Winch up the business performance at Company X

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Winch up the business

performance at Company X

Business process improvement at Company X

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Winch up the business

performance at Company X

Business process improvement at Company X

Author: R.S. Huisman (student number 1652826) Zeilenmakersgilde 35

8253 GH Dronten 0653487163

S1652826@student.rug.nl

Supervisors: dr. ir. I. ten Have MBA (University of Groningen) i.ten.have@rug.nl

050-3632936 / 7491

Drs. A.J.J. Braaksma (University of Groningen) a.j.j.braaksma@rug.nl

050 363 7924 Company: Confidential

Study: Technology Management (MSc), University of Groningen

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Management summary

Background

This report has been written for the master’s thesis project of the master study Technology Management at the University of Groningen. The project has been executed within Company X BV, a company that produces shipping winches. Company X has made a major growth of 700 % over the past five years. Result of this growth is that the efficiency of the different processes is no longer clear. This master thesis research project has been formulated to get a clear picture of the current status and possibilities for improvement.

Goal

The research focuses on identifying areas that should be improved to increase the business performance of Company X. Business performance consists of two components:

1. Financial: at what cost is the customer request handled;

2. Responsiveness: ability to provide a product or service within the required time. The management of Company X states that short delivery time and high product quality are very important. This statement is supported by literature and analysis of the lead time at Company X (83% of the orders are delivered late) therefore reduction of the lead time is the focus of increasing the business performance.

Method

An extensive analysis has been conducted to investigate the current situation and identify problems and inefficiencies in the production process. A Value Stream Map has been drawn up for visualizing the current production process. However because Company X can be classified as an engineer-to-order company, the “standard” value stream map could not be used. An improved value stream mapping technique has been used where the critical path (the processing sequence which is responsible for the total production time) of a product is mapped. Due to long production lead times, no full real time data could be obtained. Therefore, at Company X one specific winch (xxx-x-xxx order number 8969) has been analyzed on the basis of data from the planning system. Detailed machine and worker observations have been conducted additional to the value stream map.

Results

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determine the lead time, to form directions for design and further research. The major points are:

• The current production planning and sequencing is not optimal. The planning of orders is sequential, orders are moved causing delays, no status of orders is available and the planning process is manually causing mistakes. Further research on this subject is needed;

• Mistakes in production are made repeatedly and mostly discovered almost at the end of production (assembly or on location at the customer). Also opportunities for improvement from production workers are not handled. The introduction of a quality form and quality control can prevent mistakes and integrate opportunities for improvement;

• Most components in a winch are custom designed, no standard components or assemblies are used. The use of a modular product design can possibly shorten the production lead time and decrease the costs, further research is needed;

• Materials are missing, causing delays. No hard numbers on this issue are available; therefore, registration of missing materials to identify causes is recommended; • Responsibilities and authorities are not clear; the management should provide and

communicate the responsibilities, authorities and strategy. Conclusions

By decreasing the lead time, Company X increases its business performance.

Based on a literature review, solutions have been presented in the form of “projects”. With the use of a prioritization matrix, an order is presented in which the projects should be executed:

1. Project B2 (quality form): Introduction of the quality form will decrease the mistakes which are made repeatedly. Root causes can be identified in areas where multiple problems occur and the employee who signals the problem receives feedback, causing an increased worker motivation.

2. Project G1 (5S): By executing 5S the entire shop floor is organized. On a better organized shop floor, less mistakes are made, problems are better visible and less time is wasted in searching for materials.

3. Project B1: after introducing the quality form, the preconditions for quality inspection are more clear. Quality inspection will reduce missing materials and delays in the production process;

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6. Project D: a modular product design shortens the engineering lead time, production lead time, assembly lead time and thereby reduces the costs;

7. Projects A, F and H are strong interrelated. Therefore these points cannot be considered individually. The management of Company X needs to formulate clear goals and strategy for how to organize the processes. How to organize the inventory is strong related to the production planning and control.

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Explanatory word list and definitions used

ATO: Assemble-To-Order

CODP: Customer Order Decoupling Point

Critical path: The critical path can be defined as the processing sequence which is responsible for the total production time that determines the minimum time frame needed to schedule production in advance.

CSM: Current State Map

ETO: Engineer-To-Order

Ex works: The buyer loads the goods then arranges and pays for transport, customs clearance and insurance

FSM: Future State Map

GFC: Goods Flow Control

IVSM: Improved Value Stream Map(ping)

Lead time: The time (LT) quoted to the customer (Hopp & Spearman, 2000), in this thesis two definitions for lead time will be used;

(Total) lead time: start at contract signed until the product is finished. Here the waiting time between signed contract and start of the order is included.

Production lead time: start of the order until the product is finished. This is the same as the critical path.

MPS: Motivation Potential Score

MTO: Make-To-Order

MTS: Make-To-Stock

NNVA: Necessary but Non Value Adding

NVA: Non-Value-Adding

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RBC: Repeat Business Customizers

System: A system is a set of objects (elements) which are mutually related, in order that no elements are isolated (Leeuw de, 2002)

VA: Value-Adding

VMC: Versatile Manufacturing Companies

VSM: Value Stream Map(ping)

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Preface

This report has been written for the master’s thesis project of the master study Technology Management at the University of Groningen. This project has been executed within Company X BV, a company that produces shipping winches.

Without the help of a lot of people this report would not have existed. Because of that, I would like to thank everyone who gave a contribution to this research. There are a number of people I would like to thank in particular. Firstly, I would like to thank my supervisors from the University of Groningen. Ingrid ten Have for her input to the research, her knowledge, provided information and feedback have been a great contribution to get to this result. And Jan Braaksma for his critical review on my thesis.

Secondly, I’d like to thank everyone from Company X for their help during this research. Special thanks go to my supervisor, the financial director, and my colleagues from the sales department, Jacob Schaap, Robbert van der Burg and Anton Blankvoort who have provided me a lot of information, new insight, the frequent shout of laughter and an excellent working atmosphere.

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1 Introduction

Company X BV in X produces shipping winches and deck equipment. These products are custom engineered and produced for customers from all over the world.

As stated in the history of Company X, six years ago the current owners took over the company. At the moment of takeover, Company X was performing poorly. However, due to rigorous improvements, changes in processes and increased demand, a major growth of 700% over the past five years is realized. Result of this growth is that the efficiency of the different processes is no longer clear.

However, due to time restrictions and the complexity of the problem, a good analysis of the actual problems in the organization could not be formed. To get a clear picture of the current status and possibilities for improvement, this master thesis research project has been formulated. This research was targeting on investigating:

This report starts in with general information about Company X and gives an overview of the products being produced. Next, the problem will be introduced. This problem has been formulated in a problem statement and a conceptual model, showing factors determining the business performance at Company X has been drawn up. The diagnosis has been separated in diagnosis 1 describing the current situation of Company X and diagnosis 2 introducing possibilities for improving the situation of Company X. The results of the diagnosis are the input for the design, where various projects are proposed for the reduction of the lead time at Company X. The chapter “implementation” gives a prioritization to these projects. Finally, the conclusions and recommendations for further research are presented.

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2 The company Company X BV

This chapter will give an introduction to the company Company X BV. It starts with the history. Next, information about the products, main components of a winch and the design characteristics will be given. This chapter concludes with the strategy, organization and results of Company X.

2.1 History

Company X was founded by the family Company X in 1900. It has a reputation of being one of the few specialist constructors of shipping winches and deck equipment in the Netherlands.

Over time Company X BV is specialized in custom built deck machinery for several application areas: • Inland shipping; • Dredging; • Coastal shipping; • Fishing; • Sea shipping; • Offshore; • Harbour tugs.

Starting from the late fifties, the company (figure 2-1) successfully designed and manufactured remote controlled winches, winches with pneumatic operated clutches and brakes, winches on fishing vessels.

The current owners Maarten), are in control of the company since 2003.

2.2 Products

Company X produces shipping winches and deck equipment, these are used for various applications as will be described in §2.2.1 Because most winches differ in every specific situation, a winch has to be custom engineered to meet the requirements of the individual customer.

For virtually all types of ships, Company X BV constructs winches with chain thicknesses from 8 mm to 80 mm and with pulling power up to 300 metric tons. The drive is done either electrically, hydraulically, pneumatically or by diesel, up to 600 HP, controlled locally or from the wheelhouse (pneumatic, hydraulic or manual).

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2.2.1 Categories of product

The winches produced by Company X can be divided in the following categories: Anchor winches

Anchor winches (figure 2-2) are used for lifting and lowering the anchor. They are often combined with a chain stopper (figure 2-6 item 1).

Mooring winches

This category of winches is applied to secure an object (ship or pontoon) on shore or in a fixed position at sea. The latter application is used to

create a stable working platform for laying oil and gas pipes on the ocean floor, where the mooring winch tensions wires with anchors sank to the bottom.

Specials

A good example of a special is the “slipway winch” (figure 2-3) which is used to pull ships onto the shore for inspection, upgrades, engine service and maintenance.

Towing winches

A winch with one or more rope storage drums for veering out,

hauling in or making fast tow ropes, towing ships and pontoons in harbour and open sea. A variant of a towing winch is the so called anchor handling winch, lifting large anchors from the bottom of the sea, after which the anchor is dropped at a different position. In this way a pontoon (as described in mooring winches) can move to another position.

Dredging

A good example of a dredging winch application is the spud leg (figure 2-4). In this configuration the winches are used to lower and raise the legs of the pontoon, to create a stable platform for a dredging crane.

figure 2-3: Slipway winch

figure 2-2: anchor winch

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Capstans

A machine (figure 2-5) having a vertically mounted warping end on which a rope can be wound under tension. Application for a capstan is for example moving a heavy object on the deck of a ship.

Deck equipment

The category deck equipment includes all remaining equipment used on the deck of a ship. figure 2-6 shows two examples of; (1) a chain stopper to secure the anchor chain when lowered into the water and (2) a horizontal roller to change the direction of a pulled rope

2.2.2 Main components of a winch

A winch consists of a number of components, which can be found in most winches. These components are:

1. Internal gear box; 2. Gear casing; 3. Main shaft; 4. Friction (clutch); 5. Brake; 6. Foundation; 7. Protective cover; 8. Spooling gear.

The following picture (figure 2-7) shows an example of a winch with the main components.

figure 2-5: capstan

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figure 2-7: winch showing main components

The gearbox, consisting of the internal gearbox assembly and casing, transfers the power of the motor (with reduced number of revolutions) to the main shaft of the winch. The gearwheels are custom produced, diameter and number of teeth, for the required reduction. The drum, on which the wire is spooled, is mounted to the main shaft. An optional feature is a grooved drum, to ensure uniform layering of wire. However, when larger amounts of wire (>400 meter) need to be spooled onto a drum, a spooling gear is applied. In the flange of the drum sits a friction, creating the ability to (un)couple the power of the engine. In this way the drum can be freewheeled or in case of multiple drums individual control is possible. For fixating and deceleration an external band brake is mounted.

The design characteristics, as described below, determine the design of the (components of) winch.

2.2.3 Design characteristics for a winch

The design of a winch depends on the following characteristics: • hauling speed;

• dimensions; • wire storage;

• maximum pulling force;

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The hauling speed determines the gear ratio and the capacity of the motor used. Dimensions are often determined by the space available on board. Wire storage, maximum pulling and holding force are specified by the customer. Drive however is often industry standard or chosen on the basis of present energy source (electric, hydraulic, etc.). The complexity of a winch is determined by the gearbox size, dimensions of the main shaft and the drum, or very large dimensions.

2.3 Positioning

Company X BV can be characterized as a niche player, with the core competences “in house”. Company X is specialized in the production of non-standard (custom built) winches. Short delivery time and high product quality are very important, as stated by the management of Company X.

2.4 Organization

The organization of Company X can be divided into five departments: 1. Sales and project management;

2. Engineering; 3. Purchasing;

4. Production;

5. Finance and administration.

An organization chart is added in appendix 1. 60 people are working at Company X (X), 35 in the production, the other in departments such as engineering and sales, etc.

Due to large expansion over the past five years, the management of Company X is planning to build a new office complex in X.

The production is spread over the two locations, X and X. Cutting is handled in X, the other operations are performed in X. This research will focus on the location in X. A detailed floor-plan of X is added in appendix 2, where the following functional areas can be distinguished:

• Welding; • Machining; • Cutting; • Conserving; • Assembling; • Storage / expedition;

• Office including engineering.

2.5 Results

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3 Research approach

In this chapter will be explained what the reason is for this master thesis and how the situation will be investigated. First the reason: an introduction to why this research was started. This is followed by the what: a problem statement, goal and the research methodology to structure the research.

3.1 Problem Introduction

As stated in the history of Company X, six years ago the current owners took over the company. At the moment of takeover, Company X was performing poorly. However, due to rigorous improvements, changes in processes and increased demand, a major growth of 700% over the past five years is realized.

The increased production volume asked the most from the management and employees. During this period their focus has mainly been “getting orders ready”, producing the required parts, purchasing, and delivering the finished winches to the customers. Result of this growth is that the efficiency of the different processes is no longer clear. Various points of attention are mentioned by the technical director, but where the largest possibilities for improvement are, cannot be said at this moment.

Despite of the strong position in the market Company X can feel the impact of the financial crisis. Therefore various actions in the field of cost saving have been taken. Examples of these measures are the hiring of a professional purchaser to negotiate better prices with suppliers, reducing the number of temporary workers and overtime work. However, due to time restrictions and the complexity of the problem, a good analysis of the actual problems in the organization could not be formed. To get a clear picture of the current status and possibilities for improvement, this master thesis research project has been formulated.

3.2 Objective

Identify areas that should be improved to increase the performance business performance of Company X.

3.3 Primary problem statement

The problem introduction and objective lead to the following problem statement:

3.4 Conceptual model

A conceptual model, shown in figure 3-1, has been designed showing factors possibly influencing the performance at Company X.

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figure 3-1: conceptual model business performance

Business performance

According to Vos (2009), business performance consists of two components: 1. Financial: at what cost is the customer request handled;

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• Quality (price): quality of the product(s) produced (number complaints or for example repair cost);

• Speed (of response): time needed to fulfill the needs of internal or external customers (lead time);

• Dependability (being in time): importance of being dependable / reliable with respect to delivery times, quality of the products, etc.;

• Flexibility: can be defined as the ease by which changes can be realized; • Cost: manufacturing cost (equipment, personnel, inventory and material cost).

The performance objectives are interrelated (Slack, Chambers, & Johnston, 2006), as shown in figure 3-1. Therefore, it can be said that all objectives as stated by Slack (2001) determine business performance. In the next section the relations between the objectives will be explained closer.

3.4.1 Relations between performance objectives and business performance According to the marketing perspective, organizations achieve their goals, that is they perform, by satisfying their customers with greater efficiency and effectiveness than their competitors. The terms efficiency and effectiveness are used precisely in this context. Effectiveness refers to the extent to which customer requirements are met, while efficiency is a measure of how economically the firm’s resources are utilized when providing a given level of customer satisfaction.(Neely, Gregory, & Platts, 2005)

Slack (2006) provides in his book a description of how performance objectives are related to meeting customer requirements (external) and the relation to the internal organization. For each performance objective this relation will be described:

Quality

• The external affect of good quality within in operations is that the customers who ‘consume’ the operations products and services will have less (or nothing) to complain about. And if they have nothing to complain about they will (presumably) be happy with their products and services and are more likely to consume them again. This brings in more revenue for the company (or clients satisfaction in a not-for-profit organization);

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Speed

• Externally speed is important because it helps to respond quickly to customers. Again, this is usually viewed positively by customers who will be more likely to return with more business. Sometimes also it is possible to charge higher prices when service is fast;

• The internal affects of speed have much to do with cost reduction. Two areas are identified where speed reduces cost (reducing inventories and reducing risks). The examples used are from manufacturing but the same thing applies to service operations. Usually, faster throughput of information (or customers) will mean reduced costs. What is not stressed is the affect the fast throughput can have on dependability. This is best thought of the other way round, ‘how is it possible to be on time when the speed of internal throughput within an operation is slow?’ When materials, or information, or customers ‘hangs around’ in a system for long periods (slow throughput speed) there is more chance of them getting lost or damaged with a knock-on effect on dependability.

Dependability

• Externally (no matter how it is defined) dependability is generally regarded by customers as a good thing. Certainly being late with delivery of goods and services can be a considerable irritation to customers. Especially with business customers, dependability is a particularly important criterion used to determine whether suppliers have their contracts renewed. So, again, the external affects of this performance objective are to increase the chances of customers returning with more business;

• Internally dependability has an effect on cost. Three ways in which costs are affected are identified; by saving time (and therefore money), by saving money directly, and by giving an organization the stability which allows it to improve its efficiencies. Flexibility

• Externally the different types of flexibility allow an operation to fit its products and services to its customers in some way. Mix flexibility allows an operation to produce a wide variety of products and services for its customers to choose from. Product/service flexibility allows it develop new products and services incorporating new ideas which customers may find attractive. Volume and delivery flexibility allow the operation to adjust its output levels and its delivery procedures in order to cope with unexpected changes in how many products and services customers want, or when they want them, or where they want them;

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Cost

• Cost is the price for producing the product. The other four performance objectives all contribute, internally, to reducing cost. This has been one of the major revelations within operations management over the last twenty years as shown in table 3-1(Slack, Chambers, & Johnston, 2006).

Q u a lit y S p e e d D e p e n d a b ili ty F le x ib ili ty C o st Quality + + -Speed + -Dependability + -Flexibility + + -Cost

table 3-1: relations performance objectives

3.5 Research methodology

According to Checkland and Holwell (Jackson, 2000) three elements are necessary in each piece of research: a framework of ideas (F) in which knowledge about the situation being researched is expressed. This framework is encapsulated in a methodology (M), the second element. This methodology entails all methods, tools and techniques needed to investigate the ‘area of concern’. The area of concern (A) is the third element and this can be seen as the situation of interest.

3.5.1 Methodology (M)

The methodology used in this research includes the DOV model from de Leeuw (2002) and will be described in the following subparagraph.

3.5.2 Framework (F)

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This research is structured, based on the DOV-model, using three phases (figure 3-2): 1. Diagnosis;

a. Problem determining diagnosis; b. Problem explanatory diagnosis; 2. Design;

3. Realization / implementation.

figure 3-2: DOV-model

According to van der Zee (2004) five forms of measuring can be distinguished;

• Observing (direct observations by the researcher);

• Questioning (write down the opinion / experiences of others); • Measuring through a measuring instrument;

• Overwrite (data from another file); • Generate (from a model or simulation).

Observing itself can be done by one’s own sense organs. However it may be clear that problems occur with the validity and reliability of the measurement (Zee van der, 2004), due to for example human error. Therefore a combination of observing, questioning and measuring through a measuring instrument will be applied to guarantee the most reliable data.

3.5.3 Area of concern (A)

The area of concern will be defined in the second phase (the problem statement) of this research, chapter 6.

3.5.4 Research questions

Diagnosis phase 1 (chapter 5) will show the current situation of Company X, with respect to the performance, resulting in the following research questions:

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system1 and the cohesion within the system. Unraveling the interactions of the various elements and identifying current “way of working”, correct or false, requires an understanding of the products, production and customer characteristics.

1. What are the company characteristics?

This information will be the basis for determining for the further investigation. 2. Which performance objective(s) is (are) most important to Company X?

This question will answer how performance is measured / determined at Company X and to determine the relevance and weight of each objective to the organization. From this perspective the current production process can be analyzed and provide a direction for possible improvements.

3. How is the current production of winches organized?

The current situation and process needs to be analyzed to determine in which degree Company X performs (according to its objectives). Here an analysis will be made from tender to delivery.

4. Which inefficiencies / wastes can be identified?

To be able to improve the current situation, input is needed about current wastes and inefficiencies. How the current situation can be improved will be described in diagnoses 2. 3.5.5 Several boundaries restrict the research

• This research will focus on Company X X, the establishment in X will not be investigated, but will be seen as a supplier;

• The research and the initial implementation steps should be completed in six months;

• (Spare) parts and the production of other deck equipment, as described in §2.2.1, will not be considered in the analysis;

• No current state data on performance is available, except for financial data like profit and cost;

• The result of this research will be directions for improvement, not a detailed design.

1_{A system is a set of objects (elements) which are mutually related, in order that no elements are isolated}

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4 Literature review

In this chapter the main characteristics of Company X will be analyzed, to describe the current situation. Any solution presented in this thesis will be based on a theoretical model. To be able to fit this solution in with the company, a complete picture of the company characteristics is necessary, so that adjustments to the literature based solution can be made to meet the specific situation. Therefore first a literary review will be given.

4.1 Company characteristics

According to Hendy and Kingsman (1999), the choice between producing to stock or to order is a strategic one, related to the type of service companies aim to provide to their customer, either standard or custom-made products. In earlier work of Hendry and Kingsman (1989), the following characterization of Make-To-Stock (MTS) and Make-To-Order (MTO) is given: Characteristic Make-to-stock companies Make-to-order companies Product mix Many standard products Few standard products

Resources Specialist machinery and

workforce

Multi-task machinery and flexible workforce

Product demand Demand for standard

products can be forecast

Demand is volatile and can rarely be predicted

Capacity planning Based on forecast demand. Planned well in advance. Adjusted later if necessary

Based on receipt of custom orders. Cannot be planned far in advance

Product lead times Unimportant to customer. Can be set internally

Vital for customer satisfaction. Agreed with customer

Prices Fixed by the producer Agreed with customer

before production

commences

table 4-1: a comparison of make-to-order and make-to-stock companies from Hendry and Kingsman (1989)

The characterization in table 4-1 illustrates two extremes, hybrids of MTS and MTO are commonly observed. To which degree a company is MTO or MTS depends on the customer order decoupling point (COPD), as visible in figure 4-1. The CODP is traditionally defined as the point in the manufacturing value chain for a product, where the product becomes earmarked for a particular customer (Hallgren & Olhager, 2006).

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figure 4-1: customer order decoupling point

In more recent literature Stevenson, Hendry and Kingsman (2005) use a classification system that gives a more refined level of customization of a company, on basis of the variety and volume produced of a product. Here MTS still stands for make-to-stock, but all non MTS have been divided into Repeat business customizers (RBC) and Versatile manufacturing companies (VMC) (figure 4-2), creating a more precise classification of production companies.

figure 4-2: Classification based on Volume vs. Variety

Versatile manufacturing companies

A VSM company operates in a market where customers treat every order as an individual independent buying decision, irrespective of whether it is for a new design of product or a standard one that has been bought before. To win an order, the company has to determine a price and a delivery lead time to quote as an individual bid in response to each customer enquiry. In most cases this includes a design for a product that meets the expressed customer need. Thus engineering and sales a priori always have a role to play because the probability of winning the order depends on what prices and lead times competitor suppliers will quote and the ability of production to produce to that price and delivery time.

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Repeat business companies

Within a RBC company there is competition and customization only for this initial customer purchase decision. After the first order and agreement to the supply contract, the customer will place repeated orders with the same supplier, for what might then be considered as a standard product.

RBC companies are likely to be faced with low product variety and a small number of customers but high volumes non make-to stock Companies per product.(Hendry & Kingsman, 1999). RBC provides customized products on a continuous basis over the length of a contract.

4.2 Performance objectives

Hallgren and Olhager (2006) provide the manufacturing focus for MTS and MTO in a company, an overview presented in table 4-2. This focus is based on the customer order decouple point. The characteristics upstream and downstream of the CODP in a manufacturing system differ significantly wherefore the parts should be managed differently.

Characteristic Make-to-stock companies Make-to-order companies

Focus Product Process

Competitive priorities Quality

Delivery reliability Price Quality Delivery speed Delivery reliability Volume flexibility Product-mix flexibility Manufacturing task Providing low cost

manufacturing

Maintaining high stock available at CODP

Manufacture to customer specification

Achieve short and accurate lead times

Key properties productivity flexibility

Performance improvement priorities

Cost reduction Reducing lead time

table 4-2: manufacturing focus of make-to-order and make-to-stock

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Situations that require an MTO approach are when the products offered are made to customer specification, which reduces the opportunities for advance planning. The downstream part of the manufacturing value chain is where all the customization takes place, wherefore demand predictability is low. The uncertainty involves both product configuration (within the limitations of the company product breadth) and the level of actual demand. To deal with the uncertain environment, the organization needs to be flexible in terms of capacity and versatility. The manufacturing task for such an organization is to manufacture to customer specification and to achieve short and predictable lead times. High delivery reliability is important to keep customer promises, while short delivery lead times might win orders from competitors. Efforts to improve performance in the operations downstream should emphasize the reduction in lead times, although keeping a high level of flexibility intact. Companies that manufacture to customer specification should apply a focus for flexibility and speed for all operations within the company, one single focus.(Hallgren & Olhager, 2006)

Downstream of the CODP, the key issues are flexibility and lead time reduction to continuously improve delivery speed and dependability; the delivery promises are based on the presumption that the right material is available at the CODP(Hallgren & Olhager, 2006).

4.3 Value stream Map (current production of winches)

Value stream mapping (VSM) is an enterprise improvement technique to visualize an entire production process, representing information flow and material flow, to improve the production process by identifying waste and its source. A VSM is defined as all the mapping of value-added and non-value-added (waste) actions required bringing a specific product, service or combination of products and services to a customer, including those in the overall supply chain as well as those in internal operations (Rother & Shook, 2003). In an internal production context, there are three types of operations that are taken according to Monden (Jain, Agerwal, & Bhandari):

1. Value Adding

VA operations involve the conversion or processing of raw materials or semi–finished products through the use of manual labor.

2. Non Value Adding

NVA means pure waste and involves unnecessary actions which should be eliminated completely like waiting time, stacking intermediate products and double handling.

3. Necessary but Non Value Adding

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With respect to other mapping techniques, Value Stream Mapping (VSM) offers several advantages (Braglia, Carmignani, & Zammori, 2006):

o it forms the basis for Lean Production implementation2;

o it relates the manufacturing process internal to the facility to the whole supply chain; o it displays both the product flow and the information flow;

o it links ‘Products Planning’ and ‘Demand Forecast’ to ‘Production Scheduling’ and to ‘Flow Shop Control’;

o it includes information related to production time as well as information related to inventory levels.

One of the main objectives of VSM is to reduce the time it takes a piece to move all the way through the process (i.e. the lead time) and consequently to cut down the WIP (work in process) as well as the on-hand inventory and finished goods inventories. Therefore VSM will be used to map the production of winches at Company X.

The following steps need to be conducted for the composition of a VSM, based on Rother and Shook (2003), Womack and Jones (1996) and Braglia et al. (2006):

Product family

The first step in composing a VSM is the identification and selection of a product family as the target for the improvement, because focusing on all products simultaneously is impossible. A product family is a group of products with common characteristics, when applying VSM at Company X, this will be explained in more detail.

Current state map

Drawing the current state map (CSM), a graphical representation of the material- and information, flows as they are currently in the company. The CSM must be based on a set of data collected directly on the shop floor and should be drawn using the set of standard icons. The next step consists in the identification and analysis of the wastes encountered along the value stream. This is used as the basis for a future state map, which helps focus the organization on where opportunities for improvement.

Future state map

After drawing the CSM, the future state is drawn. The future state map (FSM) shows the new / improved situation, it represents the ideal situation. The map should be defined using the VSM standard icons and trying to answer the eight future state questions, consult Rother and Shook (2003) for the detailed overview.

2

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Plan of action and implementation

The final step is the preparation of a one page plan, which states the implementation of the future state(s). The FSM shows the “where you want to go”, for the execution of the future state a annual value stream plan should be composed. An action plan based on the projects identified and agreed on the VSM, which includes:

• A step-by-step action planning; • Measurable objectives;

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5 Diagnosis 1

In this section, based on the literature review, the research questions will be answered.

5.1 Company characteristics

Customers of Company X are for example large ship builders, but also customers who ask for a single winch or parts for repair.

When a winch is sold and becomes an order, the order is registered in the order overview, in figure 5-1. Here orders are sorted on delivery date, no detailed information is given in this overview. Delivery date is ex works, this means that the customer is responsible for transportation of the finished goods. Sometimes products are ordered a few years in advance or with shortest possible lead time. The order list is the only form of forecasting (long term planning) that can be done by Company X, because no data is available on possible customer requests. This causes for possible instable load on the organization.

figure 5-1: order overview

At Company X there is no serial production of winches or other (deck)equipment. Every winch is made in response to actual customer order, what makes Company X a make-to-order company. Furthermore every winch is custom designed (or modified from a previous order) for a specific customer, what means that Company X can be classified as an engineer-to-order (ETO) company to be more precise.

Based on figure 4-2 and the above classification, Company X can also be classified as a

J 28 29 30 31 32 33 34 35 S 37 38 39 O 41 42 43 N 45 46 47 48 D 9007 1..2 / 2 9074 1 / 1 9049 1..2 / 2 9009 1 / 1 8980 1 / 1 9045 1..1 / 1 9056 1..2 / 2 9016 1 / 1 9051 1..2 / 2 9020 1..1 / 1 9071 1..4 / 4 9047 1..2 / 2 8981 1 / 1 8977 1..2 / 2 9008 1..2 / 2 9050 1..2 / 2 9010 1 / 1 8983 1..3 / 3 9060 1 / 1 9017 1 / 1 9005 1 / 1 9021 1..2 / 2 9072 1..4 / 4 8982 1 / 1 8978 1..2 / 2 9052 1 / 1 9011 1..2 / 2 8984 1..3 / 3 9064 1..4 / 4 9018 1 / 1 9022 1..2 / 2 9073 1..4 / 4 9057 1 / 1 9059 1 / 1 9065 1..4 / 4 9019 1 / 1 9023 1..2 / 2 9066 1 / 1 8979 1 / 1 9053 1 / 1 9067 1..2 / 2 9026 1 / 1 8957 1 / 1 9068 1..2 / 2 9027 1 / 1 8958 1 / 1 9069 1 / 1 9031 1 / 1 9070 1 / 1 9032 1 / 1

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1. For each order the sales and engineering department are involved;

2. Meeting the customer need is an order qualifier, but winning an order depends on lead time and price, compared to competitor suppliers.

In literature ETO is often included in MTO (Stevenson et al. 2005; Hallgren et al. 2006; Nicholas 1998). Therefore MTO and ETO will both be used in this thesis.

5.2 Performance

Summarized cost reduction is vital in MTS environments, whereas lead time reduction is vital in MTO environments (Hallgren & Olhager, 2006).

From the data in table 4-2 can be concluded that reducing lead time is the priority in performance improvement, speed and flexibility most important indicators.

The management of Company X states that short delivery time and high product quality are very important, what corresponds to the theory. However a short analysis of the delivery times show disturbing results.

5.2.1 Analysis of delivery times

selection of orders (11-2006 / 03-2008) has been analyzed and a comparison is made of the agreed delivery date versus the real date. Delivery times and thereby the lead times are exceeded as visible in table 5-1.

Orders On time 16,92%

Late 83,08%

table 5-1: exceeding lead time

5.3 Current production of winches

The production process is mapped by a Value Stream Mapping (VSM), and for a more detailed description an analysis of the process is conducted. However the application of VSM at Company X was difficult, because the required information could not be collected on the shop floor. Therefore an alternative way of data collection has been performed and additional observations and studies have been performed to get a complete picture.

5.3.1 Application of the VSM at Company X

In particular, VSM can be effectively used only for production systems characterized by linear product routings. If the production process is complex VSM application breaks down,

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as it fails to map value streams characterized by multiple flows that merge. This typically happens for products described by a complex Bill of Material (BOM), manufactured in a job-shop facility (Braglia, Carmignani, & Zammori, 2006). To overcome the limitations of the “normal“ VSM, an improved value stream mapping (IVSM) procedure has been developed. The IVSM procedure maps another route than the “normal” VSM. With a complex Bill of materials, the main value stream is identified and the critical path (current) state is drawn. The critical path can be defined as the processing sequence which is responsible for the total production time that determines the minimum time frame needed to schedule production in advance.

VSM only considers the production, however according to Tersine and Hummingbird (1995), the lead time in an engineer-to-order company is determined in and between the acceptation of an order, engineering, procurement, production and delivery.

Therefore besides the production, the other steps have to be considered in the critical path. However as stated in §5.1 the delivery is ex works, therefore delivery of the finished goods is outside the scope of this research.

After the future state is drawn, a new critical path is identified. This procedure is repeated if inefficiencies exist due to another secondary critical path. The IVSM procedure consists of seven steps (appendix 3):

1. Select a product family; 2. Identify machine sharing; 3. Identify the main value stream; 4. Map the critical path;

5. Identify and analyze wastes;

6. Map the future state for the critical/sub-critical path; 7. Identify the new critical path and iterate the process.

By focusing on the critical path as the starting point for the analysis, any improvements obtained through VSM are directly converted into overall reduction of the lead time (Braglia, Carmignani, & Zammori, 2006).

The above procedure will be used for the application of (I)VSM to Company X. 5.3.2 Formation of the product families

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5.3.2.1 Identification of product families

The problem of part family identification however is to find a set of part differentiating attributes to guide the formation of part families so as to maximize the similarities inherent in the parts. According to Lee-Post (2000) attributes for part family formation are (table 5-2): Design attributes Manufacturing attributes

Shape Processes

Length/diameter ratio Operations

Material type Machine tool

Part functioning Operation sequence

Dimensions Annual production

Tolerances Fixtures needed

Surface finish Batch size

table 5-2: attributes for part family formation

Because almost all winches undergo identical processing steps and use the same machines and equipment, some other attribute than similar steps and common equipment should be used for the formation of product families. As stated in §2.2.3, the complexity of a winch is determined by the gearbox size, dimensions of the main shaft and the drum, or very large dimensions. These components determine the height (drum size) and width (length of the main shaft). Therefore winches can possibly be distinguished on basis of largest width and/or height or with a very large length3. In the next section, group formation based on dimensions of a winch will be carried out.

For determining the dimensions, first a selection of winches has to be made. For the most reliable and complete analysis, all current orders are taken into account. These orders are available in the status report, a more detailed overview of the orders as presented in the order overview (figure 5-1). On this status report are the orders 8727 – 9073.

Orders which contain more than one winch are split into multiple orders, to ensure correct counting of winches. Deck equipment and (spare)parts are deleted from the status report, this group of products will not be considered in the analysis because it is outside the scope of this research.

For each winch the dimensions are determined by looking up the order bill for the details (drawing nr, version, etc.) and technical drawing for dimensions. The dimensions are added in the status report, after which they have been sorted on largest dimension. Figure 5-2 shows a part of the status report as example.

3_{A large length: 2500 mm larger than the largest width or height, because this causes transportation and other}

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Figure 5-2: status report

A graphical representation of the dimensions is displayed in the largest dimension, the horizontal axis shows the 194 winch (order 8727-9073).

figure 5-3: dimensions winches

The following three groups of winches can be made; small, medium and large winches. figure 5-3 a clear transition is visible at 2000 mm, what determines the first category. consultation with sales and engineering, w

be considered as large. This results in a grouping as displayed in table 5-3.

Category Dimension

Small <2000 mm

Medium 2000-4000 mm

Large > 4000 mm

table 5-3: product groups

order Technical drawing

9044 _A4-5438

8986 _A3-5032-9

8949 _A3-5032-45

A graphical representation of the dimensions is displayed in figure 5-3. On the vertical axis is the largest dimension, the horizontal axis shows the 194 winches from the status report

he following three groups of winches can be made; small, medium and large winches. a clear transition is visible at 2000 mm, what determines the first category. consultation with sales and engineering, winches with dimensions larger than 4000 mm

e. This results in a grouping as displayed in figure 5

Dimension Nr of winches Percentage

<2000 mm 110 56,7%

4000 mm 45 23,2%

> 4000 mm 39 20,1%

Technical drawing Width Heigth Length largest dimension W/H

530 710 800

645 712 340

775 835 673

. On the vertical axis is es from the status report

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An important data source is the subsequent calculations of finished orders. Based on product groups as formulated in the previous section, per group, the smallest, average and largest winch are selected for further investigation. By choosing the upper-, lower limit and average size winch of each group the most reliable / representative selection has been made. Because not all orders, selected from the groups are finished, a similar order has been used in instead. This is displayed in table 5-4 as “similar to”.

During production, hours are registered by using a barcode system. Each worker records the order and activity that is performed. However processing times are not recorded on part level, therefore only total lead time and processing times at activity level are available (table 5-4), processing time at part level cannot be determined.

Group Order number Similar to Lead time Total hours

Small Smallest 8986 8849 4 wk 23 Average 8907 8757 (4x) 7,75 wk (31 wk) 306 Largest 8723 8719 (4x) 6,5 wk (26 wk) 278 Medium Smallest 9002 8612 23 wk 167 Average 9000 8686 16 wk 637 Largest 9053 8885 37 wk 1093 Large Smallest 8979 8615 18 wk 979 Average 8711 8711 35wk 667 Largest 8799 8776 65 wk 1625

table 5-4: subsequent calculation

When displaying the activities (fabrication, painting and assembly) per product group, a clear distinction is visible (figure 5-4). From this can be concluded that the grouping based on dimensions of a winch is a clear differentiating attribute.

figure 5-4: comparison lead time product families

Production Painting Assembly

Small 159,31 14,07 28,69 Medium 464,64 26,80 139,10 Large 760,72 60,70 268,19 0,00 100,00 200,00 300,00 400,00 500,00 600,00 700,00 800,00 T im e ( h )

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From the data it is impossible to determine processing time per part, the only possibility for determining processing times on part level is from the production planning.

5.3.2.3 Selection of product family

There are different criteria you can use for selecting the first product family to be analyzed. This depends on your business situation. Some criteria you might consider are (EMS consulting):

1. Highest Product volume in €; 2. Highest Product volume in units; 3. Products with the highest defect rates;

4. Products with the highest customer return rate; 5. Products that visit the most processes.

Based on these criteria, a medium size winch should be analyzed. Recently many problems with the quality of this category winches and this category counts for the highest monetary production volume.

5.3.3 Current state map = identify critical path

The second step in composing a VSM is the current state map (identify the critical path). Data collection should follow the approach recommended by Rother and Shook (1999). It should start at the end of the process; shipping of the finished product, working backwards in the production process to raw materials or suppliers and collecting data on inventory, information flow, machines and production flow. Key is that the current state map (CSM) must be based on a set of data collected directly on the shop floor. The following data should be collected, adapted from (Braglia, Carmignani, & Zammori, 2006) :

1. Production flow:

o average customer demand; o shipping frequency;

o pallets dimension; o production batches; o inventory levels;

o type of flow between machine (push–pull). 2. Machines:

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3. Information flow:

o type of orders released by customers (ordinary, planned, opens, etc.);

o type of orders released to first tier suppliers (ordinary, planned, opens, etc.); o ordering frequency;

o forecast frequency;

o system used to plan production; o time frame to plan production.

When all data are collected, the CSM can be constructed.

As stated above, the data for constructing a VSM should be collected directly on the shop floor. However due to long lead times, up to 16 weeks and more, the data will have to be collected by analyzing data in the information systems instead of direct observation(s). Determining production times from the subsequent calculations was not possible, therefore one winch will be analyzed through the production planning. A medium size winch, xxx-x-400 order number 8969, represents an average winch in size and turnover. Machine sharing will be skipped, because this is impossible to be determined for only one winch.

5.3.3.1 (date from) Planning

Because no real time data can be obtained, the production planning will be analyzed to determine processing times. First the analysis will be described with the method and reliability, next the results.

Analysis

Analysis of the order will be made from the data that the contract is signed until the winch is completed, which consist of determining the processing steps and times for each step (engineering, work planning, etc.) and component from the production planning, to be able to calculate the proportion value added and non value added time, and determine the critical path.

One remark has to be made; the timeframes for the processing steps are based on estimated values by the planner, therefore real processing times maybe somewhat different. However the estimated values are checked and adjusted regularly in consultation with the production supervisor to ensure they match with the real situation.

Results analysis

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Steps Lead time

Contract – order bill 4 wk

Engineering 1 wk

Purchasing 1 wk

Work planning 1 wk

Fabrication 12.5 wk

Paint + assembly 2.5 wk

Total lead time 22 wk

table 5-5: total lead time order number 8969

Additional to the above a detailed analysis has been made on component level. A winch consists of various main components, as described in §2.2.2. Completion of these components / assemblies, determines the lead time (critical path for the fabrication) of a winch.

Component Fabrication time

Main shaft 92 h Spooling gear 76 h Gear casing 68 h Internal gearbox 64 h Brake 46 h Foundation 32 h Friction 18 h Protective cover 8 h

table 5-6: fabrication times components

In the case of order number 8969, the main shaft (see table 5-6) is the component with the longest lead time which is critical for determining production lead time. The next step will be constructing the current state map; the critical path.

In excel sheet the detailed analysis of the production times at part level, added in appendix 4.

5.3.4 Critical path map

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figure 5-5: Current state map

No future state VSM, more detailed analysis / real-time observation of data is required, however the following can be said:

Ratio value added / non value added

From the production planning a ratio can be derived value added / non value added time. On part level will be calculated how much time is value added and how much time is non value added. Detailed calculations are added in appendix 4, in total ca. 8,5% of the time, value is added in production.

Theoretical lead time

The total lead time of a winch is determined based on the component with the longest processing time; main shaft 2,5 weeks (92h table 5-6). When the assumption is made that there is enough capacity in the production facility of work can be put out, the lead time decreases 12.54 – 2.5 = 10 wk, as displayed in table 5-7.

Theoretical lead time, where the timeframe for engineering, work planning, purchasing, paint and assembly is unchanged:

Steps Lead time

Engineering 1 wk

Work planning 1 wk

Purchasing 1wk

Fabrication 2.5 wk (theoretical minimum)

Paint + assembly 2.5 wk

Total lead time 8 wk

table 5-7: theoretical lead time

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5.4 Analysis of the processes

An overview of the process is given in the VSM (figure 5-5), however for the data collection secondary sources are used instead of real-time observations. Therefore information about the processes still needs to be derived (in a different way).

In this paragraph a summary of the process analysis will be given, an complete overview is added in appendix 65, the most important in- and output, but also the information flows will be described here in table 5-8:

Process Definition / description Input(s) Output(s) Planning The entire (production)process is

controlled by the planning, the planner determines the due dates / deadlines for all subsequent steps and departments;

• Order bill

• Mutation planning from fabrication and assembly

• Planning • Status report • Order

overview Sales The sales department _• Status report

• Customer request • General layout drawing • Order bill • Quotation • Order bill

Engineering Engineering determines the product design, in consultation with sales and the customer

• Planning • Order bill • Changes from fabrication and assembly • Technical drawings • Winch manual • Cutting files Work planning

Receives the drawings from engineering, determines input of production • Planning • Technical drawings • Cutting list • Part list • Requirements list • Production file • Purchase order • Warehouse bill Purchasing Purchasing components and putting

out work • Planning • NU list • Order • Requirements list • Quotations • Warehouse bill

Fabrication The fabrication of components _• Production file • Production planning

• Finished components • Mutations on

planning Assembly Assembly the winch _• Planning

• Production file • Finished components

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ship parts _• Warehouse bill • Parts and

components

table 5-8: description of the processes

5.4.1 Resume

The sales department determines together with the customer and in consultation with engineering the specifications of the product. When the contract is signed, the planning is made, engineering determines the design, work planning prepares the activities, purchasing takes care of the parts that need to be bought, after which the product is fabricated and assembled.

For one specific order this trajectory has been followed and a VSM has been drawn up. The lead time of this order is 22 weeks, however the theoretical lead time of 8 weeks shows there are substantial possibilities for improvement. At this moment the fabrication of parts and the sales (contract-order bill) time are the largest factors in determining the lead time of a winch.

5.5 Identify and analyze wastes

Before wastes can be identified, the concept waste will be operationalized. According to Taiichi Ohno, the following seven sources of waste can be identified, which are universal in manufacturing (Nicholas, 1998):

• Waste from producing defects; products that do not match the quality qualifications / specifications;

• Waste in transportation; due to the layout of the facility, what determines the sequence of operations and thereby the required transportation;

• Waste from inventory, a waste in that there are cost associated with keeping items waiting and lost time since no value is being added to them;

• Waste from overproduction, inventory and production for which there is no demand; • Waste of waiting time; waiting for orders, parts, materials, items from preceding

processes, or for equipment repairs;

• Waste in processing, which are processing steps that are ineffective or unnecessary; • Waste of motion, the most common are searching, selecting, picking up,

transporting, loading, repositioning and unloading.

As basis for mapping the production process a VSM has been constructed, however for the collection of data, secondary sources are used instead of real-time observations. For the identification of wastes in the production process a more thorough analysis is needed. The following researches will be executed to reveal inefficiencies / problems, etc.:

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1. Brown paper to involve all employees;

2. Observations for machine time and employee utilization, real time observation. The results of the above mentioned will be summarized in an Ishikawa diagram, a cause-and-effect analysis used to identify all possible contributors (causes) to a given outcome (cause-and-effect) (Nicholas, 1998).

5.6 Brown paper

A Brown paper session is a tool for jointly visualizing a process or improvement trajectory on a large piece of brown paper. The Brown paper session at Company X will be applied to visualize the entire process, from tender to the delivery of the end product. This overview will be the basis for pointing out where problems exist, redundant activities are performed, miscommunication exists and thus opportunities for improvement are.

5.6.1 Methodology and results

The methodology for the Brown paper session will be split into two parts, (1) visualizing the process and (2) pointing out where problems exist.

1. For visualizing the process at Company X, the following steps are conducted: a. Collect all documents used in the various departments;

b. Copy all documents;

c. File the original documents, the copied are placed on the brown paper in sequence of the processes, as is visible in figure 5-6;

d. The sequence of the documents is checked with all involved employees to guarantee that the brown paper represents the current situation;

e. All documents on the brown paper are numbered;

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In this way the process is visualized on the brown paper, and the document flow in the organization is filed.

2. Pointing out where problems exist

The second part of the brown paper consists of an interactive session. Employees are divided into five separate groups:

1. Assembly;

2. Turning / milling; 3. Welding;

4. Engineering; 5. Office personnel.

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Every worker should come up with at least 10 problems and/or points for improvement. These points are written on a post-it and placed on the brown paper. The minimum of 10 post-its per person is set to reveal major, but also smaller problems.

All the problems revealed by the brown paper session are listed in appendix 7, after sorting the following major problems are revealed:

• General

o Procedures and responsibilities not clear

o Usage of the ERP system, inventory management is not used o Document / version management

o Management, no adequate daily control • Sales

o Faults in the order bill • Engineering

o Product design could be improved

o What information should be displayed on the drawings • Planning

o Only one planner, what if planner is sick? • Fabrication

o (bridge) crane shared with three machines, causes waiting time o Sub-optimal equipment, or equipment is broken or missing • Assembly

o No quality control, defects are discovered during assembly o Materials missing

• Paint

o Procedure missing for painting o Safety (fire)

5.7 Observations / studies of the production process

With the VSM no detailed machine times / productivity could be given and the brown paper gave an overview of the entire process. To provide an deeper inside in the productivity of production process, various observations are conducted to reveal possible inefficiencies, waste and problems. First the methodology of these observations will be given.

Winch up the business performance at Company X

Winch up the business

performance at Company X

Business process improvement at Company X

Winch up the business

performance at Company X

Business process improvement at Company X

Management summary

Explanatory word list and definitions used

Preface

Table of contents

1 Introduction

2 The company Company X BV

2.1 History

2.2 Products

2.3 Positioning

2.4 Organization

2.5 Results

3 Research approach

3.1 Problem Introduction

3.2 Objective

3.3 Primary problem statement

3.4 Conceptual model

3.5 Research methodology

4 Literature review

4.1 Company characteristics

4.2 Performance objectives

4.3 Value stream Map (current production of winches)

5 Diagnosis 1

5.1 Company characteristics

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5.2 Performance

5.3 Current production of winches

5.4 Analysis of the processes

5.5 Identify and analyze wastes

5.6 Brown paper

5.7 Observations / studies of the production process