Why do small and medium-sized enterprises in the food processing industry struggle with planning production? A case study

(1)

Why do small and medium-sized enterprises in the food processing industry struggle with planning production? A case study

Master thesis, Msc BA, specialization Supply Chain Management University of Groningen, Faculty of Economics and Business

W.W. van Ittersum

Student number: s2226154

E-mail: w.w.van.ittersum@student.rug.nl

Supervisors: Prof. D.P. van Donk (1st supervisor);

Prof. Dr. J.A.A. van der Veen (2nd supervisor).

(2)

University of Groningen - Supply Chain Management 2 ABSTRACT

Why do small and medium-sized enterprises in the food processing industry struggle with planning production? A case study

A challenge for companies in the Food Processing Industry (FPI) is to cope with industry related characteristics in the production planning. Despite of that planning systems are proposed to deal with this challenge, practice is that some small and medium-sized enterprises in the FPI still struggle with planning production. This study finds out why small and medium-sizes enterprises struggle with planning production. The results shows that an increase in complexity and lacking incorporation of FPI characteristics in planning systems makes that companies cannot easily alter the production planning if necessarily and therefore struggle with planning production. The outcomes of this research can be used as a motivation for further research in incorporating multiple FPI characteristics in planning systems.

(3)

University of Groningen - Supply Chain Management 3 TABLE OF CONTENT

ABSTRACT ... 2

1. INTRODUCTION ... 5

2. THEORY SECTION ... 7

2.1 The Context of Planning Production ... 7

2.2 Current Way of Planning Production ... 8

2.3 Dealing with FPI Characteristics in the Production Planning ... 9

2.4 Tools Used in Planning Production ... 10

2.5 How to Plan Production ... 11

2.6 Difficulties in Planning Production ... 12

3. METHODOLOGY ... 14

3.1 Case Selection and Setting ... 14

3.2 Research Process ... 14

3.3 Data Collection and Measurement ... 14

3.4 Data Analysis ... 15

3.5 Research Quality ... 16

3.6 Expected Results ... 16

4. RESULTS ... 18

4.1 Production Planning as the Product ... 18

4.2 Planning Process ... 20

4.3 Indirect Planning Performance Criteria ... 21

4.4 Influencing Factors ... 22

5. DISCUSSION & CONCLUSION ... 25

5.1 Remarkable Findings ... 25

5.2 Implications for Theory and Practice... 26

5.3 Limitations and Options for Further Research ... 26

TABLES INDEX ... 28

(4)

University of Groningen - Supply Chain Management 4

REFERENCES ... 29

APPENDIX A: FPI CHARACTERISTICS IN THE PRODUCTION PLANNING ... 32

APPENDIX B: INTERVIEW STRUCTURE ... 33

APPENDIX C: SAMPLE OF DISPLAY ... 36

APPENDIX D: PLANNING ERRORS ... 37

(5)

University of Groningen - Supply Chain Management 5 1. INTRODUCTION

A challenging issue in planning production in the food processing industry (FPI) is about coping with industry related characteristics. Dealing with those FPI related characteristics makes planning production often more difficult (Kilic, 2011: 3; Van Donk and Van Dam, 1996). Despite of that planning systems are proposed to be capable in solving these difficulties (Stadtler and Kilger, 2002; Vieira, Herrmann, & Lin, 2003), my experience is that some small and medium-sized enterprises (SMEs) in the FPI still struggle with planning production. Also the work of Van Wezel, Van Donk, & Gaalman (2006) argues that SMEs in the FPI experience difficulties in the planning production. But what makes planning the production of SMEs in the FPI so hard? This research addresses why SMEs struggle with planning production while the solution in scientific research seems to be available.

FPI characteristics in this work are defined as characteristics that make the FPI distinctive from other industries. Related to production planning, FPI characteristics are kind of ‘additional’ aspects that need to be taken into account during the production planning process. Some of the most important characteristics of the FPI are divergent product structure, sequence dependent setups in the production and perishability of products (Akkerman and Van Donk, 2009).

In scientific literature of production planning in FPI, several authors addresses the impact of a single characteristic of the FPI on the production planning (e.g. Van Kampen, Van Donk, & Van der Zee (2010) about the use of safety stocks, Akkerman and Van Donk (2008) about product losses and Silver (1995) about shelf life). In addition, Kilic (2011) investigates in dealing with a combination of industry specific characteristics in the production planning and concludes that “dealing with the combination of industry specific characteristics is more challenging than dealing with each of them individually” (Kilic, 2011: 15).

To deal with industry specific characteristics in the production planning, Van Donk and Van Dam (1996) built a framework for structuring the underlying complexity for scheduling. In other words, Van Donk and Van Dam (1996) provided a way to analyze current process routings and capacity groups to create insight in the complexity of the production process. In addition, based on the framework of Van Donk and Van Dam (1996) further planning improvements can be achieved by selecting appropriate planning software. Moreover, Kilic (2011) develops a mathematical planning model that deals with a number of inter-related characteristics. Also the work of Van Wezel et al. (2006) presents a planning system in terms of a planning framework, but focus on how planning decisions are structured in the planning environment. Van Wezel et al. (2006) developed a framework for SMEs in the FPI that can help in making decisions about ‘what to do?’ when a specific event occurs (e.g. cancelled customer order) in a certain planning phase. The flexibility of the production planning can be determined with the framework proposed in the work of Van Wezel et al. (2006).

(6)

or models) are proposed to solve difficulties in planning production (Stadtler and Kilger, 2002; Vieira et al., 2003). Based on the above, it seems that practices have the information to deal with FPI characteristics in planning the production. However, an outdated study shows that 97% of the companies in the Dutch process and semi-process industries uses other ways of planning devices (e.g. physical planning board, pen and paper, spreadsheets) than a scheduling system (Lofvers, 1998). Notwithstanding the fact that the work of Lofvers (1998) is almost 15 years old, it addresses the seriousness of the situation. Furthermore, the work of De Snoo, Van Wezel, & Jorna (2011) concludes that there is a gap between scheduling theory and scheduling practice. In addition, the work of Van Wezel et al. (2006) argues that SMEs in the FPI experience difficulties in planning production. However, we do not know why companies in the FPI, especially SMEs, experience difficulties in planning their production. Before the gap between scheduling theory and scheduling practice, mentioned in the work of De Snoo et al. (2011), can be explored, it is important to have performance criteria of what constitutes a ‘good’ production planning. The work of De Snoo et al. (2011) developed such scheduling performance criterion which now gives the possibility to explore the experienced difficulties by SMEs in the FPI in planning production.

In this work, we will find out why difficulties in planning production are experienced since solutions in scientific literature about planning production in SMEs in the FPI seems to be available. The outcomes of this research can be used as a motivation and recommendation for further research in the gaps between scheduling theory and scheduling practice found.

The aim of this research is to understand why SMEs in the FPI struggle with planning the production since solutions seems to be already available. In order to find out, the following research question is used: Why do SMEs in the FPI struggle with planning production? To answer this question, a case study is performed at a typical food processing company that has difficulty with planning their production. Therefore, the way of planning the production and especially how is dealt with FPI characteristics in the production planning is explored. The study company is a SME and producer of meat and vegetarian products situated in the east of The Netherlands.

(7)

University of Groningen - Supply Chain Management 7 2. THEORY SECTION

In this section, scientific literature about planning production for SMEs in the FPI is discussed that is related to, and helpful in answering the research question. This section starts by explaining the context of production planning in SMEs in the FPI. Following this, what SMEs in the FPI should do related to production planning is outlined. Emphasis is put on the way SMEs in the FPI should deal with FPI characteristics in planning the production. Moreover, in order to plan production, some important models and frameworks for SMEs in the FPI are discussed. This section ends with a brief orientation why SMEs experience difficulties with planning production.

2.1 The Context of Planning Production

To discuss the context of planning production of SMEs in the FPI, four topics are used which are: organization, FPI, production process and product.

Organization: Most SMEs in the FPI have the origin as a family business that has emerged throughout the years which has a more centralized character compared to divisions of large retailers (Van Wezel, 2001: 19). The organization is characterized as a flat structure where a separate middle management is often lacking due to its limited company size. Organizations are traditionally organized by having formal authority relations and coordination of work (Van Wezel, 2001: 19). The production mostly works in a single shift and stops at nights and during weekends. Production can increase their number of shifts or can continue during weekends when (seasonal) peaks in demand or rush orders occur.

Food processing industry: Usually in the food industry, raw materials are delivered by bulk factories that process agricultural products. After that, bulk materials are processed and put into consumer packaging. Figure 1 provides an overview of these steps.

Agriculture Industrial products

Consumer

products Retail

Processing Packaging Case

packaging Figure 1: Overview of the food processing industry (Based on: Van Wezel et al., (2006))

The market of SMEs in the FPI consists mainly of large retailers, wholesale dealers, and purchase coalitions. These players put high pressure on food processing companies (Van Wezel, 2006; Van Wezel, 2001: 3). Results of the pressure by the market are: increasing number of products, more unpredictable demand, small order quantities, frequently ordering, dealing with private labels and centralized customers which has resulted in better negotiation capabilities (Van Wezel, 2001: 2; Van Donk, 2001). Hence, food processing companies need to find a way to cope with the pressure of customers or alternatively must accept the consequences that customers penalize them (e.g. not buying their products anymore).

(8)

characteristics (e.g. discrete and non-discrete) (Van Wezel et al., 2006). Further, there are limited intermediate storage opportunities between the processing and packaging processes (Van Wezel et al., 2006). The processing lines usually requires high capital investments (Kilic, 2011: 1), while the packaging processes are labor intensive and difficult to automate (Van Wezel, 2001: 25).

Product: Products are produced in batches which can consist of multiple customer- or stock orders (Van Wezel et al., 2006). Stock orders, mainly for the factory’ own brand(s), are used to fill up batches to preferable sizes. In addition, variable quality in raw materials results into variable quality and output of the production process (Fransoo and Rutten, 1994).

2.2 Current Way of Planning Production

Normally, planning decisions in SMEs in the FPI are taken in a hierarchical order to (1) reduce uncertainty (i.e. complexity of the planning process) and to (2) cope with limited available information for making decisions (e.g. expected demand) (Starr, 1979). From a hierarchical perspective, production planning of SMEs in the FPI is usually discussed by distinguishing three levels or decision areas which influences each other: (1) highly aggregated level, (2) intermediate level and (3) detailed operational level (Van Wezel et al., 2006). The decisions made are frozen after each level so that the next level can use the decisions of the previous level as input. By making decisions at each level, restrictions for possible alternatives are set (Van Wezel, 2001: 74).

1. Aggregate level

This level is about balancing supply and demand. One of the important tasks on this level is negotiating, for a period between 3 and 12 months, with customers and suppliers about long-term contracts. This task is usually done by the managing director. The contracts with customers and suppliers specify the minimum and maximum amount to be purchased or ordered within a specific time-period. Based on this information, long term forecasts are generated and product families (i.e. products who have a kind of similar production specifications) are assigned to the production lines, by the production manager. The decisions made on this level are not stand-alone activities but are inter-related (Van Wezel, 2001: 99).

2. Intermediate level

In this level, sales forecasts and large orders generates a production plan which is the amount to produce of each product (family). The production plan is developed for a period of 2 till 6 months in order to minimize the number of (sequence dependent) production setups. Furthermore, a weekly production pattern is developed by the production manager or production planner that contains a rough indication which product family is produced on a specific production line for a specific production date. The next step, better known as pre-scheduling, is to assign known orders to production lines for a period between 1 and 4 weeks in order to balance capacities (Van Dam, Gaalman, & Sierksma, 1999). Moreover, the amount of overtime and the number of workers needed are determined (Van dam et al., 1999).

3. Detailed operational level

(9)

amounts. Next, the production planner translates customer orders into a weekly schedule where specific starting periods for production are set. Precise timing of each production batch is determined, which is called scheduling (Kondili, Pantellides, & Sargent, 1993). After these steps, the schedule is frozen and can only be adjusted/revised, by the production planner, when important events occur (e.g. rush orders, machine breakdowns). The planning process until this step is called offline scheduling which is the creation of a predetermined schedule by assuming deterministic demand and production (Fransoo and Rutten, 1994). From this moment, adaption of the offline schedule and reacting to changes in demand and/or production is performed, which is called online scheduling (Fransoo and Rutten, 1994) or reactive planning (Smith, 1995; Suresh and Chaudhuri, 1993). The last element of the detailed operational level is the determination of exact changeover moments by the foreman, which take place during execution of the schedule.

2.3 Dealing with FPI Characteristics in the Production Planning

Although the effects of several single FPI characteristics in the production planning is widely discussed in scientific literature of production planning in the (food) process industry (e.g. Kilic, 2011; Van Kampen, 2012; Van Wezel, 2001), it is difficult, if not impossible, to discuss the effect of all of these FPI characteristics on the production planning. Regardless discussing the number of FPI characteristics and the detail of it, we will be incomplete or incorrect because some characteristics can be unidentified, unique or vary per company. Nevertheless, some FPI characteristics in the production planning are marked as the most important which are: perishability, shared resources (resources used by different production lines), variable demand for end products, sequence dependent setup times, divergent product structure and connectivity (i.e. limited intermediate storage within production) (Van Kampen, 2012: 3). A list of important FPI characteristics is provided in Appendix A, which is mentioned in the work of Van Wezel (2001) as important FPI characteristics.

Not every FPI characteristic influence the production planning (Kilic, 2011). Van Wezel (2001: 11) classifies FPI characteristics in three groups that have a relation with planning: the organization itself, the market in which the company operates and production process. The work of Van Wezel and Van Donk (1996) mentions slightly different groups namely: plant, product and production process. To have an overview, characteristics of the FPI can be classified into the groups as is provided in table 1.

Although each FPI characteristics has an effect on the production planning, a combination of FPI characteristics (from different groups) can also affect production planning and makes planning the production more complicated (Kilic, 2011: 15). Therefore the groups mentioned in table 1 cannot be seen as single influencing FPI characteristics on the production planning, but as four inter-related groups of FPI characteristics that affects production planning. Figure

Group of FPI characteristics:

Van Wezel (2001: 11)

Van Wezel and Van Donk (1996)

Organization/Plant X X

Market X

Production process X X

Product X

(10)

2 provides a visual representation of the four inter-related groups of FPI characteristics that together affects the production planning.

Organization Production

process

Product Market

Characteristics of the FPI

Figure 2: The effect of FPI characteristics on the production planning in SMEs 2.4 Tools Used in Planning Production

In order to deal with FPI characteristics in the production planning and finding the ‘right’ production planning, various models and frameworks are identified in scientific literature about production planning in the FPI. However, different ideas about the use of planning models and frameworks are found in scientific literature about the FPI.

According to the work of Jakeman (1994), the help of adequate computer support is a requisite in planning production, otherwise planners cannot quickly oversee the consequences of changes made in the production planning. Also, the work of Vieira et al. (2003) argues that the use of existing algorithms and heuristics can tackle rescheduling problems.

On the other hand, current models and frameworks, proposed in scientific literature about planning production in the FPI, only take a number of (inter-related) FPI characteristics into account (e.g. Entrup, Gunther, Van Beek, Grunow, & Seiler, 2005; Akkerman, 2007; Kilic, Van Donk, & Wijngaard, 2011) and thus are incomplete (Van Kampen, 2012). Also, most models cannot directly be used in real-life scheduling problems but are only valuable from a theoretical point of view (Kilic, 2011: 14). In addition, the work of Van Wezel et al. (2006) argues that problems in planning production within SMEs in the FPI are mainly experienced in adapting production plans rather than creating them. The work of Van Wezel et al. (2006) states that this problem is not due to mathematical complexity, but due to organizational complexity. Therefore, only making use of planning software is insufficient (Van Wezel et al., 2006). The work of Van Wezel et al. (2006) proposes a framework for SMEs in the FPI to deal with adjustments and rescheduling activities in the production planning (e.g. rush orders or machine breakdowns).

(11)

University of Groningen - Supply Chain Management 11 Figure 3: Scheduling performance measures framework (source: De Snoo et al., 2011)

fashion, namely focus on minimizing sequence dependent setup periods (Van Wezel et al., 2006).

2.5 How to Plan Production

Planning production in SMEs in FPI is not that straightforward, simply because there is no right way of planning production in general (De Snoo et al., 2011). The activity of planning production is to allocate and tune the firm’s resources (e.g. material, machines and workforce) and the activities to that need to be executed by employees within a certain period (Leung, 2004; Pinedo, 2008). Within the allocation of resources and activities, interests of stakeholders (e.g. production, warehouse and sales clients) needs to be weighed and balanced as well (Van Wezel, 2001: 5; De Snoo et al., 2011). However, these goals or interests of stakeholders of the production planning are very often conflicting with each other (De Snoo et al., 2011). For instance, sales clients wants to have products as fast as possible with the longest shelf life while production employees wants long production runs with minor setups periods. Therefore, the firm’s resources, activities, interests and weights of interests influence the decision about how to plan production which differ from organization to organization. To understand whether companies, with their company specific circumstances, plan production in a ‘right’ way, we can express the performance of the production planning. Scientific work of several authors uses planning outcomes (in other words: achieved goals) as a metric for the performance of production planning (e.g. Hoogeveen, 2005; Cheang, Li, Lim, & Rodrigues, 2003). Recent work of De Snoo et al. (2011) concludes that not only the output of the planning is important (which is the production planning itself) but also the process of planning production. Furthermore, the process of planning production becomes more important than optimizing the production planning when there is a high uncertainty in having the right information (e.g. unreliable forecast of demand). De Snoo et al. (2011) developed a framework to measure scheduling performance where several metrics are used. The framework consists of four areas:

1. Criteria focused on the scheduling product 2. Criteria focused on the scheduling process 3. Indirect scheduling performance criteria 4. Influencing factors

(12)

in determining whether companies, with their circumstances, plan production in a proper way. In addition, the scheduling performance framework can also assist in finding out where companies experience difficulties in planning production.

2.6 Difficulties in Planning Production

To the best of our knowledge, two arguments are explicitly provided in scientific literature why companies in the FPI struggle with planning production. Although these arguments are observations and not explicitly elaborated in scientific literature of production planning, they are briefly discussed below.

First, in the work of Van Wezel (2001: 8) limited availability of resources of SMEs in the FPI is mentioned as a reason of not using (advanced) planning systems. Although the use of (advanced) planning systems are recommended in scientific literature about planning production (e.g. Jakeman, 1994), SMEs in FPI makes minor use of it. Examples of resources are money, knowledge and skills of employees.

Second, the work of Van Wezel et al. (2006) addresses that current planning support can also be inappropriate. Several systems, models, and frameworks in scientific literature can cope with only a few FPI characteristics. Kilic (2011: 16) argue that “it will be very difficult, if not impossible, to develop mathematical models which can systemically accommodate all these (FPI) characteristics simultaneously”. The work of De Snoo (2011: 26) also mentions that not everything in planning production can be solved mathematically. Nevertheless, taking into account all FPI characteristics to overcome/minimize scheduling errors is important because scheduling errors is one of the planning performance criteria of the work of De Snoo et al. (2011), as is provided in figure 3.

(13)

The current way of planning production

of SMEs in the FPI

Why SMEs in the FPI struggle with planning the production?

How SMEs in the FPI should

plan - Product

- Process - Indirect influences

- Factors

Lens of planning performance based on the work of De Snoo et al. (2011)

Difficulties in planning production

(14)

University of Groningen - Supply Chain Management 14 3. METHODOLOGY

In this section a structure is provided within which this research is conducted. This section starts with discussing the case selection and setting. Second, the research process is discussed which gives an overview of this research within time. Third, a blueprint is provided for the data collection and measurement, followed by a discussion in section four about the way data is analyzed. Finally, a special section provides information how the quality of this research is guaranteed. A short preview is given about the expected results at the end of this section.

3.1 Case Selection and Setting

A case study is performed in order to answer the research question. According to Yin (2003), case studies are suitable for exploring how and why questions. An important element in this research is the depth of the study because planning production is a complex task to perform (Van Wezel, 2001: 6) and therefore requires much attention to understand the process of planning production. Due to the complexity of planning production and the limited time available for performing this research, a single case study is performed because this gives the opportunity for in-depth observations (Kalsson, 2009: 170). To find a suitable case in practice, a company is searched with a planning context that corresponds to the description of SMEs in the FPI as is discussed in section 2.1. In addition, the preference goes to a company with a batch production process (in comparison with a continuous production process) because of its large degree of complexity in planning production (Fransoo and Rutten, 1994). A SME that corresponds to the profile is a medium sized producer of meat and vegetarian products, situated in the East of The Netherlands. The company is around 300 employees sized and has two production facilities, whereby each facility has their own specialism. Although the company has more employees than SMEs have (European Union Commission, 2003), the production planning of the production facilities are made more or less independently and is therefore suitable for this research. The company supplies large retailers, wholesale dealers and purchase coalitions. Besides producing direct customer orders, it also produces products under own brand which are produced to stock. In general, the product assortment of the company consists of vegetarian (fresh and fresh frozen) and meat products (fresh and fresh frozen). In collaboration with the company, this research selects the production planning of fresh frozen meat products as the unit of analysis, since the company experience most difficulties in planning these products.

3.2 Research Process

This study is executed within a period of almost six months. To be precise, the period was from February till July 2013. The data collection period was from the 17th of April till the 2nd of May. After the data collection period, data was documented, analyzed and verified with experts from the case company within a period from the 3rd of May till the 26th of May.

3.3 Data Collection and Measurement

(15)

interviews and is based on the way how FPI characteristics are classified in the theory section. Also the duration of each interview is provided in table 2 which ranges from 40 min to 80 min per interview. The interviews are structured and derived based on the performance metrics of De Snoo et al. (2011) which is discussed in the theory section. Appendix B provides the interview structure.

Second, an interview is conducted with the production planner which gives an overview of the planning process and the way decision are made in the planning process (e.g. dealing with FPI characteristics and conflicting goals of stakeholders).

Stakeholder area: Interviewee: Duration

Overall/Planning process

Production planner and

Inventory- and raw materials planner

70 min 80 min

Organization Plant manager and Production planner 50 min; 70 min

Production process 2 Foreman 70 min; 60 min

Market Sales manager 50 min

Product 2 Foreman and Quality manager 70 min; 60 min; 40 min

Table 2: Overview of explorative interviews

Third, one week of attendance during planning meetings is performed, which helps in further understanding of the experienced difficulties in planning production. Fourth, planning activities performed by the production planner are observed. Attendance during planning activities and interaction with the production planner about what and why activities are done, contributes to understanding the planning process. Also the representativeness of the activities that are performed and the situations that occur, are discussed during the observations and interaction during the planning process of the production planner. Both attendance during planning meetings and observations of the planning activities by the production planner are performed for a period of one week. A period of one week is selected because the company plans production for a period of one week.

3.4 Data Analysis

After collecting information about the current process of planning production, data reduction is performed by coding interviews to facilitate the interpretation and comparison of results (Voss, Tsikriktsis, & Frohlich, 2002). Data is coded based on the scheduling performance metrics of De Snoo et al. (2011) mentioned in the theory section. Also the key message of data is extracted from the raw data to increase the readability and interpretability. To combine data of different data collection methods (e.g. observations, interviews, attendance during meetings, etc.) a complete overview of the current situation is provided (i.e. ‘as-is’ situation). The overview of all data is provided in the format of a display which is a common and useful starting point for visualizing the collected information in a systematic way to draw valid conclusions (Karlsson, 2009). Appendix C provides a selection of the display used.

(16)

the research question. Based on answering the research question, further scientific research directions are proposed. Figure 6 provides an overview of the research process that is used in executing this research.

6 Interviews with stakeholders of the production planning Scientific literature about planning production Explanation(s) for difficulties/problems and reflection to scientific literature The current way of planning

production of SMEs in the FPI

How SMEs in the FPI should

plan 1 Interview with the production planner Attendance during planning meetings (1wk) Observations (and interaction) during planning activities (1wk) Difficulties/Problems in planning production

Figure 5: Research Process 3.5 Research Quality

Construct validity is enhanced by using multiple sources of evidence which gives the possibility for triangulation (Miles and Huberman, 1994). Interviews, observations during planning production, attendance during planning meetings are all used as data collection instruments. Further, collected data is discussed with experts in the company in order to guarantee correctness and minimize bias and subjectivity of the researcher. Internal validity is enhanced by having the ability to find rival outcomes among the multiple sources of data. Discrepancies in the collected data are identified and are discussed with experts of the company in order to address these. This will also opens the possibility in finding further research directions. External validity is strengthened by addressing and discussing the results found with experts of the company. In addition, results found are related to scientific literature to determine whether the results are case specific or can be generalized. An important part of the discussion of the results with experts of the company is about the representativeness of the observation week. To create a reliable research, a case study database is developed. The database contains recorded and documented interviews which are coded. Further, notes during meetings, informal discussions and during planning activities of workers are also stored in this database.

All in all, this paragraph shows that emphasis is put in meeting the four criteria that determine the reliability and validity of case study research as established by Yin (2003) which are: construct validity, internal validity, external validity and reliability.

3.6 Expected Results

(17)

(18)

University of Groningen - Supply Chain Management 18 4. RESULTS

The results of the experienced difficulties in planning production in the company under study are discussed in the following subsections. This chapter is structured according to the scheduling performance criteria of De Snoo et al. (2011). The process of transcribing, coding, analyzing and categorization is discussed in section 3.4 and a sample of the display used in that process is provided in Appendix C.

4.1 Production Planning as the Product

The production planning as the output of the planning process is discussed in this section. This section is split into 7 subsections (which are according to the scheduling performance metrics of the work of De Snoo et al. (2011).

4.1.1 Schedule errors. Several errors occurred during the process of planning production. In asking interviewees what is typified as planning errors, several answers are given which are provided in table 3. Also the reasons why errors occur are divergent, according to the interviewees. Most of the reasons why planning errors occur, according to the interviewees, are because of insufficient (use of) planning systems, communication, market circumstances, and due to altering the production planning. An overview of the quotes, given by the interviewees, is provided in table 4.

Furthermore, a total of 17 errors in the production planning are identified during the observation period of one week. An overview of the observed errors is provided in appendix D. Most of these errors occurred because of errors in the planning system or mistakes made by the production planner.

Table 3: Results of what interviewees typify as planning errors

4.1.2 Costs of execution of the schedule. “Others expect that the production planner plans production as efficient as possible to minimize costs…” according to the production planner. Therefore, the production planning is changed for a more efficient production when this is suggested by production employees (e.g. foreman). However, customer orders are more important than an efficient production because “everything will be done to meet customer demand without understanding the consequences of it” according to the plant manager.

What are typified as errors? Fo

re m a n B F o re m a n E P la n t m a n a g e r S a le s m a n a g e r Q u a li ty m a n a g e r

Plan more machines than available x x x

Work with incorrect product change-over durations x

Incorrect production sequences x x x

Unnecessary shift of production employees x x

Stock-outs of end products x

Plan unavailable materials x

(19)

University of Groningen - Supply Chain Management 19 Table 4: Results of what interviewees mention as the reason for errors in the production planning

4.1.3 Fulfillment of constraints made to ‘external’ parties. The production planning must contain those products that are demanded by customers or indirect by the sales department. In every situation, the customer demand is leading in the production planning which results in altering the production planning (even if it is not according to agreements). “There are customers that do not act according to the agreements but they are accepted by the sales department”, according to the plant manager.

4.1.4 Fulfillment of resource utilization constraints. In order to develop a production plan, several restrictions and conditions in producing products needs to be aligned with (e.g. machine availability, availability of production employees, production sequences, and allergens). By asking interviewees what restrictions and conditions need to be incorporated in the production planning, various answers are given. The answers given are provided in table 5. It is clear, based on table 5, that restrictions and conditions differ per stakeholder. However, the production planner tries to deal with restrictions and conditions of all stakeholders (excluding ‘qualified production employees’), as is observed. Interestingly, all interviewees mentions the importance of dealing with production sequences and production setups. Also, production efficiency and dealing with production sequences (because of meat and allergenic restrictions) are mentioned by several interviewees.

4.1.5 Fulfillment of preferences of employees using the schedules. Besides conditions and restrictions, the preferences from all stakeholders are incorporated in the production planning as well. An overview of the explicitly appointed preferences from each stakeholder is provided in table 5.

4.1.6 Schedule robustness and information completeness. The consequences of the company policy to always accept changes in customer demand and preferences are alterations of the production planning. Again, the production planning needs to be aligned with conditions and restrictions, and preferences of all stakeholders need to be incorporated as much as possible. Altering the production planning automatically results in waste and inefficiency in several processes and departments. First, time and effort is put by the production planner in the

Why do errors occur?

"Machine availability is not incorporated in the planning system", Foreman B "due to altering the production planning errors are made", Foreman E

"The fundament of the production planning is not there because limited effort is being put on this task. There is insufficient understanding of the importance of this. Also complexity of market increases, and customers become less flexible which results in the need to plan production in more detail. Therefore, stand alone models do not work anymore but need to be combined en synchronized", Plant manager "incorrect product change-overs durations are used in the planning system", Foreman B

"due to altering the production planning, things need to be changed which results in unneccesary shifts of production employees", Foreman E

(20)

University of Groningen - Supply Chain Management 20 Table 5: Overview of restrictions, conditions, preferences of stakeholders of the production planning and which of these are included in the production planning

planning process. Second, raw materials are purchased which are not needed or in lower quantities. Third, batch size(s) of products are decreased which results in less efficient production. Fourth, the staff planning is not adjusted to the production planning anymore which results in an imbalance.

4.1.7 Information presentation and clarity. After changing the production plan, information need to be communicated between several systems and stakeholders for making new preparations in production and to purchase other materials by the purchaser.

4.2 Planning Process

The planning process that results into a production planning is discussed in this section. 4.2.1 Timeliness of initial release. A production planning is created two weeks ahead and communicated as a draft production planning to production employees, so they can give feedback. Feedback is received by the production planner when there is 1.5 week left before the production planning is executed. After receiving feedback, further preparations are needed because the systems of the materials- and staff planning are not linked with the planning system and are based on the production planning. Within the 1.5 week period, changes occur due to: customer demand, make-to-order requests, and not having the right or enough

d a ta c o ll e c ti o n m e th o d Re st ri c ti o n s a n d c o n d it io n s (R a n d C), p re fe re n c e s (P ) a n d i n c lu d e d i n p la n n in g (I) In v e n to ry l e v e ls N o s h o rt c o m in g s (i .e . st o c k -o u ts ) A d ju st s ta ff p la n n in g o n p ro d u c ti o n p la n n in g A v a il a b il it y o f p ro d u c ti o n e m p lo y e e s S h ift s in p ro d u c ti o n e m p lo y e e s Bre a k s o f p ro d u c ti o n e m p lo y e e s Q u a li fi e d p ro d u c ti o n e m p lo y e e s M a c h in e a v a il a b il it y M a te ri a ls a v a il a b il it y P ro d u c t p e ri sh a b il it y M in im a l c h a n g e s in p ro d u c ti o n p la n n in g M in im iz e p ro d u c ti o n o n S a tu rd a y s F ix e d b a tc h s iz e s P ro d u c ti o n e ffi c ie n c y P ro d u c ti o n s e q u e n c e s (M e a t, a ll e rg e n s) P ro d u c ti o n s e tu p s (i .e . la rg e p ro d u c ti o n b a tc h e s) Ba la n c in g p ro d u c ti o n v o lu m e Foreman B R and C x x x x x Foreman E R and C x x x x x x

Quality manager R and C x x x x

Sales manager R and C x x x x x

Materials- and inventoryplanner R and C x x x x x

Plant manager R and C x x x x x x x

Production planner R and C x x x x x x x

Foreman E P x x x x

Foreman B P x x x

Materials- and inventoryplanner P x

Quality manager P x

Production Planner P x x

(21)

materials, people and machines available. Therefore, the production-, materials- and staff planning (if possible) need to be altered after changes.

4.2.2 Reliability of initial release. “The production planning is always released on the same moment and does not vary”, according to Foreman B. However, an already communicated production planning can be altered because: “I am requested to alter the production planning, even if it is not according to agreements. …if I do not want to alter the production planning, I receive orders from my supervisor to do so”, according to the production planner.

4.2.3 Flexibility of schedule adaption. Every change need to be manually communicated between systems which results in errors. During observations, several errors are made because some of the systems were not updated with new information. Also, Foreman E argues that “errors are made due to altering the production planning”. In addition, the production planner mentioned that “there always goes something wrong when the production planning is altered”. 4.2.4 Accessibility of schedulers. All interviewees argue that the production planner is available for discussing alternatives or decisions made in the production planning.

4.2.5 Communication quality. The production planning is communicated with stakeholders for further preparations and for providing feedback about the production planning. Planning decisions are underpinned by the production planner only when stakeholders of the production planning are asking for an argumentation.

4.2.6 Harmonization quality. The products to be produced are based on a forecast (in most cases) and are assigned to a specific production line as a bundle of products (i.e. product group). Next, the production planning is checked if it fits with the restrictions and conditions. After that, the production planning is checked on machine availability and fine-tuned by smoothen production quantities and shifts in production employees. The production planner attempts to plan production efficient as possible because “most can be earned in production. …I support production the most…”.

4.2.7 Cost and efficiency of the scheduling process. The production planner responds to questions about the cost and efficiency of the planning process that “planning production is a lot easier compared to a couple of months ago”. However, many of the improvements in the planning process can be achieved by reducing the number of planning systems that are used in the planning process, according to the materials- and inventory planner.

4.3 Indirect Planning Performance Criteria

Indirect planning performance criteria are discussed in the next section. The first paragraph is about realized planning performance. The second paragraph is about feedback.

(22)

production planning according to Foreman E. Despite of no formal performance measures, most of the stakeholders of the production planning do have informal performance measures which are provided in table 6.

Table 6: Performance measures of stakeholders of the production planning about the production planning

4.3.2 Complaints and feedback from schedule users. Two times a day, feedback is provided during formal meetings with production. In addition, 3 team leaders from production provide weekly feedback about the production planning. 1-4 times a week, feedback is given by production about something that is impossible or not logic in the production planning. Monthly, inventory levels are discussed from which the production planner gets information (if necessarily) to improve the planning process.

Several moments of feedback are observed during the observation period. An overview of these moments is provided in table 7. In total 17 moments of feedback within one week are observed.

Moments of feedback Times of feedback

Formal moments of feedback with production 10

Informal moments of feedback with production 5

Feedback about errors in the production planning from production

2

Table 7: Observed moments of feedback on the production planning 4.4 Influencing Factors

The last section of the results discusses factors of the production planning that influence the production planning and the production planning process.

4.4.1 Planning structure. There are, according to the production planner, no formal rules or restrictions that the production planner needs to take into consideration during the planning process. However, stakeholders of the production planning mention several rules and restrictions where the production planner needs to deal with which are already discussed in section 4.1. The materials- and inventory planner explain that “…during my period as the production planner in this company, I counted 52 production related conditions that need to be taken into consideration as a production planner”. These rules and restrictions are not sustained in a (planning)system but are taken into account based on the knowledge of the

Data source Pro d u c ti o n s e tu p s P ro d u c ti o n b a tc h e s S to c k -o u ts P ro d u c ti o n e ffi c ie n c y In v e n to ry l e v e ls P ro v id in g a t w o -w e e k p ro d u c ti o n p la n n in g P ro v id in g a re a li st ic p ro d u c ti o n p la n n in g M in im a l e rro rs i n p ro d u c ti o n p la n n in g Foreman E x x Sales x x Production planner x x x x x Plant manager x Observation x

(23)

production planner “which makes planning the production difficult”, according to the foreman B.

4.4.2 Scheduler’s knowledge, skills and behavior. Because rules and restrictions are not sustained in planning systems, the importance of having relevant knowledge of the production planner becomes more important. However, the production planner does not have experience with production according to Foreman A and E. The reaction of the plant manager about having a total overview of all relevant aspects as a production planner: “…Systems are adjusted to customers/sales department and from that point on we determine how to plan production which requires a lot of time. However, I believe that the role as a production planner is underestimated in this industry. People do not understand the large amount of restriction and conditions where a production planner has to deal with”.

4.4.3 Availability and use of Information Technology (IT). Several systems are used in the planning process from which information is obtained and combined in one planning system. Changes in the production planning need to be communicated manually, with the help of spreadsheet programs, between systems wherein errors occur as is experienced during observations. The material- and inventory planner reacts on the question about the use of IT as follows: “My experience is that we have too many systems. This morning, I realized that I had to work with 17 different systems”. Besides the number of systems, also errors within these systems occur. Appendix D provides an overview of errors observed during the data collection period from which 6 errors were related to errors in the planning systems.

4.4.4 Information availability, reliability and correctness. Between 20 and 30 cases during the observation week are about unavailable, unreliable and incorrect information. The production planner makes decisions based on this information. Three examples are provided about these situations:

 “the sales manager can easily alter the forecast for next week”, according to the production planner. Take into account that the production planning is already determined at that moment, as is discussed in section 4.2.1.

 An overview of the number of machines available was incorrect. Only one machine exist and the production planner thought that there were three of these machines.

 The materials- and inventory planner argue that 1-2 times per week the production is

changed because they discover that production cannot produce something or thought they could.

The production planner argues that 1-5 times a day new information is provided which results in changes needed in the production planning. Changes are made based on this information which is “a time consuming activity”, according to the production planner.

(24)

sufficient anymore to present the right information on the right moment. It is the number of conditions that makes planning the production complex. Therefore it is not possible anymore to operate as single departments”, according to the plant manager.

Table 8: Quotes from interviewees about complexity

Data source Quote

Foreman B "It takes too much time before machines are repaired and therefore break down which results in the need for

changing the production planning".

Foreman B "Planning production becomes complex because there are soo many products with different production

specifications in combination with low product volumes. This combination results in frequent production setups. In addition, more rules and restrictions need to be incorporated in the production planning like allergens and special types of meat. The diversity increases which makes the situation more complex"

Foreman E "Planning production becomes difficult due to the influence sales department has on the production planning (like

unexpected promotions, product volumes, large errors in forecasts and short-term decisions. In addition, planning is difficult due to the large product diversity"

Sales manager "...Thus, the number of rules that need to be taken into account, the impact of promotions, late communication and

errors in the forecast makes planning production complex"

Production planner "Planning production becomes difficult because of the "ifs and buts" that need to be taken into account. It is about

the complexity and the 30.000 rules. ....The number of rules makes planning production difficult. The number of changes needed in the production planning makes it hard to plan production. ...From a sales perspective, the lack of agreements with customers makes planning production difficult".

Materials- and inventory planner

"The difficulty about planning production is determined by the control the sales department has a over his customer which is about providing the right information"

Plant manager "Planning production becomes difficult because the production planner needs to include all conditions everyone has

(25)

University of Groningen - Supply Chain Management 25 5. DISCUSSION & CONCLUSION

The goal of this research was to understand why SMEs in de FPI struggle with planning production. An important step forward to achieve this goal has been offered here. A case study is performed at a typical medium sized food processing company that has difficulty with planning their production. The results shows that the production planning is constantly influenced by: changes in customer demand due to the company policy, errors in planning systems, violations of some of the many restrictions and conditions in the production planning, and inaccurate information. To respond on these influences, the production planning is altered which is ‘a time consuming activity’ because the planning systems are not linked and planning restrictions, conditions and stakeholder preferences are not incorporated in the planning systems. Therefore, altering the production planning easily results in errors. Also, the production planning needs to be available on an early moment, because planning systems are not linked, which results in additional alterations of the production planning (because new information becomes available) before actual execution of the production plan. In addition, both the number of restrictions and conditions and the product diversity increases which makes the process of planning production and therefore the role as a production planner more difficult. The result of this situation is that the current planning systems are not sufficient anymore to present the right information, at the right time.

5.1 Remarkable Findings

The results shows that difficulties were not experienced in dealing with a specific FPI characteristic in the production planning. Several FPI characteristics are dealt with in planning production which does not directly relate to a knowing-doing gap between scheduling theory and practice. However, the total package of FPI characteristics (what is called ‘restrictions and conditions’ by the interviewees) are mentioned as the reason why planning production is difficult. In addition, allergens within products (e.g. peanuts, dairy-free) becomes more important in planning production which significantly influence the production sequence. Interestingly, information how to deal with allergens in specific is not addressed in scientific literature about planning production in the FPI. Only the work of Mehrotra, Dawande, Gavirneni, Demirci, & Tayur (2011: 268) argue that “the need to separate such specific allergens translates into tight sequencing constraints on the production line”.

(26)

pressure retailers put on these companies (e.g. unpredictable demand and frequently ordering).

Thus, the combination of an increase in complexity (which is about an increased product diversity and increased number of restrictions and conditions) and lacking incorporation of FPI characteristics in planning systems makes the current planning manner insufficient to alter the production planning and therefore SMEs in the FPI struggle with planning their production.

5.2 Implications for Theory and Practice

This study shows, from a theoretical perspective, the importance of performing research about dealing with a combination of FPI characteristics in the production planning since this results in that SMEs in the FPI struggle with planning the production. The work of Kilic (2011: 15) already mentioned that dealing with a combination of FPI characteristics makes planning more difficult. This study underpins the findings in the work of Kilic (2011: 15).

The results also underpins the need for incorporating FPI characteristics in planning models and systems. It is difficult for the production planner to keep all FPI characteristics in mind during the planning process. In addition, the number of FPI characteristics will increase due to governmental regulations about allergens. Therefore, incorporating FPI characteristics in planning models and systems can assist in dealing with the increasing complexity and re-planning activities.

From a managerial perspective, this study stresses the importance in the usage of planning systems by including FPI characteristics. Due to the numerous FPI related characteristics that need to be taken into account and faster replenishment requests of customers, alterations in the production planning becomes more important but also harder to perform (in an error free manner).

5.3 Limitations and Options for Further Research

One of the limitations of this study is about the stakeholders selected for the interviews within the data collection period. In order to include all categories of FPI characteristics (i.e. product, organization, market and production process), the quality manager was selected to incorporate FPI characteristics related to the product. However, the quality manager has limited knowledge about the production planning which makes the interview less relevant. However, 2 other interviewees were also asked, as planned, about product related FPI characteristics. Another limitation of this study is that the performance metrics from the work of De Snoo et al. (2011) are used which could be incomplete to measure planning performance as is mentioned by the authors. Nevertheless, the performance metrics of the work of De Snoo et al. (2011) are used in this study as topics to structure the research and not as real performance metrics for measuring planning performance.

Further research is suggested, based on the importance mentioned by all interviewees within this study, about the effects of governmental regulations about allergens for planning production in the FPI. To the best of my knowledge, no specific information is available in scientific literature about the effect of allergens the production planning in the FPI.

(27)

(28)

University of Groningen - Supply Chain Management 28 TABLES INDEX

Table 1: Overview of groups of FPI characteristics ... 9 Table 2: Overview of explorative interviews ... 15 Table 3: Results of what interviewees typify as planning errors ... 18 Table 4: Results of what interviewees mention as the reason for errors in the production

planning ... 19 Table 5: Overview of restrictions, conditions, preferences of stakeholders of the

production planning and which of these are included in the production planning . 20 Table 6: Performance measures of stakeholders of the production planning about the

production planning ... 22 Table 7: Observed moments of feedback on the production planning ... 22 Table 8: Quotes from interviewees about complexity ... 24

DIAGRAMS INDEX

(29)

University of Groningen - Supply Chain Management 29 REFERENCES

Akkerman, R. 2007. Operational performance of two-stage food production systems:

Process interactions and capacitated storage. Unpublished doctoral dissertation, University of Groningen, The Netherlands.

Akkerman, R., & Van Donk, D.P. 2008. Development and application of a decision support tool for reduction of product losses in the food-processing industry. Journal of Cleaner Production, 16: 335-342.

Akkerman, R., & Van Donk, D.P. 2009. Analyzing scheduling in the food-processing industry: Structure and tasks. Cognition, Technology & Work, 11(3): 215–226.

Cheang, B., Li, H., Lim, A., & Rodrigues, B. 2003. Nurse rostering problems: a bibliographic survey. European Journal of Operational Research, 151(3): 447-460.

De Snoo, C. 2011. Coordination in planning and scheduling: An organizational and behavioral perspective. Unpublished doctoral dissertation, University of Groningen, The Netherlands.

De Snoo, C., Van Wezel, W., & Jorna, R.J. 2011. An empirical investigation of scheduling performance criteria. Journal of Operations Management, 29: 181-193.

Entrup, M.L., Gunther, H.O., Van Beek, P., Grunow, M., & Seiler, T. 2005. Mixed-integer linear programming approaches to shelf-life-integrated planning and scheduling in yoghurt production. International Journal of Production Research, 43(23): 5071-5100.

European Union Commission. 2003. Commission recommendation concerning the

definition of micro, small and medium-sized enterprises. Official Journal of the European Union, L124: 36-41.

Fransoo, J.C., & Rutten, W.G.M.M. 1994. A typology of production control situations in process industries. International Journal of Operations and Production Management, 14(12): 47-57.

Hoogeveen, H. 2005. Multicriteria scheduling. European Journal of Operational Research, 167(3): 592-623.

Jakeman, C.M. 1994. Scheduling needs of the food processing industry. Food Research International, 27: 117-120.

(30)

Kilic, O.A. 2011. Planning and scheduling in process industries considering industry- specific characteristics. Unpublished doctoral dissertation, University of Groningen, The Netherlands.

Kilic, O.A., Van Donk, D.P., & Wijngaard, J. 2011. A discrete time formulation for batch processes with storage capacity and storage time limitations. Computers and Chemical Engineering, 35(4): 622-629.

Kondili, E., Pantellides, C.C., & Sargent, R.W. 1993. A general algorithm for short-term scheduling of batch operations – I. MILP formulation. Computers Chemical Engineering, 17(2): 211-227.

Leung, J.Y.T. 2004. Handbook of scheduling: algorithms, models, and performance analysis. Boca Raton, Florida: Chapman & Hall/CRC.

Lofvers, M. 1998. Grote ontevredenheid over productieplanning. IT Logistiek, 2(4): 74-77 (in Dutch).

Mehrotra, M., Dawande, M., Gavirneni, S., Demirci, M., & Tayur, S. 2011. Production planning with patterns: A problem from processed food manufacturing. Operations Research, 59(2): 267-282.

Miles, M.B., & Huberman, A.M. 1994. Qualitative data analysis: An expanded sourcebook. Thousand Oaks, California: Sage.

Pinedo, M.L. 2008. Scheduling: Theory, algorithms, and systems. New York: Springer. Silver, E.A. 1995. Dealing with a shelf life constraint in cyclic scheduling by adjusting both

cycle time and production rate. International Journal of Production Research, 33(3): 623-629.

Smith, S.F. 1995. Reactive scheduling systems. In: Brown, D.E., Scherer, W.T. (eds.). 1995. Intelligent scheduling systems. Boston: Kluwer Academic Publishers.

Stadtler, H., & Kilger, C. 2002. Supply chain management and advanced planning. 2nd ed. Berlin: Springer-Verlag.

Starr, M.K. 1979. Perspectives on disaggregation. In: Ritzman, L.P., Krajewski, L.J.,

Berry, W.L., Goodman, S.H. Hardy, S.T., & Vitt, L.D. (eds.). Disaggregation, problems in manufacturing and service organizations. Boston: Martinus Nijhoff Publishing.

(31)

Van Dam, J.P., Gaalman, G.J.C., & Sierksma, G. 1999. Production scheduling across multi- machine packaging lines for the pre-scheduling level. International Journal of Production Research, 37(16): 3619-3641.

Van Donk, D.P. 2001. Make to stock or make to order: The decoupling point in the food processing industry. International Journal of Production Economics, 69: 297-306. Van Donk, D.P., & Van Dam, P. 1996. Structuring complexity in scheduling: a study in a

food processing industry. International Journal of Operations & Production Management, 16(5), 54-63.

Van Donk, D.P., & Fransoo, J.C. 2006. Operations management research in the process industries. Journal of Operations Management, 24: 211-214.

Van Kampen, T.J. 2012. Essays on planning in food processing industries. Unpublished doctoral dissertation, University of Groningen, The Netherlands.

Van Kampen, T.J., Van Donk, D.P., & Van der Zee, D.J. 2010. Safety stock and safety lead time: Coping with unreliability in demand and supply. International Journal of Production Research, 48(24): 7463-7481.

Van Wezel, W. 2001. Tasks, hierarchies, and flexibility, planning in food processing industries. Capelle a/d IJssel, The Netherlands: Labyrint Publication.

Van Wezel, W., & Van Donk, D.P. 1996. Scheduling in food processing industries:

Preliminary findings of a task oriented approach. In: Fransoo, J.C., & Rutten, W.G.M.M. (eds.). 1996. Second International Conference on Computer Integrated Manufacturing in the Process Industries - Proceedings, 545-557.

Van Wezel, W., Van Donk, D., & Gaalman, G. 2006. The planning flexibility bottleneck in food processing industries. Journal Of Operations Management, 24(3), 287-300. Vieira, G.E., Herrmann, J.W., & Lin, E. 2003. Rescheduling manufacturing systems: A

framework of strategies, policies, and methods. Journal of Scheduling, 6(1): 35–58. Voss, C., Tsikriktsis, N., & Frohlich, M. 2002. Case research in operations management.

(32)

University of Groningen - Supply Chain Management 32 APPENDIX A: FPI CHARACTERISTICS IN THE PRODUCTION PLANNING