Global manufacturing network: aligning the
procurement process
Master Thesis Supply Chain Management
University of Groningen, Faculty of Economics and Business
July 15, 2019
Susanne Bolks
S2705869
s.j.l.bolks@student.rug.nl
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ABSTRACT
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TABLE OF CONTENT
1. Introduction ………...……….……… 4
2. Theoretical background ………..………...…… 6
2.1. Global manufacturing network ………..……… 6
2.2. Procurement process ……….…… 7
2.3. Multi-plant coordination mechanisms ………... 8
2.3.1. Information sharing ………... 9 2.3.2. Joint-decision making ……….…… 10 2.3.3. Use of IT ……….……… 10 3. Methodology ……….… 11 3.1. Research design ………..…. 11 3.2. Research context ………..…... 11 3.3. Data collection ………..…….. 13 3.4. Data analysis ………..………. 14 4. Findings ………..……... 16 4.1. Information sharing ………...…….. 16
4.1.1. Information sharing on the tactical procurement functions ....………....16
4.1.2. Information sharing on the operational procurement function …... 17
4.2. Joint-decision making ………...………..19
4.2.1. Joint-decision making on the tactical procurement functions ………..….. 19
4.2.2. Joint-decision making on the operational procurement functions ……….…… 20
4.3. Use of IT ………... 22
4.3.1. Use of IT on the tactical procurement functions ... 22
4.3.2. Use of IT on the operational procurement functions ... 23
5. Discussion ……….……… 27
5.1. Achieve alignment on the tactical level ………. 27
5.2. Achieve alignment on the operational level ……….…..… 28
5.3. Managerial implications ……….… 29
5.4. Limitations and further research ……….………… 30
6. Conclusion ………...…….. 30
7. References ………...……….. 31
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1. INTRODUCTION
Companies with a global manufacturing network are experiencing difficulties due to many disrupting global developments. Some of these are political decisions, like President Donald Trump who recently announced that the higher tariffs on steel and aluminum will stay for a substantial period of time and where the business has reacted on by shifting their supply chains out of China to avoid these trade-war tariffs (Mullen, 2019). Besides that, the manufacturing sector is recently confronted as well with many worldwide environmental challenges (Mathivathanan, Kannan, & Haq, 2018), such as energy constraints, environmental protection crises and accessibility of raw materials (Bajaj, Jha, & Aggarwal, 2013). Each of these challenges is not only affecting a company’s plant within that specific country but actually the whole network of plants. That is because, as Shi & Gregory (1998) have mentioned, plants cannot be managed in isolation whereas each plant is influencing another plant. Therefore, especially in this time with many global challenges, it is important that companies coordinate their manufacturing network and create alignment between the plants to make sure one can react and support the other.
Due to globalization, there is increased global competition and high-speed product development (Cheng, Farooq, & Johansen, 2015). Whereas the global manufacturing network could rely on the advantages which certain geographical locations were providing, these strategic network decisions might no longer provide adequate competitiveness (Yang Cheng et al., 2015). Therefore, it is important that companies will coordinate and create horizontal functional alignment for the functions executed in the geographically dispersed locations, in order to increase their performance and minimize the risks (Wang, Kumar, & Gregory, 2008). Overall, this functional alignment within the global manufacturing network is important to maintain their global competitiveness.
5 Currently, the most challenging and emerging development which draws the attention of both practitioners and researchers is the optimization of procurement in the global supply chain (Kaur & Singh, 2019). It is already recognized that the potential of full value-creation of procurement can only be achieved if a company is able to align their procurement decisions, investments, activities and strategies (Baier, Hartmann, & Moser, 2008). Therefore, to improve companies profitability and minimize their risk, it would be of great advantage if a company would be able to align its procurement process in the global manufacturing network as well. As there is no research yet on this topic, this study will focus on exploring how multi-plant coordination mechanisms, which are information sharing, joint-decision making and the use of IT, can be applied in order to create a more aligned procurement process within the network. Therefore, this research addresses the following research question:
How can multi-plant coordination mechanisms be applied to achieve an aligned procurement process within the global manufacturing network?
Prior research about the global manufacturing network is mainly focused on addressing specific issues on the plant level, like the strategic role of plants and location decisions (Ferdows, Vereecke, & De Meyer, 2016; Meijboom & Voordijk, 2003; Schmenner, 1982, 1979; Vereecke, Van Dierdonck, & De Meyer, 2006), as well on the global manufacturing network level (Colotla, Shi, & Gregory, 2003; Fawcett, Birou, & Taylor, 1993; Feldmann, Olhager, Fleet, & Yongjiang, 2013; Khurana & Talbot, 1999; Rudberg & West, 2008). There is some specific literature about how global integration is accomplished on a functional level and the potential of this functional alignment within the network of a company, but these were particularly about marketing, manufacturing and research and development (Kim, & Prescott, 2003; Nobel & Birkinshaw, 1998; Sheth & Parvatiyar, 2001; Xu, Cavusgil, & White, 2006). The procurement function has not received much attention within this particular context (Trautmann, Bals, & Hartmann, 2009).
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2. THEORETICAL BACKGROUND
2.1. Global manufacturing network
The context of this research is the global manufacturing network. According to Shi & Gregory (1998), a manufacturing network can be seen as a factory network with matrix connections, where the nodes (plants) cannot be managed in isolation as every node is influencing other nodes. This view is also supported by Khurana & Talbot (1999), as they emphasize that each factor will influence, as well is influenced by the whole manufacturing network. This stresses the importance of looking at the entire network, with the focus on the procurement process executed across the plants. In the literature, the term ‘international’ and ‘global’ are used interchangeably and will be both used in this research. Therefore, the global manufacturing network will use the general definition according to Ferdows (1989), Rudberg & Olhager (2003) and Shi & Gregory (1998) as “an international manufacturing network is a coordinated aggregation (network) of plants owned by one company but located in different places, underlining the need for a wide perspective covering geographic dispersion and interdependent coordination rather than the traditional focus on separated manufacturing sites” (Cheng & Farooq, 2018, p.15). This definition will be used in this research, as the focus is on the integration of the procurement process between the plants.
Due to globalization, the larger companies have carried out their manufacturing in value networks (Rudberg & Olhager, 2003). The manufacturing activities in the value network are approached by two major research streams, which are the research about the manufacturing network and research about the supply chain (Rudberg & Olhager, 2003).
Figure 1: Different points of view on the value network (Rudberg & Olhager, 2003)
7 network takes an intra-firm perspective and the supply network takes an inter-firm perspective. However, companies that are operating worldwide have realized that they must integrate the two networks (Rudberg & Olhager, 2003). Although the focus of this research will be on the intra-firm network, it will also see the linkages with the inter-firm network, mainly concerning the suppliers. That is due to the fact that the procurement process interacts with these suppliers.
2.2. Procurement process
Procurement is playing an important role in the management of organizations, and it is responsible for purchasing resources from external parties which are requested by the internal operations (Pereira, Christopher, & Da Silva, 2014). In the literature, the terms ‘procurement’ and ‘purchasing’ are used interchangeably. Kaur and Singh (2019) argue that procurement is an evolution from purchasing which involves the change from a merely clerical function to a complex strategic decision and therefore requires an increase of research in this area. More precisely, procurement is no longer a function which is only responsible for the planning, implementation, evaluation and control of the purchasing decision (Paulraj & Chen, 2007; Szwejczewski, Lemke, & Goffin, 2005). It has to focus on the management of suppliers and resources as well (Ellram & Carr, 1994; Lindgreen, Vanhamme, van Raaij, & Johnston, 2013).
Although the literature uses the term ‘procurement’ for several different entities like functions, systems, organizations and processes (Nissen, 2009), this research will adopt the latter, the process perspective. Procurement can be generally seen as a process which has to deal with various activities, ranging from identifying sources, allocating the required quantities to identifying the available transport options for procurement (Kaur & Singh, 2019). According to Nissen (2009), the procurement process is defined as “a set of processes interlinking vendors, producers, and customers along the supply chain, with its attendant work activities (e.g. requirement determination, source section), actors (e.g. buyers), organizations (e.g. purchasing, contract management), and technologies (e.g. communication networks)” (p.248).
8 and rated (Van Weele, 2005). Overall, the first three activities can be seen as tactical procurement functions, whereas the last three are seen as operational procurement functions (Van Weele, 2010).
Figure 2: Procurement process (van Weele, 2005)
The procurement process is in organizations partly carried out by the purchasing department and partly the logistics department. The first three activities of specifying, selecting and contracting suppliers are dealt with at the purchasing department whereas they are on the tactical side. All the activities after that, which are the ordering, expediting and evaluating are executed at the logistics department whereas they are on the operational side. This is a general distinction as there could, of course, some differences between the structure in organizations.
There is a rich amount of literature about procurement. However, these are mainly about specific modeling literature on the logistics side, like the optimal lot-size. And on the other side, the purchasing side, on for example the optimal way of identifying and sourcing suppliers. From this point of view, this research will take a broader approach, as well as a network approach to look at the procurement in the context of the global manufacturing network, and the alignment of the procurement process.
2.3. Multi-plant coordination mechanisms
9 In a manufacturing network, all plants are executing procurement decisions within their plants and towards their suppliers. However, even if this decision making is locally rational, it could be inefficient in a global context (Whang, 1995). In order to manage this, coordination mechanisms are necessary to pursue coordination from the local-decision makers (Giannoccaro & Pontrandolfo, 2004). In the literature, there are different coordination mechanisms identified (Arshinder et al., 2011; Yang Cheng et al., 2016; Danese, Romano, & Vinelli, 2004; Romano, 2003; L. Xu & Bearnon, 2006). However, most of these studies focused on the supply chain perspective. As the study of Cheng et al. (2016) uses the perspective of the inter-plant coordination, the coordination mechanism used in this research seems the most relevant for this study. Therefore, this study will focus on the following three coordination mechanisms: information sharing, joint-decision making and the use of IT. Due to the explorative nature of this study, it will identify how these coordination mechanisms could be applied to align the procurement process within a global manufacturing network. Now, each coordination mechanism will be shortly explained.
2.4.1. Information sharing
To profit from the gains of being involved in an international manufacturing network, both information sharing and communication are considered very important, in either a formal or informal way (Ferdows, 1989). Already many organizations achieved benefits by using information sharing activities (Yang & Chen, 2007). By transferring information between the plants, they are able to learn from each other and use the benefits of being part of a network (Podolny & Page, 1998). Furthermore, it is found rather important to not only share information within the network but as well with critical suppliers in order to get insights in their processes, capabilities and constraints (Yang Cheng et al., 2016). This could eventually benefit the procurement process as well. Therefore, it is interesting to explore how this mechanism could be applied in the procurement process and if information sharing will contribute to achieving alignment of the procurement process.
2.4.2. Joint-decision making
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2.4.3. The use of IT
There are many advances in the information technology (IT) which could enable a firm to exchange information quickly and exploit collaborative methods to optimize its operations (Arshinder et al., 2008). The use of IT could reduce procurement costs, shorten the delivery times and improve the supplier relationships (Versendaal, Van Den Akker, Xing, & De Bevere, 2013). Some of these are the internet, electronic data interchange (EDI) and the enterprise resource planning (ERP), which are often used in the procurement process. The EDI system can be used to realize more standardization in electronic documentation in order to exchange information (Bhatt, 2001; Audy et al., 2012). The ERP system is an extensive transaction management system which integrates and processes all kinds of information and places this data in a single database (Akkermans et al., 2003). Overall, it will be interesting to explore whether applying the use of IT will contribute to the alignment of the procurement process within the global manufacturing network.
2.5. Conceptual model
The use of these coordination mechanisms will be explored to see if and how these mechanisms could be used in the alignment of the procurement process across the plants. This all in the context of the global manufacturing network. Therefore, the following conceptual model is developed which can be seen in figure 3. As this is an exploratory study, it will explore how the three coordination mechanisms eventually could be applied and how they are influencing the alignment of the procurement process.
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3. METHODOLOGY
3.1. Research design
This research aim is to explore how multi-plant coordination mechanisms can be applied to achieve an aligned procurement process, within a global manufacturing network. For answering a ‘how’ question, a case study design is a useful way to do this (Yin, 2003). Besides that, the case study design allows for detailed contextual analysis, which is less likely to be achieved in research which only uses surveys (Barratt, Choi, & Li, 2011). Although there are previous studies which identified the use of multi-plant coordination mechanisms could be used in creating coordination across the plants, this study will create a deeper understanding by exploring how these mechanisms could be applied to the functional level of procurement. As this study is exploring how these mechanisms can be applied in a particular context, it is not clear on what the exact outcome will be. Therefore, an exploratory case study is useful, whereas this study type can be used to explore those situations where there is no clear outcome or a single set of outcomes (Yin, 2003)
Furthermore, a single-case study is conducted, as this gives the opportunity to capture more detail about the context in which the phenomena occurs (Dyer & Wilkens, 1991). To be able to generalize the results, a unit of analysis is needed to set boundaries for this case (Yin, 1994). Therefore, the unit of analysis is the procurement process, as the study wants to explore how this procurement process can be aligned within the particular context of a global manufacturing network. Besides, it wants to explore the execution of the procurement process in the different plants and is, therefore, a single-case with embedded units. The use of embedded units gives the ability to look at sub-units in a larger case, where the data can be analyzed ‘within’ the subunits individually (within case analysis) as well ‘across’ the subunits (cross-case analysis) (Baxter & Jack, 2008). In this research, the plants are identified as the sub-units and the global manufacturing network as the larger case.
3.2. Research context
12 As the procurement process is the unit of analysis, selection criteria were used to find the most suitable respondents for these units. To do this, the first step was to narrow down the scope of the research, as the global manufacturing network of the company contains many plants and suppliers. In order to ensure that both within case analysis and cross-case analysis could be conducted, it was important to choose different kinds of plants which are located in different countries, to analyze their particular procurement processes. To make use of embedded unit cases with different procurement processes, there is theoretical replication as it is expected that the cases give different outcomes (Karlsson, 2016). Furthermore, the study wants to focus on the plants who are procuring the same kind of materials at the same supplier. This is to ensure that the differences in the procurement process can be explored, while the influences from other aspects are brought to the minimum. To conduct a study which really has its focus on the global manufacturing network, several plants were selected which are located in different countries. In total, the plants chosen for this scope are located in five different countries. Each material is procured by at least two different plants, located in two different countries. Besides, the two suppliers are chosen based on their global characteristics as well, whereas one is located in the Netherlands and the other in England. An overview of the scope is given in table 1.
Table 1: The scope of research within the global manufacturing network
Supplier
Material
Location of plant
Supplier 1
Material 1A Germany
England Portugal
Material 1B The Netherlands
England Portugal Material 1C The Netherlands Germany England Turkey Supplier 2
Material 2A The Netherlands
Portugal
Material 2B The Netherlands
Germany Turkey
Material 2C Germany
13 In order to get a better understanding of the procurement process, a respondent of each plant was needed to gain more information about the specific procurement process in that plant, as it is representing one of the embedded case units. Therefore, the material planners who have the task of procuring the selected materials of the research scope were asked to participate in the research. These planners have valuable knowledge on the procurement process and the working methods within the plants, but also on the collaboration and procedures towards the suppliers, as they are in contact with them. As the procurement process as a unit of analysis has to deal with the suppliers' side as well, both suppliers participated in the research as well.
3.4 Data collection
For the data collection, two types of information were gathered. First of all qualitative data which was gained from interviews. At the beginning of the research, four interviews were conducted with an open structure as the respondents were asked to provide more information about the general procurement process within the company. These can be found in table 2, whereas the label ‘G’ (general) is used in the research findings. After that, the six material planners of each plant where approached to participate with the research, as well as the two suppliers. In the research findings, the material planners are labeled as ‘M’ and the suppliers as ‘S’. These interviews were semi-structured, which allow using standardized questions as well the flexible use of (sub)questions (Blumberg, Cooper, & Schindler, 2014), whereas the latter was used to reply on the specific answers of the respondents. Before the interviews were conducted, an interview guide was made, which ensure the reliability (Appendix A, B). As they experience the procurement process from a different perspective, two different types of interview guides were made, whereas one was for the material planners and one for the suppliers. Before the interview was conducted, some general information was send to the interviewees about the length of the interview, the goal of the interview, what kind of information there was needed from them and specifically the scope of the research.
14 Table 2: Overview of interviewees. *Due to time and capacity constraints on their side, the questions were answered by e-mail
Besides the qualitative data which was collected by the interviews, there were also secondary data used. These were extractions from the ERP system. As the procurement process uses this system a lot, much interesting information can be gathered. Therefore, several parameters which need to be filled in the system in order to have the procurement process running in the plant, where extracted. This was done for every plant, and specifically per part which it procures. This resulted in a schematic overview, where all the values of a specific parameter, for example, the safety stock could be compared with the value of another plant filled in for the same material and the same supplier.
3.5 Data analysis
After the interviews were conducted, they were transcribed in order to analyze the data. To have a well-structured analysis, the data were coded according to the coding process of Corbin and Strauss (1990), which is; open coding, axial coding and selective coding. Using Atlas.ti, the coding process used an abductive approach. The selective codes were partly derived from the literature, as it wants to explore how the coordination mechanisms could be applied. However, in order to explore the relationship of the coordination mechanisms and the integrated procurement process, an open mind was needed to see if new insights
Number Label Position of interviewee Time (minutes) 1 G1 Manufacturing coordinator supply
chain
65:08
2 G2 Group leader material management 75:43
3 G3 Three material planners 59:49
4 G4 Material Maintenance process owner 74:03
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4. FINDINGS
By executing the data analysis, several interesting insights are exposed. The findings are structured according to the three coordination mechanisms; information sharing, joint-decision making and use of IT. Furthermore, it will explore the relationship of applying these mechanisms in each of the key procurement functions and the effect of this on the overall procurement process in the global manufacturing network.
4.1. Information sharing
4.1.1. Information sharing in the tactical procurement functions
The selection of suppliers, which is the first procurement function within the research scope, is executed at the central level on the purchasing side. This leads to not only the need for alignment of the procurement process across the plants but also between the central level and the local (plant) level within the network. The information sharing was found to be a useful coordination mechanism by the selection of suppliers. That because the plants, on the logistics side, share their information about existing suppliers, and give their perspective about them in terms of logistics costs and quality. This information is gathered by the central purchasing level which has to further decide on where to place the future business for materials. Although they are sharing information, it is perceived that it would be more effective, when this would be done in both directions. Because the plants provide information to the central level, they expect that they will receive some information and feedback on that as well. This is however not always happening, which can lead to the feeling of being unheard within the plants and that they have to spend their time on problem-solving: “Even though the plants were feeding information into the system, we had a [bad] supplier coming out as it was competitive on cost. Therefore, we were still placing business with them. So we were left with the pains and had to deal with the restrictions the supplier has, such as capacity issues. And therefore we had to put in a lot of effort to get the parts here” (MP2). Within a network, there is the opportunity to gather a lot of information about the suppliers from the plants. However, as long this information is not actively used and spread by the central level, it creates confusion and problematic situations which can lead to less alignment of the procurement process within the network. Therefore, the information should not only be shared, but it is also important to actively respond to this and provide feedback. This will create a mutual understanding of decisions made within this part of the procurement process and can lead to more alignment between the central and local level.
17 departments within their plant, to make the actual agreement with the supplier. This can lead to an inefficient procurement process when multiple plants order the same material produced by the same supplier. When for example one plant has negotiated with that supplier about things like minimum order quantity and lot sizes, it would be more efficient if this information is shared with other plants so they are already aware of the agreements made with that supplier whereas they can make agreements which are in line with these as well. Eventually, information sharing will create more efficiency which will lead to a more aligned procurement process across the plants in the network.
4.1.2. Information sharing in the operational procurement functions
On the operational part of the procurement functions, which are the ordering and the expediting functions, the information sharing mechanism can be applied to create more efficiency, when used properly. The first operational procurement function, ordering, is executed on a daily basis within each of the plants. Due to this, all the plants are often interacting with the same suppliers, about the same materials. They need to collect data from the suppliers on for example the capacity of the supplier when they have peak weeks. As there are no clear and regular communication channels within the network, each plant acts as an independent entity and is, therefore, collecting such important information only for themselves. This has the consequence that the plants do not feel the urgency to actively share information within the network. It would be more efficient if the manufacturing network would be used in a more optimum way by sharing this kind of information across the plants. When for example a plant collects information from a supplier about a specific material, it should share this information within the network so the other plants who are ordering this material as well, can directly respond to this.
18 we do a project, we do a benchmark, so we see how the other plants do things. So if we are having a problem, like for example a longer discrepancy for rivalries, then we go to the other plants, and ask how do you handle this, how is your ordering process, so how have you got this part set up, and how do you get around this issues” (MP2). This is a good example of how to benefit from being part of a network, by learning from other plants and by sharing information. And not only information sharing between the plants is important for the expediting function but also between the central and local level. That, because when the network experiences even bigger problems, like a supplier has huge production or capacity problems and it cannot deliver to all the demanded plants, it is found that an efficient way of dealing with this is to collaborate and share information with each other. The central level is involved to coordinate this expediting phase of the order process and streamline the information flow. This cycle of information sharing between the central level and the plants on the local level is shown in figure 4 on the right side. In comparison, on the left side, the normal situation is shown whereas each plant is taking care of its own ordering process without sharing information within the network.
Figure 4: Normal situation vs. problematic situation handling
19 facing issues, they are more likely to make use of the advantages a network can give through more communication and information sharing. This is done in the expediting function but should be a common practice and part of their routines in the overall ordering process as well. Overall, the low degree of information sharing on the ordering process across the plants leads to a less aligned procurement process within the network. Therefore, the rich information which could be gathered from the network should be used in a more optimum way. This can eventually lead to a more efficient information building by all the plants together in the network instead of each plant on their own.
4.2. Joint-decision making
4.2.1. Joint-decision making on the tactical procurement functions
The degree of joint-decision making is dependent on if and to what degree the decision making is centralized or decentralized. Overall, the organization has a decentralized structure and the plants are therefore in charge of the decisions made concerning the overall procurement process. However, there are still some decisions taken on a central level regarding the procurement process. An important decision which is taken on a central level on the purchasing side is the supplier selection. This due to the fact that they need to select a supplier for their network which consists of multiple plants, where a specific material is used by multiple of these plants. Therefore, they centralized the decision making on the supplier selection. As is already discussed with the information sharing mechanism, the plants are somehow involved in the supplier selection as the central purchasing gathers information about existing suppliers from the plants. However, they eventually make the decision without jointly deciding on this with the plants, while the process of supplier selection would potentially benefit if the plants would be involved: “Preventive measures could potentially come from more discussions at an earlier stage when central purchasing is negotiating with the suppliers and making strategic decisions on where to place the business. So if the supplier cannot support all demand of the plants, why is the business awarded?” (MP2). When applying joint-decision making, it will create more involvement from the plants and due to their experiences with the suppliers, they can actually add some valuable insights within the decision-making process. When the plants will jointly decide on the supplier selection together with the centralized purchasing, there will be created a more standardized and aligned procurement process.
20 decided upon by the central level, the contracting is entirely decentralized to plant level. When the central purchaser selects a supplier, it will only negotiate on the price for that material. After that, each plant who needs this material will negotiate with their local purchaser and the supplier. Within the plant, they will jointly decide with the local logistics and ask for their input on the negotiated terms. The local logistics department will provide them with feedback if they will agree with it as well, whereas the local purchaser will go back to the supplier and make a final agreement. This process is shown in figure 5.
Figure 5: Individual decision making in each plant
Overall, as can be seen in figure 5, is that due to the decentralized structure the plants are all individually executing the contracting activity in their plant and deciding on this at their own. A consequence of this individual decision making is that it eventually results in a low degree of standardization on the operational procurement functions within the level.
4.2.2. Joint-decision making on the operational procurement functions
21 create misalignment in the ordering and expediting functions as well. How the ordering process within each plant is executed, depends on which agreements are made between the local purchaser and the supplier. So, the different agreements which are made between the plant (local purchaser) and the supplier, are eventually causing differences in how the ordering process will be executed in each plant and what kind of decisions will be taken. What you will get, is that for the same kind of material different kind of packages, lot sizes, minimum order quantities, etc. are requested by the plants which lead to extra work for the supplier: “So for example, we are delivering material X to plant 1 in plastic boxes, which are bought by themselves. But when we are delivering this material to plant 2, we have to pack another amount in a carton box which we have to buy” (SUP1).
Although there are differences in the ordering of the materials, which are a consequence of the agreements made, the joint-decision making can still benefit the alignment of the procurement process in this stage. As there can be used different replenishment methods within the network, which are either KANBAN, VMI or the Call-off schedule, it will influence the amount each plant's orders and how often for similar materials. This as KANBAN will always generate a new order when they have consumed that material, the stock will go back up to the maximum inventory level they want to hold. Whereas VMI and a call-off schedule will reorder when the stock will be lower than the minimum stock they want to hold. When every plant is using a different procurement method, the amount of reorder points and the requested amount of materials will differ a lot among the plants. Therefore, if plants within the network will jointly decide on which replenishment method they will use, it will create a more aligned ordering process within the network.
22 expediting function. This could be prevented by applying joint-decision making on the tactical procurement function, whereas there would be more standardized decisions made within the network. This will eventually lead to a more aligned procurement process.
4.3. Use of IT
4.3.1. Use of IT in the tactical procurement functions
The last coordination mechanism, the use of IT, is found to be a useful tool for the overall procurement process. One of the IT systems, which is the ERP system, is where the whole network relies on because all important information on the material level can be found there. Within this system, there is a distinction made between the ‘central’ and the ‘local’ environment. In the central environment, there is data filled in by the central purchasing and central logistics after the supplier selection. This is general information on the material level like the size of that material and this information is the same for every plant within the network. Moreover, the plants can see there if for example a material is still in the pipeline, or can already be worked with. This can be seen as a standardized working method to make sure all the plants can start a procedure with for example a new material, at the same time. Applying the IT system is found to be a useful tool to support this standardization and a way to inform all the plants within the network.
After that, the ‘local’ environment in the ERP system becomes important. This environment is different for each plant as the information which is filled in there is done by themselves. A majority of this information is coming from the contracting process, so the agreement which is made between the local purchaser and the supplier. That means that parameters like the minimum lot size are now fixed. However, there are still some parameters like the safety stock, which needs to be filled in by the material planners to get the entire system running for reorder point calculations. After extracting data from the ERP system on several of these parameters, it became clear that the values filled in there differ a lot. This comparison is based on the parameters filled in by the plants which order the same material, at the same supplier. Two examples can be found in table 3.
23 As it already became clear that there is individual decision making within the network, it now becomes clear from the IT system how this has its effects on the actual values within the system and where the rest of the ordering process is relying on. In table 3, it is shown how different these agreements are on the minimum lot size between the local purchasers of these plants with the same supplier for the same material. As the IT system is a useful tool to show this kind of information in a schematic overview, this could be used at the start of the negotiation process. When for example a plant wants to negotiate with a supplier, but another plant already orders this material from that supplier, it can use the IT system as a tool to get insight on the specific values agreed on between that other plant and the supplier. This can be used then to make more similar agreements with the supplier, which eventually will lead to a more aligned procurement process.
4.3.2. Use of IT in the operational procurement functions
As the ERP system is mainly used in the tactical procurement functions as a tool to structure the information flow, it is found that it can be applied as a useful coordination mechanism in operational procurement function when actively used by the material planners. In the local environment of the system, there can be important information found which is coming from the contracting phase. However, within the ordering process, it is further used for generating new orders, checking the inventory and the possibility to see the history of the material consumption. In order to create orders based on the most recent information available, all specific parameters need to be filled in the system as well. The logistics department (material planners) have to decide on these parameters. Although the aim is to have all the material planners work with the ERP system, the extent to which it is used by them differs. Some are actually involved with the process of getting the information for their process in the system, whereas others aren’t using the system actively: Actually, I don’t use these parameters for this planning. It is manual planning for this supplier, it is an excel file. … Of course, it will be better to correct parameters in my system, but I didn’t check them until now, because I don’t use them” (MP3).
24 every quarter, that we make sure that we are holding the right amount of safety stock based on that ABC-indicator. So we are doing a little bit of work on the background on that” (MP2).
Table 4: The different strategies used by the plants for their safety stock
Table 4 shows all different kinds of strategies which are used by each of the plants. This clearly shows that there is no standardized strategy within the network to determine this parameter. The material planners acknowledged that they don’t share any information on this. This causes several ‘best practices’, like a strategy which might work for other plants as well, are not shared between the plants. But it is not only affecting the alignment within the network. Another important effect of this is how they will order at the supplier. To show these differences, two different strategies of the safety stock are displayed in figure 6 and 7. The first strategy is a static safety stock which is chosen to be equal to the highest (forecasted) material consumption, as is shown in figure 6. With this strategy, the ordered demand will always fluctuate according to material consumption. When there is high material consumption, there will be more materials ordered to fill up to at least the amount of the safety stock. The other strategy based on a day’s coverage, as is shown in figure 7, creates a safety stock which is equal to the material consumption of that plant for a couple of days. This has the consequence that in times of higher material consumption, your safety stock will go up even much higher. And when the material consumption decreases, the safety stock will decline much more as well. It can be seen in figure 7 within the red circle, that when the material consumption increases with 4000 pieces, there will be a safety stock created for as twice as many pieces. So in times of higher material consumption, plant 2 (figure 7) will create a much higher demand at the supplier then plant 4 (figure 6) while they both experience a higher material consumption. This can cause problems for the supplier, as it is not always possible for them to respond quickly to such high peaks. However, this could be prevented by using the IT system, and create a similar strategy for the safety stock as this eventually will show more alignment in the procurement process as well.
Plant Safety stock based on:
1 Based on experience
2 &5 ABC-indicator, and uses a day’s coverage
3 Missing stock and small parts
4 KANBAN, and uses a static amount (based on maximum demand)
25 Figure 6: Consumption and static safety stock for material X
Figure 7: Consumption and day’s coverage safety stock for material X
26 Plant Supplier receives it via:
1 EDI
3 A list via e-mail
4 A list via e-mail
5 EDI, as well a PDF and a notepad via e-mail
6 EDI
Table 5: Overview of different procurement methods
27
5. DISCUSSION
In this section, the differences in creating and achieving alignment on the tactical procurement functions and the operational procurement functions will be discussed which will provide a more in-depth view of how alignment could be achieved in the overall procurement process. After that, the managerial implications will be discussed as well as the limitations of this study and implications for further research.
5.1. Achieve alignment on the tactical level
In order to achieve alignment in the procurement process within the global manufacturing network, it is found that applying the coordination mechanisms on the tactical procurement functions will create the most benefit to achieve this. As the supplier selection and the contracting process can be seen as the starting point for the rest of the procurement process, it is of great importance to already achieve alignment in this stage of the procurement. It is found that applying joint-decision making on tactical procurement functions can create the most benefit in achieving alignment in the procurement process. This, as the decisions made there, can be seen as the cornerstone for the rest of the procurement process. Due to the decentralized structure within the global manufacturing network, multiple plants have interaction with the same suppliers and therefore it is important to have more alignment. This can be done by applying joint-decision making, as this can create more standardization in the agreements made between the plants and the same supplier. As is argued by Zahra, Neubaum & Huse (2000), a decentralized procurement structure is effective for larger firms. Although this study is in line with this, it is found that a decentralized procurement structure can indeed be effective if they will apply joint-decision making on the tactical procurement process. This is especially important for a network where there is a collaboration between a supplier and multiple plants, as applying joint-decision making in the contracting phase creates more standardized agreements across the plants, which eventually lead to more alignment in the overall procurement process.
28 Whereas it is found that applying the first two mechanisms will directly benefit the achievement of aligning the tactical procurement functions, applying the use of IT is merely concerned as a tool to facilitate the other two mechanisms in achieving this alignment. As joint-decision making in the network creates more standardization, the use of IT can support this as it is able to structure these joint-decisions and to provide an overview of these. Furthermore, it is argued by Pereira, Christopher, & Da Silva (2014) that IT is a powerful tool to maintain the information flows in a company. This study contributes to that, as it is found that the IT is not only useful to maintain the information flow but as well to actively make use this information. This, as for example the information about the negotiation between a plant and a supplier can be actively used in the negotiation of another plant with that same supplier, which will create more standardization and alignment.
5.2. Achieve alignment in operational level
It is found that the operational procurement function is highly dependent on the execution of tactical procurement functions. This, as the ordering and the expediting functions, are mostly relying on the decisions made in the contracting process. Therefore, applying the coordination mechanisms on the tactical procurement function will create the potency to achieve alignment on the operational processes as well. In order to make sure that the alignment is established on the operational procurement processes as well, it is found that applying information sharing is an essential mechanism to achieve alignment. This, as a pitfall in the global manufacturing network can be that every plant will act as an independent entity. This will lead to each plant gathering and building up their own information. It is found that this can be caused by the limited availability of information within the operational procurement functions. This is supported by Cheng et al. (2016), as they state that if a network has no well-established internal system where the plants can share their information and integrate the data, it will be less likely that the plants will actually do so. Therefore, in order to apply information sharing as a coordination mechanism, the network first needs to make sure that all necessary information is easily accessible for plants and a platform is created where they can share information within the network. It is found useful when the central level will be involved in this, especially in problematic situations, to coordinate and structure the information flow. Especially on the operational procurement functions, plants can learn from each other by sharing information on common suppliers, replenishment strategies and best practices. They can eventually use this information to make their procurement process more efficient. So, by creating this environment of information sharing, the procurement process can become more aligned within the global manufacturing network.
29 on how they should execute this process. Another important effect of applying joint-decision making on the operational procurement functions is that it can create more flexibility for the supplier. This because the supplier will have more standardized agreements with all the plants, which causes that the materials can be for example produced and packed in the same quantities. The supplier can create a common inventory for all the plants and is, therefore, more flexible to supply some of this to a plant with an urgent request. This is supported by Pereira et al., (2014), as they argue that internal coordination will positively influence the suppliers' responsiveness. Thus, applying joint-decision making can achieve more alignment in the procurement process and creates as well supplier flexibility.
Finally, applying the use of IT was found to be very effective in the operational procurement functions to achieve alignment. In order to make use of the IT as a coordination mechanism, it is essential that how it is used and the frequency the IT is used will be similar within the network. When this is established, especially the ERP system can give insights into the different strategies used in the network for executing the ordering process. When these strategies will differ a lot from each other, it will not only affect the alignment of the procurement process but as well the execution of the ordering process towards the supplier. Therefore, by using the IT system it can assure and give more insight to use the same strategies when ordering a material at the same supplier. This will eventually achieve alignment in the procurement process as well.
5.3. Managerial implications
30
5.4. Limitations and further research
Despite that this research is conducted in a way to provide valuable and reliable insights, it faces certain limitations. As the research design is a single case study, it diminishes the generalizability. Therefore, further research could elaborate on this study by executing a multiple-case study and to perform a cross-case analysis in order to see if the outcomes are generalizable. Furthermore, the procurement process consists of six key functions derived from previous literature, but due to the scope of this research, it was able to reflect on four of them. Therefore, it is not clear if applying the coordination mechanisms in the specifying process at the tactical level and the evaluation process at the operational level will be able to achieve alignment in these procurement processes as well. Besides that, this study has only focused on the tactical and operational procurement functions, whereas it would be interesting to gain more understanding of the strategic level as well, and the role of this level in achieving alignment in the procurement process. Further studies can elaborate on this by broadening the research scope by focusing as well on the strategic level.
6. CONCLUSION
31
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8. APPENDIX
Appendix A: Interview guide material planners
At the start of the interview: Thank the participant for his/her cooperation Shortly introduce the purpose of the interview
o Understanding of the ordering process in the different plants of the company o All in the context of the international production network
Ask for permission to record the interview The interview duration is around 45/60 minutes Tell the participant the scope of the research
o Focus on 2 suppliers:
o Focus on the following components: specify for each planner the component Check with the participant if the scope is correct, and if he/she is responsible for the known
components
A) General information
1. How long have you worked in this current position?
2. Can you describe your current role and the associated tasks and responsibilities in this position? 3. How is the set-up in your plant for the logistics department, is there, for example, a specific
planning team within Logistics?
4. Which procurement concept is used within your plant? And is this the same for all components? a. KANBAN/VMI/Reorder Point?
B) Planning process
1. How is the general ordering process structured in your plant?
2. Are there general agreements within company X, or do you mainly work according to a self-made structure within your plant?
3. Is this way of working documented somewhere? 4. What is your role as a planner within this process?
5. What do you think about the ordering process and how it is structured right now? 6. Do you receive the information you need for ordering from other departments, or do you
determine it yourself?
7. How is the communication with the other departments structured in your plant about the ordering process?
8. Do you have any influence on the agreement with a supplier about the specific order settings (MOQ/Packaging/Sizes etc…)?
a. If not, who is responsible for this agreement? And who can influence this? b. What do you think about how this is structured right now?
9. Which other processes/departments have an influence on the ordering process? a. How can they, and how are they doing that?
10. Which other process/departments are affected by the ordering process (for example, if you want to change the MOQ, which process/departments will be affected by this change)?
36 C) Structure between plants
1. Are there any regular and structured communication channels among the planners in the different plants?
a. How do these communication channels work?
2. If there were any problematic situations in the past, how was the coordination between the plants at those times?
a. To what extent where the plants helping each other, and what could be done better? 3. When you have an issue about a specific component like you don’t have enough stock and the
supplier cannot deliver it to you on short notice, how can you arrange this?
4. What should in your eyes be the most important thing in the ordering process, to be more aligned between company X their plants (when you order at the same supplier)?
D) Information within the scope
1. What kind of information do you have to fill in at SAP for these components?
2. When there are SAP parameters already filled in by for example purchasing, could you change these if it turns out that it would be better if it would be lower or higher?
37
Appendix B: Interview guide suppliers
Interview Guide Suppliers
A) General information
5. How long have you worked with company X as a customer? B) Agreements with company X
6. Can you describe the process from the moment you got the first contact with company X, till eventually start delivering the components to the multiple plants? So from the first contact with the central purchaser if he was involved, to the contact with the local purchasers to eventually delivering the materials?
7. What kind of agreements were discussed with company X in the first stage with the central purchaser, if he was involved in the process?
8. Did you already know what the different plant requirements were after the first contacts (central purchaser) with company X?
9. What kind of agreements do you make with the local purchasers?
10. Do these agreements differ per plant when they order the same material? If so, what kind of things are different? (Packaging, minimum order quantity, etc)
11. When there is already an agreement about the order process, on for example the minimum order quantity, is there the opportunity for a plant to change this if they see that for example, it is too much?
C) Order process
12. How do you receive the orders from the different plants for these materials?
13. Which factors in the ordering process from company X their plants are affecting your production and delivery process the most?
14. What do you think that could be changed in the order process from the different plants in order to be more efficient for both your company and company X?
15. Have you seen any best practices from a plant, which you would like to see at the other plants as well?
D) Delivery process
16. In which different ways is your company sending the materials to these different plants? 17. Which kind of packaging is used for these materials for each plant?
18. If there would be a common minimum order quantity for the same material for each plant, and the plants would only have the option to order a multiple of this minimum order quantity, would this make your process also more efficient? And if so, in what way?
19. Which agreements with company X about the delivery process should in your eyes be changed in order to be more efficient? Like, minimum order quantity, packaging, size of the packaging, etc. 20. When there is an issue in your plant, and you cannot satisfy all the ordered demand for a specific
