Making money out of chocolate pennies
A research on production planning and control methods at
Steenland Chocolate BV
Making money out of chocolate pennies
A research on production planning and control methods at
Steenland Chocolate BV
Master thesis Technology Management
University of Groningen, Faculty of Economics and Business
September 2008
Author:
B.C.D. Zant
Student number:
1298771
Primary supervisor:
Dr. W.M.C. van Wezel
Secondary supervisor: Dr. D.P. van Donk
Company supervisors: C. Binnerts
Index
INDEX ... 3
ABSTRACT ... 5
H1 INTRODUCTION TO THE CASE ... 6
1.1STEENLAND B.V... 6 1.2WOLTERSDORF... 7 H2 RESEARCH DESIGN ... 9 2.1PROBLEM SITUATION... 9 2.2RESEARCH PROPOSAL... 10 2.2.1 Diagnosis ... 10 2.3CONCEPTUAL MODEL... 12 2.3.1 Synergy... 12 2.3.2 Production system... 13 2.4RESEARCH STRUCTURE... 15
H3 DESCRIPTION OF THE PRODUCTION SYSTEM... 17
3.1GENERAL PRODUCTION PROCESS... 18
3.2MOULDING... 18 3.2.1 Steenland... 18 3.2.2 Woltersdorf ... 20 3.3CAPSULATION... 21 3.3.1 Steenland... 21 3.3.2 Woltersdorf ... 22 3.4PACKAGING... 23 3.4.1 Steenland... 23 3.4.2 Woltersdorf ... 24
3.5THE TWO PRODUCTION PROCESSES COMBINED... 24
3.6CUSTOMERS... 26
3.6.1 CODP explained ... 26
3.6.2 Customer types... 27
3.7SUPPLIERS... 30
3.8OVERVIEW OF THE NEW PRODUCTION SITUATION... 31
Conclusion ... 32
H4 SYNERGY ... 33
4.1SHARED RESOURCES... 33
4.2CRITICALITY OF RESOURCES... 34
4.3STRATEGIC SYNERGY EFFECT: MIX-FLEXIBILITY... 35
4.3.1 Flexibility of shared resources... 35
4.3.2 Capacity constraints ... 36
4.3.3 Acquisition costs ... 36
4.3.4 Cost of control and integration... 36
4.3.5 Inimitability... 36
4.4CONCLUSION... 37
H5 PRODUCTION PLANNING AND CONTROL ... 38
5.1INTRODUCTION... 38
5.3EVALUATION OF THE PRODUCTION PLANNING AND CONTROL... 38
5.3.1 Aggregate planning... 39
5.3.2 MTS planning... 39
5.3.3 Medium term planning... 39
5.3.4 Order management ... 39
5.3.5 Production planning ... 40
5.4OVERALL PLANNING ISSUES... 41
6 DIAGNOSTIC CONCLUSION ... 42
6.1INTRODUCTION... 42
6.2DIAGNOSTIC CONCLUSION... 42
6.3THEORETICAL BACKGROUND REDESIGN... 42
7 REDESIGN ... 44
7.1INTRODUCTION... 44
7.2NEW PRODUCTION PLANNING AND CONTROL... 44
7.2.1 Introduction to the FPIPF ... 44
7.2.2 Aggregate balancing of suppliers, customers and capacity... 46
7.2.3 Long horizon product planning ... 48
7.2.4 Order management ... 49
7.2.5 Production planning ... 50
7.2.6 Schedule repair ... 51
7.3PRODUCTION PLANNING AND SCHEDULING HEURISTIC... 52
7.3.1 Relevant scheduling heuristic theories ... 52
7.3.2 The new production planning and scheduling heuristic ... 53
H8 CONCLUSION... 57
Abstract
Steenland Chocolate BV is a chocolate coin manufacturer that decided to merge its two production sites into one. It will move its German production site, called Woltersdorf GmbH, to the Dutch production site, called Steenland. Both production systems produce the same product. However, some production characteristics are different. Because of these different characteristics it is to be expected that the method of production management and control will have to be modified on certain points. Whether and in what way Steenland management should adapt its production management and control methods is unclear. The utilization of potential synergy effects also requires further analysis. As both production systems will be placed physically together in the new situation, opportunities might arise for combining parts of the production systems to work together and create additional value, so called synergy effects. The above mentioned problems lead to the following research question; which
potential synergies might emerge from the combining of the Woltersdorf and the Steenland production systems and how should the new combined production system be managed to produce efficiently and effectively?
The production processes are depicted according to three general facets; complexity, uncertainty and flexibility. The new merged production system will confront Steenland management with the following production characteristics that are either new or require special attention: a variety of resources that feature different processing speeds and changeover times, sequence dependent changeover times, the location of the bottleneck at the moulding stage, limited substitutability of the two production systems and a year round combination of make-to-order and make-to-stock production.
The potential synergy effects are analysed using a model that identifies potential synergy effects using several criteria. This model ensures that the identified potential synergy effect is feasible and will contribute to the strategy of the company. The main potential synergy effect emerging from the combination of the two production systems is an enriched mix-flexibility within the moulding and capsulation stages of the small sized coins.
The current production planning of Steenland management can be divided into several planning levels. From the highest aggregation to the lowest these planning levels are; aggregate planning, MTS planning, medium term planning, order management and production planning. Most of the changes in production characteristics have repercussions on the production planning level. For example the variety of resources needs to be taken into account at this level, as well as the combined MTO and MTS production. A better focus on the bottleneck is required as well. Finally the utilization of the identified potential synergy effect (the enriched mix-flexibility) is also part of this planning level. The aggregated planning decisions are in need of information models that account for the allocation dependent capacities. Finally, the production plans made on each level of the current production planning and control framework all lack formalization.
H1 Introduction to the case
This master thesis is a report on the research I performed at chocolate coin manufacturer Steenland. This Dutch company has acquired a German chocolate coin manufacturer, called Woltersdorf, and decided to relocate the German production system to the Dutch factory. This research explores this transition and its effects on the production management at Steenland. This chapter will depict a short introduction to both Steenland and Woltersdorf. The introduction will give a short overview of the history of the companies, the products they produce, the market that they target, the mission, the size of the organizations and their production process.
1.1 Steenland B.V.
HistoryFormer family company Steenland, named after the founder Gerard Theodore Steenland, is a chocolate coin manufacturer located in Gouda, The Netherlands. From its foundation in 1899 up to now, the company transformed from a bakery to a specialized factory producing chocolate coins and other chocolate specialties. In 2003 Steenland became part of the Plain Vanilla Investments Group and was renamed Steenland Chocolate BV. Today Steenland has become the world’s leading company in the manufacture of chocolate coins and medallions with exports to over 70 countries.
Products
Steenland is a manufacturer of chocolate coins. In the Netherlands these coins are mainly known as a typical gift for children during the traditional “Sinterklaas” celebrations on the 5th of December. It is a small bag with chocolate coins that imitate real money. These euro coins and currencies of other nations form the largest product family. These are called in Dutch ‘Dival’ (short for ‘diverse valuta’) or in English ‘coins of all nations’.
Other types of coins Steenland offers are casino chips, Disney coins, ingots (rectangular shaped coins) and customized coins. Of those, the ingots and the customized coins have imprints that are customer specific and are therefore only produced to customer order. The Disney coins differ from the other coins in the aspect that they do not have an imprinting, but a sticker showing the images of renowned Disney characters. The casino chip is a relatively new product in the assortment of Steenland and shows a steady growth in demand, mainly due to the growing popularity of poker.
Besides coins, Steenland also produces chocolate cigarettes, mini bars and solid chocolate figures. These products constitute for a relatively small portion of Steenland’s production. The demand for chocolate cigarettes is steadily decreasing along with the demand for real cigarettes due to the negative attention around them. These products fall outside the scope of this research and are not mentioned further.
Market
Steenland is active in the market for seasonal chocolate. This is a large market, but relatively small in comparison to the whole chocolate market. Within the seasonal chocolate market Steenland targets the niche ‘chocolate coins’.
The total market of seasonal chocolate for children is expected to grow slightly in the future. Chocolate is a typical luxury product and demand is expected to rise in countries that are becoming more prosperous. These grow-markets are located in regions such as Asia, South-America and Eastern Europe. However, as chocolate is poorly resistant to heat, the growing demand for chocolate will be moderate in warm countries.
Organization
As Steenland is a manufacturing company most of the employees have a function in production or maintenance. Steenland also employs a certain amount of temporary workers. In total Steenland employs 50 fulltime-equivalent (FTE) personnel with a permanent contract and 10-30 FTE of flexible workers.
Production process
Steenland does not produce the chocolate itself. The liquid chocolate is delivered in large quantities by suppliers and is stored in silos. The production processes of Steenland can be divided in roughly three steps: Moulding of the chocolate discs, capsulation of the chocolate discs in aluminium foil and packaging of the chocolate coins into bags. About 2/3rd of the coins are packaged into bags, the rest is delivered in bulk boxes or manually packaged in specialized packaging. The production process is given in figure 1.
Figure 1 General production process
Mission
The mission of Steenland is stated as follows: Customer service and product quality, combined with a high degree of flexibility, provide the best guarantee for creative but solid partnerships with its clients.
1.2 Woltersdorf
German chocolate coins manufacturer Woltersdorf was acquired by Steenland in 2006. The Woltersdorf factory is located in Erkelenz, near the Dutch border. Woltersdorf did not make a profit at the time it was acquired by Steenland and continues to generate losses. The only chance Steenland sees in making any profit with the Woltersdorf production is to merge the Woltersdorf business with that of Steenland. The total housing and management costs will be reduced by terminating the german factory and relocating the Woltersdorf production system to the Steenland factory. Only the brand Woltersdorf will remain to exist.
Measured in turnover and human resource capacity Woltersdorf is about 1/3rd the size of Steenland. The production process at Woltersdorf is generally equal to that of Steenland, except for the moulding machine, which is quite different in design. The moulding machine offers some extra functionality in terms of shapes it is able to mould. The capsulation machines are fairly similar to those at Steenland.
extended with two extra large coins. These XL coins are manufactured on specialized capsulation machines.
H2 Research Design
This chapter will describe the problem situation and the approach that is used to research the problem. This research design should ultimately lead to a redesign of the production planning and control at Steenland. A further elaboration on the problem situation in the next paragraph will lead to the formulation of a research question. The succeeding paragraphs will outline a research proposal on how to resolve the identified problems.
2.1 Problem situation
Steenland is a manufacturer of chocolate coins, located in Gouda. The company has acquired another chocolate coin factory and wants to relocate the production of that other factory to the location in Gouda. The products that are produced on both production systems are equivalent, however some product characteristics are different. Besides that both production processes differ in a few operations and Steenland management will have to deal with some new customers and suppliers. Therefore the merger of the two companies will create a new production situation that will feature some production characteristics that might be new to Steenland production management.
In view of the fact that both production systems exhibit different characteristics, it is to be expected that the methods of production management and control might have to be changed on certain points. If the production management and control methods do not take care of the production system correctly, the production efficiency and efficacy might not turn out to be as high as it should be. Whether Steenland management should change parts of its production management and control methods is unclear.
Another factor that requires further analysis in the merger is the utilization of potential synergy effects. In the current situation both production systems have no interaction whatsoever. The suppliers, customers, products, machines en personnel of both production systems are completely separated. As both production systems will be placed physically together in the new situation, opportunities might arise for combining parts of the production systems to work together and create additional value, so called synergy effects. These synergy effects can be defined as:
The ability of two or more units or companies to generate greater value working together than they could working apart (Goold and Campbell, 1998).
A basic synergy effect is for instance the combined use of the manufacturing plant by both production systems, as a result of which the total housing costs will decrease. Whether potential synergy effects might emerge and how they might benefit the production efficiency or efficacy is unclear.
Research question
The above mentioned problems lead to the following research question:
Which potential synergies might emerge from the combining of the Woltersdorf and the Steenland production systems and how should the new combined production system be managed to produce efficiently and effectively?
2.2 Research proposal
An initial outline of the problem situation is given in the previous paragraph. It is unclear which potential synergies might emerge from the combining of the WD (Woltersdorf) production system with the SL (Steenland) production systems and how the new combined WD and SL production system should be managed to produce efficiently and effectively. This research is set out to determine these potential synergy effects and to set up a production management system which adequately copes with the combined SL/WD production system. Thus the aim of this thesis is to redesign the production management system. In order to come to this redesign a diagnosis of the problem situation must be made to come to a sharp problem statement. This approach is similar to the systems approach research methodology described by De Leeuw (2000). The systems theory views the world as a complex system of interconnected parts. A specific system is determined by choosing the relevant interactions and choosing a system boundary. So it must be determined which entities are part of the system and which are part of the environment of the system. After that, simplified models of the system can be made in order to understand it and predict its behaviour.
2.2.1 Diagnosis
Taking a pluriform look.
A problem can have many problem holders and many different points of view. A pluriform view on a problem situation is necessary to understand its ambiguous reality (de Leeuw, 2000). There are several instruments that can be used to obtain a pluriform diagnosis. For this research the following instruments will be used:
o Description of the primary process.
De Leeuw (2000) states that management problems are insufficiently depicted when the accompanying primary process is not taken into account.
o Examining the situation from a control viewpoint.
See the next paragraph for further clarification of this instrument o Including the opinions of people.
Problems that come to the surface during interviews are included in the diagnosis. By means of these instruments the problem situation will be assessed and described.
Appraisal
The appraisal and description of the problem situation have a strong reciprocal influence. In order to be able to make an analysis, a model (the description) of the situation must be created. A model is a simplification of a real situation. Therefore, certain aspects, or problem areas, of the problem situation will have to be left out of the description. To decide which aspects have to be taken into account requires an initial appraisal of the possible problem areas.
Subsequent to the detailed description of the problem situation a more thorough appraisal can be made.
The initial appraisal of the problem situation has already been done in the first paragraph of this chapter. It is identified that the potential arising synergy effects form a problem area as well as the production management and control of the new production system.
Describe
The describing phase leads to one or more concrete models of the real problem situation. The problem situation for that reason is seen as a system with an environment. Therefore it is determined which entities are part of either the system, or the environment of the system. After that the chosen system, its entities and their relationships, are fully described. Relevant literature is used for that purpose.
The full description of the system is made on the basis of information received from interviews with actors from within that system (management, supervisors and operators) and data received from (production-) documents of Steenland and Woltersdorf.
The first part of the descriptive phase will be dealt with in the paragraph 2.3. The demarcation of the system will be made and the set up of a coarse model of the system in the form of a conceptual model will be presented.
Analysis
To sum up, the output of this transformation is a professional conclusion that determines the direction of the redesign. This encompasses: a description of the system as well as a profound evaluation of the functionality of that system. This evaluation is preferably formulated in terms of a list of demands, which explicitly makes the desired performance verifiable.
2.3 Conceptual model
In order to obtain an understandable picture of the system that is under research, a conceptual model of the system will be presented in this paragraph. A conceptual model is the notion of a closed whole of causal relationships between instrumental and dependent variables (Verschuren 1999). The concept of synergy will be explained first. After that the production system will be conceptualized. At the end of this paragraph both concepts will be united to form one conceptual model.
2.3.1 Synergy
The word synergy is derived from the Greek word synergos, which means “working together.” Goold and Campbell (1998) define synergy as:
The ability of two or more units or companies to generate greater value working together than they could working apart.
Both units, in this case the two production systems of Steenland and Woltersdorf, must generate a greater value. Numerous authors (i.e. Gruca et al 1997, Goold and Campbell 1998) indicate that many synergy initiatives often fall short of management’s expectations. Gruca et al (1997) have determined the conditions which moderate the relationship between shared resources, the realization of synergy and sustained competitive advantage.
Gruca et al. (1997) indicate that shared resources are the sources of synergy. These can take the form of production equipment (investment synergy), customer (sales synergy), raw materials (operating synergy) or management skills (management synergy). While sharing resources is a necessary condition for synergy, it is not sufficient. There are specific conditions which determine whether a shared resource has the potential for synergy and whether that potential is realized. Furthermore, realized synergy leads to competitive advantage only under certain circumstances (Gruca et al 1997). Gruca et al (1997) discuss six stages, or conditions, of synergy, from resource sharing up to sustained competitive advantage. Figure 3 gives an overview of these six stages. The stages are extended with an extra stage in which the determination of shared resources is performed. Gruca et al (1997) see this first stage as a precondition of synergy.
determining the potential synergy effects lies at the area of production management. Synergy effects resulting from the shared use of housing, personnel and utilities are not related to the subject of this research and are therefore outside the scope of this research.
2.3.2 Production system
The production system under consideration is a typical form of a control system. One could identify a controlling body (CB), which controls, or influences, a controlled system (CS). In this case the controlling body is the production management and the controlled system is the production process. In figure 4 a conceptual model of the present situation is presented based on the general CB/CS model as presented by De Leeuw (2000).
Figure 4 A general CB/CS system
The production management seeks to collect information from the production process. In turn, the production management generates measures through which the production process is controlled. According to Bertrand et al (1998) the main objective of logistic control is the efficient and timely supply, utilization and withdrawal of sufficient materials and resources on the right place. This is just an operational objective, which is generally applicable. To talk about the more strategic concept of production management and control, the operational control needs to be extended with decisions around strategies and tactics. The planning and control of a production process requires decisions around production schedules, use of capacities, acceptance of customer orders and the acquisisiton of materials. These decisions take place on several aggregated levels, with different horizons and with different divisions of planning tasks. This organization and structure of production planning and control decisions is called the production planning and control framework. Many generally applicable concepts of how a production system should be planned and controlled have been presented in manufacturing literature, but the application of any concept must always be adjusted to the specific production system.
The merger of the Steenland and Woltersdorf production systems will create a new production system. Therefore the environmental influences, the production process
Figure 5 The new production situation
Finally the concepts of synergy and control can be combined to one conceptual model, which is depicted in figure 5. All the aspects that are new or changed are depicted with an
interrupted line. Practically all the aspects concerning the production planning and control will change, except for the Steenland production process. However, the interaction that the Steenland production process will have with the Woltersdorf production process will generate a new production system, with new characteristics. An evaluation of these changing
characteristics and the production control methods must point out how the production planning and control methods should accomodate to these changed production characteristics.
Analysis
The main question that needs to be answered is: when could this system of control be considered successful? The success of control depends on one hand on the dirigibility of the controlled system and on the other hand on the controlling ability of the controlling body (de Leeuw, 2000). Thus an evaluation needs to be made to determine the dirigibility of the new production system and to what extend the controlling ability of Steenland management connects with the new production system.
On the other hand De Leeuw (2000) points out that the controllability mainly depends on the so called terms of effective control. These five terms of effective control are:
1. An objective.
This serves as an evaluation mechanism. Without it the control would not have any direction. The objectives do not need to be complete or explicitly defined. They are also allowed to change over time. It is enough to have some sort of evaluation mechanism so that objectives can be judged periodically.
2. A model of the controlled system.
3. Information about the environment and the state of the controlled system.
The controlling body needs to have information about changes within the environment that can influence the controlled system. It also needs information about the state of the controlled system.
4. Sufficient measures.
According to the ‘law of the requisite variety’ of Ashby there are sufficient measures when there is a measure available for every disruption.
5. Sufficient information processing capacity.
This makes it possible to use as much information as needed for taking correct measures. This capacity could take the form of information technology, or the amount of time spend on control by production management.
The current production management will thus be primarily evaluated by determining whether it accounts for the changed production characteristics, but also by applying these five terms of effective control.
2.4 Research structure
The previous paragraphs made clear which steps need to be taken in order to give an answer to the research question. Based on the research proposal the following sub-question can be identified:
1. What are the characteristics of the production processes of Steenland and Woltersdorf? 2. Which production characteristics are new or require specific attention from production
management?
3. What potential synergy effects can be expected from the merger of the Steenland and Woltersdorf production systems?
4. How is the current production management organized within Steenland?
5. Which methods of production management need to be changed in order to efficiently and effectively control the new production situation?
6. How should the production management be reorganized?
The new production system must be described first. The production processes of both Steenland and Woltersdorf and their characteristics will be depicted in the next chapter. Besides that the synergy effects resulting from the merger of the two production processes must be defined. This will be done in chapter 4.
The evaluation of the current production planning and control methods is done in chapter 5. The diagnostic conclusion in chapter 6 will then lead to the establishment of the direction of the redesign. A short literature review will point out which production planning theories can be helpful in redesigning the production planning at Steenland.
The information required for this research is acquired through use of the following methods: • Interviews: On behalf of describing the production process and the production
management and control processes interviews with the several responsible actors within the production management system (production manager, sales manager, general director and purchasing manager) were taken.
• Observation: Personal observations of the production- and management processes were used to substantiate the information received from the interviews.
• Documents: All the quantitative production information is obtained from internal working documents.
H3 Description of the production system
In this chapter a description of the production process will be given. To start off a preliminary introduction to production process theory will be provided, which subsequently will be used to properly describe the production processes of Steenland and Woltersdorf.
Every productionsituation is unique. However, there are According to Bertrand et al. (1998) three general facets with wich every production situation can be described. These three facets are:
• Complexity • Uncertainty • Flexibility
Complexity
The concept of complexity refers to the intricaty that occurs when a system consists of numerous parts and numerous relationships between these parts. Complexity in production situations is according to Bertrand et al. (1998) primarily determined by:
• Variety in products • Variety in customers
• Composition of the end product • Variety in operations
• Variety in routings
• Number of operations per routing • Variety in resources used
• Number of resources used per operation
Uncertainty
Uncertainty is created by elements of which the future behaviour is not easy to predict. With regard to uncertainty a distinction can be made between demand aspects and process aspects. Uncertainty within demand is created by:
• The nature of the product (professional products or consumer products) • The type of customer (business to consumer or business to business)
Bertrand et al. (1998) indicate that uncertainty within the productionprocess is connected to: • The reliability of the machines
• Fluctuations in production times
• Reliability of the delivery times of materials and components • Reliability of the quality if materials and components
Flexibility
The flexibility of materials and capacity resources should be the counterpart of uncertainty. From that Bertrand et al (1998) deducted the following forms of flexibility:
• Multi employability of personnel • Easy machine changeover • Commonality of parts • Overcapacity
• Easy adjustment of capacity • Inventory
outsourcing work to other companies or by temporarily expanding (human resource) capacity.
The concept of mix flexibility relates to the degree of which the mix of products within a productfamily can be varied with a given production volume. High mix-flexibility exists when all types of products demand the same capacity (Bertrand et al 1998). The ability to change the capacity per type of capacity source on a short term is called capacitative mix-flexibility. This form of flexibility is for example enabled by using multi-skilled operators in a production system where the presence of equipment is excessive compared to the amount of operators, i.e. a production system where the bottleneck is created by human resource capacity rather than machine capacity. Bertrand et al. (1998) articulate that a large capacitative mix-flexibility forms the basis of short troughput times and high delivery reliability, because it gives the production system the ability to cope with disruptions in the production by adjusting the production capacity for any type of product.
By means of the aspects complexity, uncertainty and flexibility the production processes of Steenland and Woltersdorf will be described next.
3.1 General production process
SteenlandAn initial overview of the chocolate coin production process has already been given in the first chapter. Viewed from an aggregated level, the general production process is not very complicated. The production process is generally the same for all products, with just minor differences throughout the process steps. The only big deviation is that 1/3rd of the products skip the packaging process stage. All three process stages are separated from each other via large buffers, as a result of which the need for synchronization between the stages is hardly or even not at all present.
Woltersdorf
The general production process of Woltersdorf is just about identical to that of Steenland. One big difference is that the packaging machine of Woltersdorf already has been moved to the factory of Steenland. The mechanical packaging of coins produced by Woltersdorf consequently takes place within the packaging stage of Steenland.
To attain a better understanding of the production process the three production stages will be described further in the next paragraphs. The process customers and suppliers will also be extensively depicted.
3.2 Moulding
3.2.1 Steenland
discs are cut from the plaque by an automatic cutter. The scrap is transported back into the day tank by a transport belt.
White chocolate follows a slightly different path. There is a separate tempering machine for white chocolate, to prevent extensive cleaning of the general tempering machine. There is no day tank for this flavour, so it is transported to and from the large white chocolate inventory tank.
After the moulding machine the discs are automatically piled up and manually placed into cassettes. These cassettes are then scanned by a metal detector and placed on trolleys, where the discs will have to rest for approximately 6 hours before they are ready to be processed further.
Complexity
The variety of products can be depicted in two dimensions. The first dimension is size, the 2 machines produce chocolate discs in 5 different sizes: 22, 28, 38, 55 and 75 mm. Besides chocolate discs, Steenland also produces so called ingots. These are rectangular chocolate plaques. The second dimension is flavour. First of all there are the compound and white chocolate flavoured coins, which follow a slightly different moulding process. The other flavours can be, based on an ABC type of classification, devided into two groupes; milk chocolate and specialized chocolate. By far the most coins are made of milk chocolate, around 80 percent of total production. The specialized chocolate group consists of all other flavours, amongst which pure chocolate, but also some special milk chocolate flavours that are based on exclusive recipes. These special milk chocolates are supplied by business-to-business customers. These customers outsource their production of coins to Steenland.
Product groups Size Flavour 22 mm Milk 28 mm Special 38 mm Compound 55 mm White 75 mm Ingots
Table 1 Product groups at the moulding stage
Uncertainty
The degree of uncertainty within the moulding stage is fairly low. Machine down time is low, production yield is quite stable and the quality of the chocolate used is very high. The reliability of suppliers is also high.
Flexibility
According to the production manager diameter changeovers generally take place once a shift and flavour changes come to pass roughly once every 5 days.
Changeover times for a diameter change are quite short; 15 minutes. A flavour change takes much longer; approximately 1 hour.
Opportunities of adjusting the moulding capacity exist only for the short term, by working extra shifts. The regular operating hours of the moulding machine during the low season is 2 shifts per day, 5 days per week. The flexibility of the operators makes it possible to extend these productive hours to include a third shift per day (night shift) or extra shifts in the weekends. This flexibility is limited though. During the high season the moulding stage is generally at operation 3 shifts a day.
High volumes of buffer inventory are kept before and after the moulding stage. The chocolate disc buffer has a total capacity of 6.000 kg of discs, which equals 2 shifts of production from the moulding stage. The storage tanks have ample capacity to ensure that there will always be chocolate to process.
3.2.2 Woltersdorf
The moulding stage at Woltersdorf shows one big difference; there is only one inventory tank. Besides that the process follows generally the same steps as at Steenland, but the method and machine used is completely different. The chocolate is fed through the day tank and the tempering machine and into the moulding machine. In this machine the chocolate is poured into forms, which are led through a cooling installation for 45 minutes. The solid chocolates are then released onto a belt, transported through the metal detector after which they are dropped into buckets.
Complexity
The complexity is comparable to that of Steenland. Also here the products can be grouped by size and flavour. The sizes are not the same as those at Steenland, as can be seen in table 2.
Product Sizes
Group Steenland Woltersdorf
A 22 mm 24 mm B 28 mm 30 mm C 38 mm 40 mm D 55 mm 50 mm E 64 mm F 75 mm 70 mm G 100 mm H 125 mm I Ingots
Table 2 Products grouped to size
Even though the sizes are not exactly the same, they are comparable. Therefore, to be able to compare both Steenland’s and Woltersdorf’s production processes the sizes that are comparable are classified into the same product group. Besides that the A, B and C coins are generally referenced by the term small coins, while D,E and F coins are large coins and G and H are extra large coins.
Uncertainty
Changeover times for a diameter change are about the same as for the moulding machine at Steenland. A flavour change takes less time in comparison to Steenland, as there is no recycle loop which has to be emptied first. The changeover time of a flavour change is therefore about the same as a diameter change, approximately 15 minutes. The chocolate disc inventory at Woltersdorf has a total capacity of 50 tonnes. With a weighed standard production capacity of 1.500 kg per shift for the moulding machine, the inventory is able to hold 30 shifts of disc production. This is, not without reason, much larger compared to the inventory at Steenland. Because Woltersdorf has just one chocolate inventory tank at its disposal, they must fully produce the content of that tank, before they can switch over to another flavour. Steenland can easily switch flavours as they possess several chocolate inventory tanks.
3.3 Capsulation
3.3.1 Steenland
The capsulation of the chocolate discs is done by machines which capsulate the chocolate discs with a layer of aluminium foil and at the same time also stamp an image on the coins. Steenland keeps an inventory of stamps with over 5000 different images, ranging from currency images to specific corporate logo’s.
For every coin diameter are several dedicated capsulation machines, which are semi-automatically fed with chocolate discs. The machine operator places the cassettes with chocolate discs on top of the machines and has to replace them when empty. This way the operator is able, for the smaller sized coins, to operate more then one machine. The foils are fed to the machines on rolls and the capsulated coins fall into cardboard boxes, which are placed on pallets next to the machines. When the pallets are full, or when the order is finished, the pallets are transported to the (semi-finished coins) inventory. The operation of the capsulation machines that are dedicated to the larger coins (55 and 75 mm) has to be performed one-on-one. These machines require more handling at the back-end of the machine; all large coins are checked for errors and most of the large coins are manually packed by the operator.
The capsulation machines are structurally able to process any coin diameter. Changing the size takes substantial time though and the cost of keeping extra equipment (extra sets of stamps for every capsulation machine) is very high. For that reason Steenland management took the decision to always treat the capsulation machines as being dedicated to size.
Complexity
The products at this production stage can be classified not only by size, analoguous to the classification presented in the moulding stage paragraph, but also by the colour of the foil and the type of imprint. A classification can be made into customerspecific imprints and non-customerspecific imprints such as the valuta imprints.
The complexity of this production stage is low. All coins pass just one of the machines, which are clustered according to size. All products are made from the same components; a chocolate disc and foil.
Uncertainty
In addition, according to the sales manager some of the foil suppliers are lacking in quality, as a result of which deliveries are not always on time or erroneous, which slows down production orders.
Flexibility
Regular personnel are very flexible when it comes to working on different types of machines. Temporary workers on the other hand are not skilled enough to work on more then one machine, therefore the use of temporary workers limits the flexibility at this production stage. The high buffer of chocolate coins garantees a stable supply of that component. Inventories of foil are closely observed and purchased well in advance by the purchasing manager, but as has been pointed out already, the delivery times can sometimes be unreliable.
This production stage does not have the flexibility in capacity to cope with the large change in seasonal demand, therefore it has to build up a large inventory of semi-finished coins throughout (the first half of) the year.
Maximum production capacity of this stage is 4500 kg/shift. Even though total machine capacity for this stage is much higher then the capacity of the moulding stage, that overcapacity is not utilized. This is partly because in practice not all machines can be used at the same time. In the first half of the year a great part of production consists of small coins. In the second half of the year the demand for (specialized) large coins rises. This means that the demanded capacity shifts within the capsulation stage and therefore the machine clusters are running non-stop or not at all. This has a tempering effect on flexibility at this stage. Changeover time for a stamp and/or foil change is 5 minutes. As this is quite fast the flexibility in terms of changing the imprinting or foiling could be considered to be very high. 3.3.2 Woltersdorf
The capsulation machines for the sizes 24, 30, 40, 50, 64 and 70 mm perform the same operation as those at Steenland, they capsulate and stamp the discs, to form coins. The input of these machines is done by stacking up the discs either by hand, or automatically by a vibrating drum. There are four capsulation machines with a drum, which can be operated by just one operator, all other machines have to be operated one-on-one. All machines are interchangeable with respect to coin diameter.
The capsulation and stamping of the 100 and 125 mm coins is performed in two separate steps, by different machines. A buffer is kept between these steps.
Complexity
Two separate productgroups can be defined which follow a different path. One group consists of small and large coins (24 to 70 mm), all of which can be produced in one step and on the same type of machine. The other group consists of extra large coins (100 and 125 mm). These are produced on separate machines and are processed in two steps, instead of just one. In addition to a classification on size, the classification into customer specific and non-customer specific imprint and/or foiling is also valid here. Table 3 depicts the classification into these 4 productgroups.
Product groups
Uncertainty
The uncertainty within the capsulation stage at Woltersdorf is comparable to that of Steenland. The German suppliers of foils of Woltersdorf were however pointed out as having more reliable deliveries than the Dutch suppliers of Steenland.
Flexibility
An important difference with Steenland is that the capsulation machines at Woltersdorf are not dedicated to processing one size of coins. Therefore Woltersdorf is able to change the productmix on very short notice and without the need of capital investment. The downside of this situation is that Woltersdorf has to pay a penalty on changeover time, as it takes longer to changeover the diameter of a capsulation machine at Woltersdorf, than it takes Steenland to start up an extra capsulation machine of a different size. Besides that Woltersdorf has a much smaller total capsulation capacity. The standard weighed production capacity of the 8 capsulation machines that are moved to Steenland is 1.500 kg per shift. This is 1/3rd of the capacity at Steenland.
Changeover times vary from 15 minutes for changing the stamp, without changing the diameter, to 30 minutes for changing the diameter of the stamp.
As pointed out before, the chocolate disc inventory is quite large. The chocolate disc inventory at Woltersdorf has a total capacity of 50 tonnes. This amount equals the demand for chocolate discs of 30 production shifts by the capsulation stage.
3.4 Packaging
3.4.1 Steenland
The final step in the production process is packaging. There are 3 different fully automatic packaging machines at Steenland. One of these machines used to belong to Woltersdorf, but was moved to Steenland right after the acquisition. These three machines process around 2/3rd of the total produced coins. The other coins are either packaged manually or not at all. Most coins are manually packaged either in 20 kg cardboard bulk boxes, for internal use, or in 10 kg cardboard bulk boxes, which are expedited as finished product. Other manual packaging activities concern the packing of coins into tempex boxes. Small orders are packed at the capsulation machines by the operators and large orders are packed by temporary workers in a separate stage. In general these manual packaging activities are negligibly small at Steenland. The focus in this research is on the packaging machines, as they have the biggest impact on production performance.
All three machines package the coins into bags. Two of the machines seal the bags with a wineglass label, a (plastic) label that has a curved shape similar to a wineglass, hence the name. The third machine seals the bags with a label attached to a thread. All three machines have different package weights on which they perform most efficient. The thread machine performs best for bags with a maximum weight of 50 gram. Wineglass machine A performs best for the bags which weigh between 50 and 100 gram and wineglass machine B performs best for weights above 100 gram.
Complexity
with the same content, but nonetheless show different characteristics regarding their processing speeds. It is therefore possible that two orders ideally should be processed on the same wineglass machine, but that producing both orders on that most efficient machine would lead to a too excessive total lead time. Thus a tradeoff must be made at this production stage between production efficiencies and order lead times.
Uncertainty
As indicated by the production manager this production stage features fluctuations in production times and irregular startup times. For every production run the packaging machines must be finetuned. The margins for error at these machines are very small, as a result of which the percentage of erroneous products can be high with relatively small tuning errors. Startup times therefore generally tend to be quite long in order to realise a production run with a scrap margin that is within the limits.
Flexibility
Changeover of these machines takes on average roughly three quarters of an hour time, but due to the difficulty of properly tuning these machines the changeovers somtimes take several hours to complete.
The thread machine has a standard capacity of 2.500 kg per shift, based on a bag weight of 50 gram. Wineglass machine A has a standard capacity of 1.875 kg per shift, based on a bag weight of 75 gram. Wineglass machine B has a standard capacity of 2.250 kg per shift, based on a bag weight of 150 gram. Altogether the packaging stage has a total capacity of 6.625 kg chocolate coins per shift, which is on an aggregated level more then enough capacity to cope with demand.
However, there is not much relevant overcapacity at this department, as can be seen when the capacity is examined on a medium- to short term, where demands show a seasonal pattern. Because of that seasonal demand pattern, the packaging machines have an occupancy rate that is very low for the first half of the year, when Steenland produces semi finished coins on stock, and a high occupancy rate in the second half of the year, when the high volumes of packaged coins are ordered by the retailers.
3.4.2 Woltersdorf
The packaging machines at Steenland also package the coins that are produced by Woltersdorf. These capsulated coins are transported to Steenland by truck and are held there in the capsulated coin inventory. The only packaging that is still done at Woltersdorf is manual packaging. These packaging activities are mainly related to the extra large coins (100 and 125 mm), many of which are packaged into showcases. Most of the labour in this stage is performed by temporary staff, therefore the capacity of this manual packaging stage is highly flexible and changeover times are negligible.
3.5 The two production processes combined
Thus the new production system should be considered as two autonomous lines that diverge from the same raw materials inventories and converge at the packaging stage.
SL li ne WD li ne Extra la rge coins
Figure 6 The combined production system
Because there are two separate production lines an allocation problem will arise. This allocation problem did not exist in the old situation with just one possible production line. Production management will have to take the different production speeds, capacities and quality between the two production lines into account when it will make up a production schedule. Additionally, the position of the bottleneck might be different for several products on both lines.
3.6 Customers
A great part of the existing uncertainty, complexity and need for flexibility described in the previous paragraphs is influenced by the customers. The manner in which the customer influences the production process and on what level, or in which phase it does so, can be different for any type of customer. One of the concepts that can explain this influence is the Customer Order Decoupling Point (CODP) The CODP is the point that indicates how deeply customer orders penetrate into the goods flow (van Donk 2000, Wikner and Rudberg 2005). It is the point where the part of the organization that is oriented towards activities for customer orders is separated from the part of the organization based on forecasting and planning (van Donk 2000, Wikner and Rudberg 2005). The position of the CODP therefore has great influence on the methods of production planning and control.
3.6.1 CODP explained
The CODP concept acknowledges the fundamental difference between pre-CODP and post-CODP operations and facilitates the design of effective management of the total production process, especially for mass customisation environments (Wikner and Rudberg 2005). Naylor et al. (1999) and Mason-Jones et al. (2000) distinguish between lean and agile approaches, where a lean approach would be applied upstream of the CODP, whereas an agile approach would be more suitable downstream. A mass customized supply chain, or in this case the production process of Steenland and Woltersdorf, can thereby be characterised as a combination of the lean and agile strategies, consequently enabling it to create the greatest degree of flexibility and responsiveness in a cost-effective manner (Wikner and Rudberg 2005). This combination of a lean and agile approach is depicted in figure 7.
Figure 7 The CODP as a divider between replenishment and fulfilment processes in a mass customized supply chain (Wikner and Rudberg 2005)
Because in such a situation upstream for a certain decoupling point would be downstream of another.
There are several possible decoupling points. Depending on the required delivery lead-time and the planned production lead-time, the CODP will be positioned somewhere along the CODP continuum (Wikner and Rudberg 2005). According to van Donk (2000) five possible decoupling points exist:
• make and ship to (local) stock (STS); • make to (central) stock (MTS); • assemble to order (ATO); • make to order (MTO);
• purchase and make to order (PTO).
Wikner and Rudberg (2005) on the other hand identify 4 traditional decoupling points: • make-to-stock (MTS);
• assemble-to-order (ATO); • make-to-order (MTO); • engineer-to-order (ETO).
Apparently general CODP theory is not congruent concerning the positioning of the decoupling points. Wikner and Rudberg (2005) emphasise this point by introducing the Customer Order Decoupling Zone (CODZ). The CODZ concept covers cenarios with a gradual increase in certainty concerning information about customer demand. A customer could for instance specify the amount of a certain coin type it will to order, but decides to specify the type of bag on a later point in time.
The location of the customer order decoupling point can differ per type of customer. The customer types are described in the next paragraph.
3.6.2 Customer types
Steenland delivers its products mainly to large retailers, such as supermarkets and department stores. These are customers which have a main focus on low costs. Other customers include private label, product promotion and repackers. Besides that Steenland delivers to a variety of importers and dealers. In total Steenland delivers to approximately 300 customers in 70 countries.
Retailers
Steenland does not produce products to stock. It does produce a lot of semi-finished product (capsulated coins) to stock. Steenland can only do so for non-customer specific coins, such as Dival, Disney and Poker. Most of the retailers order these types of coins, but require customer specific bags. Therefore these orders are decoupled at the packaging stage. Most of these customers order only once in a while or even once a year only. At the end of every year negotiations with the large retailers take place, but demand quantities are given as late as April or June. Final orders from retailers are given even later, because retailers want to decide on packaging material as late as possible. Sales predictions for these customers are mainly based on historic results. Retailers account for about 30% of total turnover.
Private label
Production for the other chocolate manufacturers is customer specific from the very first moment in the production process, as the chocolate that is used in those products is customer specific. The decoupling point for those orders lies at the chocolate supplier, so these are defined as purchase and make to order.
The other private label customers require customer specific foiling and/or imprinting. The decoupling point for those customer orders is at the beginning of the capsulation stage.
Product promotion
Product promotion refers to those companies that order chocolate coins to use as product promotion for their company. These coins are imprinted with the customer’s logo. Those orders are therefore decoupled at the capsulation stage.
Repackers
These customers order all types of products; they order Dival, as well as customer specific coins, and they order coins in bulk boxes as well as in bags. The customer order decoupling point for these type of customers therefore cannot be given by one point, but by a range of points, from capsulation to packaging.
Woltersdorf vs Steenland
Woltersdorf has no stock production, instead Woltersdorf only produces on customer order. Their customer base is dominated by product promotion customers. A difference with Steenland is that Woltersdorf’s customers order in much smaller quantities. Furthermore, Woltersdorf produces an extra group of products, the large coins (or medallions), which are demanded by a sub segment of customers which Steenland does not serve to. Specific characteristics of that segment are that customer orders are mainly small in size and highly customized.
SL Chocolate supplier Liquid Chocolate Moulding lines WD SL SL WD WD WD WD SL orde rs WD ord ers Capsulation Machines Stamp department (manual) packaging A B C D E
CODP’s Production process Departments Change over times
SL WD Short Long (machine) Short (manual) Short (diameter) Long (flavour) Short (diameter) Short (flavour) Short (foiling/ imprinting Short (foiling/ imprinting) Medium (diameter) Long (machine) Short (manual)
Figure 8 current CODP's for both processes
The following Product families can be identified:
General chocolate Specific chocolate
General imprinting/foiling Specific
imprinting/foiling Specific imprinting/ foiling Bags Other packaging All types of packaging All types of packaging Retailers E Private label C A Product promotion C Repackers E C/E C Woltersdorf’s D
Table 4 CODP matrix (letters A,C,D and E correspond to the CODP’s depicted in figure 8.
Steenland can use this information to begin the production of coins. However, the specific information regarding these orders is received around half a year later when the retailers explicitly place the order around half a year later.
As stated earlier, processes upstream of the decoupling point should be lean and processes downstream of the decoupling point should be agile. An important aspect in the determination whether a process is lean or agile is the flexibility of the production process. All products have their decoupling point upstream of the packaging stage. It is therefore remarkable that particularly this stage has to deal with long change over times. Whether it is possible to shorten these changeover times is a question that falls outside the borders of this research. Further research on this subject is recommended.
A flexibility enhancing aspect relating to the customers is the commonality of parts. The WD and SL coins are different in size and quality. Nonetheless steenland management pointed out that many customers do consider the coins to be full substitutes of each other. Especially the small coins, types A, B and C (see table 2) can often be used interchangeably. Some customers simply order the type of coin and then it is up to Steenland to choose on which line to produce that order. This creates extra flexibility.
3.7 Suppliers
The final aspect that influences production management and control are the suppliers. Steenland’s purchasing managemer identifies three types of suppliers. The first type of suppliers provides material that is needed in all of Steenland’s products. These suppliers deliver aluminium foil and liquid chocolate. As reliability and flexibility are important issues for these materials, it is important to maintain intensive relations with these suppliers. The purchasing manager therefore aims at having two permanent suppliers for each material. Having two suppliers ensures that intensive relations with suppliers can be maintained, while still being flexible in choosing which supplier to use for a specific order. Delivery quantity and frequency of these suppliers is very high.
The second type of suppliers delivers high quantities of standard materials which are less critical for the production process, such as cardboard boxes. However Steenland selects these suppliers on quality, the interchangeability of these suppliers could be considered as being very high. Delivery frequency of these suppliers is high.
The third type of suppliers that can be identified is the supplier which delivers relatively small quantities of specialised as well as general applicable materials, such as packaging material and labels. Delivery frequency of these suppliers is low.
Steenland applies some general selection principles, which are used for each type of supplier. Principles as speed, empathy, understanding and clarity are valued highly by Steenland, but the most important criterion remains price. In general the suppliers are very reliable in their handling of routine deliveries, delivery periods are nonetheless very often under a lot of strain. This is primarily caused by the many rush orders. Many suppliers fail to deliver these rush orders in time.
3.8 Overview of the new production situation
The introduction of this chapter pointed out that the production situation can be expressed in terms of complexity, uncertainty and flexibility. Complexity and uncertainty have a limiting effect on the dirigibility of a system, while flexibility is a remedy for uncertainty and can improve the dirigibility of a system. An overview of the characteristics of the new production situation based on the information from the preceding paragraphs is given in figure 9.
Conclusion
To conclude this chapter the major production characteristics that are new or require specific attention from production management are shortly recapitulated.
• Variety of resources
The variety of resources in the new production system feature differences in processing speeds and changeover times. This makes production planning and control more complex as it has to consider more variables. The sequence dependent changeover times at the capsulation stage is new to Steenland management. These sequence dependent changeover times instigate the grouping of products into families in order to minimise machine utilization losses incurred by excessive sequence dependent changeovers.
• Bottleneck
The bottleneck lies predominantly at the moulding stage. The bottleneck can for certain product mixes on a short term change to the capsulation stage. The high utilization of these stages should therefore be the main focus of production planning. • Demand uncertainty
Demand uncertainty is and will remain high on the long term. • Commonality of parts
The new production situation features two independent lines. For certain customers the products are substitutable however.
• Capacity mix
The capacity mix at the Woltersdorf capsulation stage in terms of coin diameter is easy to adjust on a short term. This flexibility is limited though due to the related sequence dependent changeover times.
• Process uncertainty at packaging
The process uncertainty at packaging is very high. This uncertainty is compensated with a high capacity.
• Supplier reliability
The reliability of the suppliers is not very high. In combination with many rush orders this leads to a bad delivery performance on those rush orders.
• MTO and MTS
H4 Synergy
According to Gruca there are several stages of synergy, from resource sharing up to sustained competitive advantage. These conditions determine whether a shared resource has the potential for synergy and whether that potential is realized. Furthermore, realized synergy leads to competitive advantage only under certain circumstances. Figure 10 gives an overview of these stages.
Figure 10 synergy model
In this chapter an analysis will be made on whether the conditions presented in figure 10 are valid within the merger of the Steenland and Woltersdorf production systems. This will determine to what extent synergy effects are to be expected and in what way these synergy effects can be achieved. The following paragraphs will discuss each of the seven stages of the synergy model, starting with the determination of shared resources.
4.1 Shared resources
Synergy can be achieved by the shared use of resources. Shared resources can take the form of production equipment (investment synergy), customer (sales synergy), raw materials (operating synergy) or management skills (management synergy) (Gruca et al. 1997). An inventory of all the shared resources must be made in order to be able to determine which potential synergy effects may be present in the new situation. To acquire a good overview, the shared resources are categorized into groups; raw materials, equipment and human
resources. Management skills are also potential resources for synergy. These are however
not taken into account in this chapter as the production management and control methods will be discussed in the next chapter.
Raw materials:
The following raw materials are being used by both production lines: o Chocolate
o Silver foils o Bags o Packaging
Of all the foils only the silver ones can be used by both lines. In the old situation two stocks of silver foil had to be kept, both including safety stock. In the new situation both stocks can be combined to one, which will require a lower total safety stock than the two separate stocks. The same is valid for the stock of bags and the other packaging material.
Equipment:
The previous chapter explained that the new production system should be considered as two autonomous lines as both processes are differentiated in terms of quality and size. It would require a large capital investment in equipment to make both processes compatible to each others product portfolio. This capital investment is not deemed feasible by Steenland management. The previous chapter also pointed out the commonality of the products to certain customers. Therefore the two production lines are for those cases shared resources.
Human resources:
When educated properly the employees can be shared amongst both production lines. On a detailed level this could lead to a more efficient use of personnel. For instance the SL moulding stage needs three operators; the WD moulding line one. In both systems the operators are not utilized fully. If the WD moulding line is located near the SL moulding line, one of the operators from the SL moulding line might be able to also operate the WD moulding line.Therefore the total amount of operators needed at the moulding stage will be three in the combined production system instead of the four used in the separate production situation. Another example is the use of Steenland’s maintenance employees on the Woltersdorf line.
4.2 Criticality of resources
Critical resources are the resources that enable a firm to implement strategies to improve their efficiency and effectiveness (Gruca et al 1997). These critical resources strengthen the firm’s competitive position through superior value creation, similar to the concept of core competences (Gruca et al 1997). These core competences are based on the strategy of the company. In this paragraph the core competences that exist, or should exist, within the production systems of Steenland and Woltersdorf, will be clarified, after which the criticality of the already identified shared resources can be determined.
Core competences
