CHANGING SPARE PARTS LOGISTICS PROCESS AT PHILIPS MEDICAL SYSTEMS IN CASE OF A BREAKDOWN SITUATION

(1)

CHANGING SPARE PARTS LOGISTICS

PROCESS AT PHILIPS MEDICAL SYSTEMS IN

CASE OF A BREAKDOWN SITUATION

Master thesis, MscBA, specialization Change Management

University of Groningen, Faculty of Management and Organization

December 10, 2007

TOM DE HAAS

Student number: 1334506

Populierenweg 6

5616 SK Eindhoven

Tel.: +31 (0)6-1585 1801

e-mail: t.de.haas@student.rug.nl

Supervisors University

prof. dr. J.J. van der Werf

dr. B.J.W. Pennink

Supervisor Field of Study

S. Lutgendorff

(2)

___________________________________________________________________________

ABSTRACT

(3)

___________________________________________________________________________

I. INTRODUCTION

1.1. Context

In today’s world, advanced medical systems play an important role in the lives of people worldwide. For a hospital or private clinic, the story does not end after purchasing such a system. There is also an after-sales aspect; medical systems need support throughout their lifetimes. In the commercial world competitive success depends on customer satisfaction, of which after-sales service is a key component (Deshpande et al., 2003). To have the systems performing its expected functions, some typical technical forms of support include installation, maintenance, repair services and support of spare parts (Ghodrati & Kumar, 2005), actions usually carried out by Field Service Engineers (FSEs) of PMS1. These actions usually need to be carried out in a speedy fashion. Spare parts are characterized by slow flows with stochastic demand, frequent irregular patterns, large variety and frequent obsolescence (Diaz, 2003). In the medical systems service environment, an accurate service is extremely important for multiple reasons. First, ethics play an important role. A flawlessly functioning machine is indispensable, because the outcome of a scan e.g., can influence the life of a patient drastically. Second, because of the amounts of money involved; purchase prices vary from 600,000 to three million euros per system, let alone the extra service costs involved in contracts. At last, an excellent performance is essential because of the competition. Consistent with a Philips Medical SWOT analysis, carried out in 2005, competition in the medical systems environment is about to increase significantly in the years to come. Due to these facts, it may be concluded that the concerning service environment is a very important one, in which errors will not be tolerated easily.

Therefore, FSEs play an important role in this process. Currently, there are 130 FSEs for Philips Benelux. Luxemburg does not lodge its own FSEs; in case of a maintenance in Luxemburg, usually one or more Belgian FSEs from the region Wallonia are set in. Engineers are applied daily to install, repair and maintain the medical systems. Every engineer is a specialist in one or more of the following eight modalities: X-Ray, Computed Tomography, Nuclear Medicine, Magnetic Resonance, UltraSound, Cardiac Monitored Systems, Healthcare Informatics, and Cardio/Vascular. FSEs are organized per district, for The Netherlands and Belgium together this means: North-west, North-east, South-west, South-east, Flanders, and Wallonia.

1

(5)

___________________________________________________________________________

1.2. Background

Field Service Engineers are strongly dependent on logistics, especially in a situation where spare parts are needed immediately. In case of a breakdown in which engineer support and spare parts are needed quickly, accurate and swift action is needed. One can talk of a breakdown situation if a device is not functional anymore and spare parts are needed for reparation2. The breakdown process is usually triggered by a hospital technician, doctor, or other hospital or clinic representative. In case the decision is made to order spare parts, the procedure passes off as follows for respectively the Netherlands and Belgium & Luxemburg (Belux), starting with the first-mentioned (see figure 1).

In a general sense, the process starts when the FSE decides that parts are required to resolve the problem as soon as possible (usually the same day). Please see the square FSE in hospital

or clinic NL. Ordering parts may happen in consultation with colleagues from the Remote

Service (RS) Helpdesk that is located partly in Eindhoven, Woerden and Brussels. This has been visualized with a dotted line to indicate that it is a possibility and does not happen automatically in all situations. The FSE can also consult other people like technical support engineers, modality support engineers, and fellow FSEs; it depends on the case and the

2_{Definition according to Branch Managers PMS (the direct managers of the FSEs).}

(6)

___________________________________________________________________________

experience the regarding colleague has at his disposal. RS-employees can also give a first impulse to ordering parts by inserting the right material in the adjusted SAP-platform Clarify and sending it to the Call & Dispatch (C&D) department.

The order is thus created (by RS or C&D) and if all circumstances are correct (spare parts are on stock, no problems with ordering, etc.) the FSE is dispatched (planned) on to the location and the order moves through via Logistics Netherlands. The information system SAP automatically creates a purchase order number, which consequently creates a sales order number. In the order, the requested delivery date needs to be adjusted by putting it one day backwards; taxi deliveries need to be carried out the same day. Subsequently, the first fields

requestor and destination on the taxi form are filled in (please see appendix A). Subsequently

a phone call is made to attend the employee at the ASAP(All Special Assistance Parts)-desk that they can expect the e-mail with taxi form attachment.

The next link in the chain is the ASAP-desk from SPS (Spare Parts Supply) in Best, the Netherlands. The ASAP employee puts the order in delivery in SAP and fills in an other part of the taxi form (SPS ASAP Desk, see appendix A). After that, the form is forwarded to the central warehouse of UPS in Roermond and a time administration is noted.

At UPS, a taxi driver of Van den Boogaard or a cooperating taxi company is waiting for the parts to be shipped. At the proper time, the taxi driver signs for receipt at the drivers’ reception at UPS and loads the parts in the taxi. After that he moves to a meeting point between Roermond and Geldrop (where Van den Boogaard is located), to meet a colleague. The cargo is loaded over and taxi driver two continues the route to the hospital or clinic where the FSE is waiting. When he departs, a phone call is made to the FSE to communicate the expected time of arrival. Ten minutes before arrival at the hospital the taxi driver informs the FSE again and they can arrange a meeting location, usually the main entrance of the hospital or clinic.

The situation in the Belux is slightly different. When first focusing on the square FSE in

hospital or clinic Belux, it can be seen that again the Remote Service Helpdesk can be used

(7)

___________________________________________________________________________

Subsequently, the FSE passes on the SO number to Logistics Belgium which forms the input for the order. Yet, in contrast with the Dutch section, the Belgian section has a relatively restricted role in taking and processing orders. Here the task of ordering parts occurs at the Logistics department; the FSE calls Logistics to order necessary parts. Logistics checks the stock and the possibility to order, and fills in the taxi form after which the order is picked up at the ASAP-desk.

The ASAP-desk is thus provided with input from the Dutch or Belgian Logistics department, and with a number of other key markets like Germany, France, Spain, etc. The Dutch as well as the Belux procedures assemble at the ASAP-desk, thus from this moment the situation can be followed like described above.

According to preparatory work (interviews with management, studying engagement surveys), the above sketched logistics process is currently functioning far from perfect. Therefore, the Operations Support Manager from Philips Medical Systems Benelux wants to investigate how the internal logistics processes can be organized in a more effective and efficient way. To unhitch the difficulty of defining these terms, the approach chosen in this research is to focus on the people confronted with the output of the logistics processes: the FSEs. Because the FSE feels discomforts of the spare parts delivery process the most, being the internal customer of the logistics process and the first contact point for the hospital, he is taken as starting point for the investigation. That is, the engineer is in the position to indicate where the main limitations in the process occur.

1.3. Objective and Research Questions

(8)

___________________________________________________________________________

notices that internal processes at its subcontractor are not taking place in a first-rated fashion. The customer’s (i.e. part user’s) main concern in maintenance is assured availability of parts and the quality service with reasonable costs (Huiskonen, 2001).

Thus, it is important to map in which areas the spare parts logistics breakdown process can be organized more effectively and efficiently. Annoyances of FSEs are taken as an entrance to detect which logistical hitches are felt the most in the field, followed by proposals for improvement. These proposals will be tested and after that there will be given a first stimulus to implementing changes. It would take to far to implement desired changes actually, but there will be made recommendations for adjusting the current situation.

As a result, the purpose of this investigation can be formulated as: to present proposals to the

management of the Customer Services department of PMS Benelux, for adjusting the spare parts logistics process in a more effective and efficient way. The much discussed concepts of

effectivity and efficiency need a short illustration here. In this investigation, these will be interpreted as follows. Effectiveness means doing the right things. Efficiency is concerned with inputs and outputs. An efficient firm produces goods and renders services economically: it does things right (Brown, 1987). Consequently, the research question is phrased:

What should be changed in order to improve the spare parts taxi delivery process at PMS Benelux and what is a reasonable way of implementing?

As can be seen in figure 2 Customer Services dwells between logistics and marketing. But in this investigation especially the logistics side will be the point of departure; the emphasis is put on spare part deliveries in breakdown situations and therefore for the lions’ share on logistics. As a result, this investigation is a piece of research focusing on possible solutions in this field.

(9)

___________________________________________________________________________

For the purpose of making the central question more researchable, it has been divided into three sub questions. The first sub question is theoretical as well as describing. To provide a clear and stable basis for this research, the spare parts logistics concept needs theoretical support and this specific process needs to be further outlined, too. Therefore, sub question one is phrased: what comprehends the spare parts logistics process at PMS Benelux?

Furthermore, the concept of change will get attention in sub question 2 which also has a theoretical character. Research will be conducted with the intention to give a first stimulus to change so the following question is formulated: what is important to take into account with

regard to organizational change?

Both questions will provide the basis for the practical part of the research and will be combined by means of sub question 3: which changes should be made to improve the current

spare parts logistics process?

1.4. Structure

(10)

___________________________________________________________________________

II. THEORY AND BACKGROUND

Before answers to the main question can be sought-after, the question has been unravelled in multiple sub questions. This section serves to explain, elaborate and justify those. In order to provide a springboard for the continuation of this article, relevant areas will be expounded and sub questions presented. The relevant areas of research regarding spare part logistics would, in broad terms, include several different topics, such as maintenance and reliability, production and inventory control, supply chain management, and some strategic management aspects as well (Huiskonen, 2001). Moreover the specific process will be described; departments, actions and lead-times will be discussed. Furthermore, the concept of change is taken into account. Because organizational change touches a lot of topics and areas in an organization, a more in-dept elaboration and fencing off needs to take place since it is beyond the scope of this paper to review all these areas. In the following, a review will follow on research that will be most relevant for serving the investigation.

2.1. Spare Parts Logistics

To create a theoretical background for answering the research question, the concept of spare part logistics needs to be inspected first. In doing so an applied sub question is created to provide direction, formulated as: what comprehends the spare parts logistics process at PMS

Benelux? In the following of this chapter the assignment will be clarified, to start with the

(spare parts) logistics theme as discussed in literature. The working-method will be from broad to more narrow; to begin with common logistics and end up with the applied process at PMS.

2.1.1. Logistics theory

(11)

___________________________________________________________________________

defined as “anticipating and exceeding customer requirements and expectations” (Langley & Holcomb, 1992). The essence of the logistics concept is shown in figure 3.

Figure 3. The Logistics Process (Langley & Holcomb, 1992)

The abovementioned definition of logistics is a very broad one, and it needs to be specified to fit into the context of this paper. Roughly speaking, logistics can be defined into four categories: (1) supply chain logistics, (2) service response logistics, (3) product support logistics, and (4) industry support logistics. (Murthy et al., 2004).

Supply chain logistics. Supply chain management deals with the logistics of the delivery of inputs from suppliers to the manufacturing plant and the delivery of finished goods to various demand centers. According to Slack, Chambers and Johnston (2001), supply chain management is concerned with managing the flow of materials and information between the operations which form the strands or ‘chains’ of a supply network. It deals with raw materials and components of the input side and finished products on the output side. Some matters that have to do with supply chain logistics are: selection of suppliers, location of warehouses, and channels of distribution (Murthy et al., 2004).

(12)

___________________________________________________________________________

the other hand, is the management of capacity and the coordination of service delivery to the customer (Davis & Manrodt, 1992). This is made visible in figure 4.

Figure 4. Supply chain logistics and service response logistics (Murthy et al., 2004)

Service response logistics has three components: resolving the immediate problem so the customer is satisfied, preventing a reoccurrence of the same problem in the future, and planning responses for recurring breakdowns that are unavoidable (Lundeen et al., 1995). Improving the quality of logistics service is particularly important because it increases customer satisfaction, which in turn heightens the occurrence of strategic partnering and corporate profitability (Sharma et al., 1995).

Product support logistics. These are the preventive and corrective logistics maintenances. Product support logistics deals with the provisioning, procurement, materials handling, transportation and distribution, and warehousing of items and the support infrastructure needed for carrying out these activities over the life of product (Murthy et al., 2004).

Industry support logistics. According to Barros et al. (2001), industry support logistics includes more global issues that affect the industry as a whole such as transportation policy, location incentives and globalization issues.

In section 2.1.3. these categories will be applied to the spare parts logistics process at PMS Benelux.

2.1.2. Spare parts logistics theory

(13)

___________________________________________________________________________

parts are not intermediate or final products to be sold to a customer. (Kennedy et al., 2002). Four important characteristics of spare parts are: criticality, specificity, demand pattern, and value of parts (Huiskonen, 2001).

Criticality. This refers to the sense of urgency of the situation. From the logistics control point of view, it is most essential to know how much time there is to react to the demand need, that is, whether there is a need to use a buffer against variations in demand. Huiskonen (2001) also makes a distinction in certain degrees of criticality which have to do with time available: (1) the failure has to be corrected and the spares could be supplied immediately; (2) the failure can be tolerated with temporary arrangements for a short period of time during which the spare parts can be supplied; (3) the failure is not critical for the process, and can be corrected and spares can be supplied after a longer period of time.

Specificity. This has to do with the uniqueness of the parts. Among the wide spectrum of maintenance spare parts a distinction can be made between standard parts (widely used and readily available by several suppliers) and a certain number of parts specifically tailored for and used by a particular user only. Usually in the last category the availability is limited; suppliers are not willing to stock the more special, low volume parts and the responsibility of availability and control remains with the user himself.

Demand pattern. The demand pattern of parts includes the aspects of volume and predictability. What is special to spare parts is that among them there is typically a large amount of parts with very low and irregular demand. A survey conducted by Ikhwan and Burney in 1994, found that 34% of the companies they surveyed had stated that their most severe problem consisted of delays in obtaining spare parts. (Kennedy et al., 2002). Control is more difficult and combined with other characteristics – e.g. high criticality and high price – it lends itself to increase the amount of safety stocks needed to cover unpredictable situations. Anyhow, the responsibility of control remains at the end-user, which is in contrast to the logistics theories which say that volume items should be held back in the chain; thus more centrally located. Regarding control, it is useful to divide the parts in two categories: parts with random failures and parts with a predictable wearing pattern (Huiskonen, 2001).

(14)

___________________________________________________________________________

matter of objectives, negotiation power, and cooperation of the parties in the supply chain and also an issue of incentives, how the supplies are organized.

Concluding, it should be remarked that spare parts logistics forms a very specific and relatively difficult share of logistics. The requirements for planning the logistics of spare parts differ from those of other materials in several ways: service requirements are higher as the effects of stock outs may be financially remarkable, the demand for parts may be extremely sporadic and difficult to forecast, and the prices of individual parts may be very high. On the other hand, material and time buffers in production systems and supply chains are decreasing. These characteristics set pressures for streamlining the logistic systems of spare parts. In the next section, spare parts logistics at PMS will be related to the categories of (spare parts) logistics outlined in the previous two sections.

2.1.3. Spare parts logistics theory applied to PMS Benelux

In the context of this investigation, it can be stated that the spare parts logistics process at PMS partly touches the fields as described by Murthy (2004). To be able to give spare parts logistics a place into the defined field of logistics, the distinction made in section 2.1.1. and the description made in section 2.1.2. will be applied to spare parts logistics at PMS.

When comparing the concept of spare parts logistics with common logistics, some criteria need to be mentioned. Broadly speaking, it holds that supply chain logistics falls beyond the scope of this research because it resides too much upward in the logistics chain; it is not the intention to investigate the production process and the subsequent flow towards the warehouse because that is not a main issue for the key market Benelux. Ditto applies for the issue described as industry support logistics because global issues will not be taken into account due to the same motive. Thus, the remaining categories consist of service response logistics and product support logistics, which will be applied to the situation at PMS Benelux now.

(15)

___________________________________________________________________________

In a longer time span, there is more time for planning FSEs and obtaining the necessary parts. Nevertheless, in this case other issues deserve attention like defects, wrong deliveries and miscommunication. The most important for being able to deliver outstanding service logistics performance, is a situation in which the FSE can carry out his work optimally. This means: no defects, wrong deliveries or miscommunication between departments and a quick delivery of necessary parts. The service response time has been visualized in figure 5 (see page 17).

Product support logistics. Involved here are the preventive and corrective logistics maintenances which have to do with provisioning, procurement, materials handling, transportation and distribution, and warehousing of items and the support infrastructure. Overlap shows up with service response logistics. In this case, only corrective maintenances will be considered. Overall, spare parts logistics is vital for serving customers in an accurate manner. However, one can wonder what can be considered as an accurate manner. Philips Medical Systems works with a certain service contract structure; customers pay for a silver, gold or platinum contract, all with its specified characteristics (please see table 1). Bundschuh and Dezvane (2003:5) found that “it is vital that companies using this type of price mixing work out the relative prices of their services to prevent customers from gaming the system and to improve the management of demand for their services. To prevent "service-pricing arbitrage," the heavy-equipment manufacturer with platinum, gold, and bronze service levels ensured that its gold package with additional options never delivered more service for a lower price than the platinum deal”.

Table 1. Contracts at PMS with its contents

This table needs a short explanation. Due to the large variance of the systems’ retail prices, index figures have been provided. Gold contracts are fixed on 100, consequently a silver and platinum contract have index values of 86 and 120. The next column, response time FSE on-site, contains the maximum time to elapse between the call of the hospital representative and the FSE actually arriving at the hospital. The third one, uptime annually, shows the determined period a system should be functioning properly on a yearly basis. To provide an example: a system covered by a platinum contract should be functioning in 99% of its defined working hours beforehand. If not, PMS should pay a compensation for the lost hours. At last, Type of contract Index figure relative

retail price

Response time FSE on-site

Uptime annually

Silver 86 12 Optional

Gold 100 4 95%

(16)

___________________________________________________________________________

it has to be mentioned that all contracts have basic spare parts covered in a breakdown situation. The coverage of more advanced components3 however, is discussed during negotiations and is optional per contract.

From now the topic will be discussed on the basis of the four characteristics of spare parts mentioned in section 2.1.2.: criticality, specificity, demand pattern, and value of parts.

Criticality. Regarding a breakdown situation in which the customer has a contract that covers immediate response, the criticality can be considered high. In the scale defined by Huiskonen (see page 12) it shall be placed between (1) and (2): the failure has to be corrected and the spares could be supplied immediately or it can be tolerated with temporary arrangements for a short period of time (usually a few hours) during which the spare parts can be supplied. In the case discussed, postponing the delivery of parts is not an option because a breakdown situation is discussed: the system does not function properly anymore and a reparation with spare parts is needed soon as possible.

Specificity. In this situation, the assumption is made that parts are readily available because they need to be delivered in the shortest possible period of time. If it takes a few days to obtain the necessary parts, there is no talk of an immediate sameday taxi delivery. In the UPS warehouse located in Roermond about 57,000 different spare parts are stocked, the situation concerns these parts.

Demand pattern. At the moment almost all the stock is stored in Roermond. Exceptionally there can be some remaining stock on regional locations but this will be by chance. There used to be a lot of parts stocked on regional places such as Eindhoven and Brussels. Furthermore FSEs used to have an own supply of parts wich were known for failing relatively easy. Nevertheless, this has been abandoned because of the high costs keeping this stock.

Value. This piece can be kept short, because currently there is no discussion about which parts are kept on which location; the parts are stored in Roermond. However, this does not account for all parts, some need to be transported from the USA or Germany.

At present, the theoretical aspect of (spare parts) logistics may be plain. Certain aspects have also been related to the practical situation at PMS. This approach will be continued into the

3_{In order to provide a complete picture, examples of advanced components are chrystals, x-ray tubes, image}

(17)

___________________________________________________________________________

next section where the spare parts breakdown delivery process will be outlined in detail. A summary will be given of the organization and involved departments in the process.

2.1.4. The spare parts breakdown delivery process

The logistics mission begins with the customer’s request and ends with the completion of delivery and the fulfillment of the customer’s needs (Langley & Halcomb, 1992: 21). In this process, the spare parts delivery is a relatively small but important one. Figure 5 supplies the big picture including the process that stands central in this investigation: the logistics delay, in this research called the spare parts breakdown delivery process. In the words of Cohen (1997), this is the time elapsed between the moment necessary parts have been ordered until the moment the parts and the FSE arrive so he can start the repair job.

In the introduction section a rather complete description of the whole taxi delivery chain has been given (please recall figure 1), in here a more detailed overview will be provided. Per department or profession the number of participants, actions, time deadlines and locations will be given. This information is first explained in detail and consequently provided in table 2. Field Service Engineer. The FSE is in the clinic or hospital to diagnose which actions should be taken in order to resolve the problem. When he decides that parts are needed, the order needs to be placed. Usually one FSE is involved, and when he has to consult a colleague from the Remote Service Center two persons in total are involved. There is no time limit, the FSE performs his task soon as possible.

Remote Service Helpdesk. These are located in Eindhoven, Woerden and Brussels. Although the dividing per location can differ, usually all modalities are covered by one or more Remote

(18)

___________________________________________________________________________

Service Engineers. Normally one person is involved in a breakdown situation. The RS Engineer confers with the FSE about the situation and has the possibility to insert material in the program Clarify. In here neither a deadline exists, assistance will be given as quick as possible.

Call & Dispatch Netherlands. The place of business for this department is Eindhoven. In the standard situation one employee is involved. When a FSE calls to order one or more spare parts, the C&D-employee needs to carry out the following tasks subsequently: (1) prepare the case if the code number is known (if not, it should be created by an IT-specialist). (2) check stock for the necessary part(s). (3) insert material (steps 1 until 3 may be done already by the RS, in that case the process starts by step 4). (4) Dispatch FSE; an engineer needs to be planned on the location. (5) write necessary information in the notification like time stamp and persons involved like hospital contact person. (6) Call Logistics Netherlands to attend them that they should pick up the order in SAP. The time this may all take is not specified but the C&D-employees accomplish the necessary tasks on the shortest possible term.

Logistics Netherlands and Belux. Located in Eindhoven (NL) and in Brussels (Belux). From each department one person is involved. At the department in Eindhoven, after obtaining the sales order number from SAP, the taxi form will be filled in with information like the location the parts should be sent to, contact person, service order and sales order numbers. Other remarks can also be made. After that, the taxi form is e-mailed to the ASAP-desk and a call is made to be sure the order will be picked up by the subsequent department. In Brussels needs to be done more before that because this is the point the order is placed in the Belux situation. Therefore, the employees from this department also prepare the case, check stock, and insert material. Both Logistics departments have a maximum time of 15 minutes to perform their tasks.

All Special Assistance Parts (ASAP)-desk. This desk is located in Best and one person is involved per taxi breakdown case. Here the order is put in delivery and a delivery number is noted. Then the taxi form is filled in farther and forwarded to UPS. The ASAP-employee has a maximum of 15 minutes to execute this.

UPS. The warehouse of UPS, lodging 57,000 different spare parts and serving to supply the whole time zone EMEA4, is located in Roermond. Four people are involved in picking and packing the goods to the taxi. Person one receives the e-mail with attachments from the ASAP-desk. He or she informs the taxi runner on the workfloor by phone. Then, the taxi

(19)

___________________________________________________________________________

runner does the necessary administration and attends the picker, who receives a high priority task for picking the part(s) meant for the taxi. When this has been done, the taxi runner brings the part(s) to the drivers’ reception where the part is taken over by the taxi driver. This person signs for receipt and loads the part in the taxi. If the part weighs too much, it will be loaded in the taxi on a special dock. From the moment UPS receives the e-mail from the ASAP-desk, until the moment the taxi driver signs for receiving the part(s), UPS has a maximum of 60 minutes. The maximum for the taxi runner is set on 30 minutes. The process at UPS is shown in figure 6.

Van den Boogaard. The location of this transport company is in Geldrop, but the policy is that there is one driver waiting in Roermond especially for taxi deliveries. This person waits until a part needs to be shipped, loads it in his taxi and drives in the direction of Geldrop where a colleague drives towards him. When they meet, parts will be loaded over and the driver returns to Roermond where his colleague continues the route to the hospital or clinic in the Benelux. This person calls the FSE waiting in the hospital to communicate the Expected Time of Arrival. Thus in this case two persons are involved. The following overview can be given.

Table 2. Departments involved, participants and time deadlines

5

Another helpdesk (ECCN) is consulted in case the Remote Service Center is not accessible.

Department/employee Location Participants Time deadlines

Field Service Engineer Hospital/clinic Benelux 1 Not defined

Remote Service Center5 Eindhoven/Woerden/Brussels 1 Not defined

Call & Dispatch NL/Belux Eindhoven 1 Not defined

Logistics NL/Belux Eindhoven/Brussels 1 15 minutes

ASAP-Desk Best 1 15 minutes

UPS warehouse Roermond 4 60 minutes

Taxi 1 Roermond 1 Incl. in UPS time

Taxi 2 Between Roermond and Geldrop 1 Not defined

Maximum total - 11 90 minutes

(20)

___________________________________________________________________________

At this moment, the concept of (spare parts) logistics at PMS is made explicit. Logistics is a value creating function (Langley & Holcomb 1992). Therefore, it is interesting to see whether the spare parts logistics process can be optimized. The next section will deal with the way processes can be adjusted in an organization: the concept of change.

2.2. The Concept of Change

“Research itself is always an attempt to transform something; if not, there would be no reason to ‘re-search’, that is, the intellectual art of searching again” (Antunes, 2002). With regard to the principal theme of this research, a change management perspective will be taken. In an attempt to give a first stimulus to changing the current situation, some theoretical advise will be provided in order to be prepared for and carry through desired changes. An innumerable quantity of books has been written about organizational change and its features. Many researchers have investigated different models of organizational change, such as Beer and Nohria (2000) with their theories E and O, Burnes (2003) explaining the fairly different concepts of planned and emergent change, and Lewin (1947) clarifying the path of unfreezing – changing – refreezing. Jansen (1996) replenishes these examples by mentioning concepts of incremental change (Quinn, 1980), metamorphic change (Starbuck, 1965; Tushman and Romanelli, 1985), revolutionary change (Miller, 1982; Miller and Friesen, 1984), first- and second-order change (Bartunek and Moch, 1987), alpha, beta, and gamma change (Golembiewski, Billingsley and Yeager, 1976; Golembiewski, 1986), and strategic change (Mintzberg, 1987; Van de Ven, 1992). All of these models attempt to explain different means of effecting organizational change (Jansen, 1996); what these theories have in common is that all of them are rather broad and universal visions on the concept of change. However, in this research a more applied approach is desirable because the focus is put on changing a specific situation. Although it is beyond the scope of this investigation to start the implementation of adjustments, it is useful to anticipate on the would-be situation. Because a remodeling of the current situation involves change, sub question two will cope with topics that should be considered. In other words, there is a need for theoretical support in answering the question

what is important to take into account with regard to organizational change? Roughly

(21)

___________________________________________________________________________

2.2.1. Pre-change conditions

Employee attitudes towards change play an important role with regard to organizational change. Most problems regarding business process management are not technical but arise from an inappropriate organizational culture that may impede innovations being implemented and superior performance being achieved (Škerlavaj et al., 2007). The basic idea is that an organizations’ stakeholders play a very important role when trying to improve organizational performance by business process change. Questions can be asked like: are the organization members ready and willing to change? Does the organization’s management support the desired change? How would the environment react to change? Will the intended change be reached when enforcing the change project? In short: is there a certain atmosphere among stakeholders that supports an open attitude towards change? While the failure of planned organizational change may be due to many factors, few are so critical as employees’ attitudes towards the change event (Jones et al., 2005). Therefore, it helps when employees exhibit an open attitude towards change. Openness to change can be stimulated by a number of factors. Wanberg and Banas (2000) found that the following variables are predictive of higher levels of employee openness to changes: participation in the change decision process, information received about the changes, and self-efficacy for coping with the changes. Lower levels of change acceptance were, in the same investigation, associated with less job satisfaction, more work irritation, and stronger intentions to quit. Schein (1988) has addressed the failure of organizational change programs by arguing that the reason so many change efforts run into resistance or outright failure is traceable to the organization’s inability to effectively unfreeze and create readiness for change before attempting a change induction. Following from this information, to the three mentioned ways to stimulate succesful change a fourth one can be added, namely reducing resistance to change (Kotter and Schlesinger, 1979). Now the four mentioned factors will be described in more detail.

(22)

___________________________________________________________________________

that most information is widely held in the organization. Top management is farthest away from customers and operations. Moreover, information about barriers to achieving top management’s goals are not likely to be communicated upward in a firm managed strictly from the top down”.

Information received about the changes. It is important to inform involved employees adequately about the coming change and the arguments underlying it. Without adequate information, individuals may be uncertain about what specific changes will occur, how a given change will affect their job and organization, or how to respond to a change (Milliken, 1987). This has been illustrated by a study performed by Schweiger and DeNisi in 1991 with employees in two plants. Employees in one plant received a planned program of information concerning a merger with another organization, whereas employees in a second plant received only limited information. Employees in plant one experienced less uncertainty and perceived the company to be more trustworthy, honest, and caring than did employees in the second plant.

Self-efficacy for coping with the changes. Self-efficacy can be defined as the belief in one’s ability to perform a task successfully (McDonald and Siegall, 1996). In the words of Epel et al. (1999), self-efficacy can be thought of as one’s perceived competence to reach a goal. Change-related self-efficacy is an individual’s perceived ability to handle change in a given situation and to function well on the job despite demands of the change (Wanberg and Banas, 2000). Employees involved in the change process should be convinced that they are able to perform the tasks that they are asked to perform.

(23)

___________________________________________________________________________

providing training in new skills, or giving employees time off after a demanding period, or simply listening and providing emotional support. Nevertheless, a major drawback of this approach is that it can be time consuming, expensive, and still fail. If resources like time, money and patience are just not available, then using the supportive methods is not very practical. (4) Negotiation and agreement. Another way to deal with resistance is to offer incentives to active or potential resistors. For instance, management could give a higher wage rate in return for a work rule change. (5) Manipulation and co-optation. Manipulation involves the very selective use of information and the conscious structuring of events. Co-optation means giving someone a desirable role in the design or implementation of the change. Co-opting a group involves giving one of its leaders or someone it respects, a key role in the implementation or design of a certain change. (6) Explicit and implicit coercion. This approach involves forcing through the desired change by explicitly or implicitly threatening employees (with the loss of jobs e.g.) or by actually firing or transferring them. However, using coercion is a risky process because it is inevitable that people will resent forced change.

2.2.2. The actual change execution

When pre-change conditions are created to such an extent that the actual change can be executed, there are still a number of factors to take into account. Kotter (1995) illustrates this by mentioning eight steps for succesfully transforming an organization. To lay the foundation for succesful change in theory, this section explains these steps.

Establish a sense of urgency. At first, potential opportunities and crises need to be discussed. Consequently, the pros and cons are weighed up and the sense of urgency is discussed. The urgency rate is high enough when about 75% of a company’s management is honestly convinced that business-as-usual is totally unacceptable. Anything less can produce serious problems later on in the process.

Form a powerful guiding coalition. If the decision has been made to enforce the change, it needs to be led. Therefore, a powerful coalition is needed. A group needs to be assembled with enough power to lead the change effort. Furthermore, the group should be encouraged to work as a team.

(24)

___________________________________________________________________________

that signifies both understanding and interest, you are not yet done with this phase of the transformation process.

Communicate the vision. In more succesful transformation efforts, executives use all existing communication channels they have at their disposal, to broadcast the vision. Furthermore, it is very important to support words with deeds. Nothing undermines change more than behavior by important individuals that is inconsistent with their words.

Empower others to act on the vision. Generally speaking, one should ‘get rid of obstacles to change’. Systems or structures that seriously undermine the vision should be changed. In the concerning organization or division, it should be encouraged to take risk and come up with nontraditional ideas, activities and actions.

Plan for and create short-term wins. Without short-term wins, too many people give up or actively join the ranks of those people who have been resisting change. The drive to create these short-term wins can create pressure, but this can be a useful element in a change effort; commitments to produce these wins help to keep the urgency level up. It also stimulates detailed analytical thinking that can explain or revise visions. At last, employees involved in the improvements should be recognized and rewarded.

Consolidate improvements and produce still more change. Victory should not be declared too soon; the prematury victory celebration kills momentum. Instead of declaring victory, leaders of succesful efforts use the credibility afforded by short-term wins to tackle even bigger problems. The effort continues by searching for systems and structures being not consistent with the transformation vision.

Institutionalize new approaches. The last step is to ‘seep the change into the bloodstream of the corporate body’. Two factors contribute to this. First, it should be attempted to show people how the enforced changes have helped to improve performance. Second, time is needed to make sure that the next generation of management really does personify the new approach. For instance, if the change initiator is the retiring executive, one should await the decisions of his successor. If this person is not a supporter of the change this could have signs of renewal disappearing and the old situation re-established.

2.3. Changing the Spare Parts Logistics Process

(25)

___________________________________________________________________________

(26)

___________________________________________________________________________

III. RESEARCH METHODS

In order to arrive at well-grounded answers to the research questions, accurate methodology is required. Data needs to be gathered as well as interpreted thereafter. Following from the sub question defined in section 2.3, the methods to use will be elaborated in this chapter. Except focusing on the engineer’s point of view, the whole logistics process will be mapped too. Therefore, interviews with several stakeholders will be performed data will be researched. Data measurements have been carried out, if data were not available.

3.1. Annoyances

Logistics has a value creating function. Therefore, it is interesting to see in which way customer value can be created in the spare parts logistics process. Langley & Holcomb (1992) recognize three generic ways through which logistics creates customer value: effectiveness, efficiency, and differentiation. With regard to the case of PMS, this reasoning holds that in case of an effective, efficient and differentiated logistics process, the satisfaction of hospital and private clinic representatives will increase. Nevertheless, when a spare parts delivery does not match the mentioned criteria, the Field Service Engineer will be the person who is confronted with it at first. This person experiences the logistical hitch and customer dissatisfaction simultaneously. Consequently, employee satisfaction will probably decrease also, assuming that the FSE is willing to deliver an optimal performance on behalf of PMS. This is backed up by Matzler et al. (2004), who state that in the service industry in particular, a number of studies found a positive relationship between employee satisfaction, customer satisfaction and company performance. Taking this dissatisfaction as a starting point, logistical limitations will be brought into picture.

(27)

___________________________________________________________________________

the worker and his work environment (Locke, 1969). Additionally, there is evidence that job satisfaction is simply the extent to which an employee has adapted to his or her work (De Sitter, 1982). Overall, because of the vagueness of the concept of job satisfaction, annoyances will be investigated in stead of dissatisfaction. This is a deliberate choice, because this study aims at acquiring clear and specific points for improvement. In this context, the FSE can be considered as the internal customer. Who can judge the outcome of the logistics process better than the internal customer? If the FSE is dissatisfied with logistics service performance, logistics managers can increase satisfaction by listening to and promptly responding to the customer’s dissatisfaction (Sharma et al., 1995). A clear insight into the causes and nature of an annoyance frequently decreases its strength or eliminates it altogether (Cason, 1930).

3.2. Interviewing

(28)

___________________________________________________________________________

individually will be assessed. Based on that review, a decision will be made which ones deserve attention and need to be translated into proposals for improvement.

3.3. Delphi-study

A great frustration is having the answer to a problem in the form of a proposed change, and subsequently being unable to get anyone to accept or carry out that change (Stanislao and Stanislao, 1983). When proposing a change in current working methods and processes, it is important to create support from multiple departments involved. Different stakeholders in the spare parts delivery process need to create a broad and stable basis for change. It might be pitiful when advising will lead to nothing, because the proposal turns out to be unrealistic or undesirable in practice.

Luo, Liberatore, Nydick, Chun, and Sloane (2004) see benefits in piloting a proposed process change and measuring key process performance and customer assessment prior to implementation. The same is going to happen in this research in which proposals will be tested for feasibility by means of a Delphi study. In this study, a panel of so-called experts in different fields and from different departments shine their lights on a number of subjects. By organizing multiple rounds in which the experts are confronted with opinions of the others, the intention is to reach consensus or discrepancy with regard to multiple statements. According to Ogden et al. (2005), a Delphi study typically involves 11 steps: (1) Define the

problem. In this case, the problem is the spare parts logistic process which can be organized in

(29)

___________________________________________________________________________

access; 2. compressed cycle times; and 3. easier linking of successive rounds. Furthermore, one-to-one conversations will be held in case e-mail response does not deliver the desired result or concerning persons prefer to explain their opinions in more detail. (5) Questionnaire

1. This step serves for generating input. It will be omitted, because this has already been done

by interviewing and mapping annoyances. (6) Combine and refine the initial input. As stated before, input will be composed and translated into useful proposals. Of course overlap can take place here. It is important that participants understand the suggestions and its backgrounds, to be able to give a well-thought judgment. (7) Questionnaire 2. After judging proposals and stating why those are or are not attractive and to what extent a proposal is realizable, this information will be summarized and eventually returned to the respondents for a second round. In this round, participants are asked to react on the opinions and scores of other participants and to eventually review their own score. The judgment will be performed using a five-point scale (1=very unattractive, 2=unattractive, 3=not unattractive, not attractive, 4=attractive, 5=very attractive, 6=no opinion. The same scales are used for realizability: 1=very easy to realize, 2=easy to realize, 3=not easy, not difficult to realize, 4=easy to realize, 5=very easy to realize, 6=no opinion. To prevent prejudices about certain statements, the sender of feedback stays anonymous in this round. Only departments will be mentioned. (8)

Compute the mean and range. The next step in the analysis is to calculate the average and

(30)

___________________________________________________________________________

IV. RESULTS

The question that stands central in this section has previously been formulated as which

changes should be made to the current spare parts logistics process? Annoyances of Field

Service Engineers have been investigated in order to create a clear starting point. Complementing, two lead-time measurements have been carried out. Consequently, proposals for improvement have been made and submitted to stakeholders along the spare parts logistics process to let them judge. The results will be reproduced in this chapter.

4.1. Interview outcomes

In line with the factors mentioned in section 2.2.1., especially participation in the change

decision process, FSEs are approached to provide input. The situation will be brought into

picture from their perspective. Annoyances are investigated because these are easily recalled and form clear points of failure. To investigate annoyances that currently live among FSEs, conversations and interviews have been administered with 17 of them. The distribution concerning region and modality can be seen in table 3. In all, there are currently 130 FSEs over the Benelux.

Table 3. Distribution of interviewed FSEs across different regions and modalities.

After consulting 17 FSEs it became clear that no new opinions would show up and that a rather complete picture was sketched. Annoyances have been investigated with regard to the situation the engineer finds oneself in. A preceding remark that needs to be made holds that only annoyances are taken into account that can form the input for clear points for improvement in this research.

6_{Working region all over The Netherlands} 7_{Working region all over The Benelux.}

8_{Due to the fact that almost all Wallonian FSEs only want to speak French, only the one Dutch-speaking was}

(31)

___________________________________________________________________________

By far the most mentioned annoyance has to do with long waiting times. After ordering, it takes at least four hours before the FSE receives his parts; FSEs find it incomprehensible that they have to wait so long and do not know why. Together with this theme, multiple sub complaints and possible causes and effects are connected. In the following an overview will be given.

The FSE arrives at the hospital, diagnoses the disturbance, and decides to order necessary spare parts. From this moment until the arrival of the parts, FSEs experience a very long waiting time. As one engineer put it, at the same time representing the majority of his colleagues,: “in the mean time, as an engineer you try to keep the peace and calm the customer. You do not know when the delivery will arrive, until a call is made by the taxi driver when he leaves from the warehouse in Roermond. The taxi driver lets know what the expected time of arrival is and calls again about ten minutes before arrival. In the time between you try to make yourself useful by checking the system again and again to be sure there are no other shortcomings and to kill the time, which is very irritating. If the customer restlessly asks why it takes that long we usually tell an excuse so it does not get known that the waiting time is due to internal processes. Finally, after waiting four hours or longer the taxi driver arrives, hopefully with the right parts. Then the reparation can start which also takes some more hours”.

(32)

___________________________________________________________________________

However, a remark needs to be made about differences between Netherlands and Belux. It seems that Belgian FSEs are willing to wait longer for their parts. As one Belgian engineer put it: “the final goal needs to be reached: satisfying the customer. If I need to wait five hours but I can satisfy the doctor by ultimately repairing the system, the end has been attained. Which does not take away the fact that such long waiting times are unacceptable”. Opinions about internal administrative processes differ. Some show understanding for internal lead-times, some do not. But all FSEs with an opinion about this topic state that one hour really is the maximum the internal process should take. “The customer needs to be served as soon as possible. This person has the right to demand that and, besides that, we as FSEs get the riot

act read when it takes a long time to have the system fixed.

Towards a possible solution to relieve the current situation of long waiting times, one FSE proposes to establish a ‘direct line’ in case of an urgent corrective maintenance (taxi delivery). “The parts need to arrive at the location as soon as possible. The customer needs to be served in less than no time. We want to serve the customer to the optimum, and if this does not happen we are the first people who are addressed; we represent Philips on that moment”. It is striking that almost unanimously the Dutch FSEs share the opinion that orders should be placed directly at Logistics, instead of at C&D. This was the old situation and functioned “a lot better than the current situation”. The most often mentioned arguments for this are reduction of at least one link, the possibility to pass on the order to ‘specialists’ who understand what is needed and in what form, and finally to speak to people who can keep the engineer updated about when the taxi leaves and will arrive.

Furthermore it is argued that FSEs are satisfied with the present method of informing about expected time of arrival by the taxi driver, but a major amount emphasizes that the carrying out could be improved.

4.2. Time measurements

(33)

___________________________________________________________________________

that the process from ordering until receiving the spare parts in the hospital or clinic is not monitored in a uniform and well-organized manner. To provide insight in the current situation and the lead-times involved, two samples have been carried out.

4.2.1. Sample one

One measurement has been set up with the help of Dutch Call & Dispatch- and Belgian Logistics-employees who have registered two time stamps: the time an order was placed at their department and the time the parts have arrived with the FSE in the hospital. To find out the internal lead-times at the multiple departments involved, time stamps from different data sheets have been combined; the taxi form of Logistics Netherlands (appendix A), the taxi

shipments log file of the ASAP-desk, the taxi delivery reports from UPS, and the UPS/Philips NFO form. Ultimately, this information has been bundled in one excel sheet. The most

important conclusions and remarks from the measurement can be found below in table 4 and 5.

Concerning reliability, the following remarks need to be made. (1) Measurements are performed in the vacation period. The expectation is that this period is a relatively calm one. (2) Measurements are made manually and sometimes in retrospect. (3) Not all the taxi runs are recorded, for The Netherlands 34% has been recorded and for the Belux this percentage lies at 54%. Following from these remarks, it seems to be useful to fulfil a second measurement.

General The Netherlands Belgium

Time period July 27 – August 15, 2007 August 13 – September 3, 2007 Taxi’s registered 23/68 = 33,82% 15/28 = 53,57 %

Average per day 3,4 taxi’s 1,3 taxi’s

Average lead-time per department

The Netherlands Belgium

Call & Dispatch 0:07 -

Logistics 0:09 0:07

ASAP 0:05 0:10

UPS 0:44 0:57

Internal lead-time 1:05 1:14

Van den Boogaard 3:01 2:28

Waiting time FSE 4:06 3:42

(34)

___________________________________________________________________________

4.2.2. Sample two

The month september has been chosen to perform the second measurement in. Data sheets of the ASAP desk and UPS are analyzed and combined. Advantages that can be mentioned: this is not a vacation period and 100% of the taxi runs will be recorded. A drawback that needs to be noted is that Call & Dispatch and Logistics Belgium are not consulted about the announcing times of the order. Based on the results from sample one, which did not yield excessive lead-times at C&D and Logistics, the assumption is made that Call & Dispatch needs an average of seven minutes to fulfil its tasks. Logistics Netherlands needs nine minutes, and for Logistics Belgium this number is fixed at seven minutes on average. Thus the expectation is that after carrying out the second measurement a complete picture of lead-times can be sketched.

Further, it is worth mentioning that in sample two slack time between departments will be measured. Because for most of the departments the start- and endtime per taxi order are mentioned, slack time becomes visible.

Table 6. General remarks from sample 2.

Table 7. Lead-times per department from sample 2.

4.2.3. Analysis of both samples

As can be seen in section 2.1.4. the maximal determined internal lead-time is 1:30 hours at most (C&D not included). When both involving measurement one and two, the conclusion is that these times are not exceeded on average. Sample one shows an average internal lead-time

General Benelux Netherlands Belux

Time period September 3 – September 28 2007

Taxi’s registered 125

Tax’s same day needed 96 64 32

Average per day (same day) 4,8 3,2 1,6

Average lead-time per department

The Netherlands Belgium

Call & Dispatch 0:07 -

Logistics 0:11 0:07

ASAP 0:07 0:06

UPS 0:52 0:50

Slack time 0:04 0:27

Internal lead-time 1:21 1:30

Van den Boogaard 2:15 2:22

(35)

___________________________________________________________________________

of 1:07 hours for orders in The Netherlands (C&D lead-times included) and 1:15 minutes for The Belux. Sample two shows average times of 1:21 and 1:24 minutes respectively.

Nevertheless, it strikes that a relatively large amount of time is spent at UPS; 0:52 hours for the Netherlands and 0:50 for the Belux. Therefore, right now a zoom in will be made on UPS. Over there, people have got one hour to accomplish their tasks after which the parts need to be shipped into the taxi. The time involved with waiting on the taxi and shipping is also the responsibility of UPS. Time elapsed between receiving the order and the arrival of a taxi at UPS Roermond usually contains 32 minutes (NL) and 42 minutes (BL). Though taken together, both lead-times in sum do not exceed UPS’ 60 minutes, a lot of time could be saved if people did not have to wait before a taxi arrived. Further, the expectation is that the process of picking the order could be accelerated. This has been made visible in figure 7.

Filled in with the actual times, the following image shows up with regard to sample 1:

Sample two shows the following picture:

Figure 7. The process at UPS completed with actual lead-times from sample one

(36)

___________________________________________________________________________

An other issue that deserves major attention is the travel time of taxi’s from the warehouse in Roermond to the hospitals located in the Benelux. According to the time stamps ‘taxi leaves warehouse’ and ‘actual time of arrival’ (according to UPS), the travel time for both samples can be derived (please see table 8).

Table 8. Average travel times

Right now it becomes interesting when comparing these travel times to the appointed travel times according to route planners. For the Netherlands, the ANWB9 route planner has been used. This planner has a function which works with due observance of traffic jams and other delays. For the Belux, the Google Maps10 route planner has been used. When typing in the address of UPS Roermond and the concerning delivery address (usually the hospital or private clinic), the following image shows up (table 9).

Average travel time The Netherlands

Average travel time The Belux

Sample one 3:01 2:28

ANWB/Google route planner 1:56 1:19

Travel time exceeded 1:05 1:09

Sample two 2:17 2:22

ANWB/Google route planner 1:32 1:25

Travel time exceeded 0:45 0:57

Travel time exceeded on average

0:55 1:03

Table 9. Average travel time according to UPS compared to the ANWB route planner and Google Maps

Concluding, it is highly remarkable that, on average, measured travel times exceed the ‘usual’ travel time according to the route planners with 0:55 hours (NL) and 1:03 hours (BL). Next to the time spent at UPS and the internal lead-time concerning C&D, Logistics, and the ASAP-desk, a relatively large amount of time is wasted here.

9_{http://route.anwb.nl}

10_{http://maps.google.nl}

Sample Average travel time The

Netherlands

Average travel time The Belux

Sample one 3:01 2:28

CHANGING SPARE PARTS LOGISTICS PROCESS AT PHILIPS MEDICAL SYSTEMS IN CASE OF A BREAKDOWN SITUATION