Supply chain integration at
ETO companies
-
Theory building by conducting multiple case
studies at different ETO-businesses
Author:
Bart Massink Student number: 2388294
University of Groningen MSc Supply Chain Management
25/8/2014
Abstract
It has been stated in theory that Engineer-to-Order (ETO) companies have bad delivery performance and high levels of Supply Chain Integration (SCI) are presented as a panacea for bad performance. The objective of this paper is to discover how ETO companies deploy SCI and what the difference is in SCI deployment between different types of ETO companies. A multiple case study was conducted among seven ETO companies in order to analyze the different types of ETO companies. The case studies were undertaken by means of employee interviews and company tours. The interviews and observations were coded and these codes were summarized and leveled. Based on this data, the different types of ETO companies were compared with each other on SCI. The outcomes of the research indicate that ETO companies have more customer-integration-Patterns than Practices and more customer-integration than supplier-integration. Furthermore, the study found that company characteristics such as the customer specificity, core competences and production level volumes influence the deployment of SCI. The theoretical implications of this research are that it provides insight into the key variables and Patterns in the ETO and SCI relationship. This research is believed to be the first study that explicitly studied the relationship between different ETO types and their relationship to SCI. The practical implications of the research are that it gives managers insights into which kind of integration ETO companies should apply and why this is important. Possible limitations of the research are the number of cases and the number of interviews per case, which limit the
Table of content
1. Introduction ... 3
2. Theoretical Background ... 4
2.1 Engineer to Order (ETO) ... 4
2.2 Supply Chain Integration (SCI) ... 5
2.3 Conceptual Model ... 6
3. Methodology ... 6
3.1 Research Design ... 7
3.2 Data Collection ... 7
3.3 Case Descriptions with Characteristics ... 7
3.4 Methods of Data Collection ... 9
3.5 Method of Data Analysis ... 9
4. Results ... 10
4.1 Integration Outcomes ... 10
4.2 General ETO and SCI ... 14
4.3 Customer Specificity and SCI ... 15
4.4 Core Competences and SCI ... 16
4.5 Production Volume and SCI ... 17
5. Discussion ... 18
5.1 General ETO and SCI ... 18
5.2 Customer Specificity and SCI ... 19
5.3 Core Competences and SCI ... 19
5.4 Production Volumes and SCI ... 20
6. Conclusion ... 20
References ... 21
Appendix A: Interview Protocol – Company ... 24
Bedrijfsintroductie ... 24
Interview ... 25
Globale proces omschrijving ... 26
Integratie met leveranciers en klanten ... 27
Appendix B: Interview Protocol – Interviewer ... 28
1. Introduction
Companies producing customer-specific products, such as engineer-to-order (ETO) companies, face problems with delivery performance. Delivery times are often too long, or they may not be able to meet the negotiated delivery date (Land & Gaalman, 2009; Pandit & Zhu, 2007). In supply chain management theory, the integration of supply chains has been proposed as a method for improving delivery performance (Devaraj, Krajewski, & Wei, 2007; Flynn, Huo, & Zhao, 2010); this is called Supply Chain Integration (SCI).
SCI is a frequently researched topic in supply chain management literature. One well-known paper is the study by Frohlich and Westbrook (2001) on SCI. Their research found that a higher integration between suppliers and customers shows higher improvement levels on delivery lead-times and on-time deliveries. After this, Olhager and Prajogo (2012) conducted further research on this topic and concluded that SCI relates to the Customer Order Decoupling Point (CODP) and that different CODP structures require different SCI activities.
Previous research conducted on integration has mainly focused on the integration of repetitive processes in general companies. This research focuses on companies that have to design or redesign their product for customers. It expects to find that ETO companies differ in their integration activities from other companies, that different ETO companies have different characteristics and that the current models are inappropriate for the ETO context as it is outlined by Hicks, McGovern and Earl (2001). This research examines how the ETO structure relates to the application of SCI. Its main objective is to show how ETO companies deploy SCI and what the main company characteristics are that influence this. The main question is: “How do Engineer-to-Order companies deploy Supply Chain Integration?” Sub questions derived from the main questions are: “What is an ETO company?”, “What is SCI?”, “Which important ETO subtypes influence SCI?” and “What is the relationship between the ETO subtypes and SCI?” This research involved performing multiple case study on seven different ETO companies. Furthermore, the study seeks to make a theoretical contribution by describing the key variables and Patterns of SCI in ETO contexts. The resulting knowledge can be used by managers to gain insights into the kind of SCI activities that are available for ETO companies, and into the reasons for using particular activities in specific situations.
2. Theoretical Background
This section provides a more in-depth overview of research that has been conducted in the SCI field, and, more specifically, of research on supply chain management in the ETO environment. The section on ETO explains the CODP structure and its important subtypes. The section on SCI elaborates on this concept and discusses what the recent literature states about its relations with the ETO structure.
2.1 Engineer to Order (ETO)
ETO is a structure within the CODP concept. It is defined as the point in the value chain for a product where the product is linked to a specific customer order. As can been seen in Figure 1, before the CODP the product is forecast-driven, while after the CODP it becomes customer-driven. The CODP is the point where specifications are secured.
It is specific for the ETO structure that the CODP is established before the design/engineering stage. The definition for ETO is adapted from Lampel and Mintzberg (1996) and stated as follows: “ETO supply chains have customized production dimensions with the decoupling point located at the design stage”. In addition to producing ETO products, ETO companies could also produce standard products on order and even products on stock. However, to categorize a company as an ETO business, the ETO products have to be dominant within the company.
Figure 1: Customer Order Decoupling Point structures adapted from Olhager 2010
studies indicate overlap between on Make-to-Order (MTO) structure and ETO structure. Olhager and Prajogo (2012) state that, from a material flow perspective, ETO is identical to MTO. This paper questions whether SCI for ETO companies is identical to that for MTO companies. ETO companies have high levels of complexity, dynamism and uncertainty (Bertrand & Muntslag, 1993).Van der Vaart and van Donk (2008) conclude that in complex business conditions, higher levels of integration are required and that different SCI methods are appropriate. This research agrees that SCI is a crucial concept in a complex ETO environment. However, not all current SCI configurations are appropriate. For example, ETO companies could forecast the skills and capacities needed instead of forecasting products, or they could use computer aided manufacturing/design software for the exchange of design drawings.
Another typology within the ETO structure is that made by Hicks et al. (2001) that proposed four types of ETO structures based on core competencies. The first type is Vertically Integrated Companies, which have core competencies in design, manufacturing, assembly and project management. This type of ETO focuses on internal-integration and these companies have adversarial relationships with suppliers. The second type is Design and Assembly companies, which have core competencies in design, assembly and project management. This type focuses on internal and external process coordination and has partnership relationships with suppliers. The risk for such companies is that they place their core knowledge with the supplier. The third type is Design and Contract companies, which have core competencies in design, project management and logistics. These companies do not have any physical processes themselves, but have partnership relationships with suppliers. Their risk is that they are entirely dependent on their suppliers’ performance and capability. The fourth type is Project Management companies, which are consultancies that manage contracts on behalf of their clients. They are not incorporated into this research because they do not deliver a physical product and have no design stage.
2.2 Supply Chain Integration (SCI)
One of the main concepts in supply chain management theory is SCI. The main objective of this concept is to ease the flow of material, cash, resources and information by removing all boundaries (Naylor, Naim, & Berry, 1999). Multiple studies have concluded that SCI has a positive influence on performance (Childerhouse & Towill, 2003; Droge, Jayaram, & Vickery, 2004; Frohlich & Westbrook, 2001).
SCI typically focuses on coordinating the manufacturing process across the supply chain (Anderson & Katz, 1998; Lummus, Vokurka, & Alber, 1998). In another definition, Flynn et al. (2010) see SCI in much broader terms:
“SCI is the degree to which a manufacturer strategically collaborates with its supply chain partners and collaboratively manages intra- and inter-organizational processes. The goal is to achieve effective and efficient flows of products & services, information, money and decisions, to provide maximum value to the customer at low cost and high speed”.
They state that there are three locations of integration, namely, supplier-integration, customer-integration and internal-customer-integration. Supplier- and customer-customer-integration are external customer-integration and refer to how companies within the supply chain work together to structure strategies, Practices and processes in a collaborative and synchronized way. Internal-integration, by contrast, concentrates on activities within the company and within interconnected departments.
Some authors have stated that SCI is not always desirable and that its use should depend on the internal and external situation. This corresponds with contingency theory, which argues that “the best way to organize depends on the nature of the environment to which the organization must relate” (Scott, 1981). Contingency within SCI research is shown by Olhager and Prajogo (2012), who argue that CODP and SCI are related to each other. Their research has indicated that there is a difference between the MTO and Make-to-Stock (MTS) CODP structures. At MTO companies, supplier-integration has more impact on business performance than customer-supplier-integration, while MTS companies are more affected by internal-integration. However, the shortcoming of their research is that they do not research the ETO structure but state that the material flow perspective is identical to MTO (Olhager, 2003). This research was extended by Doorne (2012) who compared different CODP structures on SCI, as well as clustering ETO and MTO. His research indicates that MTO and ETO companies have high supplier-integration, medium internal-integration and low customer-integration. However, his study did not consider the different categories of SCI proposed by van der Vaart and van Donk (2008). There is currently no research that has been conducted on how SCI is deployed in an ETO environment.
2.3 Conceptual Model
The research variables are deduced from the theoretical background. The ETO subtypes used are customer specificity from Amaro et al. (1999) and core competences from Hicks et al. (2000). The SCI definition from Flynn et al. (2010) is used and is divided into the three SCI categories of van der Vaart and van Donk (2008).
ETO Subtypes SC-Patterns SC-Practices SC-Attitude Supply Chain Integration Supply Chain Integration
Customer specificty Core competences
Figure 2: Conceptual Model
3. Methodology
3.1 Research Design
This study is based on case research and addresses the research question: “How do ETO companies deploy supply chain integration?” Case study research is particularly good at examining questions of how and why (Yin, 1994). Meredith (1998) noted three strengths of case research. First, the phenomenon can be studied in its natural setting and meaningful, relevant theory can be generated from the understanding gained through observing actual practice. Second, the case method allows the questions of why, what and how to be answered with a relatively full understanding of the nature and complexity of the complete phenomenon. Third, the case method lends itself to early, exploratory investigations where the variables are still unknown and the phenomenon not at all understood. The case study method enables unknown practices to be explored in the complexity of actual practice. This research identifies key variables, identifies the linkages between variables and identifies “why” these relationships exists, making it a theory-building study (Karlsson, 2010, p. 166). In order to increase external validity, and to be able to compare different variables with each other, a multiple case study was found appropriate for this kind of theory-building. In such research, Karlsson (2010) recommends the use of one of the following research structures: a few focused case studies, in-depth field studies, multi-site case studies or best-in-class case studies.
3.2 Data Collection
The sample selection used was based on theory-building case research and the decision was made to do a few focused case studies. This decision was influenced by difficulties in deciding which company was best-in-class, and uncertainty as to whether there was enough company data available for an in-depth field study. Multiple cases may reduce the depth of the study, but they nevertheless allow one to reach a more generalizable outreach and to increase external validity. The study focuses on how the companies currently work.
As has been shown in the theoretical background, there are different types of ETO companies. Therefore seven cases were selected that give a realistic overview of these different types of ETO companies. This number of cases and of different types is considered sufficient in order to be able to answer the research question.
The cases were selected with the help of the consultancy company Langhout & Cazemier, who have experience in the field of small- and medium-sized production companies. These were augmented by other companies known to the researcher in order to find representative samples of all types of ETO companies. The companies that were selected had to satisfy the following criteria: Only companies with a dominant ETO product structure and only small- to medium-sized enterprises were considered. The unit used for analysis was ETO business units instead of whole companies; several organizations had multiple business units, all with different processes, CODP structures and management.
3.3 Case Descriptions with Characteristics
All the cases were selected based on the typology of Amaro et al. (1999), who categorize the companies based on customization level, and on the typology of Hicks et al. (2000), who distinguish between companies on the basis of their core competencies. The company size is based on the number of Full Time Employees (FTE), and is categorized according to the three groups of large, medium and small. A description of all the companies is given below and their characteristics are summarized in Table 1.
locks, color, hinge, etc. The company produces several products per day and is therefore high volume. It is the daughter company of a corporation with multiple business units in the same sector. The company has a strong relationship with the supplier. , the steel profile is the main component for the product the company is based on those profiles, The supplier is also dependent on company A because it is its biggest customer, having approximately 50 FTE. Its core competencies are product design, assembly and installation.
Company B produces ship control systems. These products are based on existing technology and are tailored for each customer. The products produced are complex and highly skilled personnel are required in order to develop and produce them. There are only a small number of products delivered every month and therefore a low production volume. The company has approximately 250 FTE. Its core competencies are designing, manufacturing and assembling.
Company C produces pure specificity parts for customers. The product is specifically designed for customers and is not a standard design tailored for a customer, and there are repeat orders. The company completes multiple orders per day and is therefore a high volume producer. Its main suppliers are plate steel suppliers and it has several customers. The company has approximately 150 FTE and is a medium-sized company. It designs, manufactures and assembles its products.
Company D designs large food processing machines. These machines are based on a standard design and are tailored to customer demand. The machines are complex and require highly skilled personnel from different disciplines. The company delivers only a few machines per month and is therefore a low volume producer. The company is a daughter company of a global corporation. Its suppliers are often production companies from the same global corporation and its customers are often selling agencies of this corporation. The company only designs and manages the projects. It has approximately 50 FTE and is therefore a small company.
Company E designs and assembles precision instruments. The product is made of modular components and is configured according to customer specifications. The company delivers multiple instruments per day and is therefore high volume. It develops and designs products with a modular product structure, with many of these components being specific to the focal company. The components are produced by several suppliers and are assembled by the focal company. The company has several long-term relationships with suppliers and customers. The customers are daughter companies and direct customers all over the world. The company has approximately 300 FTE. Company F produces doors and hatches for ships. The doors have standardized designs and are configured to customer specifications such has size, color, hinges, etc. The company delivers multiple products per day and is therefore a high volume producer. The suppliers deliver standard products, such as steel or hinges. The customers are shipyards, but many of them have the same mother company as Company F. The company designs, manufactures, assembles and installs the products. The company has approximately 120 FTE and is therefore a medium-sized company.
Company G designs, manufactures and installs industrial buildings. It only produces a few buildings per month and is therefore a low volume producer. The constructions are designed from scratch and it is therefore a pure customization manufacturer. The company has suppliers for raw materials, and has a wide variety of customers. Customers vary from local occasional customers to colleague
construction companies and worldwide customers who require product design and installation supervision and even hire them for sector expertise and consultancy. The company has sister
construction companies. The company has approximately 20 FTE and is therefore labeled as small, with considerable installation and assembly work being outsourced.
Table 1 shows all the different kinds of ETO companies that were selected, together with their
different sizes, different production volumes, different types of customization and core competencies.
Table 1: Company Characteristics
Company Products Customization Company
size Core competencies
Production volume
A Window frames Standardized Small Design and assembly High B Ship control systems Tailored Large Vertically integrated Low C Plate steel parts Pure Medium Vertically integrated High D Food processing
machines Tailored Small Design and contract Low E Precision
instruments Standardized Large Design and assembly High F Ship doors and
hatches Standardized Medium Vertically integrated High G Industrial buildings Pure Small Vertically integrated Low
3.4 Methods of Data Collection
In theory-building research the research identifies key variables, linkages between variables and seeks to understand why these relationships exist. In order to do this, qualitative data is needed because of its in-depth structure and richness. This qualitative data is collected through semi-structured interviews and through observations made while visiting the company.
The interviews for this study were structured by an interview protocol that can be found in Appendix A: Interview Protocol – Company. The average interview had a time span of 70 minutes, was followed by a company tour of 30 minutes and concluded with another question session of 15 minutes. At all small- and medium-sized companies, one employee was interviewed and was able to answer the questions. At the large companies, two and three employees were interviewed, because different specializations were required in order to answer the questions. The interviewees had job descriptions such as purchasing manager, sales manager, operations manager or project manager. The questionnaire used was developed by Doorne (2012). The first section of the protocol is based on the work of Gimenez, van de Vaart and van Donk (2012) and van Donk and van der Vaart (2004) and seeks to gain insights on general company information and product and process description. The second section of the interview protocol measures integration, which is based on the locations given by Flynn et al. (2010) and the categories given by van der Vaart and van Donk (2008). The factors used for the follow up questions were the retrieved integration practices from Frohlich and Westbrook (2001); Kulp, Lee, and Ofek, (2004); Toni and Nassimbeni (1999), as well as integration-Patterns from Bagchi, Ha, Skjoett-Larsen, and Soerensen, (2005); Carr, Pearson and John (1999); Chen and Paulraj (2004); Duffy and Fearne (2004); Stanley and Wisner (2001) and integration-Attitudes from Chen and Paulraj (2004); and Johnston, McCutcheon, Stuart and Kerwood (2004). The interview protocol was reviewed by the consultancy company Langhout & Cazemier. The first three interviews were performed by two researchers and the last four interviews were performed by one researcher.
3.5 Method of Data Analysis
the interview codes. After the categorization the codes were summarized and leveled. Levels range from 1 to 3. Level 1 denotes low integration, Level 2 denotes medium integration and Level 3 denotes high integration. The level depends on the number of different integration activities found in the category and activities with high frequency, effort or influence are rated higher. In order to ensure reliability, the integration levels were audited by two fellow students and two scores were adjusted based on their audit. The scores were converted into graphs, thus enabling comparisons between the companies on the basis of chosen issues.
4. Results
This section presents the outcome of the data collection. The first section summarizes the integration categories and the second section elaborates on the outcomes, making them visual in graphs and tables and enabling a comparison of different categories and outcomes.
4.1 Integration Outcomes
Table 2: Supplier-Integration, L = level
Company Supplier - Practice L Supplier - Pattern L Supplier – Attitude L
A There is integration in
physical flow such as Kanban, identification systems, frequent deliveries. Information exchange through ICT systems with stock and production plans.
3 Shared decision making,
projects to optimize integration, high corporate communication and frequent communication.
3 Mutual dependency
view, both long-term relationship, problems are firstly solved with the supplier, no fines but e-mail with complaints.
3
B No physical integration
activities, the only information exchange is about price and delivery times.
1 No signs of shared
decision making, low signs of interaction Patterns.
1 Purchasing contracts, but
no signs of long-term relationships and supply chain view.
1
C No physical and
information integration.
1 No signs of interaction
Patterns other than fixed suppliers with a fixed representative, no shared decision making, frequent communication by phone, e-mail and company visits about orders.
2 Relationship because
they work together for a long time, don't see each other as team players and would easily switch.
1
D The company does not
produce physical products and has no stock. But information systems such as ICT are highly integrated.
2 Signs of shared decision
making about reducing costs, planning. Direct communication about projects.
2 Sister company and have
very high strategic importance for the company.
3
E Identification systems are
shared, track and tracing projects, kanban systems, information exchange about forecasts and production plans.
3 Shared decision making in
scheduling, optimizing projects. High level of communication by different channels on regular base and
evaluation of each other’s performance.
3 Company sees itself as
chain member, sees relationships in the long run, and problems are shared.
3
F Fixed suppliers, but no
physical integration and information exchange.
1 No shared decision
making, only outline agreements.
1 No signs of supply chain
view, shared responsibilities or problem solving.
1
G Fixed suppliers, but have
no physical integration and low amount information exchange.
1 Signs of improving
projects and signs of frequent communication.
2 No signs of supply chain
thinking or improving the long-term relationship.
Table 3: Internal-Integration, L = level
Company Internal - Practice L Internal - Pattern L Internal - Attitude L A Information systems are
integrated, physical flow is integrated by kanban, planning is updated by the ERP system.
3 Improvement projects, performance is monitored and there are weekly planning meetings. The company is more flow than project focused.
3 Signals of good coupling between the pre-production and the planning.
3
B Integrated IT system, planning hours are gathered and shared (observation) and no signs of physical flow integration.
2 No signs of improvement projects, but for every order there are project-managers with handover meetings, engineering is involved in offers and weekly cross-functional meetings.
3 No signs of internal Attitude.
1
C Integrated IT system and a dynamic planning.
2 Improvement projects (observation) and when necessary project teams to guide new orders.
Communication is mainly done through the short lines between pre-production and production.
2 Company recognizes internal-integration-Attitude, which shows that interests conflict, but this is recognized and managed.
2
D All information systems are integrated, there is no physical flow.
3 No signs of improvement projects, every order has a project team with
handover meetings.
2 Internal discussion about the importance of internal-integration, it is recognized but could be improved.
2
E Information systems are integrated, internal kanban and information sharing production plans.
3 Improvement projects, cross-functional teams and weekly planning meetings.
3 Stated that good internal-integration is an important factor for good performance.
3
F Integrated IT system, internal components delivered by kanban and the internal planning is guided by software which keeps track of material and capacity. Only a week planning per department.
2 Weekly planning
meetings, but no signs of improvement projects or cross-functional teams. 2 No internal-integration-Attitude mentioned. 1 G Observation: line production but no
integrated ERP systems or physical flow systems.
1 No signs of improvement projects, no fixed
planning meetings or cross-functional teams. But short lines for frequent and fast interaction.
2 Short lines and fast interaction between departments are important.
Table 4: Customer-Integration, L = level
Company Customer - Practice L Customer - Pattern L Customer - Attitude L A Integration in physical
flows are not possible because of the customized products. Information exchange is low because they gather their own, instead of coupled IT systems. But design files are exchanged.
1 Focal company gathers own information, communication with fixed person to ease flow, improvement projects and project meeting at the beginning of the projects.
3 Long term relationship is cherished but not always lived up to by customers. 2 B No physical flow integration, no information integration. 1 Collaboration in product development, customers involve focal company in important decisions and personnel of the focal company are hired by customer for
technical expertise.
3 Customers involve the focal company, but do not consider it as partner.
2
C Physical flow integration activities such as HUB and information exchange such as EDI, dynamic planning is updated and exchanged.
3 Improvement projects, shared decision making, direct communication and engineers have customer knowledge. 3 Customer intimacy strategy, customer-integration more important than supplier-integration. 3 D No physical flow, no information exchange. 1 Customers involved in design and R&D
projects, high amount of interaction, low amount of repetitive work, project teams with customer personnel.
3 The company likes to collaborate with their customers and have good knowledge of them.
2
E Physical flow is integrated for some customers, forecasts, frequent deliveries and weekly forecast updates.
3 Optimization teams with customers, product-development projects with customers, frequent communication by several channels.
3 Invest in long-term relationships, problems are perceived as joint responsibility and try to improve each other.
3
F No coupled ICT systems, no physical flow, no information exchange coupled.
1 High amount of
informal interaction with customer, no signs of improvement projects.
2 Relationships are based on trust and long-term relationship, no signs of chain thinking signs. 2 G No signs of integrated information systems or physical flow.
1 Interaction based on the customer preferences, customers are
investigated of whether customers are able to use the product in the right way.
2 No signs of supply chain thinking, collaboration is good but everyone has their own responsibility.
4.2 General ETO and SCI
The first thing to be noted in Table 5 and Figure 3 is that the biggest difference is between customer Pattern integration and customer Practice integration. Examples of codes are found in Practice: “EDI is not possible, because we deliver customized products and they need to be designed first”, and in Pattern: “There is every 1-2 weeks communication about orders with big customers, if they are satisfied and what needs to be solved”. Another difference that can be noticed is that internal and customer-integration have higher scores than supplier-integration. Examples of codes are: “The company tries to increase customer-integration. This is in line with the customer intimacy strategy”, and “Co-creation with customer, the focal company is involved in the engineering, product design, installation and application at the customer”. Another observation shows that integration-Patterns score high in all three locations of integration. Integration-Practice scores low on external integration but high on internal-integration. The integration-Attitude is higher towards customers than towards suppliers.
Table 5: SCI at ETO
Location Integration type Integration level Supplier Practice 1,71 Pattern 2,00 Attitude 1,86 Average 1,86 Internal Practice 2,29 Pattern 2,29 Attitude 2,00 Average 2,19 Customer Practice 1.57 Pattern 2.71 Attitude 2,14 Average 2,14
Figure 3: SCI at ETO
0,0 0,5 1,0 1,5 2,0 2,5 3,0 Pra ctic e Pa tt ern Att itu d e Av era ge Practic e Pa tt ern Att itu d e Av era ge Pra ctic e Pa tt ern Att itu d e Av era ge
Supplier Internal Customer
SCI
le
ve
l
4.3 Customer Specificity and SCI
The SCI outcomes of different customer specificity types as defined by Amaro et al. (1999) were compared. The outcomes shown in Table 6 and Figure 4 indicate that the standardized group scores the highest of all three SCI locations. The pure group scores the lowest on integration and shows more integration with customers than with suppliers. The graph indicates that where customer specificity increases, supplier-integration decreases. Customer-integration is almost the same for all three
customer specificity types. The table shows that in the Tailored category there is a difference between customer-integration-Patterns and Practices. In the pure category there is low supplier-integration, especially on Patterns and Attitudes.
Table 6: Customer specificity and SCI
SCI category Standardized Tailored Pure
Supplier Practice 2,33 1,50 1,00 Pattern 2,33 1,50 2,00 Attitude 2,33 2,00 1,00 Average 2,33 1,67 1,33 Internal Practice 2,67 2,50 1,50 Pattern 2,67 2,00 2,00 Attitude 2,33 1,50 2,00 Average 2,56 2,00 1,83 Customer Practice 1,67 1,00 2,00 Pattern 2,67 3,00 2,50 Attitude 2,33 2,00 2,00 Average 2,22 2,00 2,17
Figure 4: Customer Specificity and SCI
0,00 0,50 1,00 1,50 2,00 2,50 3,00
Standardized Tailored Pure
SCI
le
ve
l
Customer specificity and SCI
4.4 Core Competences and SCI
The categories based on core competences proposed by Hicks et al. (2000) are compared on SCI and this is shown in Table 7 and Figure 5. Outcomes that should be noted are that the design and assembly category has high integration on nearly all points, the vertically integrated group scores lowest, especially on supplier-integration, and the design and contract category has an average score. The Design and contract category focuses itself compared to the vertically integrated category, more on supplier than on customer-integration.
Table 7: Core Competences and SCI
SCI category Design and assembly Design and contract Vertically integrated Supplier Practice 3,00 2,00 1,00 Pattern 3,00 2,00 1,50 Attitude 3,00 3,00 1,00 Average 3,00 2,33 1,17 Internal Practice 3,00 3,00 1,75 Pattern 3,00 2,00 2,00 Attitude 3,00 2,00 1,50 Average 3,00 2,33 1,75 Customer Practice 2,00 1,00 1,50 Pattern 3,00 3,00 2,50 Attitude 2,50 2,00 2,00 Average 2,50 2,00 2,00
Figure 5: Core Competences and SCI
0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50
Design and contract Design and assembly Vertically integrated
SCI
le
ve
l
Core competences and SCI
4.5 Production Volume and SCI
The last ETO category is production volume. Table 8 and Figure 1 show the integration levels of ETO companies with high and low production volumes. They indicate that the category with high volumes integrates more than the category with low production volumes. The table shows primarily that there is a difference between customer-integration-Practices and Patterns, with the lower group having a higher level of Pattern integration.
Table 8: Production Volume and SCI
High production volume Low production volume
Supplier Practice 2,00 1,33 Pattern 2,25 1,67 Attitude 2,00 1,67 Average 2,08 1,56 Internal Practice 2,50 2,00 Pattern 2,50 2,00 Attitude 2,25 1,67 Average 2,42 1,89 Customer Practice 2,00 1,00 Pattern 2,75 2,67 Attitude 2,50 1,67 Average 2,42 1,78
Figure 6: Production Volume and SCI
0,00 0,50 1,00 1,50 2,00 2,50 3,00 High Low SCI le ve l
Production Volume and SCI
5. Discussion
This section discusses and interprets the outcomes of the results. The first section discusses ETO and SCI categories in general, while the following section analyzes the different ETO types using different SCI categories.
5.1 General ETO and SCI
The first issue that can be noted is that ETO companies score higher on customer-integration than on supplier-integration. Olhager and Prajogo (2012) stated that the physical flow of MTO and ETO companies are the same. In the same research they stated that MTO companies with higher supplier-integration have better business performance, and that customer-supplier-integration is better for MTS companies. Doorne (2012) explored the relationship of the CODP and SCI in greater detail. In it, he clustered MTO and ETO companies and argued that MTO/ETO companies have higher supplier-integration and lower customer-supplier-integration. This is in contrast to the results of this research, and the differences will be explained below when discussing customer specificity.
Another difference to note between SCI categories is that customer practice integration scores low. This is a because of continuous change to the product, which means that there are no repetitive, standard products. This makes physical and information integration complex and results in low customer-integration-Practice. The high customer-integration-Pattern level is considered as compensation for the low Practice score. As already indicated when discussing the theoretical background, Van der Vaart and van Donk (2008) concluded that in complex business conditions, higher levels of integration are required and that different SCI methods are appropriate. ETO
companies have complex business conditions due to their continuously changing products and product development, but they still need integration because they customize their products per customer. This requires information exchange and communication that cannot be standardized and is therefore achieved through interaction Patterns. This will be further elaborated on when discussing customer specificity below.
There are high levels of Pattern integration in all three locations of SCI. For external integration, this could be explained by the high variety in products, especially on the customer side although less so on the supplier side. The difference in customer-integration has already been discussed. The high score on the supplier side could be explained by ETO companies using standard and custom made
components. While these components are standard for the supplier, they could integrate on
integration-Practices for the standard components, creating a need for the integration-Patterns for the custom made products. It seems that ETO companies involve suppliers in improvement projects and have frequent communication with them. Higher levels of internal-integration-Practice can be attributed to the fact that processes, information and physical flow are integrated. This is because internal standardization is less complicated, ICT systems are easier to couple, and many companies have frequent internal information exchanges due to kanban systems and frequent delivery.
It appears that the integration-Attitudes towards customers are higher than they are towards suppliers. This study seems to suggest that this is because ETO fits the customer intimacy strategy of Treacy and Wiersema (1997) who argued that ETO companies continuously adjust their product for their
5.2 Customer Specificity and SCI
The first type of ETO category was specified by Amaro et al. (1999), who categorized ETO
companies according to their level of customer specificity. The general section on ETO above noted the contrast between the outcomes of this research and the outcome of Doorne (2012). His outcome clustered MTO and ETO companies and found that these companies have higher supplier-integration and lower customer-integration, while this research indicates that general ETO companies have lower supplier-integration and higher customer-integration. But this research also indicates that ETO companies with lower customer specificity have high supplier-integration, and that these kind of ETO companies have more in common with MTO companies because the CODP lies further from the customer. This study therefore questions whether the CODP and SCI relationship of Prajogo and Olhager (2012) can be extended to ETO. This means that it cannot be stated that the closer the CODP gets to the customer, the more the supplier-integration should be increased.
The less customer specific, the more integration there is for ETO companies and this applies especially to supplier-integration. This could be explained by arguing that as customer specification increases, so the variation in products increases, resulting in less repetitive processes and that this makes aligning these on each other complicated.
The pure customization category integrates more with customers than with suppliers, this could be the case because of their customer intimacy strategy, where the product is adjusted to the customers demand and not to improve their processes with integrating with the supplier. The tailored customization group mainly consists of companies with low production volumes, which do not require high logistical alignment but rather interaction with external parties. This could explain the high Pattern levels and low Practice levels. This will be elaborated on in the discussion on the production volumes below.
5.3 Core Competences and SCI
The second type of ETO category is described by Hicks et al. (2000) and distinguishes core
competencies within organizations. Design and assembly has a high integration level on all locations and this corresponds to the literature. These organizations are completely dependent on their suppliers who produce their components, and this requires good logistical alignment.
Vertically integrated has low integration, especially with suppliers and this is because they are not dependent on suppliers. The supplier mainly supplies raw materials or standard components and therefore adds little value for the focal company. This relates to literature where Hicks et al. (2000) see these companies as having adversarial relationships with their suppliers. However, the outcomes of internal-integration do not correspond with this article. It states that vertically integrated companies focus on internal-integration instead of external integration. While it is true that there are higher levels of internal-integration than supplier-integration, there are still low levels of internal-integration and there is an even higher level of customer-integration.
5.4 Production Volumes and SCI
As stated when discussing customer specificity above, the production volume was analyzed. It showed that high producing volumes have higher integration than lower producing volumes in ETO companies. This could be explained by the fact that that improving the coordination of logistical processes has a greater efficiency advantage for companies that produce higher volumes. This has the highest impact on integration-Practices because physical flow and information exchange integration are more standardized activities that increase efficiency at higher volumes.
6. Conclusion
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Appendix A: Interview Protocol – Company
Bedrijfsintroductie
Voor mijn master Supply Chain Management doe ik onderzoek naar ketenintegratie bij bedrijven die klantspecifieke producten fabriceren en richt ik mij voornamelijk in het traject vóór de productie. Uit eerder onderzoek is gebleken dat bedrijven die klant specifieke producten produceren vaak lange levertijden hebben en moeite de leverbetrouwbaarheid te garanderen.
De belangrijkste doelstelling van dit onderzoek is om te laten zien hoe bedrijven die klantspecifieke producten fabriceren, integreren met hun leverancier en klanten. Door het tonen van welke
samenwerkingsmethoden gebruikt worden en waarom deze worden toegepast.
In het eerste gedeelte van het interview wordt het bedrijf gekarakteriseerd, daarna zullen er vragen komen over hoe er met de klant, leverancier en intern wordt samengewerkt. Het interview zal ongeveer anderhalf a twee uur duren en opgenomen worden.
Het kan zijn dat er na de interviewanalyse opnieuw contact opgenomen wordt met het bedrijf om de analyse compleet te maken. Het bedrijf zal anoniem in het onderzoek beschreven worden. Vanwege het openbare karakter van het onderzoeksrapport zal de contactpersoon gevraagd worden naar privacy wensen en zullen alle gegevens vertrouwelijk worden behandeld.
Interview
Datum Naam Titel/functie Afdeling Jaren in dienst Bedrijf algemeenOm een idee te krijgen over de omgeving waarin uw bedrijf zich bevindt willen we u een paar vragen met betrekking tot uw bedrijf, producten en de markt waarin uw bedrijf zich begeeft.
Algemene bedrijfsinformatie o Naam
o Omschrijving bedrijf o Sector
o Omzet per jaar
o Aantal medewerkers pre-productie o Aantal medewerkers productie Productinformatie
o Complexiteit van de producten
o Percentage herhaalorders en percentage klantspecifieke orders o Beschrijving in hoeverre orders van elkaar verschillen
o Product families en eigenschappen
o Wat is het gemiddeld aantal producten per order
o Hoe is het product opgebouwd, standaard componenten of specifieke componenten? o Wat is het klantorderontkoppelpunt
Strategie
o Waar moet het bedrijf aan voldoen om het product te mogen leveren? (order qualifiers)
o Waardoor krijgt het bedrijf de ordes? (order winners) o Hoeveel procent van het aantal offertes wordt een order? Hoe ziet de organisatiestructuur er uit?
o Worden orders per afdeling behandeld of per projectteam? o Worden klanten en leveranciers in het projectteam betrokken?
Globale proces omschrijving
(voorbeeld: Onderhandeling > opdracht > inkoop > engineering > planning > productie>expeditie>installatie)
Productieproces
o Globale productieproces omschrijving o Complexiteit van processen
o Productie lay-out Lijn Job-shop Celstructuur Procesinformatie
o Gemiddelde doorlooptijd orders (verkoop tot levering)
o Gemiddelde doorlooptijd pre-productie (verkoop – start productie) o Gemiddelde doorlooptijd productie (start productie – levering) o Gemiddeld aantal orders per week/maand/jaar
Integratie met leveranciers en klanten
In dit gedeelte willen we in kaart brengen hoe het bedrijf integreert met leveranciers en klanten. Welke methoden worden gebruikt? Welke factoren zijn van belang en waarom is dit zo?
Ketenintegratie is de mate waarin een producent strategisch samenwerkt met de keten en samen deze intra- en inter-organisatorische processen beheert. Het doel is om een effectieve en efficiënte stromen van producten, diensten, informatie, geld en beslissingen te bereiken om maximale waarde te leveren aan de klant tegen lage kosten en hoge snelheid.
Zijn er langdurige relaties met belangrijke leverancier/klanten en waarom?
Hoe wordt de relatie met de belangrijkste afnemers/leverancier bestuurd/gemanaged en waarom?
Hoe uw bedrijf geïntegreerd met leveranciers/klanten betreffende de fysieke goederenstroom en waarom?
Hoe is uw bedrijf geïntegreerd met leveranciers/klanten betreffende informatie uitwisseling en waarom?
Hoe is uw bedrijf geïntegreerd met leveranciers/klanten betreffende communicatie en waarom?
Hoe is uw bedrijf geïntegreerd met leveranciers/ klanten betreffende beslissingen en waarom? Wat is uw houding ten opzichte van de relatie met de belangrijkste afnemers en leveranciers
en waarom?
Hoe goed is uw bedrijf intern geïntegreerd?
Integratie en prestatie op het gebied van snelheid, kwaliteit, flexibiliteit, betrouwbaarheid en kosten.
o Hoe helpt interne integratie de prestatie te verbeteren en waarom?
Appendix B: Interview Protocol – Interviewer
A.2 Specific measurables
Topics/subtopics Questions Checklist
Topic 1: SCI All the questions for
SCI
Practices/patters/Attitudes should also be asked for key
suppliers and key buyers
Subtopics Topic 1 1.1 (Practices) Physical flows
How well do you think that your company is integrated with your buyer/supplier regarding the physical flows?
Containers and packaging instruments of outgoing materials are adapted to the precise requirements of the key buyer.
We share product identification systems. The products delivered to the key buyer can
be automatically identified(barcoding). We deliver to our key buyer frequently. We
receive from our key supplier frequently. We manage the stocks of our key buyer (with
programs such as Vendor Managed Inventory).
We make common use of logistical equipment/containers.
We make common use of third-party logistical services.
1.2 (Practices) Information exchanged
How well do you think that your company is integrated with your buyer/supplier regarding the information exchange?
We receive information about stock levels.
We receive information about the production plans.
We receive information about changes in the production plans at once.
We receive information about the sales forecasts, so we are able to plan our capacity and be prepared on time. To what extent are your IT systems
integrated with those of your key suppliers/buyers?
1.3 (Communication) How well do you think that your
company is integrated with buyers/suppliers regarding communication?
We have face-to-face communication. We communicate by phone, videoconference,
chat, etc.
We communicate by e-mail. We have a high corporate level
communication on important issues. In coordinating our activities or
exchanging information, formal
communication channels are followed (i.e. channels that are regularised, structured modes).
1.4 Buyer-supplier cooperation
How well do you think that your company is integrated with buyers/suppliers regarding decision making?
We plan production together.
We schedule deliveries together.
We work together to improve operations
and logistics processes.
We work together in order to reduce costs.
We work together to develop new
products.
We work together to synchronize
operations and logistics processes.
1.5 Attitudes What is your attitude towards the
relationship with the key buyer/supplier?
We value a long –term relationship. We see our relationship as a long-term
alliance.
We view our key buyer as an extension of our firm.
We are willing to work to improve our processes in the long run.
Our firm had a very collaborative relationship with the key supplier/buyer, like a real team.
In most aspects of this relationship, the parties are jointly responsible for making sure that tasks are completed.
Topic 2: Governance Subtopics Topic 2 2.1 Contractual governance
What level of detail do you have in your contracts with the key buyer/supplier?
It is expected that we keep each other informed about events or changes that may affect the other party.
We will deal with the sudden things flexibly together with our partner.
In dealing with this supplier, our contract precisely defines the role, responsibilities, and obligations of each partner.
In dealing with this supplier, our contract precisely states how each party is to perform. In dealing with this supplier, our contract precisely states what will happen in the case of events occurring that were not planned.
When some unexpected situation arises the parties would rather work out a new contract than to hold each other to the original terms.
When some unexpected situation arises the parties would rather work out new agreements without making a new contract. Topic 3: Internal-integration Subtopics Topic 3: 3.1 Internal-integration
How well do you think that your company is integrated
internally?
How well is your internal information flow integrated?
How well is your physical flow of goods integrated?
Do you have an integrated IT system? Do performance metrics promote rational
trade-offs?
Topic 4: SCI and performance
Subtopics Topic 4: The below questions should also be asked specifically aimed at reverse logistics performance.
In terms of: Costs
Environmental regulatory compliance (only ask in relation with RL performance) The recovery of assets (products). Cost containment Improved profitability The cost-to-serve or be-served-by the key buyer/supplier The production costs related to the key buyer/supplier The transport costs related to the key buyer/supplier The administrative costs related to the key
buyer/supplier
The stock levels required to serve the key buyer/supplier The stock outs with respect to the products
served to the key buyer/supplier Delivery
Provides correct quantity with right kinds of products to the key buyer/supplier
Notifies the key buyer/supplier in advance about late deliveries or stock- outs
Has a short delivery lead time Delivers/receives on the agreed date Flexibility
Responds to the key buyer/supplier needs in terms of product mix
Responds to the special requirements of the key buyer/supplier
Ability to rapidly change production volume Ability to make rapid product mix changes
Quality
Has more trust in relation to the key buyer/supplier (only ask in relation with RL performance)
Product conformance quality Product reliability
Customer service
Shares more accurate information with the key buyer/supplier
Has a stronger long-term alliance with the key buyer/supplier
Has more well-defined collaborative objectives, scope, and responsibilities
4.1 To what extent do you think your
internal integration efforts contribute to the performance of your supply chain?
4.2 To what extent do you think
your SCI
Practices/Patterns/Attitudes with your key buyer contribute to the performance of your supply chain?
4.3 To what extent do you think
your SCI
Appendix C: Codes Overview
Company Supplier - Practice codes Supplier - Pattern codes Supplier - Attitude codes
A • Stock information is exchanged between the focal
company and the main suppliers
• ERP systems between supplier and focal company are linked
• Forecasts from focal to supplier are given, but not in detail because this interrupts the suppliers system • The product design could get outsourced for capacity and specialism
• Kanban with suppliers is partially implemented • EDI ordering
• Planning system to improve cooperation with supplier and prevent mistakes in ordering. The planning system gets input from an ERP database with delivery times, prices of suppliers which are renewed every quartile. This is used to inform what to order when.
• Supplier performance(costs, lead times, dependency , etc.) is monitored
• Company visits to improve collaboration and integration with suppliers
• Problems are solved in cooperation with supplier.
• Problems are first solved with suppliers if not possible tried with customers.
• Rollecate is strongly dependent on the supplier, because the product is designed on main component of the supplier. • Supplier performance (costs, lead times, dependency , etc.) is optimized by improvement projects with the supplier. • Yearly price negotiations with suppliers, and for special projects.
• Logistical alignment projects between supplier and focal company
• Suppliers are monitored on performance
• No fines with suppliers, mostly an e-mail with complaint
• Everything is based on contracts • There are long-term relationships with suppliers, with mutual dependency. • Problems are firstly solved with suppliers, secondly with customers
B • Costs and delivery times of standard suppliers are known
a supplier database is available with information about price, options and delivery times.
• For competitive orders, the supplier is contacted,
• Contact with suppliers is by phone or e-mail • Purchasing is based on order, there are no call-off orders
• There are purchasing contracts with suppliers
C • Outline agreements are made based on last year demand • Suppliers connected a fixed representative to
customers
• Goma has suppliers for raw steel, orders are bundled, tendered with three suppliers, the purchase decision is based on price. • Most suppliers only deliver the product, and are only a trading company, they don’t produce the steel.
• The focal company acknowledges that integration is more important with customers than with suppliers, this is because of customization, that’s why there is more dependency
• The main suppliers are steel suppliers they are more supplier than partner, the relation is built because it is long-term and they perform well. • There is a relationship with suppliers because of the long-term. But no real intention to improve.
D • Products are designed with standard modules to reduce
costs and internal complexity. This is done so the supplier has more repetitive work and could work with standardized components and is faster
• Because 90% of the drawings is standard, and the drawings remain the same, operations could send those drawings with order lists immediately to production • All the drawings are digitalized and software is aligned to each other. This is done so the drawings can be exchanged and immediately be used. All the drawings are centralized in SAP and available for production.
• The project team has contact with the production company. To ensure quality and planning. There is direct communication with the supplier and project team, no purchasing involved.
• The suppliers and focal company keep each other updated about project status.
• The production is mainly done by a sister company. Because all the production is outsourced, it could be said that this is a strong, long-term relationship. With mutual dependency.
