global, regional and local food manufacturers, food service companies and retailers with food and beverage ingredients, meat and poultry products and new food applications.

The Industrial sector supplies customers worldwide with salt products and services, and develops industrial applications for agricultural feed stocks.

Origination and processing activities connects producers and users of grain, oilseeds and other agricultural commodities through origination, processing, marketing and distribution capabilities and services.

Risk and Financial Management provides Cargill customers and the company with risk management and financial solutions in world markets.

The conducted research in this thesis focuses on soybean meal used as an ingredient for animal feed and is therefore part of the Crop & Livestock agriculture services. Cargill Animal Nutrition provides customized animal productivity solutions to commercial producers across the Americas, Europe, and Asia. Rather than focusing on standardized nutrition products, they create customized ingredient blends and management services to fit each situation.

1.5 Introduction soy bean meal production plant and load-out

Within the Benelux there are two soybean crush locations, situated in Amsterdam and Gent. The responsibility and control for both locations is based in Amsterdam.

The soybean production is based in the United States as well as Brazil and Argentina.

From there soybeans are shipped to Amsterdam where they are discharged by IGMA, a full daughter of Cargill, and are brought into the production process.

Cargill The Netherlands handles about 1.4 million ton beans per year. Once the beans enter the production process they are allocated to one of the two production lines. The A and B production lines. The A production line is dedicated to the production of genetic modified origin (GMO) beans. All beans from Northern America and some from Argentina and Brazil are modified. Beans allocated to the B production line are Non-GMO, mostly originated from Brazil. Delivering non-GMO products is a very delicate task. It must be sure that no GMO beans are mixed with the non-GMO beans.

The latter are of much higher quality and restricted to very high non-GMO standards.

The process on both production lines evolves almost the same way.

Once the beans are allocated to production line A or B they are crushed in order to gain

crude oil, which accounts for 20% of the bean, and the left over product; meal,

accounting for 80% of the bean. From the raw oil 90% goes to the refinery and 10%

goes to the compound feed industry. The left over soy meal is also used in the compound feed industry.

The soybean meal is the product we are looking at in this research. Cargill is diversifying its soybean meal for a few years now, resulting in a growing number of different qualities of the meal. These different qualities are constructed of different values of five product characterizations. These are:

•

The value of protein in the soy meal

•

The value of fibre in the soy meal

•

The value of moisture in the soy meal

•

The value of left over oil in the meal

•

Genetic modified or non- genetic modified

These characterizations in different combinations create 11 qualities of the product, which can be produced by the two production lines as follows:

Product/ production line A-Line B-Line

HP NIP

X

48/7 NIP

X

44/7 NIP

X

49/3 SIP

X

44/7 SIP

X

48/7 SIP

X

49/3 SIP no gums no clay

X

49/3 SIP no gums

X

49/3 SIP suomen

X

Soypass

X

20 S

X

Table 1: Production line deviation

From the production plant the meal is moved to one of six storage tanks available, each

holding

underneath the tanks, which transports the meal to a ship, truck or train. The process

from the moment finished goods leave the production plant till the point where they are

loaded on a type of transportation, is being looked at in this thesis and will be handled

further in the following chapters. This process is called the load-out process and is

shown in the following figure. Details concerning the actual functioning of the process

will be handled in paragraph 5.2.3.

The load-out process will be handled further in chapter 5. Before going into depth it has to be made clear what this subject of this research is exactly and what the goal is that is aimed for. This is done in the next chapter, where the research motive and setup are given.

Tank 1

x ton

Bean intake

A-line

B-line

Tank 6

x ton Tank 2

x ton

Tank 5

x ton Tank 3

x ton

Tank 4

x ton

Truck Weight scale

Ship Train

fla 76%

Figure 2: Load-out process

Chapter 2. Research motive and setup

2.1 Motive and context of the research

The logistic department is, among other things, responsible for the planning and control of the load-out facility. From the moment a contract with the customer is signed, the logistic department is responsible for securing their needs. Different customers order different products on different kinds of transportation. Further more they often change their own planning about when they are collecting the meal on very short notice. The logistic department has dealt with an increasing difficulty to manage a smooth load-out of soy meal. They experience more complaints from customers about having to wait or the inability to fulfil their wishes, a declining demand for soy meal, a very static planning system and higher costs for example for the rent of barges and extra transfer because the storage tanks are occupied. These signals gave the sign for the logistic department to investigate what the causes for these problems are and in what way specifically the load-out system could be improved to solve them. Especially looking at future developments in the soybean meal and transportation market this is inevitable to ensure the right to exist and create a competitive position.

The research performed is a problem solving research, which takes the whole problem from Cargill and tries to answer to the entire knowledge need in order to solve the problem. In the following paragraphs the problem will be explored and defined to a specific research question. In this chapter a further insight into the research problem and the method by which the research is conducted are given.

2.2 Problem exploration

A problem can be defined as an unwanted difference in the current and the preferable situation (de Leeuw, 1997). There are three pure types of problems: perception-, goal setting- and reality problems. The first two concern issues based on peoples’

perceptions or wrong goal setting, relatively easily solved by changing these perceptions and goals. A reality problem is harder to solve because it is caused by matters in reality that need to be solved. Problems can be labelled either instrumental or functional. Instrumental problems are those experienced directly by employees, these are the problems leading to functional problems: the consequences for customers and Cargill in general.

•

From exploratory research among employees and through secondary data, the following instrumental problems came forward.

Tank 1, preserved for the storage of 20S soy meal, can hold up to x ton. The tank is

filled during the weekend and it takes about a week before this tank is empty again.

During this week no other kind of meal can be put in there and during the weekend the tank is reserved to store new production of 20S. This makes it almost impossible to use tank 1 for other products. The usage of the tank is very inefficient since most of the time its capacity is not fully used. The protein department uses the 20S product and does not have any storage capacity of its own. 20S is produced on the B-line.

Overall the allocation of product to a production line depends on the kind of available

beans. From February till September levered beans originate from Brazil/Argentina and

from October till January the beans are imported from North America. All meal quality

allocation of meal to the six load-out tanks. This is one of the limitations experienced

by the planning department.

The capacity of the production plant, which produces the soy meal, has been extended in the last few years while the capacity of the load-out system has not changed. With a growing demand for soy meal and almost no stock this means that it comes down to a very strict and static planning, very sensitive to disruptions.

Most of the times the meal is sold Free on Truck (FOT) and Free on Board (FOB), which means that the customer takes care of the distribution of the meal. The kind of

seldom transportation by rail is used. Many boats can’t be loaded while it is raining.

Trains cannot be loaded in the dark. Loading a train is a very slow process and cannot be done in combination with loading a boat. At this moment the load-out also needs a new locomotive and strengthen of the wharf, which conducts a large investment.

The waiting time for customers is presumed to be too long, especially regarding large orders, which are shipped in coasters (large transportation ships). These coasters can handle freight from 2500 to 3000 ton, which can’t be handled by the load-out facility within the available time, taking inconsideration that more products need to be stored at the same time. Since the freight prizes have risen this is particularly important for customers, they already add up the long loading time cost when discussing the prize with the commerce department. The demurrage costs are passed on to Cargill.

The commerce department makes promises to customers, which they don’t

orders. They for example promise orders larger than 800 ton, which means more than one tank needs to be reserved to be able to deliver the customer on time. This must fit into the load-out schedule and is related to the issue discussed above and is one of the reasons why storage on water happens more often every period.

The physical layout of the load-out system consists of 6 tanks. Underneath these tanks there is a transport chain situated which drags the meal to be weighted on the scale (in case of loading a boat) where it lays still for a moment. The meal can be weighted at a speed of 260 ton per hour. This while the supply from the tanks to the scale can be done at a speed of 350 ton per hour.

•

The functional problems evolving from the problems mentioned above are:

Cargill is customer focused, wanting to deliver high customer service. On the other hand the profit margin is very low meaning that costs need to be kept low. This indicates a contradiction in goals that are aimed at. Delivering high customer service means fulfilling the customer needs. There have been some complaints about having to wait and a limited flexibility of the logistic service. Also the stability of the product has been rated lower. One of the problems is that Cargill does not exactly know what the customer needs are. Cargill wants to deliver a variety of stable products at the moment the customer asks for it and fears that they are not reaching this aim at the moment.

Most instrumental problems cause Cargill having higher costs. Being forced to sell a

higher quality soy meal for the same price as lower quality soy meal because they don’t

have the storage capacity to keep it any longer and need the storage room for a new

product. It can also happen that the needed product is not in store. The rent of barges to store additional meal, and the transhipment to and from these barges cause additional costs for Cargill. Waiting costs and many other costs result from these problems. This evidently reflects on the price Cargill can offer their customers and therefore its market position.

Over all the following can be concluded. Cargill is experiencing problems that occur in reality. From the point the meal is ready until the point it is located on the different transportation types, the load-out system seems not performing well enough to deliver on time to the current customers and almost can’t handle the diversity in product specifications she offers customers. This causes instability of the quality and service, which can make customers decide to switch suppliers. The load-out system needs to be explored on a layout, process, planning and information basis to see if improvements can be made and if so, what the exact implications are for the design as well as implementation recommendations.

2.3 Problem owner exploration

De Leeuw (1997) defines the problem owner as an individual member, or more, of an organisation having a problem or worrying about something. In order to research a

‘mess’ (Ackoff) of problems it is important to realize who are the actors dealing with the problems and what are the relations between them. The problems given within this research, affects a number of people within and outside Cargill:

•

First of all, it affects the customer. The current delivery reliability is supposed to be below the aimed and wanted customer service rate and because costs are possibly relatively high, prices can’t be lowered.

•

The planning department. They form the production plans and load-out schemes and located the problem as such, working with a very static planning right now.

•

The commerce department. This department holds the end responsibility and deals with customer complaints and loses.

•

The production plant. Having to produce slower or stop producing completely at critical times, causing problems for the factory as well as product quality.

•

The load-out facility. They have to deal with waiting customers and have to perform the plan made by the planning department.

•

Cargill Company. They can’t follow their customer focus and service strategy, possibly losing customers, name and profit.

2.4 Research setup

The research set-up is validated by some requirements: it must be relevant, suitable and it must have the opportunity to be researched. This paragraph will answer to the questions what needs to be known and why, and how is this going to be conducted.

2.4.1 Research objective

The objective of this research is to analyze and improve the performance of the load-out

system of the soybean meal crush location of Cargill Amsterdam, in order to enable

providing customers with the products and services they need while reducing costs for

Cargill.

2.4.2 Conceptual model

The objective of a conceptual model is to generate a comprehensive view of how components of the research relate to each other. It is a model that describes the coherence between theoretical concepts.

Figure 3: Conceptual Model The central research problem is the current disappointing performance of the load-out system of the soybean crush location. The system consists of a layout, a process and the planning and control of this process. The performance of this system is influenced by many factors including: the customer needs, physical distribution and information flows. The relation between these areas is shown in the model above, focusing on the interaction between the customer needs, planning & control and the layout & process fields. The relations between the area’s within this model can be seen as a CA-BS analysis (CA; Controlling Actor, BS: Controlled System). Each actor has measures to control the connected actor and visa versa.

2.4.3 Research question

In what way can the load-out system of the Cargill soybean crush location in Amsterdam be adjusted, in order to improve the systems performance to enable providing customers with the products and services they need while reducing costs for Cargill?

Information flows

Customer needs

Physical distribution Planning and

Control

Layout & process load out facility

Performance load-out system

of the soybean crush location

.

Customer

2.4.4 Sub questions

1. What do customers value most in the total product Cargill is offering? (product specifications, delivery, distribution, service)

2. What is Cargill’s load-out facility able to offer its customers at this moment?

•

In what way is the layout of the load-out facility setup and does the loading process proceed?

•

How is the load-out process planned and controlled?

•

How does the information flow through the organization?

3. Does Cargill fulfill the customers’ needs at this moment?

4. What is the cause of this inability?

•

Till what extend do the load-out layout and process contribute to the problem and how can they be adjusted to increase the load-out facility’s performance?

•

Till what extend does the planning and control system contribute to the problem and how can it be adjusted to increase the load-out facility’s performance?

•

Till what extend do the information flows contribute to the problem and how can they be adjusted to increase the load-out facility’s performance?

5. How can the load-out system be improved in order to fulfill the customers’

needs while lowering costs for Cargill?

2.4.5 Scope of research

In order to solve the given problem with the right premises and with regards to the time limit, a right scope of research is evident. What should be included in this research in order to find the most effective solution to the problem? The following scope is made:

•

The research looks at Cargill’s load-out facility of the soybean crush location in Amsterdam, concerning the load-out process of soybean meal.

•

The research focuses on the load-out facility. The layout and processing of the production process of the soybean crush location is taken as an indisputable circumstance. Taking as starting point that the plant produces full pull. Only the planning of the specification of meal and the amount produced is taken into account within this research, since this has a large influence on the allocation of the meal to the storage tanks of the load-out system.

•

The Flash line, converting from the SIP/B- line is not taken into account, being seen as an individual operator. The flash product is combined with 20S for the Protein Company. Research needs to be done to the way the 20S product is made and used in order to see if it is possible to run it immediately to the protein company instead of storing the 20S in one of the tanks (always tank 1). Before this is done, it can’t be said if this needs to be part of further research yet.

•

Since the meal imported by Cargill from Argentina and Brazil can’t be exchanged for the ‘home-made’ meal originated from the Netherlands and its importance to the load-out facility situated in Amsterdam can be neglected, this field of interest is of less importance to this research and will therefore only be mentioned in the problem exploration but not further discussed.

•

The new One World data processing system, which causes problems with

entering contracts from customers into the system will be taken into account,

but is not researched as such. The system is causing a lot of problems for the

planning department because they don’t have a clear insight in the status of

customers, this problem can be solved on a short-term basis making it less

•

All kinds of transportation are taken into account while conducting this research, since they all contribute to a numerous part of the distribution. Trains play the smallest part in this.

•

The possibility that Cargill would arrange transportation to the customers themselves instead of selling FOT/FOB is taken in consideration for further research since this can contribute a great deal to the flexibility of the load out flexibility.

•

The needed high quality of soy meal is taken into account within every analysis, but will not be investigated as a subject of its own. The quality of the product at this moment is conform regulations and must stay conform market requirements.

•

The control procedure, which needs to be done at the meal once it is loaded into a truck, train or ship, is not taken into account within this research.

•

The soybean supply to the soybean crush location is not taken into account, although it can cause large variation in availability of beans seasonally.

2.4.6 Research plan (DOV/DDI)

The research in this thesis is aiming at redesigning the unsatisfying current situation of the load-out facility. The research will therefore be conducted by the DDI-model (Diagnosis, Design and Implementation). During the diagnosis multiplicity in research and observation is very important. Looking at the sub questions, a thorough investigation, description and judgment about the current situation is given. In the design phase, the situation is categorized, the direction is given and the actual design is made. The last part of the research plan focuses on the implementation of the design within the organization. This thesis will only deal with recommendations for implementation, not the implementation itself. The numbers in each block relate to the chapters they are reviewed in.

Figure 4: Research plan scheme

2.4.7 Data collection

To conduct this research a lot of information about the current and wanted situation at the load-out facility is needed. Valuable general information about Cargill can be found in records, internet sites, computer files and documentation. In order to generate more

1.

Introduction

4/5. Description of current situation

6/7. Judgment of current situation

10. Conclusions

& recommen- dations for implementation

Research Set up

Diagnoses Design Implement

ation

2. Problem analysis

3. Theoretical framework

9. Redesign 8. Solution directions

specific information, interviews with responsible employees and customers and joining meetings can be very useful. Since many parties are involved, problems of each of these actors have to be evaluated. In order to analyze the process, historical data about the actual loading dates and times etc. are obtained from the One World system.

Observations can give an idea of work procedures, information lines and the structure of the organization. Together these methods give an idea of the current situation.

Following into the next stage of the research more in depth information about the wanted situation is needed. Existing theories, publications and empirical case studies can help giving direction for the actual design. In order to make recommendations concerning the redesign, specific information about the organization and its employees makes sure this can be done properly, enabling a large bearing surface.

Before researching every aspect influencing the problem it is important to find out what kind of information is needed and how long it takes before this information is collected and analyzed. This will be discussed in the following chapter where the theoretical framework is given according to which the research is conducted.

2.4.8 Preconditions

•

The research must be conducted within six months, starting the 4

of October 2004, ending the 29

of April 2005.

•

The final product of research will be presented in English writing.

•

The supervisor from Cargill is Mr. E. Dominicus.

•

The first supervisor from the University of Groningen is Mr. D. Vegter.

•

The second supervisor from the University of Groningen is Mr. J. Riezebos

•

The researcher follows six workshops at the University of Groningen during the research period.

•

The sensitive information used in this research will be handled with care and

will not be exposed outside Cargill and the other involved parties.

Chapter 3. Theoretical framework

3.1 Introduction

Now the problem has been defined and the research question stated, a theoretical framework is given to clarify the proceeding of this research. The role of a theoretical framework and the use of theoretical concepts are twofold. First of all they enable an understanding of the problem to its fullest extend, giving a clear and precise description of why the research is conducted. On the other hand they contribute to the ability to research the problem and answer the research question.

In this chapter the theories used to analyze and diagnose the sub questions will be identified, describing how the needed information for the research is procured. This is done by linking useful theories to the functional areas discussed for each sub question;

customer needs, process & layout, planning & control and information flows. They will not answer the research question yet.

3.2 Customer needs: questionnaire

An analysis of the demand of customers is done by a questionnaire among customers. A questionnaire is defined as a method of primary data collection based on communication with a representative sample of individuals. It concerns a qualitative questionnaire providing greater understanding of the needs of customers. This kind of questionnaire is useful for this research to generate qualitative, in depth information and motivations of customers.

A questionnaire is relevant if no unnecessary information is collected and if the information needed to solve the business problem is obtained. This is called the relevancy of the questionnaire. When this has been realized the accuracy becomes the primary concern. Accuracy means that the information is reliable and valid.

Two basic types of questions can be categorized: open-ended response questions, posing some problem or topic and asking the respondent to answer in his or her own words, and fixed-alternative questions, in which the respondent is given specific, limited alternative responses to choose from (Zikmund, 2003). Suiting a qualitative questionnaire, open-ended response questions will be used to get the most valuable information. The group of respondents is small enough to make it possible to make this time consuming but effective type of questionnaire possible. A description of the customers questioned can be found in paragraph 4.3.

The questionnaire is included in the appendix and the answers are used and elaborated in the diagnosis and design phase of the DDI model. The answers of the customers are rated on importance and translated to needs of the customers in terms of Slack’s performance indicators. This way they can be compared to the performance of Cargill in a way that can be measured.

3.3 Process and layout analysis

3.3.1 Process flow

The flow structure of the process used to make or deliver a product or service impacts

facility layout, resources, technology decisions, and work methods. The process

architecture may be an important component of the company’s strategy for building a

competitive advantage. Using a process based view gives a clear insight into the

problem, showing all connected factors and dedicating the problem to a certain part of

the process.

3.3.2 Process description (performance objectives)

Slack (2001) refers to five performance objectives that apply to all types of operations and serve to satisfy all kinds of stakeholders. The objectives are based on the question:

What kind of things are you likely to want to do in order to contribute to competitiveness? A company normally aims to do things right, do it fast, do it on time, being able to change what you do and to do things cheaply. These goals are reformulated in the following performance objectives:

Speed: Externally, speed is an important aspect of customer service. Internally, speed both reduces inventories by decreasing internal throughput time and reduces risks by delaying the commitment of resources.

Dependability: Externally, dependability is an important aspect of customer service.

Internal, dependability within operations increases operational reliability, thus saving the time and money that would otherwise be taken up in solving reliability problems and also giving stability to the operation.

Flexibility: Externally, Flexibility can produce new products and services (product/

service flexibility), produce a wide range or mix of products and services (mix flexibility), produce different quantities or volumes of products and services (volume flexibility), produce products and services at different times (delivery flexibility).

Internally, flexibility can help speed up response times, save time wasted in changeovers, and maintain dependability.

Quality: Externally, quality is an important aspect of customer satisfaction. Internally, quality operations both reduce costs and increase dependability.

Costs: Externally, low costs allow organizations to reduce their price in order to gain higher volumes or increase their profitability on existing volume levels. Internally, cost performance is helped by good performance in the other performance levels (Slack, 2001).

In order to analyze Cargill’s soybean meal load-out process it is measured in terms of each of these objectives.

3.4 Planning and Control analysis

3.4.1 Customer Order De-coupling Point (CODP)

In translating customer orders into production and load-out orders the ordering process has a central role in coordinating demand, production and load-out. This role depends on the position of CODP, as the CODP indicates how far a customer order penetrates in the goods flow. Based on the position of the CODP four production situations can be identified:

- Engineer-to-order (ETO): products are specifically designed, developed and produced for a particular customer.

- Make-to-order (MTO): products are manufactured on the basis of mostly standard raw materials.

- Assemble-to-order (ATO): products are built of standard modules, but the final assembly is based on specific customer orders.

- Make-to-stock (MTS): products are standard and are produced on stock

Identifying the position of the COPD can clarify how dependent a process is of its

customer orders and till what extend can be looked at moving the COPD up and down

the process in order to make it more manageable.