The influence of smart industry concepts on the exact place of the CODP
within mass-customize production
by
Kimberly J. M. Spaansen
S2769832
E-mail: k.j.m.spaansen@student.rug.nl
Master thesis, MSc Supply Chain Management Faculty of Economics and Business,
University of Groningen, P.O. Box 800, 9700 AV Groningen,
The Netherlands
June 26, 2017
2 ABSTRACT
This paper examines the influence of smart industry concepts (SIC) on the CODP within mass-customize production. Within this study, a comparison has been made between four manufacturing organizations, all situated in the Netherlands. Results show that SIC may have a direct impact on the exact position of the CODP. SIC enable a seamless information flow from the customer to the production environment that enhances/maintains current delivery speed, increases flexibility and changeability and enables process transparency. Furthermore, this can help organizations to better meet the increasing demand for customization, which makes it possible for organizations to move their CODP upstream. A successful implementation of SIC depends on the application of the suitability of the different concepts, as well as the characteristics of the organization. The impact of SIC on the CODP is bigger at companies with the production approach ATO compared to organizations with the production approach ETO since delivery speed is of more importance for these organizations. Several internal cultural and technical barriers exist that have to be overcome before implementing SIC. An external barrier to be overcome is the necessary level of cooperation between different partners within the chain. The integration of the entire supply chain may strengthen the influence of SIC on the CODP within mass-customize production.
Key words: Smart Industry, Industry 4.0, Industrial Internet of Things, CODP, Mass-customization capability, Manufacturing, delivery speed, modular product design, flexibility, smart operator, smart product, smart machine, smart planner.
3 PREFACE
This thesis has been written as a completion of the master Supply Chain Management. Several persons have supported academically, practically and with support to this master thesis. Therefore, I would firstly like to thank my main supervisor Martin Land and co-supervisor Jan de Vries for their time, valuable input and support throughout the entire master period. Furthermore, I would like to thank José Laan and Sandra Verweij for their help finding the most suitable organizations for this research. I would also like to thank all organizations that participated in this research, for their time and information. Finally, I would like to thank my family and friends for being helpful and supportive during my time studying Supply Chain Management at the University of Groningen.
4 INTRODUCTION
Nowadays, the fulfillment of individual customer requirements is becoming more and more important in determining an enterprise's competitiveness (Zawadzki & Żywicki, 2016), which led organizations to change their production process from craft production to mass-customization (Brettel, Friederichsen, Keller and Rosenberg, 2014). In order to improve operational effectiveness in combination with mass-customization, the customer order decoupling point (CODP) has gained increasing interest (Olhager, 2010). The CODP divides the material flow that is forecast-driven from the flow that is customer order-driven (Olhager, 2010). Currently the trend is to shift the CODP upstream, in order to improve supply chains ability to meet the individual customer requirements (Van der Vorst, Beulens and Van Beek, 2005). However, since customers are also requiring an assurance of fast and reliable delivery, mass-customization has drawn increasing attention on scheduling problems in which interests are specifically focused on timely delivery and zero inventory (Böckenkamp, Mertens, Prasse, Stenzel and Weichert, 2016). Nevertheless, organizations may need appropriate inventories to deal with the combination of customized products and timely delivery (Böckenkamp et al., 2016). New opportunities, which arise from new and modern technologies, so called smart industry, may provide benefits for improving performance throughout the entire industry (Lee. 2015).
Opportunities can be gained from the fact that smart industry concepts (SIC) are able to bring different levels of transparency to the manufacturer (Lee, 2015). Since process transparency in mass-customization is essential for both internal purposes as well as for customers (Blecker and Graf, 2003), SIC may help organizations in creating transparency and therefore better manage its systems and operational practices (Salvador, De Holan and Piller, 2009). With the use of SIC, an organization is able to faster react to changing customer demands (Rauch, Dallasega & Matt, 2016), requiring less inventory. However, since compared to craft production, mass-customization decreases an organizations’ delivery speed, the exact point where the product is linked to a specific customer order (CODP) is an important strategic decision (Olhager, 2010; Rudberg and Wikner, 2004). At this point, organizations keep inventories of subassemblies and semi-finished products (Blecker and Kersten, 2006). As the CODP moves upstream in the value chain, the degree of customization is expected to increase; however, this also includes a decrease in the delivery speed (Blecker and Kersten, 2006). Since the active communication of SIC increase overall response speed of the organization (Kunzemann, Jacobs and Schelenz, 2017; Jeschke, Brecher, Song, & Rawat, 2017), this may have an influence on the exact place of the CODP.
5 variety of interfaces (Imtiaz and Jasperneite, 2013). Investigating the mixed threats and opportunities of SIC can help organizations to gain a competitive advantage. This paper aims at providing insights into the relationship between the CODP and mass-customization and the role of SIC on this relationship, which has led to the following research question:
RQ: How do smart industry concepts influence the customer order decoupling point within mass-customize production?
The findings will contribute to the literature of the CODP, mass-customization and the scarce literature of smart industries by describing how the three variables are related. Furthermore, the findings will support decision makers to access their need for transformation towards smart industry practices. The results reveal reasons for the adoption and refusal of smart industry practices from a managerial point of view and can help managers in manufacturing firms to develop a better understanding of the effects of SIC on organizational capability and performance.
6 LITERATURE REVIEW
Mass-customization capability
A product offered by a firm can range from one-size-fits all (standardization) to a fully personalized one (customization) (Tregear, 2010). Since customers require more and more specific products, organizations adopt modular product and process architectures (Tu, Vonderembse, Ragu-Nathan and Ragu-Nathan, 2004). Modularity-based manufacturing is the degree to which a product is made up of relatively independent but interlocking components of parts1. Baldwin and Clark (1997) suggest that modularity is an effective manufacturing strategy that enables organizations to cope with the increasing changing customer requirements and the technical complexity of products, therefore achieving distinctive mass-customization capability. Mass-customization can be defined as the offering of a relatively high-volume of product options for a relatively large market that demands customization, without significant tradeoffs in cost, delivery speed, and quality (Wang, Zhang, Sun, Zhu, 2016). Mass-customization can be achieved through high process flexibility (Da Silveira, Borenstein and Fogliatto, 2001). Mass-customization should combine the advantages of single piece production (precise and individual) and mass production (inexpensive and quick), with the implementation of product modularity (Zawadzki and Żywicki, 2016).
The implementation of mass-customization is highly attractive from a client’s point of view. However, it is a significant barrier for an organization as it increases operational uncertainty and complexity (Wang et al., 2016). Since customers require assurance of fast and reliable delivery (Ricker and Kalakota, 1999), mass-customization organizations produce their customized variants by starting some tasks or assembling of pre-manufactured modules directly after customers order. In which the production process must be very flexible and adaptive in order to meet these requirements (Zipkin, 2001). Increasing the agility of a production process, and therefore holding inventory is one of the biggest concerns for companies in order to introduce mass-customization (Ricker and Kalakota, 1999).
Researchers have found that mass-customization can be developed through time-based manufacturing practices (Tu et al., 2001), organizational learning (Huang, Kristal and Schroeder, 2008), information communication technology (Peng, Liu and Heim, 2011), quality management and supply chain integration (Jitpaiboon, Dobrzyowski, Ragu-Nathan and Vonderembse, 2013). Furthermore, a way to respond quickly to customer demand and to produce products without quality losses is implementing advanced and innovative technologies and systems, such as SIC (Salvador et al., 2009).
Smart Industries
According to Zawadzki and Żywicki (2016), smart industry (i.e. Industry 4.0) can be defined as “the
7 use of modern information technologies, such as the cyber-physical systems or the internet of things, and the processing of vast amounts of data (Big Data)”. Smart industrialization includes a computerized intelligent manufacturing environment and enables organizations to have a high degree of flexibility in production, in terms of product needs (specification, quality and design), volume, timing, resource efficiency and costs (Zawadzki and Żywicki, 2016; Project Team, Smart Industry, 2015). SIC are enabled by a network-centric approach, making use of the value of information provided by information communication technologies (ICT) (Project Team, Smart Industry, 2015).
According to Kolberg and Zühlke (2015), smart factory components can be divided into four main concepts, namely: (1) smart operator, (2) smart product, (3) smart machine and (4) smart planner. A Smart operator is equipped with a smart device (e.g. smart watch) in order to allow them to supervise processes. Smart products contain their own product information so that it makes it possible for organizations to gather information individualized per product and production line automatically, which will allow for less labor-intensive production and more accurate data (Kolberg and Zühlke, 2015). Furthermore, by the use of smart products, an organization is able to track capital stuck in inventory, where inventory is stocked and for how long it is (and will be) stocked (Karsten, Slikker and Van Houtum, 2012). Smart machines can communicate with smart products in a way that flexibility and error avoidance can be supported. With the use of smart machines, the setup time for a whole production line can be significantly reduced, following to Single-Minute Exchange of Dies (SMED) principle (Zuehlke, 2010). With a smart planner, production automatically adopts to current production programs. A smart planner has proven to increase delivery reliability and reduce transportation times by 25 percent (Lappe, Veigt, Franke, Kolberg, Schlik, Stephan, Guth and Zummerling, 2014). Furthermore, smart planners allow traditional systems to turn into cyber physical systems in which production is controlled or monitored by sensors, connected to computer-based algorithms (Kolberg & Zühlke, 2015). These sensors prevent mismatches between inventories of the systems and real inventory. Additionally, these sensors will allow for a reduction in buffer stock, simplify the high manual effort of maintaining stock, and increase response speed (Jeschke, Brecher, Song, & Rawat, 2017). Of course, stock planning is not the only concern of the internal planning process (Kolberg and Zühlke, 2015). Capacity planning and scheduling also take place as part of internal planning and depend on the exact place of the customer order decoupling point (Slack, Chambers and Johnston, 2010). Moreover, SIC allow for a faster information exchange as to realize an increase in the delivery speed of an organization. Currently the trend is to shift the CODP upstream the supply chain in order to improve the responsiveness of the organization by acting pro-actively on timely information (Van der Vorst, Beulens and Van Beek, 2005).
Customer Order Decoupling Point (CODP)
8 Wikner, 2004). The decoupling point in postponement literature reflects the productivity-flexibility trade-off (NG, Scharf, Pogrebna and Maull, 2014). According to Rudberg and Wikner (2004), a CODP separates decisions made under certainty from decisions made under uncertainty related to customer demand. CODPs are used by organizations to classify value-added activities in terms of customer demand information that consecutively highlights the need for different management approaches, depending on whether the activities of customization are upstream or downstream of the decoupling point(s) (Rudberg and Wikner, 2004). The CODP is the last point at which inventory is held (Sharman, 1984). When products are fully customized, there is no finished-goods inventory, which leads to low carrying costs, but also, customers must wait longer for their personalized products (Huang et al., 2008).
Rudberg and Wikner (2004) reveal four different CODPs, which are most frequently used: make-to-stock (MTS), assemble-to-order (ATO), make-to-order (MTO), and engineer-to-order (ETO). The further downstream the CODP is positioned, the more of value-adding activities have to be done based on forecasts. The further upstream the CODP is positioned, the more activities can be based on customer requirements. Figure 1 shows the different CODPs.
FIGURE 1
Different CODPs (Sharman, 1984).
9 Relation
Connecting the theoretical insights on mass-customization, smart industries and the CODP, indicates that mass-customized production has an effect in determining the exact place of the CODP. Companies try to move their CODP upstream in order to meet the individual customer requirements, however, the need for faster delivery makes companies push their CODP more downstream (forecast driven). SIC can help organizations to become more flexible, respond faster to individual customer requirements and to decrease inventory. Which may leads organizations reconsider the exact place of the CODP.
The theoretical framework to be examined in this study is depicted in Figure 2. As the literature shows, the different constructs concerning the research consist of sub-constructs. These sub-constructs are described in order to give a clear and precise answer to the research question.
10 METHODOLOGY
Research Design
This study aimed to investigate how SIC influence the exact place of the CODP within mass-customize production. The contribution of SIC to the CODP in mass-customization had to be unveiled by understanding and analyzing the phenomena, which has been done by qualitative research. According to Barczak (2015), qualitative research is an inductive approach to build and advance theory. Qualitative research is especially helpful in order to gain specific answers and many insights of new and unknown subjects (Straus and Corbin, 1990). While the domain of inquiry is in its nascent stage (little is known about the influence of smart industries on the relationship between mass-customization and the CODP), the use of qualitative research will be the most appropriate research method (Shapira, 2011). This study focused on four different cases within mass-customize production. A multiple-case design gave the possibility to compare research data and to clarify whether or not an emergent finding is replicated consistently by multiple cases (Eisenhardt, 1991). The insights gained from a multiple case study are better theoretically transferable compared to a single case study, because the context and the cases differ. This understanding will provide the answer to the research question, by describing how SIC contribute to the CODP within mass-customize production.
Research Setting
The setting for this qualitative research concerned Small Medium Enterprises (SMEs) that use mass-customization. SMEs were chosen because new and modern technologies are capable to help particularly SMEs to produce in smaller batch sizes in order to dynamically follow market opportunities (Brettel et al., 2014). Furthermore, innovation delays and incapacity to adopt new technological developments in the SME sector are were crucial for the European economy because of the large representation of the SME sector. i.e. 99 out of every 100 organizations are SMEs (Coleman, Gob, Manco, Pievatolo, Tort-Martorell and Reis, 2016). Moreover, this research analyzed only SMEs to support the findings within this segment. Four different companies were analyzed by the use of desk research and interviews. In total, seven extensive interviews were held. Furthermore, the production environment of each organization was analyzed, to gain the best understanding of strategic choices within the organization and the production process including bottleneck(s). The setting for doing the interviews has been face-to-face.
Case Selection
11 concepts, however the use is yet unknown. It is expected that SIC may have a bigger impact on the ATO production approach since the importance of the delivery speed is expected to be of more significance to the corresponding organization (literal replication). Table 1 shows an overview of the selected cases. Table 2 shows the replication logic of the selected cases.
TABLE 1
Overview of Selected SME Organizations
Organization Type of organization Interviewees
1 Market leader in cryogenic infrastructures for industrial gas companies, scientific institutes and EPC contractors worldwide.
Financial Director Operational Director 2 Market leader in high-technology products for
all types of stables
Director Strategy & Large Projects Manager Operations
3 Market leader in the development and production of street sweepers.
Logistics Manager Manufacturing Engineer 4 Market Leader in wheel building solutions and
custom made machines
Operational Manager
TABLE 2 Replication Logic
Data collection
The data for this qualitative research is gathered by having semi-structured interviews. The interviews are semi-structured as the structure and questions are determined beforehand to make sure that all data is comparable and analyzable. The semi-structured interview guide consists of open questions, which were checked by an expert in the field of Supply Chain- and Operations Management. The semi-structured interviews provide the structure of interpersonal interaction, comparing results and the flexibility to further elaborate on specific concepts when for example a question is insufficiently answered by the interviewee (Patton, 2015). The interviews have been executed face-to-face in order to acquire the best and most extensive information. The interviews are voice recorded and transcribed, resulting in over 32,000 of valuable words. Ultimately, the data gathered from the interviews is translated in an overview of how manufacturing organizations can benefit from SIC and how these concepts will influence the CODP of organizations.
Case Variable CODP Mass-customization capability Smart Industry adoption Effect 1 ETO + +/- +
2 (product type 1) ETO + +/- +
2 (product types 2 and 3) ATO + +/- ++
3 ATO + +/- ++
12 Operationalization of concepts
To discover the relationship between SIC and the CODP in terms of mass-customization, there are many interview questions needed. Table 3 concerns the most important interview questions concerning the customization capability of the organizations. Three indicators of mass-customization capability can be identified through these questions.
TABLE 3
Investigation of mass-customization capability
The following questions covered the mass-customization capability of the organizations.
Aim Question
Delivery speed To what extent are fast turnarounds important to the organization? Modularity To what extent do the requirements fluctuate?
How often is the product changed because of changing customer demand? How are the different customized products created?
To what extent are ‘standardized’ products made before the customer order is known? Flexibility How flexible is the manufacturing process concerning changeovers?
What barriers does the organization currently face regarding mass-customization capability?
Table 4 concerns the questions regarding the relation between mass-customization capability and the CODP. In addition, the position of the COPD was identified through these questions (during the interview).
TABLE 4 Investigation of the CODP The following questions covered the CODP of the organizations.
Aim Question
CODP From what point in the manufacturing process does the customer have influence? (Level of customization)
Why is it decided to apply customization from this point?
In which places is consciously kept stock in the production process?
Table 5 concerns questions regarding the use of SIC within the organizations.
TABLE 5
Investigation of the use of SIC The following questions covered the use of SIC within the organization
Aim Question
Smart Industry
Does the organization currently makes use of SIC, within production?
What concepts are applied?
What is the purpose of using these concepts?
What is the experience up to now of the use of these concepts?
Have there been any barriers to implementing these concepts? Is the organization planning to make more use of SIC in the future?
What will these concepts be used for?
What is the purpose of using these concepts?
Are there any barriers that make the implementation more difficult?
13 TABLE 6
Investigation of the relationship between SIC and the CODP within mass-customize production. The following question covered the perspective of the interviewees of the relationship between SIC and the CODP within mass-customize production.
Aim Question
Relationship Do you think that introducing different SIC, can affect the CODP (allowing more customization) without affecting delivery time, and why?
Data analysis
First, the table that can be found below represents the variables and concepts that have been used for the analysis of the data. Secondly, all seven interviews have been analyzed using coding. Coding was used to identify the most important concepts from transcribed interviews (Strauss and Corbin, 1990). The interviews were read multiple times and codes have been attached to relevant quotes of the different interviews in Microsoft Excel. When all interviews were coded, an overall analysis of the insights per interview is made in order to detect relationships between the different concepts. A code tree is developed based on the most important concepts from the research question, namely: mass-customization, CODP, SIC. An overview of how the analysis has been done can be found in Appendix A. Next, the outcomes of the different interviews were compared in order to find cross-case similarities and differences. An overview of the operationalization of the variables can be found in Table 7.
TABLE 7
Operationalization of variables
Variable How to measure
Mass-customization capability
The ability to manufacture a relatively high-volume of product options for a relatively large market that demands customization, without significant tradeoffs in cost, delivery speed, and quality (Huang et al., 2008) Delivery
speed
The speed of an organization to deliver customized products and reorganize production processes in response to customization requirements (Chen and Paulraj, 2004). Speed is inversely proportional to delivery time.
Modularity Degree to which a product is made up of relatively independent but interlocking components or parts2
Flexibility The ability of the organization, to cost effectively vary its output within a certain range and given timeframe3
CODP The CODP distinguishes the material flow that is forecast-driven from the flow that is customer order-driven (Rudberg and Wikner, 2004).
MTS A build-ahead production approach in which production plans may be based upon historical demand and/or sales forecasts (Rudberg and Wikner, 2004).
ATO A production approach in which components are assembled according to specific orders, as opposed to assembling to fill a stock level (Rudberg and Wikner, 2004).
MTO A production approach in which products are not built until the order has been confirmed (Rudberg and Wikner, 2004).
ETO A production process in which products are designed, engineered, and built to specifications only after the order has been confirmed
(Rudberg and Wikner, 2004).
2
14 Smart industry A computerized intelligent manufacturing environment that enables
organizations to have a high degree of flexibility in production, in terms of product needs (specification, quality and design), volume, timing, resource efficiency and costs (Zawadzki and Żywicki, 2016)
Smart operator
A smart operator is equipped with a smart device in order to allow them to supervise processes (Kolberg and Zühlke, 2015)
Smart product
Smart products contain their own product information so that it makes it possible for organizations to gather information individualized per product and production line automatically, which will allow for less labor-intensive production and more accurate data (Kolberg and Zühlke, 2015)
Smart machine
Smart machines can communicate with smart products so that flexibility and error avoidance can be supported (Kolberg and Zühlke, 2015)
Smart planner
A smart planner optimizes processes in nearly real time. Production automatically adopts to current production programs of the organization, without human intervention (Kolberg and Zühlke, 2015)
RESULTS
The following section will present the findings regarding the use of SIC, affecting the CODP within mass-customize production. Firstly, a within-case analysis is presented per organization. Secondly, a comparison of commonalities and differences between the cases is presented within a cross-case analysis.
Within-case Analysis
Both interviewees of organization 1 describe quality, flexibility and delivery speed as most important performance indicators. Organization 1 is currently able to guarantee the fastest delivery speed in the market for products that still need to be designed. In order to guarantee this fast delivery speed, organization 1 strives for flexibility through cross training and upscaling of labor. Due to the high level of customization, stainless steel pipes and fixing materials are the only parts that are kept in stock. The remaining components are purchased project-specific. These materials will be held in an ‘intermediate stock’ until all materials are available and production is ready to start the order. Based on its CODP position, the production approach of organization 1 can be characterized as Engineer to Order. Products are designed, engineered, and built to specifications only after the order has been confirmed. The organization tries to work with existing designs or modules and customizes them afterwards. However, since the organization offers products to diverse markets like the food industry and air separation plants, the products are highly customized. Therefore, organization 1 struggles to apply modularity.
At the moment, much is thought of and talked about SIC that might be interesting for organization 1. Nevertheless, no immediate use of SIC exists at organization 1. In the production process, a lot is still done manually. I.e. 80% of all activities exist of welding and assembling in a high quality manner. The organization once tried to digitally display the work instructions, however due to busy periods, this plan has been put on hold.
15 SIC in order to make this change happen however, they acknowledge that becoming fully smart is difficult without first reorganizing current business processes. The organization will furthermore try to make use of well-structured modules, and thereby limiting the numbers of modules within the organization, in order to maintain its flexibility.
An overview of supporting data is displayed in table 8.
TABLE 8 Supporting Data Code Supporting data
Delivery speed
“We have reduced many waiting times and we are currently able to guarantee the fastest delivery speed in the market for things that still need to be designed.”
Flexibility “In the past, we have tried to standardize to achieve efficiency gains. But the scientists on the other side of the table (customer) want a solution specific to their problem.”
“We cross train the people to eventually stop your work and help your neighbor.” “Very flexible. Our production exists especially of human work.”
CODP “We do not buy anything at all before the final order is known.”
“We design and build cryogenic infrastructures to connect tanks and points where gas is liquefied to the application, the user.”
"We actually do not make standard products." Positive
perception of effect
“Yes, I'm even convinced of the effect of SIC on the CODP. However, it is difficult to become fully smart. Before automation and becoming smart we have to reorganize our organization plus it has to add value”.
Organization 2 mentioned quality and delivery reliability as most important performance indicators. As long as customer’s demand is met, the speed of delivery is not that important. Internally, organization 2 states that the faster products are pushed through the organization, the less waste there is, the bigger sales can be and the less stock you require. Organization 2 offers three different product types from which type A is highly customized (a conventional system) existing of different modules, type B can be made with 20 different modules (robot) and type C exist of four different types (robot). The customer-specific part for each of the three products, about 20%, will be purchased when the customer order is known. Of the other 80%, it is mentioned to keep the turnover speed as high as possible. Based on historical decreases, organization 2 makes semi-finished products in advance only if sales is low and is expected to increase in the near future. Preferably, every product is only produced when the order is known. Organization 2 strives to create more modularity for all its products in order to increase efficiency. However, specific characteristics of products do not always make it possible to create modularity. Therefore, product development is extremely important. When standardizing more products, it is possible to produce more stock in order to eventually reduce lead-time. However, this is in turn difficult in terms of planning and brings many extra inventory costs.
16 Furthermore, job rotation is introduced to allow employees to be flexible in different workspaces. With the implementation of flow production, the organizations noticed an increase in productivity. According delivery, this means that the speed to market can be shortened in the future. Nowadays when an error occurs, the whole production knows how to cope with it compared to earlier when everyone started to panic.
Based on its CODP positions, the production approach of organization 2 can be characterized as assemble to order and make to order depending on the different products. At the moment, the organization just started working with a management system in which they are able to manage customer orders, its planning, and production better. In this system, the right batch and serial information will be registered. Furthermore, with the digital representation in production, employees can obtain real-time work instructions and one can manage the progress of production. Planning is still done manually, however the organization strives to make this completely unemployed, in which the systems handles the available capacity. Within its product, organization 2 does have a strong focus on smart industry. With the use of sensors in the robots, linked to its management system by a WIFI-connection, the organization is able to track its robots. They are able to see moves made around the world of all robots connected to the Internet.
Organization 2 does not have any shared systems with its suppliers while they stated that many errors arise from incoming products. The organization mentions that SIC may influence the exact place of the customer order decoupling point within mass-customization. One advantage organization 2 notices is the various insights they arrive from their management system in order to improve their operational effectiveness. Furthermore, organization 2 is convinced that SIC should have a positive effect on the delivery speed, if it helps the organization to produce more products within the same time. Furthermore, organizations can also decide to place their CODP upstream the supply chain without a decrease in the delivery speed. The use of SIC could make it easier for an organization to respond quickly to fluctuations in both the number of orders and specific requirements.
An overview of supporting data is displayed in table 9.
TABLE 9 Supporting Data Code Supporting data
Modularity “We want to modularize the construction of our robots, because then you can really customize it”
Flexibility “Making adjustments within the manufacturing process is very disturbing”
“If you give someone a work drawing, he starts welding, and tomorrow he welds something completely different.”
CODP “The customer-specific part is always purchased when the customer order is known.” Barriers in
production
17 Smart
industry
“On the operational side, we are still welding, grinding and constructing and assembling robots. We are not automated in this area, despite the fact that we are looking at what will be possible in the future.”
“We want to unburden the customer. It's not just that we deliver a product, no it’s the product we use to solve the problem.”
Positive perception of effect
“Yes, human action is then of secondary significance while at the moment it is still the main issue. Furthermore it can help increase delivery speed and increase delivery reliability.”
Bottleneck smart industry
“There is some affection with the slightly older employees, but generally they are very good at it. That's because we're doing it as phased.”
According to the interviewees, organization 3 distinguishes itself by delivering high quality. The reliability and percentage of hours of rotation are very important to the machine. Organization 3 offers one product, with two different chassis, where the production of both products is similar. In total 100 product options are available to configure the right product. The advantage is visible in the modular design of the products. The modular designs make production more efficient. Based on its CODP position, the production approach of organization 3 can be characterized as assemble to order. Products will only be produced when the customer order is known. The various options that are sold for a specific amount within a specific timeframe are kept in stock. The organization has made a good distinction based on their sales forecast and costs of the components, combined with the supplier’s location. The production of organization 3 is not automated. The main capacity resources of the organization are actually their people.
The organization just started implementing VisualFactory®. VisualFactory is a web browser based software application that enables paperless manufacturing4. “VisualFactory makes it easier to make the people more flexible”. Every production employee is equipped with a tablet device, allowing for portable visual work instructions. Both interviewees acknowledge that the human factor is the vulnerability of the organization. Within line production, it is most important to know what causes a problem and how this can be solved once the whole line stagnates. Organization 3 also makes use of a connection with its suppliers by the use of its ERP system. However, the organization is looking at systems to better match their data with the data with its suppliers. For example, a system like Trade Cloud. This is an online supply chain platform in which you both fill your orders in order to match them.
Organization 3 mentions the difficulties regarding becoming smart. “You need to make
choices in what to do and how to do it. But the biggest question is: how do you make these choices?”
The organization is convinced that SIC will create better insights into production and therefore may increase the delivery speed. Furthermore, it might help to become more flexible with regard to the various options they offer. However, in order to become smart the whole organizations has to be included in a database, including all different options, sales, HRM, etc. To achieve this, there is still a
4
18 lot to be done.
An overview of supporting data is displayed in table 10.
TABLE 10 Supporting Data Code Supporting data
Modularity “We try to respond to customers’ requirements as much as possible, but within standard options. Therefore, you do not get any more variants. The modular part list helps us to see what's standard and what an option is really.”
CODP “We assemble all parts when the customer order is known.” Smart
industry
“In the new system, Visual Factory, we can check the workflow. Last year we did a pilot and we are now rolling this out. This allows you to see the status of a product”. Positive
perception of effect
“Our machines are actually the people, and Visual Factory makes it easier to make people more flexible. And that makes it even easier, because people can be easier educated with such a digital instruction.”
“You can see your progress as an employee. You will see the time you need to complete the job. You do not have to manually fill in hourly notes. Rework can be registered. You immediately see if something has not been done yet. So here are a lot of additional values.”
Bottleneck smart industry
“First, the instruction must be good before we roll it out. If the information is not correct then the system won’t help you at all.”
19 sub-assemblies from suppliers.
The organization does not make any use of SIC. However, the interviewee recognized the difficulty since one has to make choices.
An overview of supporting data is displayed in table 11.
TABLE 11 Supporting Data Code Supporting data
Delivery speed
“The customer waits for a long time to make a decision. If they are in the bidding stage, it takes a very long time. If they have your quote it may take weeks before they make the decision and then they want the product as soon as possible”.
Flexibility “We receive a lot of requests because everyone wants to differentiate themselves in the market to offer something new/different”.
“For the production, we are extremely flexible. This is especially the case for our employees. We work so that every production worker can do all the steps of the process itself. Everyone has to be employable at different fronts.”
CODP “We do not produce ourselves. We buy subassemblies and assemble them into a complete product.”
“We have always had a clear focus on our CODP. We now see that the CODP is moving upstream. The machines are becoming more customer-specific.”
Positive perception of effect
“When you know what to do and how to do it, you can work much more efficiently.”
Bottleneck smart industry
“There is a generation difference with regard to automation. One would rather browse to page 3 and the other one would rather do it digitally.”
“Once you have taken that turn off, you must be sure that you move on.”
Cross-case Analysis
All organizations seem to recognize the benefits of SIC, but using it in their own organization is still seen as a challenge. They especially recognize the greatest benefits from paperless producing and the automation of working instructions since this encourages information accuracy and gives employees a better understanding of what is expected from them.The production within all four organizations is done manually and none of the companies is making use of machines in order to produce their product. All organizations recognize flexibility as main benefit from producing manually. They acknowledge that employees might show aversion towards automation. E.g., Employees might feel anxiety of job losses, which are mostly associated with automation.
20 system by making use of a smart device and start working. Both organization 2 and 3 are going to make use of these systems in order to gain better insights in the production process of the organization. Examples are data of rework, visibility of products within the process etc. The speed to market is most important for organizations 1 and 4. Customers of organizations 2 and 3 are more willing to wait for their products. Nevertheless, an increase in delivery speed is still seen as interesting in order to attract more customers.
All four organizations recognize the advantages concerning SIC in relation to the CODP within mass-customization. However, differences exist between the organizations, especially with different production approaches. Organization 1 (engineer to order) does acknowledge the importance of the delivery speed; however, customers are more interested in the customization of the products. This also holds for the production approach of product type 1 of organization 2. When these organizations should downstream its CODP, customers will stay away and go to competitors. For organization 2 (product type 2 and 3), 3 and 4, it is the combination of both delivery speed, as well as the degree of customization that are of equal importance to their customers. Furthermore, in order to invest in SIC, organizations require personal insight in order to benefit from SIC. Moreover, SIC have to be implemented organization wide. At the moment, there is a big difference within the developments of smart industry within different business activities. Organizations do see the advantages of SIC in their products for their customer’s e.g. preventive maintenance; however, they forget the opportunities to increase for their own efficiency.
Another challenge organizations face is to lower the amount of inventory, plus the challenge concerning errors in products coming from suppliers. One way to lower the amount of inventory, mentioned by the interviewees is JIT purchasing. Shared systems between the focal company and its suppliers may help organizations to increase the flow of information between the companies and thereby increase the delivery speed. Only organization 3 is working on an environment in which they have direct access to suppliers’ information and vice versa. In this way they are able to better forecast demand, to faster know customer’s requirements and therefore to increase the delivery speed throughout the chain. Another advantage may be closer relationships with supplier in order to decrease the amount of quality issues in de incoming subassemblies.
21 CODP upstream. One important note is the fact that organizations have to apply SIC throughout the entire organization. Only in this way, the best results can be achieved.
Implementing SIC in order to create a smart planner is seen as the biggest challenge to accomplish. Mass-customization requires a diversity of products. However, this is a challenge in terms of scheduling and production control. Organizations need to completely optimize their business processes before implementing SIC in order to avoid errors or even a decrease in productivity.
DISCUSSION AND CONCLUSION
The following section includes the discussion and conclusion, a reflection on the study, implications for theory and implications for practice.
Discussion
Acknowledged during the interviews by all organizations, however not included in the original theoretical framework, is the importance of supply chain management in relation to mass-customization. Organizations 2 and 4 specifically mention the big impact of quality issues of incoming goods of suppliers plus the challenge to lower the amount of inventory. According to Liu and Deitz (2011), successful mass-customization strategies are the result of value co-creation processes occurring across the entire supply chain. Therefore, mass-customization capability is built upon the obtainment or development of customer-facing as well as supplier-facing operant recourses (Liu and Deits, 2011). At the moment, none of the examined organizations does have information communication systems in direct contact with its suppliers. Only organization 3 is planning to start working with such a system. Organizations 1 and 2 have systems in direct contact with their customers, whereas organization 3 and 4 are planning to start working with such a system.
Supply chain planning activities such as performance monitoring, the use of shared performance indicators and collaborative forecasting help organize supply chain activities and efforts (Chen and Paulraj, 2004). In addition, supply chain planning does indirectly affect an organizations mass-customization capability through its impact on supplier lead-time reduction and the customer focus. Flexibility is without doubt a central feature of successful mass-customizing organizations (Liu and Deitz, 2011). However, it is extremely important that this extends across the entire supply chain. With the use of SIC, organizations and customers are able to process their information/data quickly and effectively to other partners within the chain.
22 results are in line with the research of Da Silveira et al., 2001, which suggests that the integration of the entire supply chain, including an organization’s supply network, its manufacturing network and its distribution network are critical in order to achieve mass-customization performance goals (Da Silveira et al., 2011). Furthermore, this results in an increased delivery speed throughout the chain. Another advantage may be closer relationships with supplier in order to decrease the amount of quality issues in de incoming subassemblies, resulting in faster processing of the subassemblies. This makes organizations capable to shift the CODP upstream without a trade-off in delivery speed.
Conclusion
The objective of this paper was to answer the question: How do SIC influence the CODP within customize production? This study shows that SIC may have a direct impact on the CODP within mass-customize production. However, it is up to organizations to decide whether to place the CODP upstream, without having a decrease in delivery speed, or to stick to the current CODP in which the delivery speed can be increased. Furthermore, differences exist between organizations with different production approaches depending on the importance of delivery speed and the degree of customization by customers. The impact of SIC on the CODP is bigger at companies where delivery speed is one of the most important characteristics for customers to buy products.
At the moment, organizations struggle in deciding whether to invest in SIC and in which concepts to invest. Before implementing any smart industry concept, an organization needs to organize its business process in order to make it successful.
Within mass-customize production, the high number of variants and processes leads to higher complexity, especially in information logistics compared to craft production. This complexity can be managed and reduced by the use of SIC. Mainly, SIC enable the following features:
Enhance/maintain the current delivery speed; Increase in flexibility and changeability; Process transparency;
Mass-customization becomes more applicable and supported through the integration of the customer;
Better coordination of the production environment; Better control and increases efficiency;
Changes through time benefits, increases mass-customization profits.
23 with the additional (leading-)tasks they have to fulfill. Therefore, employees have to be trained well, to handle the responsibility and the coordination tasks that have to be done autonomously. Secondly, the changes have to be phased in, to help employees adjust. Technological barriers are also critical. Internet based production concepts require adequate products (e.g. product or smart device to support the smart operator) or machines that have embedded computation power. An external barrier to be overcome is the necessary level of cooperation between different partners within the chain. The integration of the entire supply chain may strengthen the influence of SIC on the CODP within mass-customize production.
Critical Reflection
Even though seven extensive in-depth interviews have been held within four different organizations, this amount can be indicated as rather small. Regarding the external validity, this amount limits the generalizability of the results (Flick, 2009). The cases used in this research however, represented a good reflection of manufacturing organizations since they all produce very different products. Furthermore, the interviews resulted in over 32,000 of valuable words, so it is reasonable to generalize the results to other manufacturing SMEs adopting mass-customization. Regarding the internal validity, the people interviewed were capable of providing enough information regarding the use of SIC; however, most interviewed organizations were only making use of partial SIC. None of the organizations was applying concepts throughout the entire organization, which could cause a less visible effect of SIC on the CODP.
A limitation of this research is that most organizations are mainly focused on the assembling of products. None of these organizations was completely producing the products on their own, but was dependent on subassemblies of suppliers. Therefore, their production process mainly consists of manual work. In all cases, manual work remains the best solution to maintain flexibility and knowledge within the organization. This is especially important because within assembly work, a high degree of diversity and flexibility is required. Another limitation is that costs and quality are two performance criteria inherently related to mass-customization, however are not included in this research (Wang et al., 2016). Therefore, it would be interesting to investigate the effects of SIC on these performance indicators as well. Moreover, research could be done on subsectors within the manufacturing sector, to have more generalized predictions on the outcome of smart industry employment.
Implications for both Theory and Practice
24 and more organizations have the consensus of the benefits of SIC. However, it is still unclear what the exact effects are and if or how these concepts can best be implemented within the organization. Furthermore, it was still unclear in which way SIC influence the CODP within mass-customize production.
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28 APPENDIX A
29 APPENDIX B
Managementsamenvatting
Essentieel voor mass-customization is het zo laat mogelijk in het productieproces toepassen van klant specifieke wensen om voorraden tegen te gaan en klanten snel van dienst te kunnen zijn. Klanten worden steeds veeleisender wat betreft de customization (maatwerk) van producten. Om naast het voldoen aan specifieke klantorders ook een snelle levertijd te garanderen, moet normaal gesproken de nodige voorraad worden behouden. Smart Industry concepten zouden ervoor kunnen zorgen dat bedrijven flexibeler worden en daardoor sneller kunnen reageren op de behoeften van de klant. Hierdoor is minder voorraad nodig. Het klantorder ontkoppelpunt zou dan verder upstream kunnen worden geplaatst. Bovengenoemd vraagstuk resulteert in onderstaande onderzoeksvraag:
´Hoe beïnvloeden smart industry concepten het klantorder ontkoppelpunt binnen massaproductie?
Voor dit onderzoek is een vergelijking gemaakt door middel van diepte-interviews tussen vier mass-customization bedrijven, allen gesitueerd in Nederland. Organisatie 1 heeft een engineer-to-order productiebenadering. Organisatie 2 biedt drie verschillende producttypes aan, waarvan één met een engineer-to-order productiebenadering en de andere twee een assemble-to-order productiebenadering. Organisaties 3 en 4 hebben beide een assemble-to-order productiebenadering.
Uit het onderzoek blijkt dat smart industry concepten een directe invloed kunnen hebben op de exacte positie van het klantorder ontkoppelingspunt. Smart industry concepten kunnen zorgen voor een naadloze informatiestroom van de klant naar de productieomgeving van het bedrijf, die bovendien de huidige leveringssnelheid verhoogd/handhaaft, de flexibiliteit verhoogd en proces transparantie vergemakkelijkt. Dit kan organisaties helpen om beter te voldoen aan de toenemende vraag naar customized producten, waardoor het klantorder ontkoppelpunt omhoog geplaatst kan worden. Alle organisaties worstelen ermee om te beslissen óf en in welke smart industry concepten te investeren. Voordat daadwerkelijk de keuze wordt gemaakt voor een bepaald concept (smart product, smart planner, smart operator of smart machine) moet de organisatie zijn/haar bedrijfsprocessen zo duidelijk mogelijk in kaart hebben gebracht en geprobeerd hebben deze zo efficiënt mogelijk in te richten.
30 zich bewust zijn van de komende veranderingen binnen de organisatie met betrekking tot hun eigen werkzaamheden. Zij moeten in staat zijn om de extra (leidende) taken die ze moeten vervullen, uit te kunnen voeren. Daartoe moeten medewerkers goed opgeleid worden. Bovendien moeten de wijzigingen gefaseerd worden ingevoerd om werknemers te helpen aanpassen. Technologische belemmeringen zijn ook kritisch (bijv. internetverbindingen etc.)
De meeste van de onderzochte organisaties zijn vooral gericht op het assembleren van producten. Daarom bestaat hun productieproces voornamelijk uit handmatige werkzaamheden. Handmatig werk blijft in alle gevallen de beste oplossing om flexibiliteit en kennis binnen de organisatie te behouden. Dit is vooral belangrijk omdat in assemblagewerk een hoge mate van diversiteit en flexibiliteit nodig is. De impact van smart industry concepten is groter bij bedrijven met een assemble-to-order productiebenadering dan bij organisaties met de productieaanpak engineer-to-order. Dit is vooral te wijten aan het feit dat de leveringssnelheid van groter belang is voor de klanten van de organisatie.
31 APPENDIX C
Interview Transcripts
Final version May 2017
Organization 1
Role of interviewee Director Strategy & Large Projects Date and time of interview 25-04-2017 13.00
De volgende vragen gaan over de organisatie waarvoor u werkt.
1. U werkt voor Demaco. Kunt u Demaco kort omschrijven in termen van productassortiment en diensten die de organisatie levert?
Het verzamelwoord is dat wij systemen ontwerpen en bouwen voor vloeibare gassen, de cryogene infrastructuur. Cryogeen is een Grieks woord voor koude. Wij maken systemen die iets te maken hebben met vloeibaar gas, wat extreem koud is. Hierdoor moeten de systemen goed geïsoleerd worden en dat doen wij weer middels hoogvacuüm. Wij hebben eigenlijk twee technologieën enerzijds kennis van extreem lage temperaturen en al die gassen en anderzijds kennis van goede isolatietechnieken middels hoogvacuüm. Wij ontwerpen en bouwen die cryogene infrastructuren om tanks en punten waar gas vloeibaar gemaakt wordt aan te sluiten op de applicatie, de gebruiker.
2. Welk product of dienst wordt er geproduceerd voor de uiteindelijke consument?
Transferleidingen, met een binnen- en buitenleiding. Die leidingen ertussenin pompen wij op hoogvacuüm en dan kun je door de binnenleiding heel koud gas halen. Zonder moleculen geen warmteoverdracht.
Wij hebben drie productgroepen, eentje waarbij wij standaards maken, eentje waarbij wij specials maken en we hebben nog een groep, high-end waarbij wij echt het volledige systeem, heet volledige engineeringwerk. Op het moment dat je zegmaar op drie poten staat, kun je hier makkelijker in manoeuvreren. Het ene moment het ene wat meer in omzet en het andere moment het ander wat meer.
a. In welke mate fluctueert de vraag? Bv. op dagbasis, weekbasis, maandbasis. De vraag fluctueert behoorlijk doordat wij projectmatig bezig zijn en ook wel een beetje afhankelijk zijn van de conjunctuur en met name in de voedingsmiddelenindustrie gaan wij mee met de economische welvaart.
b. Hoe vaak wordt het product/de dienst gewijzigd naar aanleiding van een veranderende klantvraag?
Voortdurend. Wij maken eigenlijk vrijwel geen standaardproducten en kunnen daardoor weinig tot niets op voorraad maken. Engineer to order. Wij beginnen het productieproces op het moment dat wij de order hebben en niet eerder. Wij hebben wel een technologie
ontwikkeld en we hebben componenten die je in verschillende projecten kunt onderbrengen, maar 99,9% van al onze producten kunnen pas geproduceerd worden als de order bekend is. Wij kopen wel eerder halffabricaten in en hebben spullen op voorraad liggen om te zorgen dat wij alles zo snel als mogelijk kunnen leveren.
3. Aan wie worden deze producten/diensten geleverd? (kernmarkt, B2B, B2C) De gebruiker is heel divers. Die zit in de meest uitloopbare markten, zoals
