Postal Efficiency
Master Thesis – Royal TNT N.V.
Author: R.A. Jansma
‘TNT linked China to Europe in 2006 with its
Boeing 747 freighter by starting up a new direct service
between Europe and China. The Aircraft is named after
Ken Thomas, who founded Thomas Nationwide Transport
in 1946.’
Postal Efficiency
Efficiency improvement at Royal TNT Mail N.V. through planning, monitoring and control.
Royal TNT N.V.
August 2009
Master of Science in Business Administration Operations and Supply Chain Management University of Groningen
Faculty of Economics and Business Department of Operations Landleven 8, P.O. Box 800 9700 AV Groningen
Supervisors University of Groningen:
Dr. G.A. Welker Dr. Ir. S. Brinkman Royal TNT Post N.V.
Area Centrum, SCB Nieuwegein Grote Wade 80, P.O. Box 99900 3439 NT Nieuwegein
Supervisors Royal TNT N.V.:
Ir. D.M. Noordink Drs. C. de Haan Ing. M.T. van den Eng Author:
.ing R.A. Jansma Bsc S1582968
+31(0)6 51 38 7000 (m)
rolf.jansma@tntpost.nl or rolf@jansma.org
Preface
This report is the result of my internship at the sorting center of TNT Mail in Nieuwegein. It is a combination of a practical research and a literature review. The experience was great and I’ve learned a lot during my internship. TNT for sure is the best company where to successfully complete a Master in Business Administration, with the Operations &
Supply Chains specialization. It was meaningful to participate in the PDCA project and to actively follow the impressive production process.
I would like to thank Cees de Haan for the opportunity and guidance during the first months. Cees efficiently helped me with the foundation of the internship. Furthermore my supervisor Dianne Noordink was very supportive, she managed to find time for me and support my creations. I deeply respect her process knowledge and work attitude.
Also all other employees (too many to list) have helped me enormously with this research. I really appreciated the openness of the organization and the warm welcomes. I was approached as a colleague and not as an outsider.
It furthermore was a pleasure to work with my roommates and colleagues of staff operations. I enjoyed the external activities like dinners, going to the theater, visiting the air hub in Luik and watching Cambuur. These activities enriched the professional experience.
My university supervisors (Mrs. G.A. Welker and Mr. S. Brinkman) supported me and provided significant practical and theoretical advice. Thanks for visiting the company, I really appreciated the practical approach by both supervisors.
I am satisfied with the results and models implemented.
I hope you will enjoy reading this report.
Rolf Jansma
Nieuwegein, August 2009.
Management Summary
Because of the liberalization, competition and changing communication patterns due to digitalization, TNT needs to continuously improve its cost / efficiency ratio to keep its market position. The environment is dynamic and the mail market is mature to declining. To facilitate the cost reduction on a lower aggregation level, the main problem at the sorting center in Nieuwegein has been identified: ‘Current efficiency is too low and is not in line with internal goals set, benchmarking and best practices furthermore demonstrate this’. The complementary goal was: ‘advice the sorting center in Nieuwegein on how to improve the efficiency (cost reduction of 10% for the sorting process), while maintaining or improving its current quality’. This is relevant because accomplishment would allow TNT to fulfill the main goals set in the business model: good price / quality level, efficiency and delivery quality.
The sorting center has been identified as a M.T.O. (Make-to-Order) company with a line structure and product layout. Resources are dedicated to sub processes. To facilitate analysis a conceptual model has been developed.
The main variables have been developed based on: academic literature, supervisors / M.T. expertise and instrumental problems analyzed. The main variables were: demand characteristics, organization design (O.D.) and information processing capabilities / requirements. These variables influence the mode of Planning, Monitoring and Control (P.M.C.). The variables form key inputs for P.M.C. and improvements in variables will consequently lead to enhanced P.M.C. and ultimately improved efficiency.
To diagnose the current situation the variables have been analyzed. The demand at the sorting center is declining and the liberalization accelerated the decline. There is furthermore a strong cyclical trend. During specific days, end of quarters and months volumes for specific processes are significantly higher. In terms of organization design the sorting center scored low on standardization and formalization (which both enhance efficiency) due to ambiguous responsibilities and inconsistencies in the lateral communication structure. Since uncertainty is rather high a lot of information needs to be exchanged. Current information systems however fail to support the processes and therefore more non-standardized meetings occur. The planning module, control system, volume database and lead time calculation method all needed redesign. Several gaps have been identified for these systems. The information processing capabilities at the sorting center are, in addition, limited.
The elements: demand, O.D. and information requirements influence the mode of planning and control and efficiency. The demand characteristics outlined are needed to effectively reconcile demand and resources. The organization design and communication structure should support the PDCA cycle of the operation. The information technology has to form the foundation for: demand, O.D. and P.M.C. The main problems with P.M.C.
were the systems used and non-standardized methods applied.
After the thorough diagnosis an integrated redesign of elements has been proposed. A new volume database and forecasting method have been designed, which will allow the planners to better reconcile demand and resources.
To control the plan reliability a control model has been developed with given bandwidths per sub process. This model will be discussed during the O.T.D. meeting at 13:00. A new planning module has been made with a new lead time calculation method. It is now clear which efficiency has to be achieved in order to process the volumes planned and score above the benchmark on key performance indicators. Besides these elements a new communication structure has been implemented, making meetings more effective and efficient. Valuable time is saved due to standardization of meetings and application of the new redesigned systems.
The redesign accomplished both direct time savings (less model maintenance, adaptability for special periods, f.e.
Christmas, less time spent on meetings and savings in administrative tasks) and indirect savings (planning more reliable and effectiveness of meetings increased). In addition a few main recommendations have been given:
constant evaluation of meetings, development of an ERP business case and critical evaluation of current
administrative tasks are needed in the near future. The main goal of this research has been exceeded, not only
advice has been given, but the majority of elements mentioned in the redesign have been implemented. Efficiency
has been improved and the cost reduction of 10% has been realized (based on estimation and when additional
recommendations will be preformed).
Table of Contents
Reading guide ... 8
Distribution list ... 8
List of frequently used abbreviations ... 9
I Introduction ... 10
1.1 TNT Group N.V. ... 10
1.1.1 Divisions ... 11
1.2 Processes Business Unit Operations ... 12
1.2.1 Collection ... 12
1.2.2 Sorting ... 13
1.2.3 Delivery ... 13
1.3 Description Primary Process ... 13
1.3.1 Customer Order Decoupling Point ... 16
1.3.2 Product Market Combinations ... 17
1.3.3 Production Situation ... 17
1.3.4 General demand characteristics ... 18
2 Problem analysis... 19
2.1 Research Motive ... 19
2.1 Management Question ... 20
2.2 Organizational Problem ... 22
2.3 Research objective ... 23
2.4 Research Methodology ... 24
3 Conceptual Model ... 25
3.1 Demand characteristics ... 25
3.2 Organization Design ... 26
3.3 Information requirements and processing ... 27
3.4 Planning, Monitoring & Control ... 28
3.5 Conceptual model ... 29
4 Diagnosis ... 30
4.1 Demand pattern ... 30
4.1.1 Demand qualifications ... 31
4.1.2 Time-series analysis ... 32
4.1.3 Demand unpredictability ... 36
4.2 Organization Design ... 37
4.2.1 Structure ... 37
4.2.2 Operational Design ... 39
4.2.3 Lateral Consultative Structure ... 40
4.3 Information requirements and processing capabilities ... 43
4.3.1 Information requirements ... 43
4.3.2 Processing capabilities ... 44
4.4 Planning, Monitoring and Control ... 45
4.4.1 Planning ... 45
4.4.2 Monitoring and control ... 48
4.5 Main Conclusions Diagnosis ... 50
5 Redesign ... 51
Conclusions & Recommendations ... 58
Recommendations ... 59
Reference list ... 60
List of Used Images and Tables ... 63
APPENDIX ... I
Appendix I: Problem tree ... I
Appendix II: SPSS table month ... II
Appendix III: Dimensions of the five configurations ... III
Appendix IV: Actor Activity Diagram Planning ... IV
Appendix V: Design Features of the Hollow Organization (Daft, 2007) ... V
Appendix VI: New planning module SCB NWG ... VI
Appendix VII: Old Planning Module ... VI
Appendix VIII: Overview of elements available in Dashboard-S (in Dutch) ... VIII
Reading guide
The first chapter describes the organization and applicable processes at the sorting center in Nieuwegein. This chapter has been included for information and the characteristics mentioned influence design parameters. The main problem statement has been described as: ‘Current efficiency is too low and is not in line with internal goals set, benchmarking and best practices furthermore demonstrate this’. This research is relevant since the goal is to reduce cost, which allows TNT to keep its market position. These elements have been introduced in the second chapter. Based on this chapter a conceptual model has been built (chapter three). The relations in the conceptual model have been diagnosed in chapter four and an integrated redesign is presented in chapter five. The last section of the report describes goal attainment, main conclusions and key recommendations.
It is advisable to read specific sections of this report. Table 0.1 lists relevant focus groups and appropriate sections of this document. Frequently academic abbreviations, terminologies and company jargon have been used. To enhance readability a list with frequently used terms and explanations has been included (page 9). This list should serve as a basis for the external reader.
Although the official language of choice within the sorting center in Nieuwegein is Dutch, this publication has been compiled in the English language only. For inquires about this publication please contact me or staff operations.
Table 0.1: Reading guide
Focus Group Chapters, paragraphs and appendixes
Management functions / other Management summary, Paragraph 2.1, 3.3 and Chapter 4,5 and Conclusion & Recommendations Staff operations, Production Managers and
Business Control Management summary, Chapter 2,3,4,5 and Conclusion & Recommendations
Internal Supervisors Entire report
Supervisors University of Groningen Entire report
Interns TNT Mainly first three chapters, Management Summary and Conclusion & Recommendations
The opinions and statements expressed in this report represent the writer’s personal vision and do not necessarily represent the point of view of Royal TNT N.V.
© Royal TNT N.V. 2009. All rights reserved. Reproduction in whole or in part is prohibited without the written consent of the copyright owner.
Distribution list Internal Supervisors
Ir. D.M. Noordink (Coordinator planning)
Drs. C. de Haan (Manager Sorting Center Nieuwegein / Director Operations Retail)
Ing. M.T. van den Eng (Manager Sorting Center Nieuwegein) Staff Operations:
Ing. C. Zegers MMO (Manager Staff Operations Area Centrum)
E.J. Hoving MSc (Senior Planner Sorting)
A.J. Boersma (Senior Planner Delivery) Production Managers:
E. Baks
R. Bekkema
Drs. A.H.A.J. Hinskens
A. Jager
R.T.R. van der Meer BBA
E.J. Simon
Drs I.R. Darwish Business Control:
Drs. J.J. Laan (Manager Business Control)
R. de Vos (Controller)
R. Gerressen (Controller) Other:
Drs. P. Hollander (Director Production)
J.E. Schuurman (Director Area Centrum)
Ir. J.M. Kroes MBA (Manager Operational Control)
J. Mulder (Central Implementation Coordinator T- VBG)
Drs. A.M.I. Eekman (Assistant Manager SCB
Nieuwegein)
List of frequently used abbreviations
AC – Human production capacity AAD – Actor Activity Diagram
ARIMA – Auto-regressive Integrated Moving Average BAKS – Bin Sorting Process
BAP – Processing Incoming Mail BB – Business Desk
BC - Business Control
BIC - Bayesian Information Criterion
BDL – Production Manager Sorting (Bedrijfsleider) BU - Business Unit
BUBA – Business Counter (balie) BUPO - Business Point CG – Collection Area
CGM – Collection Area manager
CODP – Customer Order Decoupling Point CONWIP – Constant Work in Process CPOF – Capacity Planning using Overall Factors CRP – Capacity Requirements Planning DP – Direct productive (coffee breaks excl) DPM – Dynamic process model
DTW – Part-Time Worker ERP – Enterprise Resource Planning FIFO – First in First Out
FRIDA - Feeder for the Registration of Images of Dispatches Arnhem GANTT – Scheduling Chart HAH – All house numbers
HSM – House number sorting machine HSN - House number sorting IDP – Indirect Productive IMC – International Mail Centre IMU – International Mail Unit IOC – Input Output Control IT – Information Technology JIT – Just in Time
IiP – Invest in People
ILSA - Image Lift Sorting Centre Isabel - Image Lift System Signed Mail KAM - Key Account Manager KM – Chain manager (Ketenmanager) KMB – Chain manager Delivery KMC – Chain manager Collection
KM S&V – Chain manager Sorting & Preparation KPI – Key Performance Indicator
LIFO – Last in First Out LOLA – Material Handling LOT- Longest Operating Time L&T – Management and Control MBC - Manager Business Control MCS – Management Control Systems MD - Management Development M HR&O - Manager Human Resources &
Organisation
MISS – Management Information MT - Management Team
NIMP – New Initiatives Master Plan Mail OD – Organization Design
OC - Commission OGP – Unaddressed mail OGS – Unaddressed sorting OMA – Stamp Machine O&S – Stamp and Check
OMV – Optimal Machine Processing Rate OTM – Operational Tactical Meeting OTO – Operational Tactical Meeting OTW – Weekly Operation Tactics OTD – Daily Operation Tactics PB – PO box
PBZ - Mailman
PDCA - Plan-Do-Check-Act PIM – Porting Machine PL – Production Leader PL - Planning
PMC – Planning Monitoring & Control POC – Proof of Concept
PPC – Planning and Control Concept PTL – Production Team leader PRS – Planning Registration System
RAO - Calculation Model for Altering Organization RC – Roll Container
RCCP – Rough Cut Capacity Plans RSS – Residential Sum of Squares
SARIMA – Seasonal Auto-Regressive Integrated Moving Average SCB – Sorting Centre Mail
SLA – Service Level Agreement SMB – Sorting Machine Bins SMG – Sorting Machine Large SMK – Sorting Machine Small SMO – Sorting Machine Other NSMO – New Sorting Machine Other NWG - Nieuwegein
SOSMA – Pick, Sorting and Stamp Machine SOT – Shortest Operating Time
S&V – Sorting & Preparation TC – Team Coach TCB - Team Coach Delivery TCC - Team Coach Collection TOM – Intermediate stocking resource VA – Volume dependent
VB – Preparation Process VBG – Preparation area
VBGM – Manager Preparation Area VCP – Video Coding Pool VO – Volume independent VCPK - Video Coding Process Small VCPG Video Coding Process Large VISIO – Modelling application VOS – Pre-Sorting
VTW – Full Time Employee FTE – Full Time Employee WIP – Work in Process WLC – Workload Control WIT – Work in Teams
WMS – Warehouse Management System
WTR – Shift timetable
I Introduction
» The first chapter will introduce the organization and specific department where the research has been applied. According to academic literature the processes and characteristics are described. Besides these elements the basic structure of the primary process has been exhibited and the research motive is given.
1.1 TNT Group N.V.
Royal TNT N.V., through its two divisions, Express and Mail, is in the business of transferring documents, packets, parcels and freight around the world. TNT serves more than 200 countries and employs around 161,000 people.
In 2008 TNT reported € 11 billion in revenues and an operating income of € 982 million. TNT is listed and traded on the Euronext Amsterdam stock exchange and included in the AEX index. TNT aims to exceed customer expectations by delivering value by providing the most reliable and cost efficient solutions through global delivery networks around the world.
Exhibit 1: Organization Chart TNT
TNT tailors its products according to customer requirements with a focus on time-certain and day-certain pickup and delivery. It is TNT’s business to deliver the “business” of its customers at the right time and at the right place.
TNT picks up, transports, sorts, handles, stores and delivers documents, packets, parcels and freight by combining
physical infrastructures (trucks, electronic interchanges, billing and commercial infrastructures) to attract, serve and
retain customers. Goods and documents have different weights, shapes and sizes. They can be as light and small as
a postcard or they can be as heavy and big as the engine of a jumbo jet.
Goods and documents have varying requirements in terms of: speed of delivery, security, point of delivery and distance ranging characteristics. All these different types of requirements need different delivery networks and are served by different operators (see exhibit 2).
Exhibit 2: Segmentation transportation industry (Source – R.W. Baird, report ‘global Integrators’, January 2007)
Group Strategy: TNT’s strategy is to focus on providing delivery solutions by expertly managing delivery networks.
TNT calls its strategy “Focus on Networks”.
The essence of TNT’s business model is to operate multi-client delivery networks. TNT’s aim in each of these networks is to achieve cost and service leadership through scale and continuous network optimization. In addition, largely dedicated networks, for instance for Fashion, Health and Document express deliveries, are managed and further developed.
1.1.1 Divisions
TNT’s Mail division provides mail, mail related, and parcel services to its customers. Its mature business, which has its origins mainly in TNT’s home market the Netherlands, is organized in the business line Mail Netherlands. This business line is responsible for mail services in the Netherlands, including the provision of the universal service.
Related are the data and electronic communication activities, operating under the brand name Cendris, and the
cross-border mail services provided through the joint venture Spring Global Mail. TNT’s emerging mail activities
include TNT’s mail services outside the Netherlands. TNT Post, through its business line European Mail Networks,
is active in the Netherlands and seven other countries, where it is a main challenger of the incumbent postal
operator. These activities include both addressed and unaddressed mail.
Express
TNT’s Express division provides on-demand door-to-door express delivery services for customers sending documents, parcels and freight. TNT offers regional, national and worldwide express delivery services, mainly for business-to-business customers. The express services TNT provides and the prices TNT charges are primarily classified by transit times, distances to be covered and sizes and weights of consignments.
TNT Express customers are small and medium enterprises, major accounts and global customers. Each category of customers is managed by dedicated teams and processes. TNT builds strong relationships with its customers through regular personal calls and visits, as well as a wide range of communication media. TNT has extensive integrated road and air networks in Europe, with dense coverage in 35 European countries. This gives TNT a leading position in the European market. TNT’s worldwide coverage extends to more than 200 countries. In 2008, TNT continued to build its positions in emerging market while enhancing connectivity between those markets and Europe.
1.2 Processes Business Unit Operations
This research paper will focus on the division Mail. The division Mail Netherlands has been split up in three business units: Marketing & Sales, Operations and Parcels (Exhibit 1). Operations and Marketing & Sales are closely related; commercial clients deliver their mail to Business Counters (BuBa), this mail is subsequently directed to the area sites. The Parcel department is positioned as market leader in the Benelux and handles around 300.000 packages on a daily basis. The assignment will focus on the Operations business unit. Within this Business Unit there are three predominant processes: collection, sorting and distribution. The processes of the operations business unit will be described in more detail.
1.2.1 Collection
Collection gathers mailings, registers group mailings and prepares them for processing at the sorting centers. Mail is collected from 20.306 mailboxes and from around 15.000 collection points (postal offices, customers, service points and business points (BuPo)) daily. Mail is then shipped to 79 BuBa’s which process the mail between 18.00 and 22.00 daily. The BuBa also is responsible for mail payment processing. Bulk and registered mail is identified and forwarded to specific sorting centers (sorting center registered mail in Arnhem and parcel).
Exhibit 3: Processes at TNT post
1.2.2 Sorting
From the BuBa’s the mail is shipped to the six sorting centers in Amsterdam, Rotterdam, The Hague, Nieuwegein, Zwolle and Den Bosch. At the sorting centers (SCB’s) the mail is sorted for the first time. Mail is clustered in groups: large mail, small mail, other mail or mail requiring manual processing. The output of the first sorting procedure produces side products in bins (around 190) for other sorting centers and for the sorting center Nieuwegein. The other output concerns mail for addresses abroad (end products), this mail ships directly to IMU (International Mail Unit). The interchange between sorting centers is based on barcode scanning and placed in bins (runs). Cards are assigned to the bins, with a destination sorting center. The second sorting procedure uses side products in bins from other sorting centers (first sorting took place at other SCB). Besides side products from other sorting centers, mail from the first sorting procedure in Nieuwegein is also used as an input (Exhibit 4). The second sorting procedure generates three outputs: end products for delivery, side products (own area) for the third sorting and rejects. There are two specific end products: ‘street’ based and ‘batch’ for delivery units.
Street based: mail sorted according to street delivery routes, P.O. box numbers or a combination of delivery routes.
Batch: mail in HSM-batches (Huisnummer Sorteer Machine, sorts mail for individual addresses) for decentralized delivery units with a HSM sorting machine.
For delivery units without a HSM machine, the SCB Nieuwegein collects side products for a central third sorting.
Mail is subsequently transported to delivery units. A third (optional) sorting is only used for small mail
11.2.3 Delivery
, sorting according to individual address takes place. This sorting takes place for the own area and small delivery offices.
After the sorting processes mail is transported to the VBG’s (Local Delivery Offices) and delivered to 7.6 million households via 22.000 routes. 95% of the mail volume transported by TNT comes from commercial clients, only 5% of the total volume is consumer driven. There are three sorting procedures: 1
stsorting: sorting per area for second sorting, 2
ndsorting: per delivery route and 3
rdsorting: according to house address.
1.3 Description Primary Process
Mail box volume Collection
centra SOSMA
BuBa
(( Videocoding ))SMK
(( Videocoding ))SMG
SMO
Manual processing
Rejects
Collection per sorting center
Stock &
dock Specific clients (Postbank / ING / Tax)
Delivery Unit
Machine processed
International mailings IMU
Delivery Unit 48hMail
storage SCB
Exhibit 4: Basic structure primary process
1
Small mail: mail <C5 format.
a)* Internal transport chooses where to transport roll container to, rejects need to re-enter the process. IMU and machine processed mail need transport to the docking area for additional processing (in case of collection per sorting center) and eventually external transportation.
a)*
Hoekstra & Romme (1985) developed a model that structures the primary physical process. Exhibit 4 displays this structure for the sorting center in Nieuwegein. The basic structure is key in describing, analyzing and designing the primary process (Van der Vaart, 2006). Mail from stock point ‘mailbox’ is transported to the SOSMA (Schift-, Opzet- en Stempelmachine) process, all mail with stamps is processed here and a post paid mark is consequently printed. Mailbags from mailboxes are emptied on a transport conveyor belt with a container lift. The label of the container is then removed; this demonstrates that the complete container has been emptied. Employees gather mails that are not eligible for machine (SOSMA) processing (mail for sorting machine large, parcels or damaged mail for instance). A process operator of the SOSMA machine needs to control the machine and empty the staplers (output) and handle the rejects. The manual stamping procedure takes place for the non eligible mailings;
employees manually check and certify stamps. Mail for specific bigger clients (ING bank, Tax office, etc.) is transported directly to the delivery offices. The additional outputs of the SOSMA process consists of stamped mail for sorting processes SMK, SMG or SMO and special mail (for example: to announce funerals) for direct manual sorting.
The output for the SMK, SMG and SMO processes are transported by lorry drivers (internal transport). A machine process (BAKS) sorts similar bins with mail according to postal codes, this to enhance efficient lorry transport and further processing. Bins with mail with similar processing needs are grouped here. The other input for these processes comes from the BuBa’s (see exhibit 4). Mail from stock (48h mail) can also be an input and IMC (International Mail Center) in Amsterdam can also deliver these sub processes through the BuBa. These processes (SMK, SMG & SMO) are proceeded by queuing buffers (not in basic structure). The sorting center Nieuwegein has six SOSMA machines, fourteen SMK’s and seven SMG’s. In principle the input for these three processes is unsorted mail according to machine specification (small / large/ other size), in practice some mailings still can give errors and need additional manual processing or processing by another machine. Plastic wrappings and size might for instance cause these errors. At the SMK and SMG processes a few distinct activities take place: insert mail in the machine, handle rejects in the reject boxes, place coded empty bins at the output side of the machines, place mails from output staplers in boxes and transport full bins to transportation areas for dispatching.
After processing at the machines the machine can generate a reject or the operator can decide whether a particular mailing needs manual processing. These machines automatically generate video coding images for the video coding process. Addresses are recognized automatically with a maximum capacity of 200 instructions per second. Video coding is performed two times to prevent disturbances and errors.
Unreadable postal codes, incomplete addresses or handwritings are send electronically to the manual video coding process. Mail requiring video coding is circulated in the machines until the complete address has been identified and typed in. Exhibit five demonstrates the video coding process. This mail consequently is released for further processing when the video coding process is complete. Mail from the processes and manual processing is consequently transported in bins to the bulk stock. The output of the process concerns sub-products in red bins arranged according to further processing needs. Four specific needs can be identified: 2
ndsorting procedure own SCB, 2
ndsorting one of the other five SCB’s, sub products for IMC (Mails with a destination abroad) and rejects for manual processing.
Exhibit 5: Video coding process
The SMO is a specific process where parcels (fits within physical limits of a consumer mailbox, but too large for SMK or SMG processes) and bundled mail is being sorted. The input for the SMO originates from the same processes as the SMK and SMG; unsorted parcels, (priority) parcels from IMU and unsorted bundled mail. Bundled mailings are combined sorted staples with similar mailings (for instance magazines like Time Magazine or Libelle). At the moment the SMO is a manual process, the bundles and parcels are sorted manually and disposed in bins. These bins are placed in carts and moved to the dispatch area. Output of this process concerns sorted bundles and parcels for area centre (own area), other areas and sorted products for IMC (International Mail Center). The bundles and parcels for the own area are placed in stock for the second sorting procedure.
Second and third sorting procedure
Small
Bin sorting
2nd sorting SMK
Large
Other / Manual
2nd sorting SMG
2nd sorting SMO
2nd sorting manual
3rd sorting HSM 16% for small offices without HSM
Collection per delivery office
Stock delivery per
office (dock) HSM?
84% at local delivery office
Transportation to preperation and delivery offices
Exhibit 6: 2
ndsorting procedure (basic structure)
The sub products from the first sorting from area centre (own area) and other areas are used as inputs for the second sorting process. The second sorting procedure is similar to the first sorting described above and will therefore not be discussed in detail. Small mail is sorted per individual address (HSM) or for local house number sorting at the delivery offices. PO boxes are sorted individually or are collected per group (group of bo box numbers). SMG / large mail is sorted per according to delivery route (around six thousand per sorting center). The SMO and manual stream produce sorted end products for delivery offices. 84% of the third sorting procedure takes place at the local delivery offices. The second sorting takes place from midnight until 7.00 in the morning.
Before midnight trucks from other sorting centra should arrive at the docks. For 48 hour mail the second sorting procedure can occur in the afternoon as well, where first sorting took place in the morning. For 24 hour mail the first sorting takes place in the evening (from 19.00 – 23.45). Exhibit 7 elucidates the sorting times and procedures in more detail.
Exhibit 7: sorting schedule TNT
The next subparagraphs will discuss the CODP (Customer Order Decoupling Point) concept, this concept is
mainly used to describe and analyze the primary process and products in more detail. Since mail cannot be sorted
prior to customer order. Besides the CODP concept product market combinations are identified, the production
situation is outlined and general market characteristics are given.
1.3.1 Customer Order Decoupling Point
The sorting center mainly is a logistical service center for mails; the determination of the location of the CODP (Customer Order Decoupling Point) therefore is hard. The decoupling point separates the part of the organization oriented towards activities for customer orders from the part of the organization based on forecasting and planning (Hoekstra & Romme, 1992). In other words the decoupling point is the point that indicates how deeply the customer order penetrates into the goods flow. Only the throughput speed and delivery quality can be influenced. When using this concept for TNT the business characteristics need analysis. Market demands and process characteristics need further analysis (Van Donk, 2001).
Table 1: Business characteristics and influence on the CODP, Van Donk (2001).
Product / market
characteristics Sorting Center
Nieuwegein Process and stock
characteristics Sorting Center Nieuwegein Required delivery reliability Very high ► Lead times and costs of steps in
the (primary) process Short lead times, maintenance ◄
Required delivery time PMC 24 hour mail: 24 hours, or economy mail 48 hours or longer.
► Controllability of manufacturing
and procurement Fairly controllable =
Predictability of demand Very unpredictable (delivery controlled, clients can deliver when they want service)
◄ Costs of stock-holding and value
added between stock points Costs of stock very low, value added when mail is sorted in time ◄
Specificity of demand Common variety end
products ► Risk of obsolescence Very high ◄
◄ = upstream CODP ► = downstream effect CODP
TNT in manufacturing terms would be a typical make-to-order company. Since TNT is a logistics service company real manufacturing / production does not take place. Production can however be interpreted as ‘sorting’. Some products additionally cannot be made to stock (sorted); caused by the supply pattern of customers. The downstream effects of required delivery reliability and time are therefore of minor importance. High performance in respect to delivery reliability and time can be achieved through early information sharing and coordination between other sorting centers.
Most process characteristics have an upstream effect (table 1); the product / market characteristics tend to have a downstream effect on the CODP. Hendry and Kingsman (1989) in addition defined a table comparing MTO vs. MTS companies based on a few characteristics (table 2).
Table 2: A comparison of MTO and MTS companies, Hendry et al., 1989.
Characteristic Make-to-stock Make-to-order
Product mix Many standard products Few standard products
Resources Specialist machinery and workforce Multi-task machinery and flexible workforce
Product demand Demand for standard product can be forecasted. Demand very volatile and can be rarely predicted
Capacity planning Based on forecast demand. Planned in advance.
Adjusted later if necessary Based on receipt of customer orders. Cannot be
planned far in advance
Leadtimes Unimportant for customer Vital for customer satisfaction. Agreed with
customer.
Price Fixed by the producer. Agreed with customer before production
commences.
1.3.2 Product Market Combinations
Product mix is very standard, all products are common. The machinery and resources are dedicated to the core processes. Product demand to some extent can be forecasted for a few streams, other streams are more volatile.
Rouch Cut Capacity plans (RCCP) are currently based on a forecast (from history), known orders are furthermore taken into account for short term planning. Leadtimes are extremely important for the customer, and are agreed prior to the sale. For the bigger clients prices are agreed with customer before production commence. When different PMC’s (Product market combinations, exhibit 8) are taken into account, the economy and budgetmail can be identified as make to stock mail and 24h / business mail as make to order. This seems logical since economy and budgetmail generally requires large delivery quantities, leadtimes are longer and cost price consequently is lower. Budgetmail is delivered a week later than supply on Thursdays or Fridays, economy needs supply on Mondays before 14.00 and is delivered in the same week from Tuesday to Saturday. The exact date of delivery is not fixed. The overall trend in the mail market is that leadtimes are becoming less important, prices and quality however are significant for the customers (Intomart GFK research, 2008). Exhibit 8 presents the different products that TNT exploits. The CODP of these products does not differ (also make-to-order), since products still cannot be sorted without a customer order and due to material (mail/parcels/etc.) availability.
The market and demand of mail is declining (as stated earlier), for performance measures cost, delivery time and delivery reliability are significant. Product variety is fairly limited to a few variants: mail 24h, mail 48h, budget / economy, parcels, bundled mail and mail from mailboxes.
1.3.3 Production Situation
The variety in routings is also limited and the production lay-out is structured according to a line structure. A product lay-out has been applied; resources and workstations are arranged to provide the most efficient method to sort a product (Slack et al, 2001). To further characterize the process; analysis of capacity complexity and material complexity is needed (Bertrand et al., 1990). Material complexity is very low (no materials needed, demand for specific sorting procedure not always known) and capacity complexity also is fairly low (to some extend demand for capacity is unknown).
Bertrand et al. (1990) & Van Rijn (1986) developed a framework to characterize ideal elementary production situations. Based on the various elements stated TNT fits within the continuous production framework.
Price level
Delivery reliability (according to sla) Delivered within 1 week after sla date Delivered within 1 month after sla date
TNT
24h/48h TNT
Economy TNT
Budgetmail Other mail
companies 97%
99,8%
99,8%
99,8%
99,8%
99,8% N/A
86-89%
93-94%
96%
99%
N/A
Exhibit 8: Different products TNT mail and price levels, source Intomart GfK research (2008).
Table 3: Characteristics Continuous production: JT van der Vaart, 2006.
Characteristic Continuous Explanation TNT
Product composition Simple / divergent Mail sorted to specific end products
Processing intensity Low Fairly simple process
Routing variety Fixed The routings are predetermined
Capacities Dedicated, for some processes
interchangeable In general capacities are dedicated. Some human resources can be
interchanged with other processes. For example video coders can also sort.
Assortment Small A few specific end products
Batch size Varies Bins, the content can vary depending on mail size
1.3.4 General demand characteristics
The demand pattern of TNT varies a lot but there is a clear seasonal pattern (exhibit 9). The outliers to the zero line are holidays when no mail has been delivered. There are a few recurring patterns over the past three years. In the beginning of the year (January and February) demand increases [1], the summer drop roughly between half July and the mid august can be identified [2] and due to the Christmas period rising demand during the end of the year and a drop during and after Christmas [3].
The demand per day varies a lot and variability is also an important factor.
Demand uncertainty furthermore influences the unpredictability, especially for 24 hour shipments clients can deliver in the evening if they want and these mailings need prompt delivery the next day. Because demand characteristics are rather complex in this case a dedicated demand characteristics section is included within this report (§ 4.1).
Exhibit 9: General demand characteristics SCB Nieuwegein.
The characteristics analyzed in this chapter form the foundation for the thesis (boundary setting for appropriate redesign and general understanding). The next chapter will introduce the main problem(s) and research motive.
[1]
[2]
[3]
2 Problem analysis
» The previous chapter introduced the company and processes, this chapter will identify problems and focus of the research. The research motive is described below, the general trend is that mail volume is declining and costs need to be saved to sustain profitability of the mail division.
2.1 Research Motive
The Mail business is a mature-to-declining cluster of businesses that constantly needs to adjust itself to changing volumes and emerging competition. Three market trends define the future of Mail:
changing communication patterns following digitization,
increasing competition in the Netherlands (and Europe) due to liberalization,
consolidation as a result of liberalization.
Because of competition and the liberalization of the mail market in April 2009, in combination with the current financial crisis, TNT has to improve its cost / efficiency ratio and its quality level. TNT wants to keep its current mail volume and operating margin by differentiating and by lowering costs. Both internal goals (quality and efficiency) were not achieved.
The organization has to adapt and needs to be more flexible. Operational Excellence has been deployed to achieve improved quality and efficiency. Continuous improvement, cooperation and process control are important factors within this philosophy.
Exhibit 10: Volume development mail.
The management team of the sorting center in Nieuwegein identified these issues and translated them to a lower
aggregation level. The main goal is to reach a cost reduction and improve efficiency. The overall impression is that
current resource planning and control practices lead to lower levels of efficiency.
2.1 Management Question
To be able to analyze the problem the management question is stated here as a starting point for further problem analysis. Management question organization: ‘The current planning and control methods of the processes within the sorting center in Nieuwegein need critical review, to fulfill the wanted results within the given cost and quality goals. The current PDCA (Plan Do Check Act) structure does not fit within this context. Planned capacity does not always lead to the wanted performance levels in terms of efficiency and quality. Current steering and control methods additionally need critical assessment.’
Problem owners have been interviewed to subtract individual problems perceived, recognize patterns and identify important topics. These interviews have been conducted in order to transform the management question to an organizational problem.
Table 4 describes the problems of key information gatekeepers interviewed with problem descriptions, which sub- systems the problems concern and the corresponding problem dependencies. The composition of the gatekeeper group (Table 4) has been coordinated with the management team.
Table 4: Problems of key information gatekeepers interviewed.
Problem Owner Problem description Sub-system
M ut ual D ep en den ci es Func tio nal Ins trum ent al
Manager (Cees de Haan) 1 Current efficiency and quality is too low and not in line with goals
set / Benchmarking. Sorting and
preparation process X
2 Current translation from workload to FTE workforce required, is
frequently not in line with the real situation of requirements Planning
1,3 X
3 Communication between staff and line not optimal (from
Management team>production team leaders>employees mainly performance related
Planning, sorting /
preparation 2 X
4 Causes of disruptions in respect to quality, regulation and
measuring methods are not represented sufficiently SCB Nieuwegein
1,2,3 X
Coordinator planning (Dianne
Noordink) 5 Curreny efficiency too low Sorting and
preparation process 1 X
6 Current dependability of the (capacity and volume) planning
process not accurate Planning
1,2 X
Manager production (Aggie
Hinskens) 7 Translation from volume to temporary workforce required difficult Planning
1,3 X
8 Current worknorms not correct Planning / Managers
1 X
9 Learning curve in terms of disruptions not optimal SCB Nieuwegein
3,4 X
10 Responsibilities in terms of hiring temporary employees not clear
(task / role descriptions) Planning / Managers
2 X
Manager production (Anne
Jager) 11 Communication between PTL and Managers vague Sorting process
1,3 X
Manager Cluster Large (Erwin
Simon) 12 Room for improvement in terms of cost and workforce Sorting and
preparation process 1 X
Senior planner (Erik Hoving) 13 Current flexibility is not adequate to be able to respond to varying
workloads Sorting process 2, 8 X
14 Translation from workload to FTE workforce required, is
frequently not correct Planning
1,3 X
15 Causes of disruptions are not always clear SCB Nieuwegein 1,2,3 X
Planner production (Marcel
Gerritsen) 16 Communication between planning, team leaders and employees Planning > SCB wide
2 X
17 Current efficiency & quality is too low (can be improved) SCB Nieuwegein
1 X
Production Teamleader Business Desk (Rolf Groote Wolthaar)
18 Efficiency too low SCB NIeuwegein
1 X
19 PTL´s control not appropriate Sorting process
2,3 X
Senior planner (Arjan
Boersma) 20 Machine occupancy rate too low during certain time intervals
(MPE) Sorting process of
SMG / SMK 1, 15,
7, 6 X
21 Customers do not always deliver mail according to guidelines
(+follow up / information flow / optimalisation of ) Collection, BuPO's
1 X
Chief technical service
(Maarten Houtsma) 22 Low occupancy rate due to lack of process operators SCB Nieuwegein
12 X
Production Teamleader 23
The dashboard for process monitoring is not used Sorting process
SMG/SMK 1 X
24 Quality of employees differs (processing capacity per employee
differs) Sorting process
1,2,8 X
The problems depicted in table 4 are mainly operational, consequently additional operational surveys have been applied focused on efficiency, control methods and communication. Cooper & Schindler (2003) mention various survey methods; personal interviews allow feedback, the chance that the questionnaire will be answered increases and commitment increases (Cooper et al., 2003). Anonymity might be a problem in respect to biased answers. To tackle this problem anonymity has been guaranteed. The questionnaire method has been combined with mail, a trimmed version of the questionnaire has been sent by mail before taking the interview. Of all production team leaders (40) 50% responded; the control methods, efficiency, communication and other improvement activities have been discussed. The main conclusion and findings are presented here.
Control methods (problems 1,4,15,19 and 23 from table 4 are related):
There is a lot of emphasis on planning and acting, control and actions derived need special attention. This should be a continuous process with many cross functional coordination moments. A kick-down after the shift is sought after, with accent on realized results and actions to be taken to prevent unwanted results from happening again.
The other general conclusion is that production team leaders experience a lot of differences between modes of control of production managers (BDL’s). Individual choices determine the predominant modes of control and accents. When disturbances occur it is frequently not clear who is (taking) responsible.
Efficiency (problems 1,5,6,12,14,17 and 18 from table 4 are all efficiency related):
Risk of steering on pure efficiency can lead to sub optimizations; For example: when a batch of mail can run at an average throughput speed of 8000 pieces per hours it is still far cheaper than manual sorting. But when this batch is moved to the manual process, sub process efficiency of both processes will increase since this batch is easy for the manual process (scores high efficiency) and the 8000 m/h does not impair the machine process (which under normal conditions on average can produce 30.000 m/h).
Other tricks to achieve the desired performance levels are also executed.
To avoid these practices more focus on an overall efficiency figure and overall goals should be applied. This is the responsibility of the production managers (BDL). Costs (of process choices) are furthermore ambiguous.
Coordination by the PTL, availability of mail to the process and demand characteristics (different types / sizes mail) influence efficiency.
Communication (problems 3,9,11,16 and 21 are related to flaws in communication, table 4):
Responsibilities (as stated earlier) are not clear. Production team leaders main task should be to control and manage their teams and processes. The ownership of the sub process should be delegated to the production team leader (empowerment). Results and general performance are only evaluated in assessment interviews. Frequent feedback is wanted but current feedback loops are incomplete and infrequent.
Communication between production managers (BDL) and production team leaders (PTL) are
additionally not at the appropriate level. Changes initiated by production managers (BDL) are poorly
communicated (or not communicated at all) to production team leaders, leading to resistance. The general goal
and strategy should be clear and communicated to the production team leaders. Another interesting notion is that
coordination between clusters is not structural and poor. A decision tool with information about process results is
wanted.
2.2 Organizational Problem
The management problem has been transformed into a functional statement about a sub system, this particular sub-system concerns the sorting process of the Sorting Center Nieuwegein. A partial solution was included within the management question. Appropriate solutions will however need further research, therefore the solution has not been included in the organizational problem. Most information gatekeepers state that current efficiency is too low and is consequently not in line with goals set. Cost reduction is also one of the main goals set in the business model. Current communication and meeting structure are also avowed, information does not always reach intended receivers and meetings tend to be inefficient. Besides these elements control and supporting information systems are needed to solve problems relating to organizational learning and ultimately efficiency, since one wants to prevent ´bad´ things from happening again. Most other functional and instrumental problems mentioned can, additionally, be related to efficiency. The cost reduction however cannot undermine the current quality level. This to keep TNT’s current position in the market and keep an edge on competitors. Elements efficiency and quality have been previously mentioned, internal definitions are given here.
Efficiency = # of letters processed per employee (FTE) per time block. The efficiency norms are different for the processes. The efficiency is calculated per sub process, an example is given below:
AC = used workforce in hours per time block (arbeidscapaciteit).
Volume = # of mails per time block (for example day or week, in millions).
3298 8551 000 . 200 . : 28 )
(
)
# . ln
( ≡ realized efficiency example sorting SMK ≈ hour
AC
mail m
Volume
The realized efficiency for the SMK (Sorting process small mail) process therefore is 8551 mails per hour. The current target is set at 8265.
Quality: the central goal in terms of quality is to fulfill what was promised. Quality is measured in terms of KPI’s based on three elements:
Quality of delivery: percentage of mail delivered to the correct address and time (target 99,8%)
Quality unaddressed mail (not for specific addresses, for instance Albert Heijn commercial): percentage of mail delivered to the correct address (target 95%)
BARP (Besluit Algemene Richtlijnen Post): this is a weighted average of mail from mailboxes and mail from bigger clients (for example Royal KPN N.V., Rabobank, etc.). The figure is measured in terms of mail delivery quality (within time and to the right place). The target for 2009 is set at 96%.
» Synopsis; quality is measured in terms of speed and dependability.
Organizational problem: Current efficiency is too low and is not in line with internal goals set, benchmarking
and best practices furthermore demonstrate this.
Exhibit 11: Benchmark of SCB’s in 2008, weighted average per process in realized % of budget (100% = budget). Christmas period excluded.
2.3 Research objective
Advice the sorting center Nieuwegein on how to improve the efficiency (cost reduction of 10%, for the sorting process), while maintaining or improving its current quality. This allows TNT to be more cost efficient and accomplish the following goals (table 5) set in the business model:
Table 5: Goals sorting center Nieuwegein.
Operational Excellence: lower operational costs. Focus on core processes.
Customer Intimacy: relationship with customers. Coupling of clients to products, service and other value creating activities to be able to realise requests.
Product leadership: introduce new products fast, be best in class.
Good price / quality level Custom services Innovative products
High delivery dependability Unique service New and creative
High quality Flexibility Fast time-to-market
Fast time-to-market Be able to respond to changing needs (agile) Market leadership (cost)
Scale advantages / efficiency Custom services Innovative products
Limiting conditions: Focus on sorting center Nieuwegein on process: sorting. Most potential has been identified within the
sorting process by the management team. No large investments can be made.
2.4 Research Methodology
To support the research a theoretical framework (MEDIC) from Royal Philips N.V. © has been applied. This method has been based on DMAIC. It has been applied because of good personal experiences with this model.
The model provides an excellent framework to support the composition of the master thesis.
Table 6: MEDIC, Royal Philips N.V.
Process analysis
Flowchart and basic structures
Measure
performance
Products &
demand
Exploration of root causes
Research problem
& goal
Research relevance
Conceptualize problems based on various sources
Based on conceptual model diagnose elements
Define actions necessary for redesign phase
Verification of model
Development of an integrated solution based on diagnosis
Implementation &
training of employees
Anchor & standardize changes
Performance measurement after implementations Define necessary actions in the near future (recomm
Chapter 1 Chapter 2 & 3 Chapter 4 Chapter 5 Conclusions &
recommendations
The next chapter will use the (instrumental) problems mentioned in this chapter, to build the conceptual model.
This conceptual model will eventually be used for the diagnostic and redesign chapters.
3 Conceptual Model
» The conceptual analysis concerns the defining of concepts and variables that are important for the research and the assumed relationships between these variables. The model will be build step by step, assumed relations and variables are discussed.
The input for the conceptual analysis consists of four elements (Broekhuis & Welker, 2008):
Literature (scientific and specialist literature)
Expert insight (university and company supervisors)
Instrumental statements mentioned in the problem analysis (table 1.1 and interviews).
Own professional expertise.
Theory may be defined as “a set of systematically interrelated concepts, definitions and propositions that are advanced to explain and predict phenomena (facts)” (Cooper & Schindler, 2003). The main role of theory is explanation, it narrows the range of facts that need study and summarizes what is known. Per paragraph relevant concepts and definitions will be discussed, the input for these paragraphs has been deducted from the elements mentioned above; the practical situation at TNT is weighed most heavily as input source (problem analysis).
3.1 Demand characteristics
Planning needs to assign resources and identify needs, the main input for this is the customer demand (Slack et al., 2004). The nature of the decisions taken to plan and control an operation will both depend on the nature of demand and supply. A connection between supply and demand is needed that will ensure that the operation will produce efficient and effective end products (Slack et al., 2004).
The planner can determine demand using analytical or intuitive forecasting techniques, long-term and medium- term planning require demand forecasting (Schönsleben, 2007). It is a technique to determine stochastic independent demand. Most companies do a bad job of incorporating demand characteristics into their production- planning processes, it is however essential for reliable planning (Fisher, Hammond, Obermeyer & Raman, 1994).
Slack & Lewis (2003) state that customer demand directly influences the performance objectives set. Planning has to process information of customer demand and match this data with information of production constraints to allocate capacity, promise reliable delivery times and to prioritize orders (Welker, 2004). A huge amount of information must be processed and exchanged between actors involved in the process. Germain, Claycomb and Dröge (2007) concluded that predictability (an element of demand characteristics) determines applicable (formal) control methods and integration leading to enhanced financial performance.
Based on the literature there is a clear (input) relation between the demand characteristics and the mode of PPC (Production Planning & Control). The characteristics influence the mode of applicable planning, control and monitoring methods. The demand characteristics also relate to the organizational design.
Several elements analyzed in the problem analysis phase (instrumental problems) also relate to demand
characteristics. Problems 2,7 and 14 all relate to the determination of volume (demand) in relation to capacity
planning and forthcoming efficiency. This practical situation supports the literature cited. Problem 21 states that
clients do not always deliver according to specifications agreed, this also related to the nature of demand. During
the interviews the production team leaders mentioned demand characteristics in relation to efficiency. The type of
mail influences efficiency indirectly, because appropriate capacities have not been scheduled based on the demand
characteristics. This notion in addition supports the findings in the literature.
Demand Characteristics
Planning, Monitoring &
Control
Organization Design
Exhibit 12: Demand characteristics in reaction to Planning, Monitoring & Control (P.M.C.) and O.D.
When applying the theories and problems described above various elements of demand will be analyzed. The seasonality and pattern for both main streams (cluster small and large) will be discussed to be able to incorporate these characteristics within production planning. Weekly and daily patterns besides long term trends will also be considered. To analyze stability the covariance of various streams will be analyzed. To examine heterogeneity the regression between for instance manual sorting and machine sorting will be analyzed, regression may be relevant in order to predict volume for one stream and deduct volume for a related stream. Besides these characteristics the overall volume developments are analyzed to be able to achieve a better fit between volume planning and resource utilization and check to which extent the economic conditions and liberalization have an effect.
With these aspects analyzed the foundation for applicable forecasting methods will be established, these forecasting methods will be applied in the redesign chapter.
3.2 Organization Design
Organization design involves the creation of roles, processes, and formal reporting relationships in an organization.
One can distinguish two phases in an organization design process: Strategic grouping, which establishes the overall structure of the organization, (its main sub-units and their relationships), and operational design, which defines the more detailed roles and processes (Jones, 2009 &
Daft, 2003 & Gibson, Ivancevich, Donnelly, and Konopaske, 2003).
Organization design (OD) is assumed to affect and enhance the performance of the organization, there is a positive relation between OD and efficiency. A combination of the function and design influences goal attainment and success (Mintzberg, 1979, 1981
& Dalton, Todor, Spendolini, 1980 & Weitz and Anderson, 1981 and more recently Vorhies and
Morgan, 2003 & Meijaard, Brand and Mosselman, 2005). The organization can have an excellent design, but people still have to perform the tasks that they are supposed to do (functioning) (Andersen, 2002). In coordinating demand and production the actors involved and their relationships play an important role. Not only in processing customer orders and translating them into production orders, but also in finding the optimal trade-offs between customer wishes and production possibilities. In exchanging information and making the optimal tradeoffs the hierarchical structure, tasks and roles and lateral consultative structure are important (Welker, 2004). Mintzberg (1981) furthermore concludes that the organizational configuration (machine bureaucracy, simple structure, etc.) relates to lateral linkages via planning and liaison and presumably vertical linkages (mentioned as decision-making system). Besides the relation between efficiency and planning, there is also strong academic support for a relation between organizational design and monitoring & control (part of planning department, according to blueprint TNT). Contingency based research has a long tradition in the study of management control systems (MCS) (Clenhall, 2003).
There are many studies dedicated to the fit between organization design and management control; Gordon and
Narayan,1984; Foster & Swenson, 1997; Shields, 1995; Gosselin, 1997. The relation between organization design
and control is large. Organizations with sophisticated technologies and high diversity that have more decentralized
Exhibit 13: Contingency theory and relation OD > performance. (Paul JCL.,
2009)
structures are associated with more formal, traditional MCS (e.g. budgets, formal lateral communication structure) (Chenhall, 2003). Exhibit 14 summarizes the implications.
TechnologySize Degree of
decentralization Degree of
formality in MCS
‘Maturity’ leading to decentralization Leading to more formalized MCS
+ +
Exhibit 14: Relation between elements: organization size, (de)centralization and formalization of MCS.
Based on the literature reviewed there is a relation between organization design, efficiency and plan, monitoring and controlling activities. O.D. influences efficiency and control / monitoring directly and planning indirectly.
The organization of the planning function and other functions is determined by the organizational design. Clear role and task descriptions (who is responsible for workload norms, who is hiring temporary employees, etc.) are necessary for efficient planning. The instrumental problems from table 1.1 9 (learning curve not optimal), 10 (responsibilities), 12 (cost workforce) and 19 (control production team leaders) relate to elements associated with organizational design. The additional conclusions derived from the interviews with production team leaders also point to elements relating to organization design. Clear responsibilities, cross functional coordination, ownership of the processes and different modes of control between production managers all can be linked to organization design (and/or theory) concepts. Elements mentioned summarize possible practical implications, which subsequently can be related to exhibit 14. The dotted line in exhibit 15 symbolizes the relation between PMC and efficiency, which will be clarified in paragraph 3.4.
Planning, Monitoring &
Control
Organization Design
Efficiency
