Clarity in a Complex World
A logistic blueprint for outsourcing to China
public version
Gerard Flikweert
Clarity in a Complex World
A logistic blueprint for outsourcing to China
The final thesis for the study Technical Business Administration, Specialization Discrete Technology
University of Groningen Under supervision of dr. Ir. S. Brinkman prof. dr. J. Wijngaard BCcomponents: R.Drenthen By: Gerard Flikweert April 2007
Preface
This rapport is written as closure for my final thesis of my study Technical Business Administration at the University of Groningen. This graduation research is executed during an internship by Vishay BCcomponents B.V. Zwolle for six months.
In these six months I have learned a lot of practical things and I am very glad I saw this large outsourcing project from nearby. For this internship I want to thank the employees of BCcomponents for the cooperating attitude towards this research. Especially the project team members Karen Sebek, Rene Weulink, Jules Spaanjaars, Peter van’t Riet and Ronald Drenthen. Besides, I want to thank Ronald Drenthen as supervisor but also as coach of BCcomponents.
Finally, I would like to thank my two supervisors of the University of Groningen: Bas Brinkman and Jacob Wijngaard. Especially Bas Brinkman provided me with useful feedback which helped me making this thesis as it is.
Gerard Flikweert April 2007
Abstract
This research is done for Vishay BCcomponents B.V. Zwolle. Because of high cost prices, the high price pressure and the increasing competition from Asia, the load and with that the profitability of the production of Zwolle has declined. To reduce the
production costs, the divisional management decided to move a part of the production to China to improve the financial performance.
The products that will be produced in China should be put on stock in Zwolle to maintain a reasonable lead time to customers. The other products with low demand should be produced in a factory in Zwolle. This change in production makes the logistic chain more complex.
The objective of this research was:
Analyze all factors by series, from which one can conclude which products should stay in Zwolle, which products should be produced in China and which products should be delivered from stock, while the lead time for the customers stays constant.
For this analyze an outsourcings model is made, based on the ABC-XYZ model. Besides, several extra elements are added to this model to reduce the complexity and the risk of obsolete and unsaleable code numbers.
This leads to code numbers which are Easy Transferable (ET), Risky Easy Transferable (RET) or Not Easy Transferable (NET).
The ET’s are possible for outsourcing without great risks. The RET’s are code numbers with risks to keep on stock because of few customers, or a too low demand a year for a safe outsourcing. NET’s are code numbers which are not possible to manufacture in China on the moment because of several factors.
total % products total # code no ordered last 3 years total % code no orderd last three years total # code no 2006 total % code no 2006 Easy Transferable 23% 54 7% 54 7%
Risky Easy Transferable 51% 183 24% 183 24%
Not Easy Transferable 26% 523 69% 414 54%
total 100% 760 100% 651 100%
Segmentation of code numbers
These NET’s has to be manufactured in Zwolle. But more than 400 code numbers
divided over 26% of all products, small order quantities and a hardly predictable demand leads to a complex situation in Zwolle.
Table of contents
Chapter 1 Introduction ... 6
Chapter 2 Company description ... 8
§2.1. The History ... 8
§2.2. The Company... 9
§2.3. The Business... 10
§2.4. Research background... 13
Chapter 3 The idea to cope with competitors... 14
§3.1. The combination ... 14 §3.2. Project description ... 15 §3.3. Problem statement ... 16 §3.4. Conceptual model ... 17 §3.5. Research approach ... 18 Chapter 4 Situation 2006/2007... 20 §4.1. Production Zwolle 2006... 20
§4.2. Production HEC-“The fifth floor” ... 20
§4.3. From order to product in 2006... 21
§4.4. From order to product in 2007... 22
Chapter 5 Existing models for outsourcing... 25
§5.1. Long term vision... 25
§5.2. Decision model of Wu ... 25
§5.3. Decision model of McIvor... 26
§5.4. Decision model of Dekkers... 26
§5.5. Decision model of Probert, Platts and Canez... 26
Chapter 6 The used model... 27
§6.1. Phase 1 Preparation phase... 27
§6.2. Phase 2 Data collection... 30
§6.3. Conclusion phase 2 ... 34
Chapter 7 The outsourceable code numbers ... 36
§7.1. Phase 3 Analysis and results... 36
§7.2. Production Zwolle or China... 36
§7.3. ABC XYZ model... 38
Chapter 8 Inventory control... 48
§8.1. Forecast... 48
§8.2. Inventory management system ... 48
§8.3. Performance indicators (PI’s) ... 53
Chapter 9 The remaining code numbers, in Zwolle? ... 55
§9.1. Change in organization ... 55
§9.2. Batch size... 57
Chapter 10 Implementation ... 67
§10.1. Process ... 67
Chapter 11 Conclusions and recommendations... 70
§11.1. Conclusion ... 70
§11.2. Recommendations... 72
Literature ... 73
Appendix ... 74
Appendix 1. Model Probert ... 74
Appendix 2. Manufacturing capacitors... 75
Chapter 1 Introduction
Outsourcing is popular these days; it is a way to survive in the increased international competition caused by globalization. That is because western companies are confronted with globalization and technological innovation. With the international competition and pressure on profitability, managers invest in ways to improve their financial performance. The main reason western companies get in difficulties is the wages, because the wages and costs in western companies are too high compared to companies in Asia and former Eastern bloc. The only way to survive in this complex world is to decrease costs or to create special value for customers. A way to decrease these costs and create a major boost to the company’s financial performance is outsourcing. A way to decrease these costs and create a major boost to the company’s financial performance is outsourcing.
A survey conducted by the PA consulting Group in 19961 shows that only 5% of the company’s get the desired benefits from outsourcing. A study of Towers Perrin2 shows a decline in satisfaction of the outsourcing customer from 92% of the companies when the contract is signed, to 40% after two years. So a long term success needs more success factors than only low costs.
At BCcomponents Zwolle the same short-term vision was leading. Costs are important but factors like quality, service, and lead time were underestimated. In this thesis all these factors are combined to one model to determine the plant were manufacturing for these code numbers is possible. Is a code number possible for outsourcing to China or should it be produced in Zwolle? This leads to the following objective for this research:
Analyze all factors by series, from which one can conclude which products should stay in Zwolle, which products should be produced in China and which products should be delivered from stock, while the lead time for the customers stays constant.
One of the biggest problems in this research was the complexity. Complexity is determined by3: • Product diversity • Variety in operations • Variety in routing • Variety in resources • Customer variety
At a company with more than 600 different capacitors, with different operations, different routings, different resources, and a range of customers, this company is complex. And with a new production plant in China the situation will be even more complex. In an article of Perona4, the influence of complexity is described to the reliability and the profit
1 McIvor & Humphreys, 2000
2 HR magazine Outsourcing special march 2006
3 Bertrand, J., Wortmann, J., Wijngaard, J., Productie beheersing en material management, 1998
of an organization: complexity will lead to less profit and less reliability to customers. To handle these factors at BCcomponents, the model will divide the code numbers over the production plants to reduce the overall complexity and make the outsourcing manageable. This leads to the following figure with more reliability and profitability.
Impact of complexity reduction
Efficiency (Profits) E ffecti veness (Complexity) Current Desirable complexity reduction complexity management low high low high
The complexity reduction and the management of this complexity is discussed in this thesis. In chapter 3 the research is set out and in chapter 7 the model for outsourcing is analyzed. In chapter 9 the problems with the not outsourceable code numbers are
discussed and in chapter 10 the implementation of the model is discussed. But all of this starts with an introduction of BCcomponents.
Chapter 2 Company description
Vishay BCcomponents (Beyschlag Centralab components) is a firm which produces several kinds of electronic components. Actually, this is not an easy going business now. In this chapter the history of the company, the company itself and the environment will be described.
§2.1. The History
In 1933 Philips became the largest producer of radio’s in the world market5. After a period of buying the components, Philips decided in 1954 to produce all components itself. After this decision the plant in Zwolle was born.
Between 1980 and 1988 a lot of investments were made and in 1988 Zwolle became the owner of an almost full automated production line, which attracted a lot of attention. In the beginning the sales were rising and the number of employees was growing. In 1997 they produced 350.000 components a week but in January 1999 Philips decided it was not their core business and they sold the production of components.
Together with several other production plants in the world an investment company bought the plant in Zwolle, and the Philips name was changed in BCcomponents. The investment company tried to make the company more profitable by reorganizations. Besides that it was their mission to get more automotive customers. After 2000 big profits stayed out and the investor decided to sell BCcomponents again.
In December 2002 world concern Vishay bought the company. Vishay is one of the largest manufactures of discrete semiconductors and passive components in the world6. Besides the name Vishay, the old brand name BCcomponents remains as company name, and Vishay BCcomponents Zwolle B.V is the official name for the plant in Zwolle (further BCcomponents). In the figure beneath this history is shown in a timeline. The last step in this time line, outsourcing to China, will be discussed in this thesis.
fig 1. Timeline history Vishay BCcomponents
5 Source: http://www.philips.nl/about/brand/ourheritage/index.html
§2.2. The Company
To get more understanding of the company, the mission of the mother concern is displayed. The mission of Vishay consists of several parts:
Provide Our Customers With:
• A single manufacturing source for discrete semiconductors and passive components
• Quality state-of-the-art products at competitive prices • A continuous stream of new products
• Superior customer service worldwide
Provide Our Suppliers With:
• Reliable long-term relationships
Provide Our Shareholders With:
• A good return on their investment
Provide Our Employees With:
• Responsible and ethical leadership • A creative working environment
• Responsible community membership at all Vishay locations
At the moment, 120 people are working for BCcomponents, but as you can mention after reading the history, the number of employees fluctuated through the years. On top years more than 1200 people worked in Zwolle. The production continued 24 hours a day and it was a well known factory in Zwolle. Now after 7 reorganizations, there are only 120 people working at BCcomponents Zwolle.
Vishay BCcomponents has a difficult time now but is working on a better future. The organization with it’s 120 employees is divided in different fields which are shown in the diagram beneath. The outlined part of the figure is the organization in Zwolle.
fig 2. Organization chart Zwolle
§2.3. The Business
The main business of BCcomponents Zwolle is to manufacture capacitors. In 2006 they manufacture about 16 million capacitors with total sales of 20 million dollar.
§2.3.1 What is a capacitor?
A capacitor can store electric charge for a moment; the degree of this storage is capacity which is expressed in Fahrad (F). Aluminum capacitors, which are produced in Zwolle have a capacity between 1 μF (1*10 -6 F) and 1F.
Capacitors are used in a lot of applications, for example the bass of a loudspeaker or an electric circuit in an airbag. In both situations the capacitors create a boost of electric energy when it is necessary.
A capacitor exists of a few important materials: tube, disc, foil, paper and electrolyte. With varieties and combinations of these materials all products can be made.
§2.3.2. Production process
Like said in the history, since 1988 BCcomponents is owner of an automatic line, in Dutch called “Mechanische Grote Elco” line (MGE line). The lead time from beginning to end of the MGE line is two days. But such a lead time is only possible if all raw materials are available and by leaving efficiencies out of account. In everyday reality a lead time of six weeks to customers is normal.
BCcomponents produces different kinds of components on this line Din PW (DIN), SnapIn (SI) and ScrewTerminal (ST). Other products which are produced in Zwolle like Sal remain out of this thesis because we concentrate on the outsourcing of Din PW, SI and ST.
SnapIn
The biggest part of this production which BCcomponets wants to outsource, comes from the Snap Ins. These capacitors are the smallest of the three with a diameter between 2,2 - 3,5 cm and a height between 2,5 - 6 cm. These capacitors are mostly used on printed circuit boards, which are used in cars or computers.
Din PW
Din PW is a larger capacitor, the diameter is between 4-5 cm and the height between 6 - 10,5 cm. In general the capacity and voltage of these capacitors are larger than Snap Ins. Another point for recognition are the extra attaching possibilities to keep the more heavily capacitor fixed on circuit boards. These larger capacitors are manufactured less than the SI’s and are used for more special machines. For example: These capacitors are used for in hospital applications.
Screw terminal
Screw terminals are the largest kind of capacitors. These capacitors are for example used in wind turbines and power stations. Because of the weight these products are fixed to other products with a screwed connection.
fig 3.From left to right Snap In, Din PW and Screw Terminal
§2.3.3. Specials
One special type of the above-mentioned products BCcomponents produces is the so-called special. These products are customized components with properties the customer wants. These products are made for only one customer, and get their own product number and price. Through these specials BCcomponents has a lot of customers, because other suppliers of components produce only standard products. But an important property of BCcomponents is that it makes everything the customer wants, and it does not matter in which quantity.
Automotive is a kind of special. These specials are made for customers in the automotive sector which suppose high quality products and as a company you have to satisfy high demanding requirements.
§2.3.4. Customers
Customers of BCcomponents are located all over the world but Europe is by far the greatest sales area. Other well selling continents are America and Asia.
The customers in these continents belong to different segments. Some products were sold finally to the defence and aerospace industry others to the medical industry. But the most and important buyers for BCcomponents are Distributors and OEM’s (Original
Equipment Manufacturer).
The demand of distributors is the most important for BCcomponents. A distributor is a middleman between two companies, a kind of dealer which sells different kind of products from different companies.
Other customers are OEM’s; these customers are factories which buy components directly at the factory.
Important buyers are automotive customers. In general these customers are OEM’s but require high quality on products to get reliable products with a high endurance. Often automotive products are specials, especially made for automotive customers.
The customers are very satisfied with the lead time, flexibility, quality and especially with the service. Service like technical know-how, logistics reliability, and response time on questions. These are very important factors for firms in the automotive industry for
which BCcomponents achieved the ISO/TS16949 status. To get this ISO/TS certification there are strict quality rules you have to satisfy, which will be checked twice a year by means of formal external audits. The requirement to be certified according to
ISO/TS16949 is coming from customers like Bosch and Siemens which manufacture electric systems for high quality products like car brands and pumps which stay underground.
§2.3.5. Environment
There is a lot of competition in the manufacturing of electronics, mainly from the low-wage countries in Asia. As can be seen in figure 4 Zwolle can not compete on the price with these low-wage countries, so they have to compete on other fields. The reason customer orders in Zwolle are short lead times, service, flexibility and high quality. But the greatest part of the market prefers lower prices as can be seen in figure 4. This figure shows that most manufactures of capacitors are in a segment of an average market price of a capacitor. Zwolle uses higher prices than this average capacitor price, with these prices they deliver the highest and most demanding segment of the capacitor market.
fig 4. The segment of BCcomponents in the market (source Vishay BCcomponents)
§2.4. Research background
In the end of 2005 Vishay announced that the financial performance indicators VM (Variable Margin) and OMD (Operating Margin Division) were too low to continue with the production in Zwolle. The only way to survive was outsourcing. In the beginning they said that everything should have been transferred at the end of 2006. But in the last months of 2006 it was decided by the management of Vishay and BCcomponents that there is more time needed for the outsourcing project. And before everything can be
position Zwolle 0 25 50 75 100 1 50 99 price (%)
70% of the market Segment Zwolle
market (%)
Chapter 3 The idea to cope with competitors
After the divisional management decided to transfer the production to a low wage
country, Zwolle realized that this could mean the end of the plant in Zwolle. Besides that, would manufactures in China also produce small batches, and would customers accept longer lead times? These questions triggered the management in Zwolle to come up with a counter idea: fast selling products should be manufactured in China but should be stored in Zwolle. The other products with low demand have to be produced in a flexible factory in Zwolle (these products are also named the Not Easy Transferables (NET’S)) This means that the products with a high turnover will be produced in China and the products with a low turnover are manufactured in Zwolle. An example of this idea can be seen in figure 5.
Production BCcomponents
code numbers (in no) production
(in products)
Manufacturing China Manufacturing Zwolle
Fig 5. Production with high turnover will be manufactured in China while products with a low turnover beneath the line will be manufactured in Zwolle.
§3.1. The combination
BCcomponents was looking for a low wage country with a company which can produce that products BCcomponents wants. The mother company Vishay is an international firm, with production sites in different countries including China. China is chosen because of the developing industry and the low production costs for the products. In spite of Vishay having various large companies in China none of them is a company which produces capacitors. So a search for a suitable company started and HEC was found as a partner for this project.
HEC is a fast growing high quantity selling company in Dongguan, China. (See picture 6) It is a young firm with an ISO 9000 certified quality management system since 20017 and they produce 1 million Elco’s a week. This production in China is mainly handmade, because wages are low and people are working hard and long. Salary costs are the main part of products that are made in Zwolle. In China the material prices are the most substantial part of the cost structure. Overall, this result in a cost price that differ significantly from the price of products made in Zwolle.
fig 6. Location HEC, Dongguan in China
§3.2. Project description
The project description that is used in the outsourcing project at BCcomponents is displayed in this paragraph to give some clearance about the goals of the project at BCcomponents.
§3.2.1. Project goal
The goal of the project is to relocate the production of snap-ins and screw terminals from Zwolle to China to reduce the total cost of products, with maintaining the customers, sales, product quality and logistic performance.
§3.2.2. Project deliverables
The project is completed if the following factors are rounded Market and customers
• Customers have agreed on delivery of products from China.
• Sales with customers have been secured by proper exchange of information and support to those customers.
Quality
• Product quality has been secured by means of formal product release and proper quality monitoring in China and Zwolle.
• Adaptation resp. implementation of ISO 9001 and ISO 14001 based mgt system (on HEC line resp. on CSI/CST line).
Logistics
• Implementation of proper logistic methods to support production activities, resulting in good logistics performance.
Organization
• Implementation of clear, functional communication lines between HEC and Zwolle organizations.
• Implementation of systems to measure, monitor, and continuously improve logistic and quality performance.
Performance indicators
The following performance indicators are defined for logistics. These indicators do not have to be realized before the end of the project, but are targets.
Logistics:
• Missed promises
• delivery reliability to BCcomponents > 95% • Leadtime production China ex works
• China should manufacture the capacitors within 4 weeks. • Order confirmation China
• China should confirm (with lead time) the delivery date ex works of the ordered code numbers within 48 hours.
§3.3. Problem statement
As a result of this project this thesis provides a logistic research to find a solution for different logistic problems. The research which is described in this thesis will be set out in this paragraph.
Problem definition
Because of high cost prices, the high price pressure and the increasing competition from Asia, the load and with that the profitability of the production of Zwolle has declined. To
reduce the production costs the divisional management decided to move a part of the production to China.
Research objective
Analyze all factors by series, from which one can conclude which products stay in Zwolle, which products will be produced in China and which products will be delivered from stock, while the lead time for the customers stays constant.
Research question
Which products will be produced where, which will be delivered from stock, and how do we get the lead time low?
Sub-questions
• Why should Vishay outsource the production to China?
o Why change the manufacturing to a make to stock structure? • How does the current manufacturing situation looks like?
o How this will change with outsourcing a part of the production? • Is it possible to reduce the complexity before outsourcing?
o Which manufacturing characteristics are not outsourceable? o Which code numbers are outsourceable?
• How to control the upcoming stock?
o What are the amounts of stock by serie? o How vulnerable are these stocks?
• What are the problems for the remaining code numbers in Zwolle?
§3.4. Conceptual model
A conceptual model is used to get more perception of a complicated problem. This model is an abstract model of a wished concrete system. [De Leeuw, 2000] see figure 7. The logistics of the colored area will be the scope of this thesis.
fig 7. Conceptual model
The conceptual model shows the decision which has to be made; make to stock or make to order. This decision is based on several bottlenecks which will be discussed in this thesis. When a code number is possible for outsourcing to China the code numbers will be put on stock in Zwolle. The code numbers that do not satisfy the criteria for
outsourcing have to be produced on order. When the decision is made for each code number the location for manufacturing is fixed in principle. Only when there is a real urgency there is a possibility to change from production location. In the conceptual model the bottlenecks around the two possibilities are reproduced.
In this picture also the scope of the thesis becomes clear. The decision which has to be made in this thesis is about the code numbers which are possible for outsourcing.
§3.5. Research approach
Because of the designed orientated research, the DOV-model8 is chosen. This model exist of three phases, diagnose, design and implementation. Phase one is the diagnose phase, were we model the problem. Phase two is the design phase. Out of the problem a new
design should be made. The last phase of the model is the implementation of the idea. This idea will be implemented after the internship, so process and implementation suggestions are described here.
fig 8. Research design
In the first five chapters the problem will be explored (the diagnose phase). Which outsourcing models do exist in literature and what are important factors to maintain customers? After that a problem analyze will show all expected problems with this outsourcing process.
These expected problems are used in a model to define the important factors for
outsourcing. With these important factors the outsourcing model is developed in chapter 7. In this chapter also the outsourceable code numbers are analyzed. In chapter 8 the level of inventory from China is discussed, after which in chapter 9 the problems of the
remaining code numbers in Zwolle are discussed.
Chapter 4 Situation 2006/2007
This chapter will explain the situation in 2006, when BCcomponents made almost all the products in Zwolle, and a few products in China. In the second part 2007 is described when almost all products will be made in China.
The catalogue of Vishay consists of 6000 aluminum code numbers. 2000 of these 6000 code numbers are made at Vishay BCcomponents in Zwolle. The rest of them are made by Vishay Bccomponents Austria GmbH, in Klagenfurt. But from these 2000 code numbers which can be made in Zwolle, only 600 code numbers are ordered by customers over the last 3 years. The other 1400 can be made but no one ordered them during the last three years, but they still offer these code numbers in their product portfolio. These extra products can be made from materials that are already used for the production of many other products. In other words, no extra materials are needed for these code numbers.
§4.1. Production Zwolle 2006
Zwolle is a “make to order firm”; they start producing when an order is confirmed. This means hardly any stock and a longer lead time to customers9. With this automatic line a product can be made in two days when the foil is in stock. The reason the lead time to customers is six to seven weeks is because orders are combined to reduce the setup time. The orders are also planned on a way the setting times are minimal and the line can be used efficiently10.
§4.2. Production HEC-“The fifth floor”
In 2006 BCcomponents produced already 5 series of components at HEC in China: the Elco series 093, 094, 197, 199 and the 500 Screw Terminal. These series were never produced in Zwolle but were set up in China. These series are produced on the fifth floor of the production plant in China where a production line stands which moved over from Zwolle. The line is originally from a firm in Europe which was taken over in 2001 by BCcomponents. Because it is useless to store a line, they brought the line in 2003 to China and after several months the line worked on the 5th floor in the HEC factory with people from China. The expected demand of 5 million capacitors a year is not reached, but with 1 million products a year it is profitable.
Besides these five series two extra series which were produced in Zwolle were ordered in October 2006 in China as a kind of pilot. These series have a large amount of sales, but without special features. It is a kind of pilot to see what went wrong when HEC gets an order. This can be determined because it is possible to follow the whole product flow from order till delivery in Zwolle by product updates by email. These products will be delivered to customers in 2007 when the product are checked and approved for delivery.
9 Schönsleben, integral logistics management, blz 160
These two series were not made on the 5th floor but on the HEC line, with Chinese employees but with a BC logo on the products. This manufacturing of BCcomponents products on the HEC line is a new formula for HEC and BCcomponents.
§4.3. From order to product in 2006
In figure 9 the situation for BCcomponents in 2006 is reproduced in a figure, this will described below.
fig 9. Situation BCcomponents 2006
When a code number is ordered in Zwolle it is known to manufacture this code number in China (HEC) or Zwolle. When a code number has to be manufactured in China the lead time to customers is automatically set to 12 weeks and the code numbers are ordered at HEC. HEC ordered the materials and tried to manufacture and deliver the products in 12 weeks to customers.
When the code numbers have to be manufactured in Zwolle the code numbers could be manufactured in a short time because the materials are for 95% of the orders on stock and the planning is quite flexible. When these products are ready they are delivered to the customers.
§4.4. From order to product in 2007
The main difference with 2006 is the increasing complexity of the logistic chain. In 2006, one million standard products came from China with a lead time of 12 weeks to
customers. In 2007, millions of products of different series are coming from China, while the lead time has to be lower than in 2006. The solution for this problem is given in chapter 3 (the Idea to cope with competitors); fast selling code numbers are moving to China but are put on stock in Zwolle. The other code numbers with low demand are produced in a flexible factory in Zwolle, because it is not desirable to have every product from China on stock. Otherwise this will lead to high stock costs and high drop outs, because a lot of products have an irregular demand, which causes unsaleable stock. Besides that, some products have too low demand to order a product in China. Only the products with high continuousness in demand and high demand will be on stock. Because of this increasing complexity a detailed diagram (blueprint) is made for this situation in 2007. (See next page)
Confirm order and planning (blue area)
As said before, Vishay BCcomponents has three main delivery markets: Europe, Asia and U.S.A. In these three markets Vishay has an order desk where customers can call to place an order. When a customer places an order at the order desk, the order desk makes
contact with Zwolle. From Asia and U.S.A. they are making contact by SAP and from Europe they are making contact by Cats Lopic. When the planners in Zwolle see this request for products, they decide how long the lead time will be for this delivery. When an order comes in for Zwolle they use the data from the system to figure out how long the lead time will be for a product. After that they send this information to the order desk, reporting the information to the customer.
Order Zwolle (red area)
When the production in Zwolle knows what to produce, they allocate or order the required materials. If the planning is admitted, the production will start. It is possible to produce a capacitor in two days but the general lead time in 2006 was six weeks. When the product is ready and tested it is moved to the warehouse in Zwolle, from where it is shipped to the warehouse in the USA, to the warehouse in Hong Kong or to customers in Europe.
fig. 10. Situation BCcomponents 2007
Order HEC (green area)
changing the procedure. BCcomponents wants reliable products and wants the ordered products on the moment they expect them. The experience with the few code numbers from the fifth floor of HEC does not show great promise. With outsourcing a large part of the production the transfer must be perfect without loosing customers. So something must change.
To assist HEC with this operation BCcomponents will send a forecast for the next four months. With this forecast HEC can order enough materials to prepare the forecasted code numbers. When the real order comes at the headquarter in China they check the BOM (Bill Of Material) if the stock is sufficient. When there is enough stock, the product will be planned and produced. A problem exists between planning and producing when an order needs the same materials. Because the materials are not allocated, it is possible the materials were already given away when a real order comes. This could lead to a strange situation when the product is planned but the materials are already given away. In this case the lead time will exceed because the materials have to be ordered.
This process of ordering can lead to huge delays, because the suppliers in China can not always deliver fast. Sometimes, this leads to shipments from Zwolle to China with tubes and discs in the start up phase in 2006. Because the suppliers in China can not deliver in time or the materials are not released yet. When the products are ready they report it to the headquarter in Dongguan from which they report it to Zwolle.
Transport (red area)
When the product is made in time they decide in Zwolle to transport the product by ship to Zwolle. When the manufacturing of products is delayed they will be transported to Zwolle by air flight, this reduces the transport time four weeks. The products for the customers in China will be transported to the warehouse of Vishay in Hong Kong, from were they will be delivered to customers.
Supply Zwolle and delivery (yellow area)
When the products from Zwolle as well as China are put on stock in Zwolle the products from China have to undergo a product check. All products from HEC will be tested and products which do not satisfy the quality criteria will be returned to China. Also the products which are delivered from the warehouse in Hong Kong to customers will be checked in Zwolle, by samples from the same batch as customers get. All products which have passed the check are delivered to customers in Europe or to the warehouse in U.S.A. For Europe they will be transported by truck to the customers, the delivery to U.S.A. is by airplane.
Chapter 5 Existing models for outsourcing
To remain a reliable supplier of capacitors to customers the code numbers have to be analyzed on the possibility of outsourcing. In literature some models do exist.
§5.1. Long term vision
As written in the introduction, outsourcing can create a major boost to the financial performance of a company. The idea to create a reduction in costs often causes a vision which can be short-sighted11. Many academic articles tell about other issues besides costs
to prevent an outsourcing project from this short-sighted vision. They tell about how to develop a long term vision to create a more vulnerable outsourcing project. Things like reliability, quality, technical capability and delivery time are essential factors to create an outsourcing project which is successful in the long-term12.
Other issues in a long term vision are the relation between core and non-core activities and the intellectual property rights. Core activities are a returning factor in a lot of models which were first described by Prahalad and Hamel13. These models show that there exists a relation between outsourcing and core activities. In their opinion, core competencies are sources that create a competitive advantage to consolidate corporate-wide–technologies and production skills to empower individual business. If these competencies are
outsourced this can impact the success of the company in a negative way.
Intellectual property rights are another problem for a long term benefit of outsourcing. The know-how and the technology products can be copied by the supplier in China, without any protection. This can be done because the Chinese legal system still does not provide adequate protection to intellectual property when technology is being transferred to China. The history of China shows enough samples of these imitated products14. Some practical models are designed to catch some of above problems. In the models below some of them will be described.
§5.2. Decision model of Wu
15One recent model is written by Wu (et al). This decision model is based on items to get a long term performance. An important issue in this model is the protection of the core competencies to suppliers; this is measured by two main factors. The degree of significance denotes the contribution of a specific product to the overall enterprise competitiveness. And the risk of discloser is used to asses the risk incurred in an outsourcing of a certain product to a supplier. These factors, with several sub factors, give a proposal for outsourcing.
11 Koopmans, Outsourcing 2004
12 McIvor & Humphreys, 2000, 2002; Probert 1997; Platts, Probert & Canez 2000, 2001 13 Hamal, G., Prahalad, C.K., competing for the future, 1994
§5.3. Decision model of McIvor
16Another model which describes the importance of core activities in relation with outsourcing is the practical framework of McIvor. The model is a generic framework which is based on three main criteria: core competencies, cost (internal versus external) and capabilities (internal versus external). In general, according to McIvor, non-core activities should be outsourced and core activities should be analyzed first before a final decision is made.
§5.4. Decision model of Dekkers
17Another decision model for outsourcing is one of Dekkers. This is a tool to support decision making regarding outsourcing and link it to a manufacturing strategy. This could be on a strategic, tactical and operational decision making. A strategic decision means the decision to outsource core competencies and additional competencies needed to complete the value chain. A tactical decision is made for a product development. And an
operational decision optimizes the resource allocation during manufacturing.
§5.5. Decision model of Probert, Platts and Canez
18The fourth model is the Make versus Buy model of Probert, Platts and Cannez. They describe a framework were four areas get factors with weighting. Hereby an analysis is possible to see if it is preferred to “make” or to “buy”. These factors: technology and manufacturing, costing, support systems and supply chain management and logistics are chosen to research al these areas for a solid outsourcing process. This analysis is done in three phases;
1) Preparation phase 2) Data collection 3) Analysis and results.
All these models have important points to get the best out of outsourcing as well as in-house producing. In chapter 7 (used model) will explained which model is used in this thesis to get the best out of these models for Zwolle.
16 MCIvor, A case-based reasoning approach to the make or buy decision
17 Dekkers, Decision models for outsourcing and core competencies in manufacturing
18 Probert, Platts and Canez, Make vs. Buy decisions: a process incorporating multi-attribute
Chapter 6 The used model
In chapter 5 (existing models for outsourcing) several models are described. Each model has its own competencies for outsourcing. Because the outsourcing process in Zwolle is very complex with bottlenecks in several areas, the model of Probert, Platts en Cannez (further Probert) will be used in this thesis as main frame. The model of Probert will analyze the factors technology and manufacturing, costing, support systems and supply chain management and logistics separate. This can unravel the complex situation in Zwolle with more than 600 active code numbers and bottlenecks on several areas. The three phases, preparation phase, data collection phase and the analysis and results phase, will give a manual to follow in this research to outsourcing. At these phases it is possible to insert extra elements in this model. Some of these elements comes from the described models above, besides, we discuss the importance of the customer in an outsourcing process with the consideration of Kraljic(1983) Deshpande(1999) and Srivastava (1999). Customers are the reason for a firm to exist. That is the reason these articles tell about the service level to customers and “customercentric” focus of a company.
This model will lead to an outline of important factors for the outsourcing of
BCcomponents. With these factors an outsourcing model will be made in the results phase with significance factors for a long term success in the logistic area.
Structure of the model
The combination of the model of Probert with several extra elements gives a useable model with three phases:
1) Preparation phase 2) Data collection 3) Analysis and results
Phase 1 will describe the importance factors for outsourcing pointed on the actual situation but which will probably give trouble with outsourcing to China.
Phase 2 describes the data collection for the model. Here the problem analysis is made to gather all problems with the logistics of the outsourcings process to satisfy the demand of customers. These problems are checked on phase 1, which leads to critical success
factors.
Phase 3. The critical success factors from phase 2, for a long term logistic success are analyzed on all code numbers in phase 3. These code numbers are analyzed in an outsourcing model.
§6.1. Phase 1 Preparation phase
In the preparation phase the importance factors for outsourcing will be discussed to make a well-considered decision, to make a long term success possible.
Actual situation
Like in many other organizations, consumers are the middle point of BCcomponents in 2006. Every asked product can be made and technical questions are answered fast and well-founded. The lead time of the products is short and the quality of the products is high. That makes the core activities of BCcomponents Zwolle;
High quality on products and service.
But with the outsourcing to China this actual core competences could be change, or not?
§6.1.1. Importance factors for outsourcing
In Chapter 3 the goal for the outsourcing process is described as to relocate the
production of snap-ins and screw terminals from Zwolle to China to reduce the total cost of products, with maintaining the customers, sales, product quality and logistic
performance. The goal to lower the cost will be satisfied with a low-cost supplier in China. But with a supplier in China there is less control over the production and quality of products, besides the lead time with a supplier in China becomes longer. While
according to a survey of Liu et al19 quality and delivery are extreme importance factors as a vendor selection criterion, while price is less important. This can be seen in the table beneath.
Rank Factor
mean
rating evaluation
1 Quality 3,51 extreme important
2 Delivery 3,42
3 Performance history 3,00
4 Warranties and claim policies 2,85
5 Production facilities and capacity 2,78 considerable important
6 Price 2,76
7 Technical capability 2,55
8 Financial position 2,54
9 Procedural compliance 2,49
10 communication systems 2,43 average important
Table 2. Vendor selection criteria
According to this survey quality and delivery are very important for customers. This makes the outsourcing process complex, because these factors are difficult to maintain with a supplier in China.
With the same conclusion from two different reports it is necessary to keep this
information in mind for this outsourcing process. Because no company will survive low costs, with only a few satisfied customers.
§6.1.2. Sensibility of customers
With the information of the last paragraph it is important to know the sensibility of these customers. Is it easy to find another supplier of capacitors? This is analyzed with the portfolio matrix of Kraljic20
This matrix is divided in four areas, Routine products, Bottleneck products, Leverage products and Strategic products. With on the x-as, number of suppliers and on the y-as, Financial impact.
Financial impact
Code numbers which have a large margin for BCcomponents comes in the leverage or strategic area. Code numbers which have a low margin comes in the Routine or bottleneck area.
Number of suppliers
When a code number is available at a lot of suppliers, it is a routine or leverage product. When the same code number is available at only a few suppliers it is a bottleneck or strategic product. This leads to figure 11.21
fig 11. Kraljic portfolio matrix
To analyze the sensibility of customers data of the Disti’s and OEM’s are used.
Both are displayed on the matrix of Kraljic in the area which kind of products they order. OEM’s, with customers in the automotive sector, require high quality on products. Because of this, there are only a few suppliers which can satisfy these demands, which results in a complex supply market for these customers with only a few suppliers. The factor on the vertical axis of the model, the financial impact can differ between OEM’s. This because some customers order products which have a large variable margin while other OEM’s orders a component with a low variable margin.
This in contrast with the disti’s, in general the disti’s have less high requirements on products. This result in more possible suppliers for these customers, and these customers can switch easier from supplier. The financial impact for disti’s differs between
customers. That is why disti’s stand between leverage products and routine products. This matrix shows the importance of performance. Because a large part of the sales are from disti’s while these customers can switch relative easy from supplier. This
strengthens the importance to keep these customers satisfied, with factors like quality and delivery, before they walk away to another supplier.
Conclusion phase 1
Phase 1 shows the importance of a reliable delivery to customers with the formulated core business of BCcomponents; High quality on products and service.
The model from Kraljic shows the main part of the customers could easily change from supplier of capacitors. To keep these customers satisfied the long term delivery of products must be met the demand of customers. This means with a high quality, service and a reliable delivery.
§6.2. Phase 2 Data collection
In this second phase the problems will be analyzed using the framework of Probert, directed on the logistics from outsourcing and delivery form stock.
§6.2.1. Problem Analysis
The problems are assigned by employees of BCcomponents and will be analyzed using the four areas of Probert: technology & manufacturing process, costing, support systems and supply chain & logistics (See appendix 1). In the diagram below the problems with outsourcing to China and delivery from stock are divided in these areas. These will be discussed below this table.
Technology & manufacturing process Supply chain & logistics
The complexity of number of products with more
problems in China.
The complexity of technical products with different kind of foils and voltages between
products will lead to problems in China. The large quantity of low sales code numbers which need to stay in Zwolle Not all the special products from Zwolle can be
outsourced to China
Transport from China through Zwolle to customer and from Zwolle to China by boat or airplane?
The minimum batch size at HEC is 200 m2 foil How to predict the demand for products more precisely? During the project there is a weak negotiation
position, because suppliers think Zwolle will be closed
The impact of delivery reliability of manufacturer and suppliers
The production of samples in China take much time, but samples from Zwolle are different
Costing Support systems
Lose sales by loosing customers The communication between Zwolle and China
The delivery cost of items from China to Zwolle Systems in China
Table 3. Problems with outsourcing and delivery from stock
§6.2.2.Technology & manufacturing process
The biggest problem in this area is the difference between BCcomponents and HEC. HEC is a firm where almost everything is done by hand while the work quantities they produce leads to economics of scale. BCcomponents works the opposite: everything what can be automated is automated, while they work with low quantities which lead to
economics of scope.22 This provides the following problems:
The complexity of number of products
The extensive catalogue leads to more than 600 different products which have to be manufactured in Zwolle. This is in contrast with HEC, where they have only 100
different products. When a lot of these 600 code numbers are manufactured at HEC they will get problems with the complexity of the number of new code numbers.
Complexity of technical products
The complexity of technical products is about the kind of products used in a component. If two components have two different voltages, two different foils are necessary. Besides, different components need different tubes, discs and electrolytes. Another kind of
complexity of technical products is a code number which can not be made in China. These code numbers have special properties or special technical specification and it is not possible or unwise to manufacture these code numbers in China.
Special products
Another difficulty with outsourcing in this area, are the specialties of products. Products especially made for customers, which leads to special desires. The customers of these
specialties dictate high requirements on products which need other ISO-norms. Because HEC has not the required ISO-norms for these code numbers, these specialties will still need to be manufactured in Zwolle
Batch size
The batch size is the minimal order quantity. By HEC this order size depends on a roll of foil which has to be used in one time. Because of this criterion the minimum batch size at HEC is 200m2 foil, which means a minimum order quantity for some code numbers of
17.000 products.
Negotiation position
This is a temporarily problem. Because Zwolle is phasing out her products, the demand for raw materials falls. The suppliers of Zwolle are thinking that, when the demand is falling, the demand will stop eventually. Another reason for the suppliers to think this, is that they know that (a part of) Zwolle will be taken over by China. The result of this is that suppliers let other customers come first, and Zwolle is the last one which will be delivered. This causes materials stock outs and delayed products.
Samples
Also the samples customers get when they want a new component gives a difficulty. Samples from HEC last too long because sometimes materials are not on stock to
manufacture the product. Besides, the transport time from China to customers takes long. But samples from Zwolle are different from the products they will finally receive from HEC.
§6.2.3. Supply chain & logistics
The problem that arises here is the cause of the switch from a reasonably simply logistic chain to a complex situation with China. This makes the transport of products to
customers more complex, with the following problems:
Inventory control in Zwolle
Through the change from manufacturing to order, to manufacturing to stock,
BCcomponents get more stock in Zwolle. Keeping stock is expensive through risks and stock costs, but necessary to catch the fluctuating demands of customers. Because the demand from customers is irregular this will lead to problems with keeping the inventory in control. Besides, customers stop demanding products, or products are popular in a short time. These problems make it difficult to forecast the level of necessary stock. So the factors to decide the stock level should be chosen carefully to prevent the firm from high stock costs and a high ratio of unsaleable stock.
The large number of low sales code numbers
A lot of code numbers have low sales. These code numbers will need to be manufactured in Zwolle, but makes the remaining situation in Zwolle very complex. When the fast
selling code numbers are outsourced a lot of code numbers remain with low production quantities a year. What are possibilities with these code numbers?
Transport
With this outsourcing project the products have to be transported from China to the customers. For the transport from China to Zwolle there are two possibilities, by boat or by airplane. A transport by boat will lead to relative low cost but has as disadvantage a long lead time. The transport by airplane leads to high costs but a shorter lead time. For both options the lead time from China to the customers in Europe is longer than the lead time in the past (from Zwolle to the customers in Europe.)
Another transport problem gives the products from Zwolle which are sometimes needed in China. The low volt foils which are produced in Zwolle have to be transport to China because of the high quality of these products. Other items which have to be transported to China are machinery, and sometimes tubes.
Predict the demand of code numbers
Another problem when a company switches to make to stock is the reliability of the forecast of products. It is very important to predict the demand precisely if the products are made to stock.
The delivery reliability of manufacturer and suppliers
Delivery reliability is not always high with a supplier in China. First the suppliers have to deliver on time and second the manufacturer has to fabricate the product in the promised time. But this is not usual in China.
§6.2.4. Costing
The major reason for outsourcing is the low cost price in China. Besides this advantage, there are several risks and other costs that must be noticed.
Loosing customers
As said in the supply chain and logistic area the delivery reliability is not always high with a supplier in China. Because of this, there is a possibility that customers will be disappointed and walk away after a late delivery.
Delivery and reliability to customers could only be catch by the performance of HEC and the amount of stock. But with keeping stock based on the historical level of demand, the products could be out of stock. From phase 1 is known distributors are very sensitive and walk away fast to another producer of components. Besides that, customers can stop ordering at Zwolle and order their product direct at the producer in China. The result of this is that Zwolle will lose customers and sales.
The delivery costs
The largest part of the delivery costs are the costs to ship or fly the products from China to Zwolle to customers. These costs depend on how many times a year there will be a
§6.2.5. Support Systems
The situation between HEC and Zwolle has to be tuned. But not only the different languages are the problem in this area.
Communication
The communication is difficult because there is a barrier in the language and distance between China and The Netherlands. In China there is only one man who has contact with the company in Zwolle and who speaks English. Because the rest of the employees in China cannot speak English, all the communication from Zwolle to China has to cross this person first, and he has to communicate it to the Chinese people. This makes it difficult to make an engagement between the two companies.
Systems in China
Besides the human communication, it is difficult to link ERP systems like Baan and Cats Lopic to the systems in China, because China does not work with automatic systems. China uses pen and paper to schedule the production and keep the stock up to date. This leads to problems when materials in supply are not allocated when they are addressed for a production item, so the same material can be given away several times for several products. Besides that it is impossible to see which finished products are ready to ship. This makes it very difficult to tune both desires and impossible to get insight in the way they produce.
§6.3. Conclusion phase 2
After this problem analyze with the four areas of Probert a lot of problems are indicated. Only the problems which influence the research objective of this thesis and the points discussed in phase 1 that influences the core activities or have impact on customers on the long term will be handled in the analyze and results phase.
Scope of the thesis
Research objective
Analyze all factors by series, from which one can conclude which products stay in Zwolle, which products will be produced in China and which products will be delivered from stock, while the lead time for the customers stays constant.
Phase 1
core activities of BCcomponents Zwolle
High quality on products and service
Impact on customers
Quality, logistics and service of capacitors are the important factors for customers
This means the following problems will be analyzed on all code numbers in the analyze and results phase (phase 3).
Technology & manufacturing process
• The complexity of number of products with more than 600 different code numbers
• The complexity of technical products with different kind of foils and voltages between products
• The special products in Zwolle that can not be outsourced • The minimum batch size at HEC is 200 m2 foil (one roll of foil) Supply chain & logistics
• Inventory control
• The large quantity of low sales code numbers which need to stay in Zwolle
• The impact of stop producing not transferable items on the firm Costing
• Lose sales by loosing customers
• The impact of delivery reliability of manufacturers and suppliers The support systems will not be analyzed in the analyze and results phase because this area fall out of the scope of this thesis. This did not mean the area is unimportant for a long term success, but shall be discussed in another research. This is the same for the other problems that will not be discussed in the next phase.
Chapter 7 The outsourceable code numbers
The outsourcing model, calculated with the factors defined in phase 2, provides an outcome from which each product is analyzed for manufacturing in China or Zwolle. This is described in the last phase of the model of Probert.
§7.1. Phase 3 Analysis and results
This outsourcing model will define the production location for each code number. The outsourcing model will also lead to other recommendations. For code numbers that will be manufactured in China, the model will define several logistic indicators for an optimal outsourcing process. Besides, the model will indicate which action has to be taken to customers, to prevent from obsolete stock.
The important factors from phase 2 that will be discussed in this analysis and result phase are:
1. The complexity of number of products with more than 600 different code numbers
2. The complexity of technical products with different kind of foils and voltages between products
3. The special products in Zwolle that can not be outsourced 4. The minimum batch size at HEC is 200 m2 foil (one roll of foil) 5. Inventory control
6. The large quantity of low sales code numbers which need to stay in Zwolle 7. The impact of stop producing not transferable items on the firm
8. Lose sales by loosing customers
9. The impact of delivery reliability of manufacturers and suppliers
The model analyses all eventually possible outsourceable products, this means an analysis of more than 650 products, divided over Screw Terminal, Snap in and Din PW, all with an irregular demand. As input for the outsourcing model, the historical data from 2006 is used. This means that all calculations are made on historical data.
The outsourcing model will be analyzed in two parts. The first part deals with the decision of manufacturing in Zwolle or China, and the second part covers the amount of stock of products from China (chapter 8). In Chapter 9 the code numbers which are not outsourceable are described.
§7.2. Production Zwolle or China
The first aim of this model is to define the products which are transferable for
manufacturing in China. Therefore all code numbers are categorized in three different areas: Easy Transferable (ET), Risky Easy Transferable (RET) and Not Easy
Transferable. The ET’s code numbers are outsourceable without risks, the RET’s are outsourceable with risks and the NET’s are not outsourceable. This segmentation is made
based on the problems discussed in phase 2 and are worked out in this phase to
measurable indicators. With this analyze it is possible to define the risks for outsourcing of each code number.
Factor from phase 2
ET BCcomponents Indicator Described in
paragraph
1,5 High production
quantities a year ABC model (Schönsleben) §7.3.1.
5 High continuousness of
demand
XYZ model (Schönsleben)
§7.3.2.
5 A lot of customers per
product
Customer model §7.3.4.
2 Products simple to
manufacture Complexity model §7.3.5.
3 Products which do not
need ISO-TS norms ISO model §7.3.6.
ET HEC
4 (very) High production
quantities a year One roll of foil §7.3.6.
Table 4. The properties of Easy Transferable (ET) with indicators.
The last factors from phase 2 are described in the following paragraphs
Factor from phase 2 described Paragraph
The large quantity of low sales code numbers
which need to stay in Zwolle Manufacturing Zwolle §9.1
The impact of stop producing not transferable
items on the firm Manufacturing Zwolle §9.3.1
Lose sales by loosing customers Inventory level §8.2.
The impact of delivery reliability of
manufacturers and suppliers Inventory level §8.2.
Table 5. The properties of Easy Transferable (ET).
When the above mentioned models are analyzed all code numbers get an Easy
Transferable (ET), Risky Transferable (RET) or a Not Easy Transferable (NET) sign. This is summarized in the table below. A detailed explanation of this table is described after the description of the used models.
Factor
satisfy ET satisfy RET satisfy NET
High production quantities a year A,B A,B A,B,C,Cstop
High continuousness of demand X,Y (in combination with
A also Z) X,Y (in combination with A also Z) X,Y,Z Products simple to manufacture no technical difficulties no technical difficulties -
Products which do need ISO-TS norms No No -
≥400m2 foil a year Yes no no
§7.3. ABC XYZ model
In this paragraph we will describe the first two factors of table 5, the properties of production quantity and the continuousness of demand. This will be described with a combination of an ABC model and a XYZ model, this model distinguishes two things. ABC distinguishes code numbers with fast selling quantities a year (A) from code numbers with low selling quantities (C). XYZ distinguishes continuousness of demand from code numbers. When a code number has a regular demand, the code number falls into the X category. With an irregular demand, the code number falls into a Z category.
§7.3.1. ABC classification
The ABC model divides a set of items into classes; A, B and C, and if desired extended with other classes. Another name for this classification is Pareto Analyses23. With this analysis it is possible to get an overview of the production level of different code numbers.
To group the code numbers, assumptions have to be made about the limits for group A, B and C. Group A is the group with fast moving code numbers, group B the group with less fast moving code numbers and so on. On old rule is the Pareto’s 80-20 rule: 80% percent of the effects comes from 20% of the causes. This means that 80% of the total production comes from 20% of the code numbers. With this rule, it is acceptable to limit A to 80 % of the effects, B between 80% and 95% and C the rest (95% till 100%).
Group Sales
A 0-80% B 81-95% C 96-100%
When this model is used on the data of 2006, it gives the results in figure 13. This means that the Pareto’s old rule was suitable for the production in 2006 of BCcomponents. From which concluded that a small percentage of code numbers made up most of the products (and sales). The assumption is made that 2006 was an average year which means that this Pareto’s rule is useable for BCcomponents. This classification of items (fig. 14)
prioritizes the products and helps controlling the inventory for future years.
Sales 0% 20% 40% 60% 80% 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% code no (in %) sale s ( in %) Sales
fig 13. Pareto’s 80-20 rule suitable for the production at BCcomponents
Production 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% code no (in %) production (i n %) production
A B C Very low production quantity
fig 14. Categorizing code numbers SI and Din PW. (ST gives the same figure)
Fig 14 shows a large area with low sold code numbers. This major part of the figure has very low sales quantities. Further we name these very low production quantities code
total sales, while these code numbers makes the manufacturing far more complex. In chapter x the possibility to stop these code numbers are discussed. Because a lower amount of code numbers means a less complex logistic chain and a less complicated manufacturing process. Standardizing means less different materials and lower stock costs.
The production in Zwolle exists of several types of capacitors. Three of them can be outsourced to China: Snap In, Din PW and Screw Terminal (ST) (See chapter 2). Snap In and Din PW have almost the same order quantities per type but Screw terminal has a much lower demand per type per year. To make an accurate ABC analysis possible, a difference is made between Snap In (SI), Din PW (Din), and Screw terminal (ST). The areas of A, B, C or Cstop are displayed in the table below.
A B C Cstop
SI/Din 10.000≥ >2.000<10.000 >1.000≤2.000 ≤1000
ST 2.000≥ >1.000<2.000 >500≤1.000 ≤500
Table 6. The amount of products per area
This leads to the following data:
SI/Din ABC # code no % products
A 130 83%
B 150 12%
C 79 2%
Cstop 221 1%
ST ABC # code no % products
A 18 2%
B 15 0%
C 24 0%
Cstop 123 0%
total 760 100%
Table 7. ABC classification
The table shows the difference in quantities between SI/Din and ST, an A category with large sales and less code numbers. And a Cstop category with less sales but a lot of code numbers.
§7.3.2. XYZ Classification
The products which will be produced in China will be put on stock. Because the costs have to be minimal and the chance of obsolete stock low, the demand for products should
