C ONTROLLING THE ORDER FLOW IN A JOB SHOP

C ONTROLLING THE ORDER FLOW IN A JOB SHOP

Order acceptance, order release, shop floor control and information flows considered at Eaton Electric General Supplies

A

B

C ONTROLLING THE ORDER FLOW IN A JOB SHOP

Order acceptance, order release, shop floor control and information flows considered at Eaton Electric General Supplies

Master Thesis

University of Groningen

Faculty of Management and Organization

Technology Management

Author: Annet Borgstede

Student Number: 1226649

Company: Eaton Electric General Supplies Primary Supervisor: Dr. Ir. J. Slomp

Secondary Supervisor: Dr. J.A.C. Bokhorst

P REFACE

The memory of my first lecture is fresh in my mind; in a big hall listening to a professor together with 500 other management students. Now five years later I have reached the final stage by writing this thesis. This is the final stage of my study technology management, which I have followed with pleasure. The internship together with my research was the best opportunity to change my theoretical insight into practical solutions. I learned a lot during the eight months working in Hengelo, things that I could never have experienced in a lecture.

I would like to take the opportunity to thank some people. First of all my supervisors from the University of Groningen, Jannes Slomp and Jos Bokhorst, for their critical insights and hands comments of possible solutions and improvements. Without their feedback I would not have been able to reach this result.

I would also like to thank Han Busschers for the opportunity he gave me to see different aspects of the organization and the possibility for me to join some project teams, above all for the support and feedback he gave me during this project. Thanks also to my colleagues at EEGS, who make my time in Hengelo a pleasure one.

And finally thanks to Cecilia and Kirsty Koppenrade for correcting my English, which was among the most challenging part of writing this thesis.

Groningen, Oktober 2005

T ABLE OF CONTENTS

PREFACE ... 3

TABLE OF CONTENTS ... 4

MANAGEMENT SUMMARY... 6

INTRODUCTION ... 8

1 EATON CORPORATION, EATON HOLEC & GENERAL SUPPLIES ... 10

1.1 EATON CORPORATION... 10

1.2 EATON ELECTRIC &EATON HOLEC... 11

1.3 GENERAL SUPPLIES... 12

1.3.1 Organization... 13

1.3.2 Operations & Product Lines... 14

1.4 ACQUISITION BY EATON... 17

RESUME... 17

2 LEAD TIME OF ORDERS ... 18

2.1 ORIGIN OF THE RESEARCH... 18

2.2 FRAMEWORK FOR DIAGNOSIS... 19

2.2.1 Order Flow ... 20

2.2.2 Parameters... 20

2.3 PROBLEMS... 22

RESUME... 28

3 RESEARCH OUTLINE... 29

3.1 PROBLEM DEFINITION... 29

3.2 RESEARCH APPROACH... 31

3.2.1 Value Stream Mapping ... 32

3.2.2 Prisma Diagram ... 33

3.2.3 Job Shop Model ... 33

4 CURRENT SITUATION ... 35

4.1 CURRENT STATE OF VALUE STREAM MAP... 35

4.2 ORDER ENTRY... 37

4.2.1 Demand Characteristics ... 37

4.2.2 MRP Orders... 38

4.2.3 PRP Orders... 39

4.2.4 Kanban Orders ... 39

4.3 ORDER RELEASE... 40

4.4 SHOP FLOOR... 41

4.5 PRISMA MODEL... 42

4.5.1 Information Flows ... 44

4.5.2 Meeting Structure ... 47

RESUME... 48

5 THEORETICAL INSIGHTS ... 49

5.1 PLANNING HORIZON... 49

5.2 ORDER RELEASE &WORKLOAD CONTROL... 50

RESUME OF DIAGNOSTIC PHASE... 52

6 DESIGN ... 53

6.1 THE FUTURE STATE OF THE VALUE STREAM MAP... 53

6.1.1 Order Entry... 53

6.1.2 Order Release ... 56

6.1.3 Shop Floor ... 58

6.1.4 Planning Horizon... 58

6.2 INFORMATION FLOWS... 59

6.3 COORDINATION... 66

6.3.1 Reciprocal Interdependencies... 66

6.2.2 Sequential Interdependencies ... 67

RESUME DESIGN PHASE... 68

7 CHANGE... 69

7.1 CHANGE... 69

7.1.1 Practical Changes ... 70

7.2 A^CTION P^LAN... 70

RESUME CHANGE PHASE... 73

8 CONCLUSION ... 74

8.1 CONCLUSION... 74

8.2 RECOMMENDATION FOR FURTHER RESEARCH... 75

8.3 R^EFLECTION... 76

LITERATURE LIST... 77

APPENDIX 1:ASPECTS OF EATON BUSINESS SYSTEM... 78

A^PPENDIX 2:T^{OOLS OF} E^ATON L^EAN S^YSTEM... 79

APPENDIX 3:EXAMPLE WORKING LIST OPERATOR (BENDING)... 80

APPENDIX 4:EXAMPLE OF CAPACITY PLANNING OF TURNING &MILLING... 81

M ANAGEMENT S UMMARY

This research was performed at Eaton Electric General Supplies (EEGS). EEGS produces metal components for the products of Eaton Electric B.V. (EEBV or Eaton Holec). The end products of EEBV are electronical systems, which are used in the energy network. The production of EEGS can be characterised as a job shop environment with a high variety of products and low volumes. General Supplies consists of four product lines, these are sheet metal, turning & milling, copper bars and punching. For this research a problem solving method was used, which consists of three phases:

Diagnosis, Design and Change. In the diagnostic phase a problem analysis has been performed to define the three main problems. These are: the fluctuating demand in combination with a short planning horizon, unreliable due dates and bad controlling on the shop floor. From these problems the objective of this research has been derived.

Develop a solution for EEGS to control the order flow and improve the coordination between General Supplies and internal customers, with the intention that EEGS becomes a reliable, quick and flexible supplier for the assembly lines of the internal customers.

To describe the current situation two methods are used: the value stream mapping (VSM) method and the prisma diagram. The VSM method is used to visualize the process steps of the order flow, the prisma diagram is used to visualize the information flows needed for controlling the order flow. The job shop model is a modelling method, which is used to describe, judge and develop the controlling process. The elements of the job shop model are order entry, order release and shop floor. From every element first the current situation will be explained and after that the redesign.

Order entry

At the moment there is no order entry, all orders of the customer are accepted. A problem is that not all orders have reliable due dates. A lot of orders have due dates in the past or within the lead time.

This causes a lot of priority problems. The planning horizon of General Supplies is only two weeks ahead, which is too short to make right capacity decisions. Another complexity is the fluctuating character of demand especially in combination with the short planning horizon. The capacity is not flexible enough to increase or decrease in such a short time. This causes high backlogs and as a consequence longer lead times.

In the design a proposal has been made to implement order acceptance criteria to get reliable delivery dates. The second element is to enlarge the planning horizon, but to reach this, the customer has to release the orders earlier to EEGS and to share information about their own prognosis. To create this willingness of the customer a better coordination system needs to be implemented. The planner of EEGS has a meeting with the supply chain specialist of the assembly line, in this meeting the rush orders, the project planning and performance of General Supplies can be discussed.

Order release

The current order release mechanism is based on a priority system. This priority system consists of different codes. The highest priority is code 100, which are the rush orders. The customer decides which orders are rush orders and the planner of EEGS gives the order code 100. The other codes are for kanban orders, backlog and normal orders. Orders with code 100, 200 and orders with a long lead time will be released first. The biggest problems with releasing are that the shop load is not taken into account. Second, there is no structure in when orders and how much orders have to be released.

In the design the proposal is that order release has to take place on a daily base. The orders need to be released three or five days before start date. The planner has to take the shop load into account. This information has to be obtained from the supervisor in the production team meeting. On the other hand, the planner will have to obtain information from the customer about which orders have priority and need to be released. It is important that supervisor and planner make quick capacity decisions to increase or decrease the capacity by overtime, temporary people or allocating operators. This will cause fewer backlogs and a constant low level of work in process, which result in a shorter lead time.

Shop floor

The final important element is the shop floor control. At the moment, the orders from the planner first go to the supervisor. The supervisor has to divide the orders over the machines, which is not a value adding activity and costs a lot of time. There is no constant flow from planner to supervisor, which causes an unstable work in process level. From the planning system, the operator can print out a working list based on priorities, however this does not work for all the product lines. At the moment, the number of rush orders is too high, which causes a lot of interruptions in the production process.

In the new design orders directly go from the planning to the first operation. The operator has to work according to the working list, orders his own material, writes off his/her operations and registers scrap.

Another important point for operators is that they have to pass problems with orders, like missing files, wrong machine program or material problems, directly to the supervisor. For rush orders, some criteria are arranged to keep the level of rush orders as low as possible.

To implement the new design working methods of planners, supervisors, operators and customers should be changed. To make this change a success, the effort of involved employees will be needed to implement the design. The design consists of an internal and an external part. The internal improvement focus on the controlling of the order flow and the information flows at EEGS. The external part focuses on the coordination between the planner and customer. It is important to start with the internal part, because this will improve the performance of General Supplies. With a better performance, the willingness of the customer to change its ordering pattern will be higher.

Implementing this design will cause a controllable level of work in process synchronised with the available capacity. Using the new meeting structure better capacity decisions will be made. If the coordination between the customer and EEGS will improve the data will become reliable and EEGS will get a longer planning horizon.

I NTRODUCTION

This research has been performed at Eaton Electric General Supplies (EEGS). General Supplies produces metal components for the products of Eaton Holec; electrical systems for the medium and low voltage network. EEGS had no clearly specified project description, the overall question was to look at the controlling of the production process with the goal to reduce total lead time. To get insight into the reason for this long lead time and find a suitable solution to reduce the lead time, a research model has been used to structure the research. The model is a guideline for this thesis, as can be seen in figure 0.1. By using this framework a structural approach is underlying this research.

The framework is derived from a problem solving methodology, called the diagnosis-design-change model (De Leeuw 2001). This model is specifically appropriate for problem solving research. The problems of EEGS have not yet been clearly defined, so the diagnostic part will start to define the main problems. The rest of the diagnosis is used to describe and judge the current situation. This is necessary to find possibilities for improvements. In the design phase the solution will be generated to solve the problems and improve the current situation. The final part of the model is change. In this phase the new design needs to be implemented, to do this some changes will be needed in the organization.

Diagnosis

Problem mess Chapter 2

Research outline Chapter 3

Description & judgement of current situation

Chapter 4

Design

Redesign Chapter 6

Change

Planning horizon &

workload control Chapter 5

Design question Chapter 5

Diagnostic question Chapter 2 Description company

Chapter 1

In the framework in figure 0.1 the problem-solving model is arranged for this specific research. Three different phases can be seen: diagnosis, design and change. The diagnostic phase starts with a description of Eaton Corporation, Eaton Holec and General Supplies to get the context of the research clear. Chapter two starts with a really wide diagnostic question derived from the origin of the research.

In the second part of the chapter a problem mess is used to get an overview of the current problems of EEGS. At the end of the problem mess, the main problems are indicated. The research outline is given based on the outcomes of the problems mess. In chapter four a further description and judgment is given of the current situation regarding to the controlling of the order flow and information flows. In chapter five some theoretical insights will be introduced. At the end of the diagnostic phase, in chapter five, the design question will be introduced. In chapter six an answer will be given on the design question by generating a new design. The new design consists of improvements for controlling the order flow and for the meeting structure based on the information flows. The design is a quite practical solution; in the final chapter an implementation plan will be introduced to implement the new design.

The final chapter of the thesis will be conclusion and recommendation for further research.

1 E ATON C ORPORATION , E ATON H OLEC & G ENERAL S UPPLIES

This chapter will describe different disciplines of the company. The research is performed at Eaton Electric General Supplies (EEGS), a department of Eaton Electric B.V. (or Eaton Holec). General Supplies is an internal supplier for the assembly lines of Eaton Holec. Eaton Holec is a business unit of Eaton Electric and Eaton Electric is one of the four divisions of Eaton Corporation. In the following paragraphs Eaton Corporation, Eaton Electric & Holec and General Supplies will be discussed.

General Supplies will be highlighted comprehensively in paragraph 1.3, because this research focuses on this department. In February 2003 General Supplies and Holec were taken over by Eaton, paragraph 1.4 will emphasize the most important changes of this acquisition. By reading this chapter, the reader will get insight into the company and how the relations are between General Supplies and their internal customers.

1.1 E

C

Eaton Corporation is a diversified industrial manufacturer, which makes products in four divisions:

fluid power, electrical, automotive and trucks. Eaton Corporation had an annual sales of $9.8 billion in 2004, has 55.000 employees and sells her products in more than 125 countries. Eaton is leader in fluid power systems, electrical power quality and control, automotive engine, air management, intelligent drive train and safety for trucks and heavy vehicles. Eaton sells its products to different markets, like automotive, truck, industrial facilities and utilities, heavy equipment, defence, telecom and aerospace.

Eaton has developed a business system to give all business units the same structure of doing business.

The Eaton business system is a framework to manage the different Eaton plants as an integrated worldwide operating company in order to exceed rising performance expectations of all their stakeholders. The Eaton business system is the foundation for growth and operational excellence and drives to standardization and best practices. It consists of a common philosophy, set of values, working capital, cost savings, operating margins, management tools and measures, which focus on improving the introduction of new products. The business system consists of the following five elements: foundation, planning, growth & operational excellence, assessment and learning. These elements are discussed in appendix 1, because they have their influence on the business processes by Eaton but have no direct influence on my research.

One important element of the Eaton business system is the Eaton lean system. This lean system has an enormous impact on the production process within Eaton Holec and also General Supplies. The philosophy of lean is to reduce time between customer order and actual delivery. To reduce this time, lean requires that all types of waste are identified, prioritised and eliminated. There are seven different sorts of waste: unnecessary processing, inventory, transportation, defects, overproduction, motion and waiting. To implement a lean based production process, Eaton introduced seven tools to reduce waste, these tools are: value stream mapping, 5S, standardized work, total productive maintenance, error proofing, set up reduction, continuous flow manufacturing, pull system. The tools will be explained in

be generated. Value stream mapping is the first step of implementing the lean philosophy, after that other tools will be used to solve the problems. This method will be used in this research; a further explanation will be given in chapter three. Continuous flow is defined as movement of material from one value- added process to another and keeps transporting time, buffers and work in process as low as possible. The ultimate goal is that the product flow exactly matches the customers’ demand.

1.2 E

E

& E

H

Eaton Holec or Eaton Electric B.V. (EEBV) in Hengelo is part of Eaton Electric. Eaton Electric is the second largest segment of Eaton Corporation; they make electrical power distribution and control equipment for industrial, commercial and residential markets. The electric division makes products for applications in different markets, like residential housing, commercial buildings, machinery builders, industrial plants and utilities. 14.000 employees are working for the electrical department spread over 57 factories in 19 countries.

Eaton Holec consists of five departments: Medium Voltage Systems, Low Voltage Systems, Low Voltage Components, Service and General Supplies. The departments Medium and Low Voltage Systems assemble products. Low Voltage Components and General Supplies are the departments that produce the components for the assembly lines. The department Service is dealing with the after sales service.

The organization of Eaton Holec is shown in figure 1.1. This organization can be seen as a matrix organization. A matrix organization has exactly two structures, a functional and product or market related. In a cluster every resource has two authorities, one of the functional group and one of the divisions.

Marketing R&D

Sales Staff

Eaton Holec Supply

Chain

Operations

Low Voltage Systems Medium Voltage Systems

Service

Low Voltage Components

General Supplies

Figure 1.1: Organization of Eaton Holec (Eaton Electric B.V.)

A 1.000 people work at Eaton Holec. The vision of Eaton Holec is “from a strong position in the Netherlands we are able to develop, produce, sell and maintain profitable products and services for the home and foreign market, to switch, to divide, to control and to save electric energy”.

Figure 1.2: Energy Network

Eaton Holec offers switchgear systems and components for energy distribution in main stations, sub distribution stations, transformer stations, cable distribution and residential applications. The products of Eaton Holec are suitable for the whole energy network, which is shown in figure 1.2. Eaton Holec produces products like switch installations, switch components and distribution systems. There are 17 different assembly lines at the plant in Hengelo, which all produce their own products.

1.3 G

S

General Supplies is an internal supplier of metal components for Low Voltage Systems, Medium Voltage Systems, Low Voltage Components and Service. The products of General Supplies can be made out of all sorts of metal, like steel, copper and aluminum. At the moment General Supplies can make about 1200 different products. The products are components and semi manufactured products for the end products of Eaton Holec. General Supplies performs operations like sheet steel operations, powder coating, punching, copper bars operations, turning, milling and design and production of matrixes. EEGS is divided into five product lines, these are: sheet metal, turning and milling, copper bars, punching and tool shop. General Supplies can be seen as a link in the supply chain. The internal customers of EEGS are the assembly lines of Low and Medium Voltage Systems, Low Voltage Components and Service. On the other hand, the suppliers of EEGS are the suppliers of raw material and semi-manufactured products. In the following sub paragraphs attention will be given to the organization of General Supplies and the different operations and product lines.

The products of EEGS can be characterized as high variety and low volume products, to deal with this sort of product a job shop lay out is the best option. In a job shop environment, every job has it own routing and jobs go from one work center to another. Problems of a job shop are long waiting times and high levels of work in process, this is because of the different operations for every order. The required time at a workstation is for every job different and all jobs do not have to go to all workstations.

1.3.1 O

The organization of General Supplies can be seen in figure 1.3. General Supplies consists of 143 employees. The staff functions, like finance, HRM and IT are centrally organized for all the departments of Eaton Electric BV. The staff functions are physically located by low and medium voltage systems. The product lines of General Supplies and people of supply chain who are working for EEGS are located in one hall. Supply chain is responsible for the material availability and the controlling of the outsourced orders. Production is responsible for the work in process warehouses.

Sheet Metal and Copper Bars

Toolshop General Manager

Operation Manager

Order Department Process Planning Planning Construction

Production Mechanism Technical Service

Turning & Milling and Punching

Figure 1.3: Organization Chart Eaton Electric General Supplies

The overall organization structure of EEBV is a matrix organization. That is the reason for absence of supply chain and other staff functions in the organizational chart of EEGS. The organization of EEGS is structured in a functional way. The machines in the product lines are clustered based on product characteristics. One product line makes a set of standard products. The choice for a product line is in most cases depending on the sort of material: sheets, bars or staff material. The characteristics of the product lines will be explained in paragraph 1.3.2.

Technical service is also a part of the organization of EEGS, although they work for the complete Eaton Holec organization. The technical service deals with repair and maintenance of all machines in production and assembly processes. The other staff function is the order desk. This department consists of four divisions: process planning, planning, construction and production mechanism.

Process planning, planning and production mechanism are focused on the product lines, construction is specifically for the design of the matrixes. The tool shop, technical service, construction and production mechanism will get no further attention, because this is out of the scope of this research.

1.3.2 O

& P

L

The production works with a two-shift system. One shift starts early in the morning, the other in the afternoon. Only operators and two of the four supervisors work in the shift. The order desk, tool shop and technical service work in a day shift. The product lines are grouped in pairs (see figure 1.3), so sheet metal and copper bars are one section with two supervisors and turning and milling and punching also. This separation is based on location and characteristics of the product lines. Most products can be finished in one product line and sometimes there are cross relations between the product lines. In the product line the machines are grouped on functionality.

Table 1.1: Quantitative characteristics of the product lines of EEGS

To give an overview of the size of production of EEGS, some capacity parameters are shown in table 1.1. Two aspects give an indication of the capacity of EEGS. First the average delivered order in one week. This is just to give an indication for the logistics flows, because the batch size is different for every order. In the second column capacity is shown in hours. This is partly based on the number of employees and on machines that can produce unmanned.

In the next section a description of every product line will be given; centrally are the different operations and material handling. For every product line can be said that the products are finished in three or four production steps.

Product line Average number of delivered orders (in one week)

Capacity (hours/week)

Sheet metal 442 1050

Turning & milling 109 725

Copper bars 146 480

Punching 51 450

Total 748 2705

Sheet metal

In this product line all products are made of sheet metal. The products are for example doors, back or sidewalls for electrical systems. The following operations can take place: sawing, cutting, punching, bending, welding, assembly and powder coating. The possible routings through this product line are shown in figure 1.4. After punching almost all products have to be bent. The bottleneck station can vary from punching to bending to assembly, with such a changing bottleneck station; it is not possible to focus the controlling of the process on one machine. After the bending there are different possibilities of follow up operations, this can be drilling, welding and assembly. When products need a surface treatment they go to the powder coating.

Figure 1.4: Production process sheet metal

All sheet steel is stored in the work in process warehouse STOPA, which is a fully automatic warehouse from which the automatic punching machines take their raw material and the punched products will be stored back in STOPA. The bending operators can get the punched products out of STOPA. Ordering material from the central warehouse is not necessary, because it is a work in process warehouse. Low batch volumes and a high amount of orders characterize this product line.

Copper bars

In this product line products are produced from copper bars. The copper bars are mainly used in the electrical systems. The following operations can take place: bending, punching, tapping and drilling, which can be seen in the figure 1.5. Most products start directly with punching and some will first be sawn. After that the copper bars will be bent. Then the operations are different for each product, like tapping or drilling or powder coating. The copper bars, which are sourced out, need a surface treatment.

Figure 1.5: Production process copper bars

The copper bars are stored in a work in process warehouse in the beginning of the product line. The operators do not have to order material from the central warehouse. They can pull out the material from the warehouse and start production. The batch size of these orders is quite low, around 1 to 30.

The reason for this is that copper bars are mostly ordered for customer specific projects.

Turning & Milling

The products of this product line are made out of rod material. They are all little metal components used in the low voltages components, medium and low voltage systems. This product line consists of operations like CNC turning and milling, conventional turning and milling, drilling and sawing. Some raw material first has to be sawn and then goes to the turning or milling machines. After turning and milling the following operations can be tapping, drilling or outsourcing. Most products are sourced out for a surface treatment.

Figure 1.6: Production process turning & milling

This product line produces a low number of orders, but the batches size is quite high, about 100 to 1000. The reason for the higher batch size is that the turning and milling machines have high set-up times. Most of the material has to be ordered from the central warehouse, which takes a half or one day.

Punching

The products of this product line are mostly for the foundry of low voltage components. This product line consists mainly of punching machines. The other operations are sawing, drilling, tapping, soldering and surface treatment, like removing grease.

Figure 1.7: Production process punching

For this product line the material has to be ordered from the central warehouse. The batches on this product line are about 1000, because of high set-up times of the punching machines.

1.4 A

E

General Supplies has been an independent company until February 2003. Eaton has taken over Holec and also HAT (Holec Algemene Toelevering). Before 2003 General Supplies was supplier for Holec and Holec was shareholder for 40 %, but they had also external customers. The production of General Supplies was 60% for Holec and the other 40% for other customers. After the take over, EEGS had to push down their external suppliers and become an internal supplier for the assembly lines of Holec.

The sales, purchasing, finance, IT and HRM departments are joined with the Holec departments. From an external supplier the position of EEGS changed to an internal supplier. The first big changes were the implementation of the Eaton Business System and the Eaton Lean system. These systems need to be implemented as soon as possible. The second change is on organizational level. The organization of General Supplies is integrated in Eaton Holec, people had to move to other departments and get other tasks and responsibilities.

R

This chapter has shown the organizational structure of Eaton Corporation, Eaton Electric, Eaton Holec and Eaton Electric General Supplies. General Supplies is an internal supplier of Eaton Holec and is a part of the Eaton Corporation. Since February 2003 General Supplies is a part of Eaton, by this acquisition a lot of changes have taken place. EEGS makes a lot of different metal products divided over four product lines, these are sheet metal, turning and milling, copper bars and punching. The customers of EEGS are the assembly lines of Eaton Holec. This chapter has had the goal to make clear in which environment General Supplies is situated.

2 L EAD T IME OF O RDERS

This chapter is the first part of the diagnostic phase. This research starts with the origin, which will be explained in the first paragraph. From this origin a diagnostic question will be derived. To answer this question in a structural way, a framework will be introduced. The framework will be explained in paragraph 2.2. In paragraph 2.3 the current problems of EEGS will be discussed. The goal of this chapter is to identify a few main problems, to know certain that further research will be focussed on the right problems. Another reason for this problem analysis is that at the beginning of the project, there was no clearly defined problem description. This chapter will find out the main problems, to get a useful further research.

2.1 O

R

An important business goal of EEBV is lead time reduction, with the intention to become more competitive in the market. As a logical consequence the lead time of components also needs to become shorter. The production lead time of the components is too long as can be seen in figure 2.1. In the upper graph the production lead time of 2004 is shown, the goal of five days has been reached. The lower graph is the lead time of 2005. The goal of 3,5 days is not yet reached. Speed is really important, because it is the only competitive advantage of EEGS. The advantage of EEGS is that it is located on the same plant as EEBV, the communication and transportation lines are short. On the other hand the employees are more expensive, than in low cost countries. Last year the total lay-out was changed, this was on behalf of Eaton; the same machines need to be placed in less space with the goal to create a continuous flow and decrease the level of work in process. The complete lay out has been changed in 2004, but the controlling of the process did not change. That was the reason that EEGS asked me to look at the controlling of the order process, with the overall goal of lead time reduction taking the lean principles into consideration. Based on this the following question is defined:

Diagnostic question:

What are the main problems in controlling the order flow of EEGS causing a high lead time?

Figure 2.1: Production lead time of 2004 (upper) and 2005 (lower)

2.2 F

The goal of the framework, as can be seen in figure 2.2, is to structure all problems of EEGS related to the order flow. The information about the problems comes from three sources, first by interviewing supervisors, planners and supply chain specialists of EEGS, secondly by attending the morning planning meeting and finally by using company information from intranet, the control system BAAN and the information system COGNOS. In this paragraph the different elements of the framework will be explained and in paragraph 2.3 the problems and the interrelations will be discussed.

MRP PRP Kanban

Customer Process planning

Planning Production Customer

Parameters Formal

education employees

Material Tools/

techniques

Controlling production process

Customer Written

documentation Goals

Problems

0 5 10 15

2004 gem. 2005 t/m 1 2 3 4 5 6 7 8 9 10 11 12

Maand

Dagen

0 5 10 15

2004 t/m 1 2 3 4 5 6 7 8 9 10 11 12

Maand

Dagen

2.2.1 O

F

The order flow is situated on the bottom of the framework. This is the complete order flow of General Supplies, from customers’ order till customers’ receipt. The order flow consists of three sub order flows: these are MRP, PRP and kanban. The proportion of these orders is: 72 kanban, 200 PRP and 600 MRP orders in one week (based on the weekly amount of orders of the first half-year of 2005).

The order flows will be briefly described here and will get more attention in chapter four.

1. MRP orders: These orders are standard products and ordered according a material requirement system (MRP) of a manufacturing planning and control system. The supply chain department of the customer orders these products.

2. PRP orders: These orders are components for customer specific projects. These products are produced once and in low batches. The engineering department of the customer orders these products.

3. Kanban orders: These orders are standard products that are controlled according to a kanban system. When the customer indicates a need, General Supplies have to start production. The kanban system is in the implementing phase; at the moment only one assembly line has a kanban control system. In the near future more assembly lines will be controlled by kanban.

The supply chain department orders these products just as the MRP orders.

The order flow starts with a customer order. The kanban and MRP orders go directly to the planning.

The PRP orders first go to the process planning, where they make the machine program, routing and bill of material for the product. After that the PRP order goes to the planning and follows the same route as the MRP and kanban orders. To plan the order, the operation coupons are printed out and the information packet is searched out of the archive, after that the order is released. The order goes to the production and is produced and delivered to the customer. It can be delivered to the central warehouse or directly to the assembly lines.

Under the order flow the lead time is shown. The order lead time consists of the administrative and production lead time. The administrative lead time is the time the customer releases the order to EEGS till the order is released to the product lines. The production lead time begins when the first material or operation is written off until delivery to the customer.

2.2.2 P

The parameters, which can be seen in figure 2.2, are derived from organizational factors as can be seen in figure 2.3 (they have the same coloured line). The parameters are used to get structure in the problems, to see possibilities for solution directions and to describe the current problems. According to Daft (2001), the organization can be divided into contextual factors and structural factors. The contextual factors describe the whole organization; these are environment, culture, goals and strategy, organizational technology and size. With the structural factors the internal characteristics of the organization can be described; these are formalization, specialization, hierarchy of autonomy, centralization, professionalism and personnel ratios.

The relevant factors for this research are: environment, goals and strategy, organizational technology, formalization and professionalism and will be explained in this paragraph. The rest of the factors will not be discussed, because they have no relation with the current problems of EEGS. By making this selection a first convergence of the research has been made.

Figure 2.3: Organizational factors and parameters

Environment

This factor includes all elements outside the boundaries of the company. Examples are: industry, government, customer, suppliers, and competitors. For this research only the customers will be taken into account. These are internal customers, who are outside the boundaries of General Supplies but not outside Eaton. The internal customers are the assembly lines of Eaton Electric B.V. The departments supply chain and engineering are most important, because supply chain releases orders to EEGS and engineering orders customer specific components.

Goals & strategy

To define a strategy with corresponding goals, a company can distinguish itself from its competitors.

Only the goals are taken into account in the framework. The business goal of EEGS is a derivative of the business goal of Eaton Electric B.V. The key drivers of the strategic direction of EEBV are growth, customer intimacy, profitability, operational excellence and organizational capability. The specific strategic goals are growth in net sales, improvement on time performance of stock fill rate and non-stock products, decrease in total inventory, improvement on the Eaton Lean System and Eaton Business Excellence and finally creating employee engagement by giving 40 hours training a year for every employee.

The business goal of EEGS is: “EEGS is a supplier of parts for the assembly lines of Eaton Holec focused on: speed, reliability, quality, flexibility”. The goal for the production lead time in 2005 is three and a half days, in the beginning of 2005 the lead time was five days as can be seen in figure 2.1.

The second part of the goal is reliability, this deals with aspects of quality and on time performance.

At the moment 1,5 % of the delivered orders have quality problems. The goal is to reduce this to 1%.

As a reliable supplier it is important to give a reliable delivery date. The on time performance is quite high around 95 %, but based on the planned delivery date and not on the demanded delivery date of the customer. The last goal is flexibility; this concerns volume flexibility of the man and machine capacity to react as quickly as possible to customer requirements.

Organizational technology

The organizational technology refers to tools, techniques and activities needed to transform inputs into outputs. Within EEGS, this means controlling of the order flow and material, tools and programs to transform raw material into products.

Formalization

Formalization refers to written documentation, like job descriptions, regulations and policy manuals.

This formalization is a way of describing behaviour and activities. In this research it refers to standard working methods and discipline of employees. According to the lean tool standardize work, all employees need to work on a standardised way.

Professionalism

Professionalism can be seen as the level of education and training of employees. The number of training hours is an important aspect in the Eaton Corporation, every employee needs to get 40 hours of training. The education level relates to the level of multi functionality.

2.3 P

In this paragraph the problems are discussed. As can be seen in figure 2.4 there are 37 problems distinguished in this research. The problems are shown above the step of the order flow where they have the most impact. In the rest of the paragraph the problems and relations found in this research, will be explained and where possible quantified. In this paragraph the parameters of the previous paragraph, will be used to classify and describe the problems. In the following description the numbers between brackets refer to the problems in figure 2.4.

5. customer orders products within

lead time

7. drawings from customer in 2D in stead

of 3D 3. start &

delivery date not always

reliable 2. wrong input

information from customer

16. in BAAN the order is available on the machine, but in practise

not

4. customer orders products with

start date in past

29.

administrative lead time not registered

17. no feedback of delivery date 30. orders released

without material

31. material in backflush warehouse not always available

32. material in system available, not in warehouse

18.

interruption production process by rush orders 21. capacity

too low of some machines

24. delivery date of outsourcing

too late

36. long lead time

23. produced hours too low 20. priority of rush orders

22. high backlog every

week 1. customer

orders more than EEGS can

produce

19. high variance in

lead time

11. machine breakdowns 33. ordering

material from warehouse

take long

10. no changebility of

machine programs

28. different working methods of planners &

supervisors 26. supervisor

not always present 9. quality

problems

34. operators not multifunctional

12. wrong machine programs 8. tools not

always availble

25.

productivity too low

27. discipline with writing off operation of

orders

37.

customer not satisfied

with delivery

date 35. not enough

qualified employees 6. prognosis

of orders is two weeks

ahead 15. a lot of paperwork to

get the order to the production

MRP PRP Kanban

Customer Process

planning

Planning Production Customer

administrative lead time production lead time 13. no priority system

14. no constant order flow

Figure 2.4: Problems of General Supplies

Customer

The ordering pattern of the customers causes some problems, because of bad quality of order information (2). The orders have too short delivery dates. The system generates a start date in the past or a start date within the lead time (4, 5). The dates are coming from old MRP advices or the supply chain specialist has released the order too late to EEGS. Input information needs to be up to date and reliable, because subsequent process steps of EEGS need to be controlled with this information. For the planner of EEGS, it is difficult to set priority with unreliable start and delivery dates (3). The question is do you let the customer, who ordered on time, wait for the product, so that a customer who ordered too late gets priority. Especially a high amount of PRP orders are ordered within the lead time or with a start date in the past. In figure 2.5 can be seen that from the PRP orders from January and February, about 40 % was ordered with a start date in the past and about 50 % within the lead time.

From the MRP orders about 15 % was ordered in the past. A consequence is that orders with a start date in the past arrive directly in backlog, which increases the backlog (22).

PRP Orders

38%

63%

44% 48%

0%

10%

20%

30%

40%

50%

60%

70%

January February

%

startdate in past lead time < 10

Figure 2.5: Ordering pattern of customer specific orders

There are periods that customers orders more than the available capacity (1). This causes a fluctuating pattern of demand, as can be seen in figure 2.6 and 2.7. In figure 2.6 the incoming and out coming order flow has been shown. The purple columns are the number of delivered orders, the yellow columns are the incoming orders every week. The red line is the total amount of SFC orders. These orders can be on the shop floor or in the planning system. When the red line increases, the backlog (green column) also increases (22). The reaction time on the increasing demand to change the capacity volume is too slow. The trend line is also shown. As can be seen, there are periods with a really fluctuating demand, but looking over one year the input flow is almost the same as the output flow.

Figure 2.5: Input/output model with number of orders and the total order portfolio

-3000 -2000 -1000 0 1000 2000 3000 4000

12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 2 4 6 8 10 12 14

orders completed new orders balance output/input SFC orders (WIP)

av. orders cpl. av. new orders av. SFC orders

av. Input: 713 av. Output: 647 av. WIP: 2356

av. Input: 595 av. Output: 728 av. WIP: 2123

av. Input: 826 av. Output: 702 av. WIP: 1848

In figure 2.7 the order portfolio and the backlog can be seen. The blue line is the total order portfolio in hours and the yellow line is the backlog in hours. Also in this graph the fluctuating character of demand can be seen. In this graph the axis is in hours, in figure 2.5 the axis are in number of orders.

Figure 2.7: Graph with order portfolio (blue line) and backlog (yellow line)

The planning horizon of the demand is only two weeks in advance (6). The customer only releases orders to EEGS, with a start date of production two weeks ahead. At the moment the capacity is not flexible enough to react to this short planning horizon (21). As a consequence there are periods with under capacity, which cause a higher backlog (22) and longer lead times (36) for products.

As a consequence of the current problems with the lead time and on time performance, the customer is not satisfied (37). This is caused by different problems, with both internal and external causes. A dissatisfaction is that customers get no order confirmation (17) and that a lot of orders are not delivered on time.

Tools & techniques

For processing of PRP orders, the process planners of EEGS need drawings of the customer specific components from the internal customer. The best ones are in 3D, this is only 27 %, the rest of the drawings are in 2D or just on paper (7). If the drawing is in 3D it takes the process planning 15 minutes to complete the routing, bill of material and computer program. If drawings are in 2D it takes on average one hour. From the process planning, the product gets only one routing, with one machine program (10). Sometimes it is necessary, in periods of under capacity, to change routing to other machines. This is not always possible, because most products have one routing.

Other problems regarding tools and techniques are the availability of tools (8); this can be utility tools and consumption tools. These sometimes need to be ordered from an external supplier or need to come from the warehouse. This can take some time, which will cause waiting times and as a consequence a longer lead time (36). The final technical problem is machine breakdowns (11), this can be long and short breakdowns, but it is certain that it is increasing the lead time (36) and also the backlog (22).

Another problem with machines is problems with machine programs (12), which can cause quality Orde r portfolio

0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

Hours

Controlling shop floor

Controlling the production process starts with the planner. There is no constant flow of orders from planning to production (14). The order files are moving in piles from process planning to planning to production without any form of structure. This is contradictory with the lean principles and specific with the Eaton lean tool continuous flow. Quite often supervisor or operators have to ask for work, although there is always plenty of work. The operator is not productive when he is looking for work.

The planner has to do a lot of paperwork to release orders to the shop floor: printing the orders, material coupon and then searching the information packet out of the archive (15), this has an impact on the complete order lead time. Another problem with the administrative part of lead time, is that this part is not measured (29) and neither are the process steps of the administrative part of the order flow.

Priority of orders is a problem in all the steps of the order flow, at the process planning, planning (13) and production. For the production there is a priority system, but when you have for example 15 rush orders, which one has to be started? (20). All rush orders interrupt the normal production flow (18), which will cause a higher lead time (36) for other orders. At the moment on average 20% of the orders are rush orders.

Figure 2.8: Productivity EEGS (left) and produced hours EEGS (right)

The controlling of the order flow in the production causes some problems. Supervisors or operators can print out a working list for every machine with all orders ranked on priority. It occurs quite often that the order is on this list, but the order file misses on the production floor (16). When it is the first operation, the order file will be somewhere with the planner, supervisor or process planner. When the order file is on the shop floor, the cause is mostly that the operations are not written off. The order is already one process step forward than BAAN suggested. Missing orders take operators and supervisors a lot of searching time, which has a negative influence on the produced hours (23) and the productivity (25). The productivity is shown in the left graph of figure 2.8. The reason for a low productivity is that the produced hours are too low, this is shown in the right graph of figure 2.8. A reason for the low productivity can be the presence of the supervisor. Not all supervisors are working in shifts, so there is not always a supervisor on the evening shift (26). This low productivity and low produced hours causes a higher backlog (22) and a long lead time (36).

EEGS

0,0 0,2 0,4 0,6 0,8 1,0 1,2

2002 2003

2004 2005 Jan

Feb Ma

r Apr

May Jun

Jul Aug Sep

Oct Nov

Dec Comp

Bmk factor( working hours/available hours)

YTD Monthly Goal

Favorable

Direction EEGS

0,00 2000,00 4000,00 6000,00 8000,00 10000,00 12000,00 14000,00

200 2

200 3

2004 2005 Jan

Feb Mar Apr

May JunJul Aug

Sep Oct

Nov Dec

Comp Bm

k

Hours

YTD Monthly Goal

Favorable Direction

Other problems, which cause problems with controlling the order flow is that, the capacity of some machines is too low (21), this can be a man or machine shortage. Another problem occurs with the outsourcing dates (24). Quite often delivery dates are moving or the right priority is not sent to the suppliers. The outsourcing process takes long and it is not clearly who make the outsourcing decision.

The final problem is the high variance in the lead time (19). The reasons for this problem are really divergent; it can be all breakdowns in the process, like material problems, lack of capacity, machine or program problems. The higher the variance, the more difficult it is to give a reliable lead time to your customer.

Written documentation

According to the Eaton lean tool standardized work, it is needed to have standardized working methods for different tasks. The planners and supervisors of EEGS do not have the same working method for dealing with the order files (28). This can be confusing for operators. Another problem, which is not documented well, is the way of writing off operations and orders (27). Sometimes the operator and sometimes the supervisor does this. The writing off of operations is important, because then can be seen where the order is in the system. If the order is written off, the order will appear on the working list of the following operation. This writing off problem also occurs with the material flow. Partly this is a discipline aspect, but on the other hand it is not registered who is responsible for writing off.

Formal education employees

The multi functionality of the operators is not high, with the consequence that it is difficult to change operators from one machine to another (34). In periods of high demand, the number of qualified employees is too low (35). Some machines cannot be fully utilized, because of too few qualified employees, which result in higher backlogs (22) and longer lead times (36).

Material

Material problems are one of the causes of a long lead time. One material problem is that according to the information system BAAN there has to be material, but actually there is nothing in the warehouse (32). Reason for this is the already mentioned lack of discipline of people who write off and write in material. The same material problem occurs with the work in process warehouses (31). Material out of the central warehouse is not written off when it is transferred to the work in process warehouses. As a consequence, planners release orders without available material (30). Another warehouse problem, which influences the lead time, is that when the material is ordered from the warehouse it can take one or one and a half days before it is at the right machine (33). To handle material problems takes operators and supervisors a lot of productive time.

R

The goal of this chapter is to get the current problems at EEGS clearly arranged; this has been realized by constructing a problem mess. In this resume the main problems are summed up and these problems will be further used in this research, these main problems are related to the parameter controlling the order flow. In the time fence of the research it is not possible to focus on all the discovered problems.

Some of the problems will come back at the recommendations at the end of this thesis. In the next chapter the research outline will be introduced based on the main problems.

The fluctuating pattern in the demand in combination with an inflexible volume capacity (10,21) and short planning horizon (6) causes a high backlog (22). The higher the backlog, the more problems arise with on time performance, lead time and the number of rush orders.

The next important problem field is the unreliable data (3) in the production control system BAAN. A lot of orders are ordered in the past (4) and directly become backlog. This means a start dates are in the past or delivery dates are within the lead time (5). General Supplies has no criteria for order acceptance so all the orders are accepted. It is quite difficult to give priorities to orders with dates in the past, because it is difficult to see which orders have real priority.

The final problem field deals with controlling the production process on the shop floor. At the moment the order release is based on priority and not on capacity or start date. From the planning department there is no constant order flow to the production (14), with the consequence that there is no constant workload on the shop floor. Both supervisors and planners do not have a standard working method of dealing with the order flow (28).

3 R ESEARCH O UTLINE

This chapter will give a guideline for the research. The information gathered from the previous chapter will be used as input. In the first paragraph the problem definition will be defined, this consists of an objective, research questions, definitions and conceptual model. The conceptual model gives a visual and clear overview of the setting of the research. Finally the boundary conditions of the research will be given. In the second paragraph the research approach will be discussed: how the research will be taken out to get an answer to the research questions and to reach the objective.

3.1 P

D

Develop a solution for the problems of EEGS to control the order flow and improve the coordination between General Supplies and internal customers, with the intention that EEGS become a reliable, quick and flexible supplier for the assembly lines of the internal customers.

Definitions:

• Order lead time: The time from order release from the customer to delivery of products. The administrative plus production lead time.

• Order flow: The process of different operations, from ordering to delivering through EEGS.

• Production lead time: The time between releasing of orders to delivery to the customer.

• Administrative lead time: The time between customer ordering till releasing to the shop floor.

• Coordination: Coordination between customer supply chain specialists and planners of EEGS.

• Controlling: The function of regulating and directing the order process through the planning and manufacturing cycle from ordering to delivery.

• Reliable, Quick, Flexible: These are elements of the business goals of EEGS and are explained in the previous chapter.

• Internal customer: The supply chain or engineering department are the ordering departments and the products are delivered to the central warehouse or assembly lines.

Research questions:

1. Which way is the order flow controlled from the customer’s order till delivery, both in the planning phase and production phase?

2. How are the information flows arranged with the customer and within EEGS regarding to controlling of the order flow?

3. What are theoretical implications of shop floor control?

4. What are possibilities to solve the current problems with controlling the order flow and information flows?

Conceptual model

The goal of a conceptual model is to give a structural overview of the reality and will contribute to the approach of this research. The different items of the model, which are shown in figure 3.1, will be explained.

Information flows

Shop floor control

Figure 3.1: Conceptual model

The conceptual model consists of the following parts: customer demand, capacity, shop floor control and information flows. The customer demand is the internal demand of components for the assembly lines, the service department and foundry of low voltage components. According to Bertrand (1993) it is important to get the characteristics of the demand clear, before redesigning the logistics controlling system. In the left upper block the demand characteristics are shown, these are: product variety, batch size of orders, the predictability of demand, modification of demand and agreements of lead time.

Every element will be described in paragraph 4.2.1. The right upper block consists of the capacity of EEGS, this means the man and machine capacity. The elements of capacity, which are important in this research, are capacity planning and flexibility. Capacity planning is dealing with the available capacity in the future and the possibilities to increasing or decreasing capacity on a short term. This can be for example: working overtime, hiring temporary people and outsourcing. Most important is synchronization between demand and capacity. When this is done well, no backlog will exist. That is the meaning of the arrow between the demand and the capacity.

The capacity and the customers’ demand come together in the job shop. To synchronize these two aspects a good working shop floor control mechanism is needed. The aspects of shop floor control are order entry, order releasing and shop floor derived from the job shop model of Bobrowski and Park (1989). The job shop model will get more attention in paragraph 3.2.3.

To organize and control the order flow in good condition, the exchange of information will be needed between different employees. These information flows are important both internally and externally.

The external information flow is between the planner of EEGS and the supply chain specialist of the assembly lines to synchronize demand and capacity. The internal information flows are between