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A study into the feasibility of a Manufacturing Execution System

Wouter Smrkovský October 2005

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A study into the feasibility of a Manufacturing Execution System

Author W.J. Smrkovský [1095269]

University State University Groningen

Faculty Management and Organization

First supervisor J.C. Wortmann Second supervisor G.A. Welker

Company Impress GmbH & Co. OHG Location Weißenthurm, Germany

Supervisor J. Broska

The author is responsible for the contents of this report; the copyright belongs to the author

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Impress group.

My acknowledgements go to all the people within Impress I have had the pleasure of working with. Special gratitude goes to Mr. Broska for his help and advices during my seven months of research.

Furthermore I would like to thank my university supervisor, Mr. Wortmann. Although most of our contact was by phone he really helped giving me new insights. I would also like to thank my second supervisor, Ms. Welker.

Weißenthurm/Groningen, September 2005 Wouter Smrkovský

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solutions, and is part of the second largest metal packaging company in the world, the Impress group.

In the current situation all material flows are registered manually. Information flows are slow and hardly automated. A common used technique for shop floor control and material management is the use of a manufacturing execution system (MES system). With a MES system all material movements are real time registered. Raw materials and finished products are controlled on pallet level. A MES system enables advanced tracking and tracing.

The main objective of this research is:

To fulfil the objective, the following research question was defined.

A research model is used to answer this question. This model describes three phases. First an analysis, second a design, and third a change. As the objective of this study is to clarify whether Impress would benefit by a MES system, and if so, what system. The change phase is not included in this study. The diagnosis describes the technology of MES systems, the possibilities, advantages, and the disadvantages. Furthermore it describes the processes within Impress, the material flows, the information flows, and the problems. The conclusion of the diagnosis is that Impress needs a solution for some particular problems. Most important are the current pallet labels that are not fulfilling customers’ demands. These labels need to have a barcode containing real time production information. The reasons for these demands are the EU regulations for food safety. Companies in this sector are forced to be able to track and trace their products, and the materials that have been used for these products. Impress is not able to meet the customers’ demands in the current situation. The external analysis learned that ignoring the demands will lead to losing these customers.

The conclusion of the diagnosis of the internal processes is that a lot of small problems appear, concerning the material handling. The differences in stock and the low accuracy of information are the main problems. It was not possible to relate causes to effects, because Impress has not enough information about these problems and effects. This doesn’t take away the fact that a MES system will help to optimize processes, and to improve the quality of information about the material flows, through accurate information on pallet level, and real time control.

In the design phase of the research five alternatives for a MES system are discussed. These alternatives vary from a partial implementation to a full implementation of a MES system. The scenarios are evaluated with the net present value technique, and with a value analysis. All scenarios bring about a positive net present value in the first year after implementation. In Clarifying if Impress benefits by implementing a Manufacturing Execution System, and if so, showing which particular system would benefit Impress most.

At which points in the supply chain is it possible to benefit from a Manufacturing Execution System, what are these benefits and what are their costs?

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The final conclusion of the research is that Impress has to invest in a full MES system. A complete implementation of a MES system enables Impress to satisfy customers. It is a restriction for improving the internal processes and the customer service level. A MES system leads to a positive net present value of 336.301,- euro in the first year after implementation.

This amount is based on securing turnover by not losing customers, and by reducing costs of internal processes.

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Preface ... 3

Executive Summary ... 4

Table of Contents ... 6

Chapter 1 Introduction... 8

1.1 Company overview...8

1.2 Strategy ...8

1.3 Reason ...9

1.4 Problem definition ...9

Chapter 2 Methodology... 11

2.1 Scope...11

2.2 Research model ...11

2.3 Data sources...13

2.4 Conclusion ...14

Chapter 3 Technology... 15

3.1 Explanation of MIS, MES, tracking and tracing...15

3.1.1 Traceability... 16

3.2 Theoretical framework for IT...17

3.2.1 Hardware... 17

3.2.2 Front-end systems... 18

3.2.3 Barcoding ... 19

3.2.4 Filling in the Methec system in the theoretical framework ... 20

3.2.5 Software... 22

3.2.6 Alternatives for Methec ... 22

3.3 An overview of the advantages/disadvantages of MES ...23

3.4 Conclusion ...25

Chapter 4 External analysis... 26

4.1 Impress’ position in the supply chain (Industry Analysis) ...26

4.2 Customers (demands)...28

4.3 Conclusion ...30

Chapter 5 Diagnosis (Internal analysis) ... 32

5.1 Introduction ...32

5.2 Process diagnosis Operating Activities...32

5.2.1 Receiving, coil-cutting and printing-lacquering department ... 33

5.2.2 End-making / can-making department... 38

5.2.3 Scrap flow (and blocked pallets) ... 46

5.2.4 The warehouse (finished goods) ... 48

5.3 Process diagnosis supporting departments ...51

5.3.1 Quality department ... 51

5.3.2 Purchasing ... 52

5.3.3 Sales ... 52

5.3.4 Planning ... 55

5.4 Conclusion of the diagnosis...57

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6.2.1 The first scenario ... 63

6.2.2 The second scenario ... 64

6.2.3 The third scenario... 64

6.2.4 The fourth scenario... 65

6.2.5 The fifth scenario ... 66

6.3 Evaluation of the scenarios ...66

6.3.1 Net Present Value ... 67

6.3.2 Value analysis ... 68

6.3.3 Conclusion ... 69

Chapter 7 Conclusions and recommendations ... 70

Bibliography ... 72

Appendices ... 74

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Chapter 1 Introduction

In this first chapter the field of this research will be explained. First, in section 1.1 a short description of the company will be given as background. In section 1.2 the strategy of Impress is discussed. The reason for the project is presented in section 1.3. The reason leads to a problem definition (with objective, questions, restrictions and preconditions) that is presented in section 1.4.

1.1 Company overview

The Impress Group (Impress) was founded in 1997 after a fusion of Pechiney and Smallbach – Lubeca. Impress is focused on metal packaging solutions for customer goods which are part of every day life and are used by people of all ages. Impress designs, produces and sells metal cans in steel or aluminium, in a wide variety of shapes and sizes. From baby food to soups, from paints to hairspray and from tuna to cappuccino, Impress plays a key role in differentiating their customers’ products and so bringing value to the consumer. A product overview is given in appendix 3.

The plant in Weißenthurm is one of the 40 production plants. The plant was founded by Robert Züchner in 1921. He started with the production of open top cans for the fruit and vegetables industry in the Rhein area. Two years later the plant was purchased by the firm Schmalbach from Braunschweig. The development of the company went very well. During the war the plant got badly damaged. After a reconstruction after the war the company kept growing. As said Schmalbach became a part of the Impress group in 1997. At present the plant is specialized in the production of special cans like the 5 litre beer barrel, coffee powder cans, and pails. Besides, the plant produces die pressed parts (tops and bottoms), painted and coated sheets and special cut sheets (scroll sheets)

The international plants are arranged in Business Units. The plant in Weißenthurm is part of the Business Unit “Specialities”. The plant has 352 employees, consumes 52.000 ton material and its yearly sales are 106 million euro (source: Werkspräsentation Weißenthurm, 2004).

1.2 Strategy

Impress’ strategy is based on three main points (source: www.impressgroup.com). First point is to create value throughout the supply chain, from raw materials through to the performance of the packaging in the hands of the final consumer.

Second point is to differentiate with other metal packaging companies by supporting customers’ initiatives to differentiate their products, providing tailored solutions with innovative shaping, printing and convenience features.

Third point is that at the same time Impress is constantly pursuing to streamline the supply chain and industrial structure, in order to improve cost base and the quality of service to the customers.

Pursuing these three points Impress aims to be the best metal packaging company in the world.

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1.3 Reason

This research is focused on the supply chain of the plant in Weißenthurm. It is thought that a Manufacturing Execution System, which shows all material and production flows within the plant, could have benefits. Such a system offers a lot of possibilities to collect useful information. This information can be used, for example, to improve the production control, control of the warehouse, and for customer information. In the light of continuous improvement, a better information supply could have added value for the company.

As of January 2005, companies in the food-processing and animal feed sectors have to keep full record of flows of goods as required by EU regulation 178/2002. This requires specific production information and standardized labelling. Some of the biggest customers are demanding for pallet labels with barcodes, from January 2005. A Manufacturing Execution System (MES system) is a possible solution to help Impress to meet these demands.

A barcode based tracking and tracing system can be executed in different ways; from simple versions to elaborate, and more expensive versions. The Impress plant in Hoogeveen (The Netherlands) made a plan to implement a complete tracking and tracing system. The central management of the Impress group has rejected this plan, because the financial benefits presented, were not proven.

This study has to clarify what the feasibility of a MES system for Impress Weißenthurm is.

The results yielded by the study have to make clear which information in the supply chain would add value, and what the costs will be to get this information. The final result will be a recommendation of what particular system is needed, what it costs, and what its added value is.

1.4 Problem definition

The reason for the research leads to a problem definition that is given below. The research objective formulates the goal of this project. Answering the research question will fulfil the objective. To answer the research question, sub-questions are formulated.

Objective

Research question

This study aims to give an answer to the following question:

Sub-questions, technology

What is a Manufacturing Execution System?

What can be done with a Manufacturing Execution System?

What possibilities and restrictions have Manufacturing Execution Systems?

Clarifying if Impress benefits by implementing a Manufacturing Execution System, and if so, showing which particular system would benefit Impress most.

At which points in the supply chain is it possible to benefit from a Manufacturing Execution System, what are these benefits and what are their costs?

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What is a barcode based Manufacturing Execution System?

Sub-questions, process diagnosis

What material flows and what information flows are there in the supply chain?

Which problems arise in the Impress processes?

In what way can a MES system offer solutions for these problems?

What are the needs for a Manufacturing Execution System?

What are the wishes for a Manufacturing Execution System?

In what way are suppliers and customers involved?

Sub-questions, system design

− What are the costs for the implementation of a complete Manufacturing Execution System?

Can the implementation be done in parts, how big should these steps be, and what do they cost?

What are the benefits of the parts? For example the value added, Net Present Value, Internal Rate of Return, secure turnover, saving costs, et cetera.

How can the recommended system be implemented?

Restrictions / preconditions

By the central IT department of the Impress group (called M.I.S.), the supplier of the potential system is already chosen. This will be Methec BV.

The system will be barcode based instead of RFID. RFID readers are expensive and they have technical restrictions. Barcodes are cheap and have sufficient possibilities.

The research takes 28,6 weeks in total. Within this period the research should be finished.

− The research has to be done according to the rules of a Technology Management graduation project.

The presented results have to be useful for the company.

All data sources have to be used confidentially.

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Chapter 2 Methodology

This chapter contains an explanation of the research scope, as well as an explanation of the research model. First in section 2.1 the scope of the research is given. In section 2.2 the research model is given. In the third section the data sources are explained.

2.1 Scope

A manufacturing execution system can be of value to the total primary process of Impress.

With this, all places are mentioned where material handling takes place and all divisions that work with information related to the material handling (like planning, sales, purchasing).

Suppliers and customers are involved because of possible advantages in the material flow between them and Impress (supply chain integration). The Impress group lies within the scope because of the influence it has on Impress Weißenthurm. Concerning the EU regulations (Regulation 178/2002 and 1935/2004), legislation is also mentioned in the scope.

The scope is presented in figure 2.1. The horizontal arrows are pointing the direction of the material flow.

Figure 2.1 Scope of the research

2.2 Research model

This model clarifies how the research is build up. It is about how technology can be used in the internal supply chain. Therefore the research will start with exploring these fields. This will lead to a detailed system design. Figure 2.2 shows the research model. The arrow at the right side represents the progress of the research. The research starts with a diagnosis, followed by the design phase, and is ending with the change phase. This is based on the DOV model of De Leeuw (2002). The eventual change phase is not worked out in this study. This phase takes place after the internship.

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Technology

(Manufacturing Execution System) Supply Chain analysis (as in the system border)

Analysis

Design of a system

Implementation Evaluation and recommendation

Diagnosis

Change Design possibilities

Figure 2.2 Research model

In the following sections the parts of the research model are explained.

Technology

A thorough knowledge of the technology is necessary. It is important to know how a manufacturing execution system works, and how it is constructed. The technology chapter gives answers to the next questions:

What are the aspects of the hardware?

What are the aspects of the software?

How can the technology be integrated with the current technology and information systems?

What are the advantages/disadvantages of a manufacturing execution system?

What is a barcode and which information does it contain?

What is a barcode based system and how does it work?

What are the labelling standards at present?

It also has to be clear what the costs of a system are, so that a good assessment can be made of benefits and costs at the end stage of this study. In chapter three the technology will be discussed. The costs of a MES system are given in chapter six and appendix sixteen.

Supply Chain analysis

The supply chain of Impress will be mapped for getting an overview of the different processes and the relations between these. This will help to clarify the scope of the research. What are the material and information flows like. Which departments are there and what relations are between them. The supply chain analysis consists of an external analysis (chapter four) and an analysis of the internal supply chain (integrated in chapter five).

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Analysis/diagnosis

After the analysis of the technology and the external analysis, the diagnosis of the internal supply chain is given. In this diagnosis the different departments are discussed one by one.

The most important processes, the problems, and the possibilities a MES system can offer, will be described. There will be shown how the processes take place, if MES technology can be used, what parts can be used and what it yields. The departments to be discussed are as follows:

Receiving, coil-cutting and printing/lacquering department;

End-making/can-making department;

Scrap-flow and blocked pallets (is not a department, but will be discussed separated);

The warehouse (Halle Claudia);

Quality department;

Purchasing;

Sales;

Planning;

These departments are directly or indirectly related to the material flows. The analyses of these departments lead to a inventory of the processes and the problems. The diagnostic phase will end with an overview of the problems and their possible solutions.

System design

The system design will show what an implementation of a complete system looks like. It will show what hardware and software is needed and what the layout looks like. The system design has to give more information about the possible improvements in the organization.

Beside the complete design four other designs are presented and discussed. The five options are finally evaluated and this leads to a recommendation for Impress in the final chapter of this report.

Implementation

When a particular system is recommended it will be implemented. The implementation is planned after the internship.

2.3 Data sources

To answer the research question and the sub questions, a number of data sources will be used in this research. De Leeuw (1996) states that six types of data sources can be distinguished in desk research: documents, media, databases, reality, imitated reality, and experience of the research workers. The sources that will be used in this study are:

For answering the technology sub questions:

Documents: library (literature), files (in the company) and reports of other research.

Media: illustrated magazines, television.

Databases: Internet.

Reality: People in the company and at suppliers and customers.

Experience of the research workers: The writer of this thesis, and his supervisors.

For answering the process diagnosis sub questions:

Documents: library (literature), files (in the company) and reports of other research.

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Reality: People in the company and at suppliers and customers.

Experience of the research workers: The writer of this thesis, and his supervisors.

For answering the system design sub questions:

Documents: library (literature), files (in the company) and reports of other research.

Databases: Internet.

Reality: People in the company and at suppliers and customers.

Experience of the research workers: The writer of this thesis, and his supervisors.

2.4 Conclusion

The methodology as presented in this chapter gives an overview of the research process.

The research model as showed in figure 2.2 helps to execute the research in a structured and complete way. The data sources as discussed in section 2.3 will be used during the whole research period. Sources are named in the bibliography and in appendix 2. The first aspect to be discussed is the technology of manufacturing execution systems. This is done in the next chapter.

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Chapter 3 Technology

Although a main rule in information system and information technology design is to focus on the I(information) instead of the T(technology), this chapter focuses on technology. To get a good view of the possibilities of a tracking and tracing system we have to look closer at the technology needed. In fact tracking and tracing is a possibility of a Manufacturing Execution System (MES system). Nevertheless, “tracking and tracing” is a common used term in industry for what is in fact a MES system. In this research the term MES system will be used.

This technology chapter aims to answer the first sub-questions of the research, namely:

What is a MES system?

What can be done with a MES system?

What possibilities and restrictions have MES systems?

What is a barcode based MES system?

In the first section the definitions of Management Information Systems, MES, and tracking and tracing are presented. In the second section a theoretical framework for IT-systems is presented in combination with the Methec system and the Methec standard modules. After this hardware part the software part is presented. The section finishes with some alternatives for the Methec system. Section three discusses advantages and disadvantages of a MES system and last section gives a conclusion.

3.1 Explanation of MIS, MES, tracking and tracing

This section starts with the definitions of MIS and MES.

-Management Information Systems (MIS)

MIS programs are charged with the responsibility of gathering, compiling, analysing and distributing the information that describes the activities in an organization.

-Manufacturing Execution System (MES)

A MES is a shop floor control system that includes either manual or automatic labour and production reporting as well as on-line inquiries and links to tasks that take place on the production floor. MES includes links to work orders, receipt of goods, shipping, quality control, maintenance, scheduling, and other related tasks.

A Management Information Systems (MIS) can be seen as an umbrella term. It covers all systems in an organization like plant systems and corporate systems. “Plant systems” is an umbrella term for systems used in the manufacturing like quality control systems and MES systems.

Figure 3.1 shows the relations between the different terms. MIS is an umbrella term for MES and ERP. MES is related to ERP, but ERP is not an umbrella term for MES.

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Figure 3.1, MIS/MES Model (Source: Bestuurlijke Informatiekunde, 2003)

The arrow below “ERP” (Enterprise Resource Planning) shows that corporate systems are leading. This means that if two systems contain different information about something, that the corporate system overrules the other system. As shown in the figure tracking and tracing are applications of a MES system. A MES system can have the following functionalities:

Unique identification (items, pallets, batches);

Location identification (warehousing);

Source identification (where produced);

Shipping identification (delivery);

Reception control (automated checks);

Stock registration (real time stock information and pallet locations);

Efficiency registration (measuring efficiency regarding consumption and waste during production);

Production registration (current production data are real time available to managers);

Quality (Pallets with materials or cans can be “frozen” when there is something wrong).

The first five functionalities are directly related to tracking and tracing possibilities.

3.1.1 Traceability

‘Traceability’ means the ability to trace and follow a product through all stages of production, processing and distribution by means of registered identification data. Tracking is the possibility to locate a product anywhere in the supply chain. Tracing is the possibility to check anywhere in the supply chain the origin and the properties of a product. This is possible with a MES system. It is an important decision on which level the system should be used. For example on product level or on pallet level. The more information wanted the more information gathering systems are needed. Material flows can be mapped out on aggregation

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level, if general information about the material flow is sufficient. But if it is decided that detailed information on article level is useful, the flows have to be mapped on a detailed level.

Traceability in it’s most valuable form is like inserting a code/number of an item (no matter what item, it can be a finished product, raw material or a subassembly) and getting directly an overview generated by the system. This overview shows all what is happened with a particular material. It shows in what products it is processed, and the other way, what materials are processed in a particular finished product. Besides the origin of materials, also the employees and the machines involved in the production process can be traced. With a MES system everything within the company borders can be mapped. To trace beyond the borders of one company, suppliers (or customers) should be contacted for more information.

For a complete traceability some specific information is needed. Burke (1990) describes that most industrial transactions can be fully described by combinations of WHAT/WHY/WHEN/HOW/WHERE/WHO and WHICH. Although a product can be fully defined with these elements, one problem remains in defining these specific elements.

WHERE, for instance, might be either WHEREFROM or WHERETO in terms of time, space, system, and so on. Should a supplier be assigned to WHO (delivered) or to WHERE (did it come from)? Both can be used but double information has to be deleted. These seven elements were used to create a complete list of information needed for traceability. This list is included as appendix 4.

3.2 Theoretical framework for IT

A MES system is information technology (IT). The IT is used to acquire, process, and transmit information. IT pervades every functional area in the workplace. Krajewski (2002) supposes that IT is made up of four sub technologies: hardware, software, databases and telecommunications. They will be discussed here shortly:

Hardware: a computer and the devices connected to it.

Software: The computer programs that make hardware work and carry out different application tasks. Software can provide various executive support systems, including management information systems and manufacturing execution systems. These systems allow managers to evaluate business issues quickly and effectively.

Database: A collection of interrelated data or information stored on a data storage device such as a computer hard drive, or a memory stick.

− Telecommunications: The final component of information technology that makes electronic networks possible.

All these sub technologies are necessary and can be seen separately. But in this study database and telecommunications are discussed together with hardware because these technologies are strongly related. So IT will be discussed here as two parts, hardware and software, to start with the hardware part in section 3.2.1. Software is discussed in section 3.2.5.

3.2.1 Hardware

Recent developments show that it is best to view an information system consisting of 3 layers (Bestuurlijke Informatiekunde, 2003):

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Front-end: collection of interfaces between user and technology;

Middle: the network as a mediator sending information to users;

Back-end: data storage locations, ready for retrieval purposes.

This is visualized in figure 3.2.

GUI GUI (graphical user interface)

Daten

Daten Date

n Netwerk

Server

GUI Front end

Middle

Back end . . .

. . .

Figure 3.2 Three layers of an information system.

The front-end is “where man meets machine”. Most users will not even know that there is more than what they see of the system. Maybe it is wrong to compare the importance of the three different layers, but without an adequate user interface even the most advanced technology is not used on a large scale. So it is very important to give this part enough attention. For the front-end, three different systems will be discussed in the next section.

Radio frequency identification (RFID) as most automated system, barcoding as an average automated system and a manual system (less automated).

The middle seems only to be a connection between the front-end and the back-end. But the network realizes partitioning and spreading of information. The construction of the network can influence the total system. Choosing wireless connections makes the system more flexible. On the other hand fixed connections will make the system more reliable. If users of the system are at more locations than just one plant, the Internet or an extranet can become a part of the information system.

The network part has also a mediation function. In case of more databases, it integrates the different databases.

The back-end consists of databases and servers. Its functions are data-storage, -retrieval, and -updating. Efficient maintenance of data is a complex matter. It handles very large amounts of data. Data consistency is required. Databases are vital to an organization.

3.2.2 Front-end systems

The front-end of the hardware is the part with which the users communicate. There are a lot of possibilities that can be used at the front-end side. It is pretty sure that some of these will be used. The choice for front-end systems will be made in chapter 6, system design. As illustration to the term front-end some front-end possibilities are listed here.

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− Touch screen computers;

Handheld barcode scanners;

RFID gates;

− Hardcopy information;

− Keyboards.

The front-end system used depends partly on the user of the MES system. Within Impress two groups of MES system users can be distinguished. The first group are users on the work floor, at the production lines, in the warehouse, the shipping department, et cetera. These persons physically handle the materials. The second group are the users “in the office”, like the planning office, sales office, and the production management. Essentially they are receiving information from the system instead of feeding it. For this group the front-end interface should be a bit different from the first group’s interface. They need to have a software program on their computer that gives information about the production. There are a lot of possibilities for such a program. It is also possible to make it available online (extranet, internet). For the first group it is interesting to look at the possibilities there are for the front- end interface, especially the way of feeding the MES system. The most useful possibilities are Radio Frequency Identification (RFID), barcoding and scanning, or manually feeding.

RFID is the most state of the art solution, but it has some disadvantages that makes it hard to use for Impress (metal packaging). For example the radio waves are reflected by metal and absorbed or bended by water. Besides this technical problem the cost aspect is a disadvantage too. RFID gates are very expensive compared to barcode scanners. Manually feeding the system is also not an option, because it takes more time and there is much more risk of errors. Although the initial costs of manually feeding are much lower than the initial costs of a barcoding based system, the operational costs may be significantly higher.

3.2.3 Barcoding

Barcoding is left as front-end technology for data collection. In the next section it will be explained what barcoding is, how it works, and its requirements. Starting with a short historical background and a vision on its future perspective.

Historical background

The barcode was invented in 1949. This first invention was not really used. In 1973 the barcode design was developed as it is used at present. By the invention of the cheap laser scanner the use of barcodes explosively increased in 1980. Today barcodes are used everywhere. Most industries are using barcodes for identification of materials or products they produce.

Future perspective

The barcode is a widespread technology in industry and is standardized worldwide. Recent developments have led to increased use of the SSCC (Serial Shipping Container Code). This code for logistic units is being used increasingly, and probably will keep doing so in the future. Specialists think that barcoding will remain the leading technology for years.

Working

Barcoding combines two primary principles: printing and binary logic. The code is a collection of lines that represent ones and zeros, a binary number what can be translated to a normal

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number. This number refers to information that can be found for example in a database. For reading a barcode, a scanner is needed. Currently, the four different types of bar code readers available are (source : http://www.semicron.com/scannertips.html):

Pen type readers (bar code wands);

Laser bar code scanners;

CCD (Charge Couple Devices) barcode readers;

Camera based barcode readers.

Each of these types uses a slightly different Technology for reading and decoding a bar code.

The laser bar code scanner is the most popular scanner. Therefore only this scanner will be explained. Laser barcode scanners use a laser beam as their light source, and typically employ either a reciprocating mirror or a rotating prism to scan the laser beam back and forth across the bar code. A photo diode is used to measure the intensity of the light reflected back from the bar code and to generate a waveform corresponding to the widths of the bars and spaces in the bar code. The barcode reader sends the waveform to the decoder, which decodes the waveform and sends it to the computer in a traditional data format. Benefit of a Laser barcode scanner is that it doesn’t need to be close to or touch the bar code to do its job.

Although the concept is simple, application of barcode technology is quite complex.

Consistency in the codes is important. There are a lot of companies that work with several different codes. Good communication with other companies in the supply chain can prevent using different codes.

Labelling standards nowadays

In a system that operates on pallet-level all pallets have to be individually registered. In this way it’s possible to have a full “tracking” and “tracing” capability. The standard Impress pallet labels for such a system contain specific information regarding the content of the pallet. The standard Impress label contains:

1. Item code for Impress;

2. BPCS (ERP) system code;

3. “Customer Code” the X-ref information;

4. Manufacturing information regarding the pallet;

5. EAN-128 barcode;

6. SSCC code;

7. Plant information;

8. Tear strip.

This label is developed in cooperation with customers and competitors. This label meets the most important customer demands. Nevertheless, some customers like to have some specific additional information on it.

3.2.4 Filling in the Methec system in the theoretical framework

As said in the preconditions of the research, the supplier of the system is Methec BV. The system they deliver is an IBM software package called DCConnect. DCConnect is made up of different modules.

− DCConnect server;

DCConnect User Interface;

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Methec Standard Modules (scanners, touch screens, labellers, et cetera).

Figure 3 shows the hardware of the Methec system in the three layer model.

Figure 3.3 The Methec system in the three layer system Front-end

There are Methec standard modules for warehouse management, production visualisation and registration, and reporting. For these standard modules the following interfaces (front- end) are available:

− MES-client;

− Label printer;

− Data collection terminal;

Radio frequency (RF) terminal;

− RF-client operator;

PC-client operator;

PC-client supervisor;

− PC-client reports.

The functionalities of the standard modules will be shown in the software section.

Middle

The middle of the Methec system is the transaction connection. This is the network of the system. Applied to Impress Weißenthurm this will be partial the same as the present network.

New parts will be the network in the end-/can-making department (In the printing/lacquering department there already is a network), and the connection to new front-end and back-end parts.

When the forklift trucks are not equipped with RF terminals the transactions are collected offline in portable terminals for later transfer to the central database. This is a middle issue because this is about data transferring.

Back-end

The back-end of the Methec system consists of the DCConnect server and the BPCS server.

-The BPCS server is an IBM database server on which the BPCS ERP system runs. BPCS (Business Planning Control System) is Impress’ main ERP system.

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-On the DCConnect server the DCConnect software runs. The Methec standard modules and databases belonging to the modules are also installed on this server.

3.2.5 Software

Methec offers three standard modules. These modules are a combination of hardware attributes and software. The software will be installed on the DCConnect server. The functionalities of the standard modules are as follows:

1. Warehouse management module

The warehouse management module offers standard functionality for the management of a warehouse. Standard functionality in the warehouse module comprises (source: Methec, 2004):

Preferred location at put-away;

Inventory replenishment;

FIFO for goods picking;

− Order picking;

− Transfers;

Merge/split of picking jobs;

Optimum picking route (based on numbering of warehouse locations);

Reports (including free locations, outstanding picking jobs, current stocks, et cetera).

2. Production Visualisation and Registration module (PV&R module)

The PV&R module helps to manage and control the production. This module offers the following functionality as standard:

Signing operators on and off machines;

Order time recording;

Starting and stopping orders;

Signing materials in;

Displaying machine status, current orders, et cetera at supervisor level.

3. Reports module

The reports module makes it possible to draw up customer-specific reports about machines, orders, and operators.

The compatibility of the software with other IT systems is essential. The MES system works with the BPCS system. Other systems have to be integrated with the new system as well.

Overlap between systems is possible and has to be prevented as much as possible. A major problem can be the legacy problem that might appear when a new system takes over some functionalities of the old system. In this case it can happen that there is double information in the system, with as result that old information is used instead of the most up to date information. If this problem appears it can be tackled by using data integration techniques.

Hasselbring (2000) states that for good working information technology the applications need to understand the data provided by other applications. This means that Interfaces between different systems are very important.

3.2.6 Alternatives for Methec

There are several suppliers of MES software. The choice for Methec is already made by the Impress group’s MIS department. Although the fact that this choice is fixed, it is worth to

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discuss two other systems (suppliers) shortly. The decision is made on a management level, but within Impress, people in the plants are doing their own thing, when they like. This is why some tests are done in several Impress plants with other systems. GST will be discussed first because this system is already in use for some MES tasks, and second APC because some other Impress plants have pilot systems of this supplier.

GST GST (planning tool) can be used for printing labels with barcodes. On the shop floor a personal computer and a printer are needed. The line operator selects in the GST system the order he is working at, and he prints a label for every pallet. The printers are cheap and the labels are also very cheap. The labels are printed on normal A4 paper instead of thermo A5 label paper. The investments in the hardware of this system are low, but for the software some new applications have to be developed and licenses are needed. The functionality of the system is very low. Compared to the old situation, GST can print labels with real-time information encoded in barcodes. At this moment GST is used on a small scale to fulfil some consumer wishes/demands. The system is not without errors. The servers are overloading. This seems to be a start-up problem.

APC APC (Advanced Process Control) provides a system for the production process, including real time machine data collection systems covering:

− Downtime;

− Lost Time;

Quality Control (QC) / Quality Assurance (QA) / Statistical Process Control (SPC);

Process Capability;

Machine Performance;

Reject/Scrap Analysis;

Product Compliance;

Material Traceability.

In four other Impress plants APC delivers a system for production control. Main objective for these plants is improving the efficiency of the lines and reducing the production of waste. A pilot of this system is also planned in Weißenthurm. APC can also deliver a MES solution for tracking and tracing, labelling and warehouse management According to the M.I.S. department; the costs of APC are high (the initial costs are low, but the yearly costs are very high).

3.3 An overview of the advantages/disadvantages of MES

Advantages

First the most important benefits are presented point by point.

-A MES system gives real-time production information so that the production can be directly controlled, and so that always the right information is used.

-The information is accurate so that it can be worked with in a reliable way.

-The information input is automated, so human input errors cannot be made. This way the input is also faster and is directly processed in the ERP system, so no time gap appears between material handling and related information processing.

-Possibilities for improved quality assurance. Materials can be checked at the input side of a machine to validate whether the materials are present in the bill of materials for the started

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order. Wrong material at a line leads to a warning signal or can even lead to a blocked machine.

-Disapproved materials or blocked products can be “frozen” in the system. When frozen, a pallet can’t be processed or shipped by accident.

-A MES system gives better control of the production. It gives insight in which lines are producing and which order is worked on at the moment. It also gives insight in downtimes of the lines, when the downtimes appear and how long they are. This will give more information about the efficiency of the lines. This insight in efficiency can be given on different levels, for example: global information can be generated by registering just the material scanning and the pallet label printing, detailed information can be generated by registering all individual item movements.

-A MES system can help to reduce waste. It gives direct insight into how much waste is produced and when. The high waste production can be related to the causes more easily.

A lot of benefits are intangible. “Information systems projects typically involve benefits that are difficult to measure in terms of concrete monetary benefits” (Olson, 2004). A normal project proposal can be evaluated with a cost-benefit analysis, but because of the intangibility of the costs this analysis not simply useable for an IT project. Olson (2004) describes some intangible benefits that appear by implementing an IS/IT system; employee satisfaction, gains in customer service, enhanced corporate image, supply chain integration and ability to support e-business operations. Olson is supported by utterances in some articles. Hinton and Kaye (1996) state: “Employees may feel more motivated and productive as a consequence of the (IT) system.”

In some other articles another (indirect) advantage of a MES system is named; cost prevention. If something goes wrong with a product in future, a MES system can save a lot of money.

“We need to bear in mind the costs involved, but also the costs that you might incur if you don’t implement traceability system. This will mean high costs and products destroyed, and will also affect the good name of your business.” (Davies, 2003)

“Traceability is going to save you millions of pounds if you get it right and a crisis comes along” (Food Manufacture, 2003)

To conclude with, some benefits of an advanced MES system are presented here point by point.

Automatic collection and reporting of machine data;

Down-time and cycle time analysis;

Capacity analysis;

System process drill down (from summary- to detailed information);

Waste and spoilage analysis;

Reducing maintenance costs by more specific maintenance.

Disadvantages

The biggest disadvantage of a MES system is the investment. An estimation of the costs of a total implementation of the Methec system can be found in chapter 6.

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Another disadvantage is the dependence on the system when it is implemented. A downtime of the system leads to problems in almost all processes.

A third disadvantage that can be pointed out is the losing of some ways to control. In case of manual bookings and manual printing, it is very easy to check an extra time.

3.4 Conclusion

With a MES system it will be possible to get real-time information of the workflow. The benefits are: more accurate information, higher production quality, less manual administration, reduced waste and improved efficiency. The real-time information can be used for better planning, purchasing, sales, warehouse management, et cetera. In fact all departments that work with materials (no matter in what way) can use the MES system to improve their processes. Besides the measurable benefits, the intangible benefits like employee satisfaction and enhanced corporate image play a part. The biggest disadvantage of implementing a MES system is the investment costs.

A MES system links together the production level and the management level. A MES system needs information technology. It can be concluded that the most important part of IT is the front-end of the system. Communication with the user is of vital importance.

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Chapter 4 External analysis

The main goal of this chapter is to give insight in the environment of Impress Weißenthurm.

Only the parts of the environment relevant for the objective of this study will be discussed.

Section 4.1 gives the analysis of Impress’ position in the supply chain. Section 4.2 gives an analysis of the customers and their demands.

4.1 Impress’ position in the supply chain (Industry Analysis)

To describe the position of Impress in the supply chain, Porter’s five-forces framework is used. This model is mostly used to map the intensity of competitors, but in this situation it will help to give more insight in the circumstances of the relations between Impress and the suppliers and Impress and the customers. Porter’s framework includes five forces: internal rivalry, entry, substitutes and complementary products, supplier power, and buyer power.

Only the supplier power and the buyer power are discussed in this study. These two forces are relevant because they might influence the material flows and the information flows at Impress. The supplier is the previous link, and the buyer is the next link in the supply chain.

Some aspects of the other forces will be included in the description of the two discussed forces. Figure 4.1 shows the five-forces framework adjusted to how it will be used in this study.

Figure 4.1 The adjusted five-forces framework

For assessing the supplier and the buyer power the five forces scorecard (Besanko, 2004) is used. This scorecard contains a couple of questions. The answers are processed in the next two sections which both will lead to a conclusion about the power of respectively suppliers and buyers.

Supplier power

For assessing the supplier power, factors affecting or reflecting this power are discussed point by point.

The tin-plate industry is as concentrated as the downstream industries. This gives neither the tinplate industry nor the purchasing industry a greater bargaining power.

The tinplate plants belong to only a few steel companies, the Impress plant in Weißenthurm is part of the Impress group, one of the biggest metal packaging companies in the world.

As the biggest producers of tinplate are suppliers of steel in first place, tinplate is only a small part of their total production. Tinplate has a higher value added as the

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standard hot rolled steel, however, the big steel producers are not dependent on the tinplate market. Relative to other customers of the tinplate suppliers Impress purchases average volumes.

For producing cans the material needed is metal. This cannot be replaced by another kind of material. So for the material input there are no substitutes. Impress is buying the metal at, at least, five different metal suppliers. It is possible to change to other metal suppliers, but because of the prices, this is unlikely.

Impress does not make relationship-specific investments to support transactions with specific suppliers.

There is no risk on competition by forward integrating suppliers. Some suppliers are developing new products for the metal packaging market, but they don’t start producing metal packaging.

Suppliers are able to price-discriminate so they can raise the prices they charge more profitable firms.

The relation between supplier and customer is neutral when the supply and demand is in balance. For many years the tinplate market was in balance but because of the high economic growth in China, these days there is an imbalance in the steel market. The demand is higher than the supply what has lead to increased prices. Now the demand for steel is so high steel companies have no problem selling it.

From the preceding can be concluded that the suppliers have a lot of power. This is a threat to Impress and its profits. The power of the suppliers will decrease if the demands for steel decrease, what is not to be expected.

Buyer power

“A firm has purchasing power when its purchasing volume represents a significant share of the supplier’s sales or the purchased item of service is standardized and many substitutes are available” (Krajewski, 2002 page 514). The buyer power will be higher if there are more competitors, substitutes and alternatives for a firm. Today the packaging market is very competitive.

For assessing the buyer power, some factors affecting or reflecting this power are discussed.

− The buyers’ industry is as concentrated as the purchasing industry. Impress Weißenthurm is part a group and most customers are also united in a group.

The buyers purchase large quantities. The total purchase volume of some customers represent large fraction of Impress’ sales revenue.

Buyers can find many substitutes for the Impress product. Some substitutes are plastic packaging, cardboard packaging and glass packaging. Metal packaging has some advantages above other materials, but new developments make other materials increasingly better substitutes for metal.

Most buyers have invested in filling machines that are only useful for one kind of packaging method. This is a relationship-specific investment that might keep buyers from switching to other packaging suppliers.

Buyers do not pose credible threat of backward integration.

The product represents a significant fraction of total costs in buyer’s business.

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− In the packaging industry the location of a supplier is very important. Transport of high volume goods like cans is expensive. Transport costs depend on the can size.

On average cans can only be transported profitable within 500 kilometres of the production location.

It can be concluded that the buyers have a lot power. The buyer power is high and this is a threat to Impress and its profits. Thanks to new developments this buyer power is still increasing.

4.2 Customers (demands)

This section gives insight in the customers of Impress Weißenthurm. It starts with an overview of the customers groups. After that, special demands of some customers are given.

Finally the current pallet label is discussed.

The customers are divided in customer groups (in brackets the turnover of 2004 in thousand euro).

Sauce, Soups and Ready Fruit and Vegetables (12.623)

Sauce, Soups and Ready Meals (7.938)

Dessert, Baby Food and Preferred Drinks/Coffee (19.742)

Johnson-John.Dec.Pr.Finish (1.617)

Beverage (2.895)

Services & Others (534)

Classic Designs/Tobacco (1.761)

Impress has about 188 external customers. With an ABC-analysis the customers are divided in three groups. An ABC-analyse gives insight in the customers that account for the most sales. These customers deserve management’s closest attention and tightest control (Krajewski, 2001). An ABC-analysis gives the next information:

15.4% of the customers account for 80% of the yearly sales (group A).

18.1% of the customers account for 15% of the yearly sales (group B).

66.5% of the customers account for 5% of the yearly sales (group C).

The internal customers (other Impress plants), accounting for about 40% of the total sales, are not included in this ABC-analysis.

Impress’ customers are mainly active in the foods sector. The cans delivered to these customers are used for the packaging of food. The legislation for the food sector is recently stiffened. The EU regulation 178/2002 states that all materials and ingredients in foods have to be traceable. Regulation 1935/2004 is about materials and articles intended to come into contact with food, and shall apply from 27 October 2006. Article 17 of this regulation is about traceability and contains the following sentence: “The traceability of materials and articles shall be ensured at all stages in order to facilitate control, the recall of defective products, consumer information and the attribution of responsibility.”

This resulted in customers demanding for some particular information about the products of the suppliers. This information is not the same for each customer. The standard pallet label of Impress contains information that is enough for most customers. Some customers like to have more. These customers are Meica, Hilcona, Phillip Morris International (PMI), Nestlé,

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