Improving the delivery reliability and quality performance of a Make-To-Order SME

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Improving the delivery reliability and quality performance of

a Make-To-Order SME

Danny Sprietsma Email: D.Sprietsma@student.rug.nl Student number: S2005719 University of Groningen Faculty Economics and Business Master of Science Technology Management

Company: Ventura Systems B.V. Bolsward Company Supervisor: M. Bruinsma University Supervisor: Drs. Ing. H.L. Faber University Co-assessor: Prof. Dr. R.H. Teunter

August 2013 Final version

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Preface

This report is my master thesis for the conclusion of my Master program Technology Management at the University of Groningen. Moreover it is also a conclusion of my internship at the company Ventura Systems. I really appreciated the people who helped me during my project.

I would firstly like to thank my supervisor within Ventura Systems, Menno Bruinsma head of Logistics & Production and furthermore Jan Lont the Operational Director of the company. For giving me the opportunity to do a master thesis research within the company. Moreover, for discussing possible research areas within the company and giving me the flexibility and freedom to give further direction to the subject of my master thesis to make it suitable for both Ventura Systems and the requirements of the University of Groningen. Secondly for providing me with insightful information, discussions and reviewing my progress.

I also want to extend my gratitude to Henk Faber, my university supervisor. I am happy that he has supervised both my bachelor thesis during my Pre-Master and now also my master thesis. He gave me a lot of detailed feedback and useful tips for my master thesis and good suggestions of scientific literature what could be beneficial to my research. In addition, Ruud Teunters the co-assessor of my master thesis, who gave me some constructive comments in general and in particular about the formulas and the data analysis.

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Management summary

This report describes a master thesis research performed within Ventura Systems, a company that develops and produces innovative door systems for busses and trolleys, located at Bolsward in The Netherlands. The central question that will be answered in this research is: “How can Ventura

Systems reach a delivery reliability of 97% while delivering door systems with 3% or less defects?”

Ventura Systems is trying to differentiate itself from competitors by offering high quality products and high delivery reliability. The company has grown a lot over the last few years and considering the current economy, is still doing very well. However, the company has set goals for itself to do even better in the future related to the strategy and these are currently not being reached. The company is a Small to Medium Enterprise, which needs to be kept in mind. Moreover the company mainly operates according to the Make-To-Order principle.

What became clear in relation to the organisational context is that multiple aspects have an influence on the delivery reliability and quality performance. These are the systems (e.g. ERP, data management), processes and procedures, skills, and mainly the culture and shared values causing mostly reactive behaviour.

The Key Performance Indicators are limited in relation to the strategy deployment of the company. Furthermore, the current measurements are too aggregated and summarized, have a certain amount of subjectivity and uncertainty and do not relate to specific goals or targets.

The main reasons of the desired delivery reliability not being met are the amount of unavailable or non-conform parts that cause delays, and the process control in relation to this. The internal flow is not clear and cannot be analysed accurately due to limited performance measurements and missing data (Engineering, Logistics, and Assembly).

Quality issues are mainly caused by the suppliers and internal quality control in the current state is insufficient to catch all of the non-conformities before delivery to the customer.

The redesign that has been developed based on the different factors causing the current performance within Ventura Systems consists out of the following three aspects:

A. Improving the purchasing activities followed by supplier development and selection

Optimizing the daily purchasing activities will save time and resources which can then be used for supplier development and selection. Improving the supplier development and selection makes it possible to proactively improve the delivery reliability and quality of products supplied by suppliers.

B. Increased performance measurements

Creating more transparency within the company will improve fact based decision making and furthermore spotting possible problems and/or improvement opportunities.

C. Continuous improvement

Introducing a structured approach to make improvements. This is supported by increased performance measures and should also be used to improve suppliers in a structured manner. Whether the redesign will result in the desired performance cannot be quantified accurately, due to the lack of transparency within the Value Chain of Ventura Systems in the current state. However these three aspects will improve the insights into the current state, guide managerial action and also being able to make well-informed long term improvements.

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company i.e. the logistics and assembly process. The focus during the implementation of the redesign (consisting of part A,B and C) and which problem areas should be focused on at what stage in more detail are the following:

1. Input activities on the short term (involving redesign part A,B and C)

Part A of the redesign is focused primarily on the purchasing activities and to improve the quality and delivery reliability of suppliers of Ventura Systems, i.e. the input side. However, to be able to do so, Ventura Systems needs to be able to track and measure how the suppliers are performing in terms of both quality and delivery reliability. This is also necessary to be able to relay information back to the suppliers to give feedback based on facts, making it possible to put pressure on suppliers that can be easily substituted or to try and collaborate with important suppliers. So this is where part B of the redesign comes in. When suppliers are willing to collaborate and work on their performance together with Ventura Systems, this should be done in a proactive way instead of reactive and in a structured way. This can be done by introducing the continuous improvement way of working (part C). The areas that can be improved are:

 Delivery reliability and quality from suppliers;

 Supplier management/development and tracking incoming goods;

 Transparency of the input side of the system and reducing the reactive fire-fighting mentality.

2. Output activities on the medium term (involving redesign part B and C)

On the medium term, when supply of Ventura Systems is steadier and well controlled and monitored, the company should start improving the output side of the system. This should be done by increasing the measurements (Part B) in relation to customers and the necessary Engineering activities to increase the transparency in this part of the system. Furthermore the newly acquired insight into the procurement process will also be beneficial here, to be able to make an estimate when all of the parts are received for assembly. By increased measurements on the output side and taking the newly acquired information from the input sight into account it will become possible to set reliable due dates based on reliable and relevant information. The third part (C) of the redesign will make it possible to continuously improve both the Sales department and the Engineering department based on the measurements that are taken and where room for improvement can be seen. The areas that can be improved are:

 Limited information for order acceptance and due date setting;  Transparency within the Engineering department;

 Transparency within the output side of the system and reducing the reactive fire-fighting mentality.

3. Technological activities on the long term (involving redesign B and C)

When the input and output side of the system are controlled and in a steady state, there will be less disruption caused by external influences within the technological activities of Ventura Systems. At this point, the company can start to measure more intensively within the assembly and the logistics process of Ventura Systems itself (Part B of the redesign). Doing so will make it possible to spot irregularities or other issues in terms of for example quality or scheduling, thus possible room for improvements. The improvement possibilities can then be solved by structured continuous improvement projects (Part C) to increase the performance of the technological activities. The areas that can be improved are:

 Production planning based on knowledge/skills;  Quality control within the current process;

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List of abbreviations & definitions

ATO Assemble To Order

BPM Business Process Maturity

BSC Balanced Scorecard

CM Conceptual Model

CI Continuous Improvement

CSF Critical Success Factors

CTP Capable To Promise

DOV Diagnose, Ontwerp en Veranderen (Diagnose, Design, Change/Implement) ECM Empirical Causal Model

EDI Electronic Data Interchange ERP Enterprise Resource Planning ETO Engineer To Order

KPI Key Performance Indicator MTO Make To Order

NCR Non Conformity Report

OEM Original Equipment Manufacturer

OTP On Time Performance

PDCA Plan, Do, Check, Act

PM Performance Measurement

PMS Performance Measurement System

PO Production Order

PPC Production Planning and Control

SC Supply Chain

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1 Introduction

In this Master thesis, to finish the study Technology Management at the University of Groningen, a research conducted within the company Ventura Systems located in Bolsward, will be elaborated on. The research within Ventura Systems is focused on the delivery reliability and quality performance within the value chain of the company.

During this part of the report a background of Ventura Systems will be given, followed by the problem voiced by management within the company. The main question from management is: “How can Ventura Systems reach a delivery reliability of 97% while delivering door systems with 3%

or less defects?”

This will then be defined into the research goal of this research with related research questions. After the research goal and research questions have been defined, the management problem and research goals will have to be analysed. This is done because a problem as defined by a problem-owner is not always suitable as a starting point to start a diagnosis. This is then followed by the research methodology, which is the end of this chapter.

Management problem Problem analysis Research Methodology Stakeholder analysis System definition Introduction Chapter 1 Ventura Systems Research goals

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1.1 Ventura Systems

Ventura Systems is a company that owes its existence to the public transport sector. The company develops and produces innovative door systems for busses and trolleys. The company was founded in 1994 and originally located in Oosterwolde, The Netherlands. Due to a growing organisation, the company decided to move to a new location in The Netherlands, Bolsward. Since the start in 1994, it has grown into a medium sized enterprise and recently moved to a new and bigger building close to the old location in Bolsward itself, because of their growth and the need for more capacity. Ventura is derived from Spanish, “La Ventura” which literally means luck, (good) fortune.

The mission of Ventura Systems is “to produce innovative door systems while focusing on high

delivery reliability and quality. Furthermore, creating and maintaining good working relationships with all involved parties. Achieving satisfying returns in relation to shareholders (which includes top management) of Ventura Systems. The company aspires to be the best door systems manufacturer in the eyes of the customer.”

The company operates in a stable market with a limited number of other door system manufacturers. In general the average lifetime of a bus is 15 years and the economic lifetime 10 years. The public transport sector continues to evolve and develop itself because of legislation related to social, technical and sustainable reasons to do so. Because of these legislations, the average lifetime of buses averages out to approximately 7 years in The Netherlands (ING Economic Bureau, 2009). There are also changes visible in other regions of Europe due to the recent developments (lower floors, alternative fuels, new propulsion systems, and IT applications) and globalisation. All of this has resulted in an increased production of buses and subsequently an increase in demand of door systems. Moreover, there is an increase in systems on the market, just as the amount of vehicle manufacturers and public transport concerns. The legislations and globalisation also cause an increase in different customer needs.

The vision of Ventura Systems is to “achieve and maintain a market share which makes the company

one of the three biggest door system manufacturers of Europe. Furthermore, the company is striving to become the biggest European exporter of door systems in regions overseas (currently Asia, North America and Australia)”.

The strategy of Ventura Systems to reach these goals is “not by undercutting other competitors, but

instead by excelling as a supplier of high quality door systems and being able to meet customer needs as good as possible.”

Ventura Systems their primary activity is the production of door systems in batches for their customers, the vehicle and rolling stock manufacturers. Other activities involve service requests from their customers. This includes support in the field, settling of warranty claims or supplying spare parts to indirect customers, the public transport concerns who operate and maintain the buses. Ventura Systems carries four different door systems in their product line, these can be classified in:

 Inward Gliding Door (IGD)  Swinging Plug Door (SPD)  Plug Sliding Door (PSD)  Rapid Sliding Door (RSD)

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1.2 Management problem

Ventura Systems, as a manufacturer of door systems for vehicles and rolling stock manufacturers of the public transport sector, is trying to differentiate itself from other competitors by offering high quality products and high delivery reliability.

High delivery reliability is an important aspect for their direct customers, who are manufacturers in the automotive industry. Although not as far in terms of technology and organisational maturity as the average car manufacturer, companies manufacturing buses or trolleys try to mirror themselves and adopt the same techniques to achieve the same level as others in the automotive industry. Not delivering in time or delivering too early has a negative influence. Delivering too early to a company will result in unwanted stock of materials and less space at the production facility. Delivering too late can cause problems for the production schedule of the customer and as a result cause production delays. Delivering high quality goods is also an important aspect. Delivering defective door systems can result in delays for the customer of Ventura Systems; moreover it can cause problems for Ventura Systems because of rework or cause extra work for the service department because of warranty claims.

The ideal situation for the company therefore would be to have a delivery reliability of 100% and deliver products to the customer with zero defects, as a unique selling point and to justify their pricing. It is clear that there is room for improvement regarding these two parameters. According to current measurements performed by the company themselves, they have been able to reach an overall delivery reliability of 95% and around 5% defects last year; however the delivery reliability and amount of defects varies.

The company is currently unable to realize the goals of 97% delivery reliability and 3% or less defect. Based on the performance measurements of Ventura Systems, top management feels that this is a realistic, thus achievable goal. However, Ventura Systems is not entirely sure whether their current method of performance measurements is the right way. This subsequently could also mean that the current goals are less realistic than perceived. Furthermore, it is unclear what a realistic goal would be regarding the delivery reliability and quality for their industry standards, and what would be a good competitive performance.

1.2.1 Management questions

The main question from management of Ventura Systems can be summarized as follows:

How can Ventura Systems reach a delivery reliability of 97% while delivering door systems with 3% or less defects?

Sub-questions in relation to the main question are as follows:  Are the performance measurements sufficient and accurate?

 What are realistic goals for Ventura Systems to achieve in relation to delivery reliability and

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1.3 Research goals

The research within Ventura Systems will be performed within the framework of the Master thesis for the Master Technology Management. The research will therefore consist of a theoretical basis, an analysis of the situation followed by an advice, in order to meet the standards required for the Master thesis. Furthermore the outcome of the research should be of help to inform and be able to improve activities within Ventura Systems. As stated earlier, the initial part of the research is focused on the delivery reliability and quality of the door systems manufacturer Ventura Systems.

Based on the interviews and the initial problem the problem statement can be formulated as:

“Ventura Systems is currently unable to realise the desired delivery reliability of 97% and the desired 3% or less defects”.

The goal of this research is to improve the delivery reliability and quality.

Therefore, the goal of this research is: “Introducing a new method or process redesign to Ventura

Systems to improve the delivery reliability and quality of door systems, while setting a realistic goal and being able to make and monitor improvements.”

1.3.1 Research questions

The research goal is to assess possible redesigns of processes within Ventura Systems, to improve the delivery reliability and quality. This is partially in line with the original question from management of Ventura Systems and in line with the definition of an output problem (De Leeuw, 2002), because management has doubts about their measurements and the current goals that have been set.

The main research question is formulated as:

“How can Ventura Systems improve the delivery reliability and quality of their door-systems?”

This research is divided into two main parts, the Diagnostic phase and the Design phase. The design questions are also discussed at the start of the Design phase in Chapter 4. Each main part has a separate research question and related sub-questions, these can be seen below:

Diagnostic phase

1. What are the main reasons within Ventura Systems that are preventing them from realising their desired delivery reliability and quality goals? (Empirical causal model)

1.1. What are the influencing factors within Ventura Systems that could explain the current performance? (Conceptual model)

1.2. What is important within the organisational context of Ventura Systems? 1.3. How is the company strategy being deployed within Ventura Systems?

1.4. How are decision-making levels and processes related to order-progression organised? 1.5. How are the relevant processes related to quality and non-conformities organised? Design phase

2. How can the processes of Ventura Systems be redesigned to reduce the problems in the entire system, which ultimately lead to higher delivery reliability and quality?

2.1. What are the design criteria for possible redesigns in order to improve the delivery reliability and quality within Ventura Systems?

2.2. Which processes can be redesigned to improve the delivery reliability and quality within Ventura Systems based on the analysis?

2.3. Which processes should be improved at what stage to improve the performance within Ventura Systems?

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1.4 Problem analysis

The problem that has been voiced by management needs to be analysed before developing a fitting research design. It is important to hear the problems voiced by management and employees to analyse and consider if and which of the elements mentioned by management are the most relevant. A problem as defined by a problem-owner is not always suitable as a starting point to start a diagnosis. A functional approach to research the problem will be used; to do this successfully the defined problem has to be a functional problem. Functional problems affect the output of a system unlike instrumental problems, which can be defined as a problem in the system itself.

A functional approach is only applicable when the following conditions (De Leeuw, 2002) apply:  All of the influential stakeholders are in agreement

 The management problem is functional  The management problem is real

Whether the problem is functional will shortly be discussed during this paragraph including an overview of the system followed by a stakeholder analysis. A more in-depth functional or instrumental analysis and system definition can be seen in Appendix II: Problem analysis, including a Goal, reality and perception analysis.

1.4.1 Functional or Instrumental

The original problem in a company can be related to the output of a system (functional) or related to the characteristics of the system itself (instrumental). The original problems voiced by the initiators of the project are that the 97% delivery reliability and the 3% or less defects goals are not being met by Ventura Systems. This is a functional problem as described by management of Ventura Systems, as it focuses on the output of the value chain.

1.4.2 System definition

The processes within the system, in this case the value chain of Ventura Systems, that lead to the unwanted output can be seen in figure 2.

Sales Administration

Expedition Production

Warehouse Logistics and warehouse

Sales Tactical purchasing Engineering Operational purchasing Su p p lie rs Quality complaint Customer inquiry Non conformance report Pre-sales engineering Supplier selection Formulate proposal Order Production engineering Release customer order Planning order based on targets Making purchaseorder Release purchaseorder Confirmation Receiving goods Billing C u st o m e rs Intake / Store Quality control Goods in stock Register and checking invoice Releasing production order Picking goods Assembly Organising transportation Preparing for

shipping Loading and shipping

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12 1.4.3 Stakeholder analysis

The original complaint, drawn up by preliminary interviews with the initiators of the project, the head of the department Production and Logistics and the Operational Director within Ventura, state that the company is unable to realise the desired delivery reliability of 97% and 3% defects.

The system definition described in the previous paragraph gives an overview of the relevant processes and the departments that are related to the problem. Thus, makes it possible to describe which employees have an important relation to the problem at hand and have a stake. These employees can be seen as stakeholders of the problem. As shown in the overview of the processes of Ventura Systems, almost all of the departments are involved, excluding the supporting departments like Human resources and Finance.

Position Name

General Director Mr. J. de Nooijer

Commercial Director Mr. B. de Nooijer

Operational Director Mr. J. Lont

Head of Production & Logistics Mr. M. Bruinsma Head of Sales & Services Mr. R. Versteeg

Head of Engineering Mr. D. de Roos

Head of Purchasing Mr. K. van de Veen

Head of Quality Mr. H. Waterlander

Production and Logistics  Team leaders

Employees involved in the daily team meetings

An interview will be held with these stakeholders to form a pluralistic view of the problem and to perform a conceptual analysis. Furthermore within Ventura Systems there are daily meetings between employees (one from each department, related to the main process) to discuss daily issues within the organisation, which will be joined to assess daily issues. This will result in a conceptual model with all of the relevant factors that influence the delivery reliability and quality within Ventura Systems.

Suppliers

What can be seen in the system definition is that the suppliers are not taken into account in the process that leads to the unwanted output directly. However, suppliers can have a huge impact on the delivery reliability and quality within Ventura Systems, it is therefore important that they should be managed correctly internally. Furthermore, the influence from suppliers can be analysed by assessing the available data within Ventura Systems that keeps track of suppliers their delivery and quality in order to analyse their impact. Therefore the choice has been made not to include them as a stakeholder.

Customers

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1.5 Research methodology

The research methodology will now be discussed in this part of the report by first giving a schematic as seen in figure 3. An overview of the methodology followed by a more detailed description.

Management problem Problem analysis Literature study Influencing factors Joining daily meetings at 9 A.M. Conceptual model Research Methodology Stakeholder analysis System definition Empirical analysis Performance measurements Empirical causal model Formulating the design criteria Formulating the design question Boundary conditions Redesign selection Design criteria Data gathering Literature Conceptual analysis Empirical analysis Introduction Diagnostic phase Design phase Conclusions Chapter 1 Chapter 2 Chapter 3 Chapter 4 Ventura Systems Research goals Chapter 5 Diagnostic phase Definitions and operationalisations Interviewing stakeholders Additional interviews

Redesigning Results from the empirical analysis Additional interviews Defining the selected redesigns Literature

Results from the empirical analysis

Additional interviews

Further research and contributions to literature

Chapter 6

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The outline of this research is based on the methodology described by De Leeuw (2002), the DOV-model. The DOV-model consists out of three subsequent phases to analyse a problem. DOV stands for “Diagnosticeren, Ontwerpen, Veranderen”, which means Diagnose, Design and Change/Implement, figure 4: DOV-model. The last phase will not be discussed during this research due to time constraints. The Diagnosis and Design phase consist out of several sub-phases. The completion of the first two phases should lead to valuable new insights and guidelines for Ventura Systems to improve the processes related to the problem. After the research is done, it is Ventura Systems their own responsibility to decide whether the company should follow through with the change phase of the process.

Diagnose

Design

Change

Problem situation Problem Solution Improved situation

Figure 4: DOV-Model (De Leeuw, 2002)

1.5.1 Research phases

Introduction

1. The starting point of this research is the problem formulation by the problem owners. 2. The next step in this phase is to determine the research goals and the research questions. 3. Third step is to assess the problem. First thing that is done is analysing whether this is a

functional or instrumental problem. Furthermore, a GRP analysis will be done, to determine whether there is a real problem. Followed by the system and stakeholders that are relevant in this research to have a clear scope.

Diagnostic phase (conceptual and empirical analysis in this report)

Conceptual analysis

4. The first step of the conceptual analysis is to determine the important definitions and operationalising the most important definitions.

5. The second step is analysing relevant literature to determine relevant factors, interviewing stakeholders and joining the daily meetings to get a general idea of the problems at hand. 6. The factors will be discussed with the relevant stakeholders to check if all the possible factors

are taken into account, which results in a list of influential factors.

7. The conceptual model will then be developed based on these influential factors Empirical analysis

8. Next step is to perform the research, by first analysing the problem areas and analysing these problem areas further based on data, literature and additional interviews.

9. This empirical research will lead to an empirical model.

Design phase

10. When it is known which factors cause problems, a choice should be made which processes will be taken into account for a redesign. This starts by formulating the design question. 11. The design question is followed by the design criteria and related boundary conditions. 12. Next step is creating one or more redesigns of the process. This will be done by keeping all of

the specific environmental aspects in mind and the order in which the process should be improved with the goal to eliminate or reduce the problem.

13. Based on the design criteria a choice should be made of which design fits the best in the organisation.

14. The selected redesigns are then further defined into improvement possibilities based on literature and related to Ventura Systems how they can improve. Including possible implications the company might experience if they do not take certain factors into account.

Evaluation

15. Conclusions of this research

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15 1.5.2 Reliability and Validity of the research

The data that needs to be acquired in order to answer the main research question is based on scientific literature, interviews with stakeholders and (process-) data of the ERP-system used by the company.

During the research scientific literature is used to develop a conceptual model and to create redesigns of processes. In order to make sure that the scientific literature that is used is reliable and valid, it is necessary that these articles are peer-reviewed. Furthermore, the existing scientific literature revolving around the same subjects will be assessed in order to gain an overview of the developments on the subject. The different scientific articles that have been used are based on research done in the field or based on other literature analysis from existing scientific literature. The different scientific articles are therefore reliable and the validity is high.

Sources used to obtain these articles during the research are the databases of Ebscohost, Scopus or Sciencedirect. Furthermore, scientific knowledge that has been discussed during the courses of the study Technology Management which are relevant for the research is used.

The reliability and validity of the interviews with stakeholders of Ventura Systems is maintained by structuring the interviews according to theory described by Maruster (2011). The interviews will be semi structured interviews including formulated open questions. The person that will be interviewed will be free to steer the interview in another direction.

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2 Diagnostic phase: Conceptual analysis

The main research goal and research questions have been described, which is now followed by important variables that are interrelated and need to be taken into account during the research. These are assessed and gathered by reviewing theories from relevant existing literature and interviews within the organisation as well. Resulting in a Conceptual Model (CM) as seen in the wrap-up of this chapter. The first sub question 1.1 will be answered during this chapter:

“What are the influencing factors within Ventura Systems that could explain the current delivery

reliability or quality?” Literature study Influencing factors Joining daily meetings at 9 A.M. Conceptual model Conceptual analysis Diagnostic phase

Chapter 2 Definitions and

operationalisations Interviewing stakeholders

Figure 5: Overview of steps in Chapter 2

Before gathering relevant literature and variables, important definitions related to the research and situational context of Ventura Systems will be discussed and some important definitions will be made operational; e.g. Make-to-order (MTO) and Small to Medium sized Enterprises (SME). This is then followed by a literature study in the first paragraph.

Make-to-order

Non make-to-stock companies are generally classified into three types:

Assemble-to-order (ATO): Final products offered to customers, offering limited possibilities of

customisation, standard products that can be assembled with a number of different preset possibilities. Initiated by an order, no customer specific parts and easier to stock and plan materials in relation to the other two.

Make-to-order (MTO): “Most or all the operations to manufacture each specific product are only done after the receipt of a customer order. In some situations even materials and component parts may have to be procured on the receipt of a particular order. The capability for product customisation is greater than in ATO producer.” (Amaro et al., 1999, p.351)

Engineer-to-order (ETO): “Products are manufactured to meet a specific customer’s needs and so require unique engineering design or significant customisation. Thus, each customer order results in a unique set of part numbers, bill of materials, and routing.” (Amaro et al., 1999, p.351)

Other operational management and production literature add to these three types. See for example Hill (1993) discussed by Amaro et al (1999). The Make-to-order definition described above suits Ventura Systems, due to predominantly limited customisation and limited engineering tasks based on existing designs for most of the orders that are received.

Small to Medium sized Enterprise

Ventura Systems is a Small to Medium sized Enterprise (SME) according to the definition from the European Union (2003b): “The category of micro, small and medium-sized enterprises (SMEs) is made

up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million.” This is

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SMEs differ in certain ways from bigger concerns, by having certain advantages and disadvantages, which will be discussed during the literature study.

Non Conformity Report (NCR)

When quality issues are spotted within Ventura Systems or spotted by the customer a report can be made of this in the form of a Non Conformity Report. A part or a product can be checked whether it is conform specifications, either by checking the design drawings and the aesthetical requirements that have been agreed upon of the part or product. If the employee or customer spots something that is not in line with what is expected a Non Conformity Report (NCR) can be written. NCRs written by employees go to the Quality Assurance department. Customers with a complaint which is also an NCR, usually arrives at the Service department first followed by Quality Assurance.

Quality

The term quality within Ventura Systems is operationalised by making a distinction between internal quality and that of suppliers in one measurement and by customer complaints in a different measure. These are then combined into an overall quality measure. A more detailed explanation and review of the measure is given in §3.2.4.

The two main performance measurements can be seen below, which are added to each other and divided by two for the overall quality percentage number.

Delivery reliability

The delivery reliability is calculated as a percentage of orders delivered late of the total amount of orders delivered during that period, where the orders that have been delivered late are those orders with a difference between first promised delivery date and actual delivery date and reason code 21. A more detailed explanation and review of the measure is given in §3.2.4.

The performance measurement can be defined as:

Efficient

Haselhoff (1977) states that organisations must fulfil three assessment criteria, one of these is be efficient which can be translated as the shortest route possible to a certain goal. Or as Wilson (1990) describes it, a transformation could fail in three ways one of which is producing the output but with excessive resources which is inefficient. Therefore, efficient can be described as producing the desired output with the least amount of resources.

Effective

Another criteria stated by Haselhoff (1977), is that organisations must be effective, which can be stated as hitting the goal. Or as Wilson (1990) describes, a transformation could fail because the output of the transformation does not produce the required contribution to the wider system. The action or change should produce the intended or expected result, if a certain action produces the desired effect better than a different action it is therefore more effective.

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2.1 Literature study

Ventura Systems is, of course, not the first company experiencing difficulties deploying their strategy and related goals. There has been a lot of research related to strategy, goal setting and realising goals, furthermore literature related to delivery reliability and quality performance within companies. It is important to start the empirical analysis with a clear overview of what the possible problems could be according to literature. By doing so, the chances of overlooking other factors or relevant processes which could cause the problem, or chances of tunnel vision focusing on mainly one process is reduced.

The first part of the literature study is focused on the difference between larger companies and SMEs and the maturity of a company to assess whether there are differences between the two and whether the maturity of a company needs to be taken into account. Moreover an analysis focused on the strategy deployment and performance measurements. Other subjects discussed are the delivery reliability and quality specifically and related possible causes according to literature.

The most important findings during the literature study are discussed below, the in-depth literature study can be found in Appendix III: Literature study.

2.1.1 Small to Medium Enterprises and Business Process Maturity

The research discussed in this report takes place in an SME context as described earlier. Therefore, during the research within Ventura Systems the fact that it is an SME should be kept in mind if there are differences between SMEs and larger companies, which can have an impact on realising performance improvements, strategy and so on. Furthermore, possible improvements suggested during the redesign might have to be designed with these possible differences in mind as well. The literature study shows that SMEs do have characteristics that differentiate them from larger companies. These have been generally described in different researches; a collection of these different characteristics of SMEs are listed below (Hudson et al., 2001a, p. 1105; Wong and Aspinwall, 2004):

 Ownership and management, personalised management and little devolution of authority;  Severe resource limitations in terms of management and manpower, as well as finance;  Reliance on small number of customers, and operating in limited markets;

 Flat, flexible structures;  High innovatory potential;  Reactive, fire-fighting mentality;  Informal, dynamic strategy  Culture and behaviour

 Systems, processes and procedures

 Strategy development and change occur by learning and reaction to critical events 2.1.2 Strategy deployment, goal setting and performance measurement

The performance within Ventura Systems is in this research an important aspect in relation to the strategy and the goals that have been set by management. These different aspects are all interrelated. Important aspects according to the literature study are:

 Performance measures are the metrics that should be used to quantify efficiency and/or effectiveness of actions within a process (or parts of the process) or of an entire system in relation to the goals (Fortuin, 1988; Neely et al., 1997).

 Performance measures should capture the most important aspects i.e. Critical Success Factors (CSF) within a company, the essence of a company to be able to exist/survive (Gunasekaran et al., 2004).

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 Performance measurements should be related to specific, stretching, but achievable goals Globerson (1985).

 Performance measurements should be linked to all hierarchical levels of the organisation, i.e. Strategic, Tactical and Operational (Braz et al., 2011).

2.1.3 Delivery reliability in the supply chain

The starting point that can be the reason why delivery reliability performance cannot be achieved according to literature, is the first decision making process within the supply chain. This is the order acceptance and delivery date setting stage which could be the cause by setting wrong or unreliable delivery dates mainly because of the lack of relevant information. Furthermore, the pre-shop floor process could be the cause, for example complications during product design due to lack of information etc., the purchasing department or head of production and logistics due to incorrect planning. Another option could be mistakes or delays during the realisation process itself, in Ventura Systems their case Logistics and Production or the suppliers. Missing or non-conform parts can be seen as a factor of Logistics and Production, especially in an assembly process, where the procurement of parts is a very important aspect.

2.1.4 Quality in the value chain

More literature has been analysed in order to identify possible causes of insufficient quality leading to Non-Conformity Reports (NCRs). Because NCRs can also be caused by complaints from the customer the term quality has been discussed first in Appendix III. The literature study shows that quality can be interpreted in different ways and that meeting the desired quality of a customer depends on their expectations. Whether a customer decides to file a complaint therefore also depends on their definition of quality. An important part of quality within Ventura Systems is therefore knowledge of how a customer perceives their product and which aspects of a door system require extra attention. The general causes of quality issues can be divided in several ways. A useful approach in this research in relation to quality and the value chain is described by De Toni et al. (1995), which will be used within this research:

 Inbound quality

o Vendor quality performance  Internal quality

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2.2 Relevant factors within this research

There are a lot of possible causes described in relevant literature which could be the problem as seen in Appendix III: Literature study. However, a lot of companies also have specific causes or problems due to their specific environment and or process design. Therefore, to gain more insight into the situation of Ventura Systems several interviews have been conducted. Interviews with mainly the stakeholders as described in paragraph 1.4.3 on page 12 and joining daily meetings. The goal of these interviews was to gain more insight into what is important within the company in relation to the strategy and relevant Critical Success Factors. Furthermore, the goal of the interviews was to gain more insight into possible causes within the different departments and possible interrelated problems between the departments.

The important factors from the literature study and interviews in relation to Ventura Systems are now discussed during this paragraph according to different subgroups, starting with the organisational context followed by strategy deployment, delivery reliability and quality. The conceptual model can be viewed in figure 7.

2.2.1 Organisational context

Important factors to improve the performance of a company are usually generally described; however every organisation operates in a specific environment. There is no one size fits all approach that can guarantee that a company can achieve strategic goals. Therefore, important factors with regard to the organisation are those factors that show the context it operates in. The literature study showed that there are certain differences between large organisations and SMEs in relation to structure, culture, and management style for example. Therefore the fact that Ventura Systems is an SME and how the organisational context is, is an import factor and will be discussed by using the 7-S model. “After a search for the “perfect” organisational structure, the authors, and others, concluded

that structure alone could not solve the problem...The 7-S model points out that organisations are successful when they achieve an integrated harmony” (Kaplan, 2005). These factors are discussed

below.(strategy is not discussed here as in the 7-S model because it will be discussed more in depth separately in § 2.2.2.)

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21 Structure

The comparison between larger organisations and SMEs in the literature study showed that according to literature, structure within SMEs is usually flat and flexible with the advantage of easier decision making. Furthermore, because the structure is so flat, every manager is close to the main process. “The way in which tasks and people are specialized and divided, and authority is distributed;

how activities and reporting relationships are grouped; the mechanisms by which activities in the organisation are coordinated” (Kaplan, 2005). This seems to be true for Ventura Systems as well.

Systems

The systems in place to manage and keep track of certain data are relevant in relation to the delivery reliability and quality within Ventura Systems. It is important to know how the performance measures are executed but furthermore in relation to the system, how the data is acquired, whether it is reliable and if Ventura Systems has to take the system into account together with its advantages and disadvantages. Furthermore according to literature, SMEs are usually more informal due to not having strict policies or clear written procedures. “The formal and informal procedures used to

manage the organisation, including management control systems, performance measurement and reward systems, planning, budgeting and resource allocation systems, and management information systems” (Kaplan, 2005).

Staff

“The people, their backgrounds and competencies: how the organisation recruits, selects, trains, socializes, manages the careers, and promotes employees” (Kaplan, 2005). How are the people being

managed within the organisation and how are their skills in relation to the strategy and goals the company is trying to achieve are all relevant questions. Also in terms of possible redesigns, whether the company is able to carry out the redesigns or if there is a gap between the redesign and skills/knowledge of the employees.

Skills

“The distinctive, competencies of the organisation; what it does best along dimensions such as people, management practices, processes, systems, technology, and customer relationships” (Kaplan,

2005). The skills in terms of the organisation, the question is if Ventura Systems with their current processes, skills technology and relationships with customers and suppliers is able to meet the desired performances or if there are shortcomings that make the desired goals unachievable.

Style/culture

“The leadership style of managers – how they spend their time, what they focus attention on, what questions they ask of employees, how they make decisions; also the organisational culture (the dominant values and beliefs, the norms, the conscious and unconscious symbolic acts taken by leaders...”(Kaplan, 2005). According to the literature study, SMEs often show reactive behaviour

instead of proactive collaborative action, which has also been mentioned during interviews. Shared values (Superordinate goals)

“The core or fundamental set of values that are widely shared in the organisation and serve as guiding principles of what is important; vision, mission, and values statements that provide a broad sense of purpose for all employees” (Kaplan, 2005). Top management has expressed their desire to

achieve a high delivery reliability and quality performance. The question is whether this is sufficiently being explained or told to the employees at the floor for example. People need to become aware of what is important to the organisation and what they should focus attention on. The people of the company should all be facing the same direction and work together to a shared goal by becoming involved.

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22 2.2.2 Strategy deployment

The strategy deployment is related to the goal of this research, improving the delivery reliability and quality performance, because the reason the company wants to achieve this goal is directly related to strategy. Ventura Systems wants to improve their delivery reliability and quality performance, because the higher goal is to become the best door systems manufacturer in the eyes of the customer. So the goal of this research is connected to the strategic mission/vision. Other important aspects in relation to strategy have been collected during the literature study, which will be discussed now.

Organisation Mission/Vision

The strategy within a company starts with defining a clear mission and vision as discussed in the literature study previously. The mission and vision of the organisation should, as discussed before, be made in cooperation with all of the stakeholders in mind. The mission of a company can be seen as “What do we stand for”, focused on the organisation itself and what it stands for and does not have to be changes in time. The vision of a company can be seen as a vision of the company in the long term. What does the company want to achieve in relation to the environment? It is important that the desired goals of the research are in line with these two.

Critical Success Factors and Key Performance Indicators

The critical success factors are those factors that need to be focused on to realise the mission and vision of the company. The CSFs are then translated into KPIs in order to set goals for the future and to get an overview of the performance. KPIs are defined in the form of performance measures and include other important aspects such as:

 Source of the data;

 Measurement process and frequency;

 Targets/goals set in relation to customer requirements and competitors (i.e. Benchmarking). As stated before, Ventura Systems is not entirely sure whether their methods of performance measurements are correct. This subsequently could also mean that the goals are more or less realistic than perceived. However, whether the company is sure or unsure of their performance measurements, in order to stay objective as a researcher it is necessary to analyse the measurements of delivery reliability and quality during this research.

Development of action plans

In order to realise the goals set by top management, the strategy needs to be deployed in the form of action plans. How will the company strive to achieve improvements in all layers of the organisation, i.e. Strategic/Tactical and Operational level, who is responsible for what, in relation to the desired performance within Ventura Systems and related goals, does the company set smaller goals for example or is that up to the manager responsible. It is important to know how this is organised and if it is organised sufficiently to manage and stimulate improvements towards the goals.

Measure performance vs. KPIs

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23 2.2.3 Delivery reliability

In order to realise the goal of this research, it is necessary to analyse which factors are the main problem area or cause of the low delivery reliability in the processes. The main processes or areas which could cause low delivery reliability have been derived from literature as discussed previously and have been confirmed by the interviews as relevant areas. These are the following:

Setting wrong or unreliable delivery dates

Setting wrong or unreliable delivery dates could be the cause of low delivery reliability for several reasons, for instance lack of communication with other departments or lack of knowledge or for example to try and satisfy every customer their wish while making a promise they cannot actually keep. The processes of order acceptance and delivery date promising needs to be analysed to find out what could cause problems during this stage of the overall process.

Complications or delay’s during product design

The product design can be delayed due to several reasons, for example the lack of information from the customer or complications with the prototype, setting short delivery times while the difficulty of the project has been estimated wrong, insufficient capacity or mistakes by employees. The engineering process should therefore be analysed, by mapping the main process steps and the information flows. Furthermore, analyses of available data could indicate problems in the engineering process which need to be explored further.

Delays during logistics & production

The logistics and production process are the processes where problems that occur are the easiest to notice because this is the end of the line and more tangible. However, delays that seem to occur here can be related to delays earlier in the process. The delays that have been caused by the logistics and production according to existing data need to be analysed, to find out where these originated from. Furthermore, possible delays that have occurred or could occur and how management copes with these possible delays needs to be analysed. Possible issues that could arise are the accuracy of planning, insufficient capacity or available/temporary employees, rework or mistakes by employees for example.

Unavailable or non-conform parts

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24 2.2.4 Quality

In order to realise the goal of this research, it is necessary to analyse which main factors or problem areas exist and cause quality problems in the processes. These causes of insufficient quality can then be analysed in more detail to locate the specific problems in the process. The different classifications of quality have partially been derived from De Toni et al. (1995) and are in a logical way related to the value chain and possible quality issues, which became clear after interviews with Quality Assurance and briefly assessing the current NCRs.

Insufficient quality from supplier (in-bound quality)

There are a lot of possible reasons described on the Non Conformity Report that can be related to the quality from suppliers. Different products that are very important in terms of quality for the door systems produced by Ventura Systems are for example the glass for the doors, the pneumatic cylinders and parts of the frame that is powder coated. These have their own specific reasons why they can be non conform, i.e. non conform screening on the glass. Important subgroups of non conformity possibilities within Ventura Systems are:

 Pneumatic (e.g. leaks, damage to cylinders);  Glass (e.g. scratches or cracks in the glass);

 Non conform drawing/specification (e.g. wrong dimensions, wrong colour);  Powder coating (e.g. damage, colour, layer thickness);

 Product quality (e.g. welding, finishing, corrosion).

Insufficient product design quality (internal quality)

Other reasons that are described on the Non Conformity Report are related to Engineering and Instructions.

 Engineering (e.g. drawing mistakes, unclear drawing etc).

 Instructions (e.g. unclear instructions for assembly, wrong non-workable instructions)

Insufficient process control (internal quality)

It is also possible that the process control within Ventura Systems, which relies on writing NCRs, is insufficient. There are different steps within Ventura Systems where quality checks are done. When parts are received for example by checking the aesthetics briefly and checking if everything is there. Other procedural checks are checking the door systems based on checklists after assembly. How good these checks are can be checked for example by assessing whether quality issues caused by suppliers are caught early or pass through the whole process and are received as complaints.

Insufficient awareness of quality (internal quality)

Another possibility is that the awareness of quality among the employees within Ventura Systems is insufficient. It is possible that a lot of quality issues are missed due to the fact that the employees do not know what to look out for, e.g. certain aesthetic requirements or technical issues.

Insufficient outgoing quality (out-bound quality)

The outgoing quality can be related to all of the above steps and can be caused by insufficient quality checks because the checklists are insufficient within the process of Ventura Systems.

Insufficient quality of delivered product (out-bound quality)

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2.3 Conclusion of the conceptual analysis

This part of the research gives an answer to the following research question 1.1:

“What are the influencing factors within Ventura Systems that could explain the current performance?”

The answer to this research question can be seen in figure 7: Conceptual model

At the start of the chapter, two important factors have been defined in relation to Ventura Systems. The fact that Ventura Systems mainly operates as a Make-To-Order (MTO) company and that the company can be defined as a Small to Medium sized Enterprise (SME).

A literature study to explore the possibilities why the current desired performances are not achieved shows several important aspects. Further research into SMEs suggests that SMEs have certain different characteristics compared to larger companies. The differences are mainly related to the organisational context in terms of structure/skills which can be related or defined according to the subjects of the 7-S-Model by McKinsey (Kaplan, 2005) which is therefore used. Furthermore, interviews were held for the reasoning behind the main goals of this report to improve the performance of Ventura, strengthening the fact that the goals are related to strategy deployment and other important factors of the 7-S model. Followed by analysing possible other causes in the literature and other findings from interviews in relation to the two aspects, delivery reliability and quality, resulting in important aspects in relation to MTO companies and Ventura Systems. All of these factors can be seen in figure 7: Conceptual model.

Unable to realise desired performance Organizational context Strategy deployment Quality Delivery reliability Complications or delays during product design Setting wrong or unreliable delivery dates Delays during logistics & production Unavailable or non-conform parts Quality from suppliers Process control Product design Outgoing quality Delivered product Critical success factors Organization Mission/Vision Key performance indicators Development of action plans Measure performance vs KPIs Reward and recognize performance Small to Medium Enterprise Systems Style/Culture Skills Structure Shared Values Staff

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3 Diagnostic phase: empirical analysis

During this part of the research, the different important factors that have been gathered in the conceptual analysis will be researched to identify the problem that Ventura Systems currently has. More specifically which of the factors cause the current delivery reliability or quality performance within the process of Ventura Systems will be analysed, and why these performance measurements are so important. Important parts during the empirical analysis are as follows; assessing the organisational context, the strategy deployment within the company, the current delivery reliability performance and related processes and lastly assessing the quality performance and processes within the company.

Empirical analysis Performance measurements Empirical causal model Data gathering Empirical analysis Chapter 3 Diagnostic phase Additional interviews

Figure 8: Overview of steps in Chapter 3

In §3.1 the analysis of the organisational context is described to answer research question 1.2:

“What is important within the organisational context of Ventura Systems?”

In §3.2 the analysis of strategy deployment is described to answer research question 1.3:

“How is the company strategy being deployed within Ventura Systems?”

In §3.3 the analysis of decision making levels, processes and data which are related to order progression and delivery reliability are described to be able to answer research question 1.4:

“How are decision-making levels and processes related to order-progression organised?”

In §3.4 the processes and data related to quality and non-conformities are analysed to answer research question 1.5:

“How are the relevant processes related to quality and non-conformities organised?”

At the end of the chapter the influential factors and which of these factors are the main causes within Ventura Systems will be discussed.

3.1 Organisational context

The organisational context within Ventura Systems will be discussed during this paragraph to get more insight and to assess whether the company operates as a typical SME to answer sub-question 1.2:

“What is important within the organisational context of Ventura Systems?”

“Our assertion is that productive organisation change is not simply a matter of structure, although structure is important. It is not so simple as the interaction between strategy and structure, although strategy is critical too. Our claim is that effective organisational change is really the relationship between structure, strategy, systems, style, skills, staff and something we call superordinate goals” (Waterman et al., 1980). In order to achieve improvements and a changing organisation towards a

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27 3.1.1 Structure General Director Commercial Director Operational Director Human Resources Financial controller

Marketing _managementFacility

Head of Sales and Service Head of Engineering Head of Purchasing Head of Production and Logistics Head of Quality Assurance Figure 9: Organisational structure Ventura Systems

The organisational structure of the company as shown in figure 9, can be explained as a simple structure (Mintzberg, 2006), a strategic top management, supporting staff, middle management, and a division of labour. The strategic top consists of general, operational and commercial directors, who define the mission and vision of the company and make sure this is achieved in an effective and efficient manner by developing suitable strategies, making important decisions for improvements, distributing resources and setting goals for the organisation. Strategic management is supported by financial controllers and human resources. An important thing noted earlier in this report is that the strategic top consists of shareholders of the company. A risk is that improvement efforts initiated by employees are shot down by strategic top management (shareholders) within SMEs. “Its decisions

are restricted by financiers, customers, legislation and the organisation’s owners” (Hudson et al.,

2001b). This risk is even greater when the improvement suggestions are insufficiently supported in terms of costs versus benefits.

Middle management consists of managers, who are the heads of the different departments. They manage the tasks and responsibilities of their department by supervising, preventing and solving problems, and by motivating employees. They are also responsible for communication between the different departments and making short and long term plans. The division of labour, under middle management, consists out of employees who are directly involved in the main process of Ventura Systems to produce door-systems.

What can be seen is that the organisational structure consists of only a few layers of management, what can be concluded as a flat or horizontal organisational structure. The organisation can furthermore be seen as a functional structure, employees are divided by different tasks within the value chain of the organisation. Employees with same tasks are grouped together. The organisation of Ventura Systems is thus in-line with the characteristics of SMEs. “A flat structure and short

decision making process allows shorter and faster information flows, improving communication (Yusof and Aspinwall, 2000a). Furthermore, it can be stated that there is personalised management,

Improving the delivery reliability and quality performance of a Make-To-Order SME