Supply chain performance
measures in a lean production
system
Master thesis
Nefit, BuinenSupervisor Nefit B.V.: G. Hoving
Supervisor LO-RC: Prof. Dr. Ir. J. Slomp
dr. M.P. van der Steen
Author: Maarten Brouwer
Student number: 1503707
Specialization: Technology Management
Course: Master Thesis
Thesis name: “Supply chain performance measures in a lean production system”
Glossary
G l o s sa ry
AAD Actor activity diagram
ABC Activity based costing
AHP Analytic hierarchy process
BSC The balanced scorecard
CATWOE Customer, Actor, Transformation process, Worldview, Ownership, Environmental constraints. (Part of SSM, tool)
HUB Warehouse
IP Invoice price
KPI Key performance indicators
PI Performance index
PMS Performance measurement system
PMT Performance measurement team
PQR Part of SSM, tool
SCM Supply chain management
SCOR Supply chain operations reference
SSM Soft system thinking
TCO Total cost of ownership
TQM Total quality management
VSD Value stream design
Management summary
M a nag e m e n t s u m m a ry
In this master thesis, research is conducted into the supply chain performance of Nefit. The research objective is: “The objective of this research is to determine a current state configuration and performance by analysing the current performance of the supply chain configuration of Nefit. Element of the analysis phase is the setting of KPI’s to monitor the performance of the supply chain. Future states need to give input for the development and negotiation of the suppliers in the supply chain and to control the costs in the supply chain” The main research question is: “What is the performance of the current supply chain configuration of Nefit?”
In this research we have analysed the influence of part and supplier characteristics, lean philosophy and supply chain management, stakeholders on the supply chain performance of Nefit. Thereafter we have proposed a model to measure the performance of the supply chain. The third step of the research was to analyse three alternative scenarios to the current state scenario;
1 hub run by Nefit, with consignment stock 2 hub run by Nefit, with consignment stock Extending the milk runs instead of the warehouse.
The main conclusion of this thesis is that the supply chain performance of Nefit is rather low from the perspective of the proposed model. In reality it is not that bad, because major improvements will not be achieved in the logistic costs. We have proven that the alternatives for the current supply chain configuration are not satisfactory for improving the performance of the supply chain. It is important for Nefit to leave the discussion about the hub behind and start to optimize the current state into a future state.
However we think that the performance needs to be improved. This will be the next step in the lean transformation described in the introduction. At this moment Nefit is successful in lean production, however for the future this is not enough because it is no longer sufficient to be the most efficient firm; it is necessary to be part of the most efficient supply chain (Cooper, 1996). Nefit needs to make the next step in becoming a lean enterprise rather than a lean firm. We have given input for the discussion within Nefit; it is up to Nefit to further develop a future state. In this process Kaizen will be important; small steps rather than innovation. The first step will be to develop integral measures for suppliers and the hub and focus less on costs but on root causes of these costs.
Management summary
would give quantitative data of each supplier. Buyers and logistic engineers can analyse and discuss root causes with suppliers, so improvements can be made. A team could be formed for supplier development.
The KPI’s we have proposed in this research are almost KPI’s used by Nefit under another name. The model should function as a model that measures performance in the future. The continuous improvements aim at lowering logistic costs in the future and increase the efficiency of the supply chain configuration (in particularly the hub). In order to see what the result is of the improvements the KPI’s should be used. The cash-to-cash cycle time and logistic costs are should be used as measures in the future as these are new to Nefit.
We also stated that the replenish to customer project will affect the supply chain performance as well. By replenishing the finished goods to customers, Nefit should be able to reduce the ability to change product mix (ATCPM) so new order can be produce faster. The goal of the replenish to customer project should be a 100% perfect order fulfilment (POF) and reducing the order fulfilment cycle time (OFCT). These three performance measures therefore measure the success of this project. In this way model proposed in this thesis could be used in the future the measure the effect of improvements.
Preface
P r e fac e
About 23 years ago I first went to school. I think in the first 17 years of school nobody (me included) would expect me to graduate with a master degree, well; I did it. In the last years at the University of Groningen I really started enjoying studying. Ironically at this point my studying ‘career’ comes to an end. I’m at the beginning of a new phase in life; the working life and I’m looking forward to it.
To me writing this thesis has become one of the greatest learning experiences of my life. Balancing between science and practice was sometimes difficult, but on the other hand challenging. Writing has never been my strongest point, therefore the last weeks was struggling through many pages and excel-sheets.
Within Nefit I would like to thank Gezienus Hoving for giving me a great opportunity to do a challenging assignment within a lean production company and most of all for his time and pleasant support. I also would like to thank the colleagues of material management for the daily humor that I sometimes really needed. My gratitude goes out all the people that had to answer my questions. My special gratitude goes out the managers that had struggle through my proposed methods and showing such commitment to this assignment.
At the University of Groningen I would like to thank Jannes Slomp for introducing me to Nefit and helping me to write a proper research report. I also would like to thank Martijn van der Steen as second reader. I would like to thank my parents who made the writing of this thesis possible in the first place, only partly through their financial support. Last but foremost, I would like to thank my girlfriend for her support, love and reading my papers throughout my study.
Content
C o n t e n t
Glossary ...1 Management summary...2 Preface ...4 Content ...5 1. Introduction ...7 1.1. Nefit...71.2. The supply chain of Nefit ...7
1.3. Research motivation ...9
1.4. Thesis structure...10
2. Research design and methodology...11
2.1. Research objective...11
2.2. Conceptual model and research question ...11
2.2.1. The current state...14
2.2.2. The future state...15
2.3. Research demarcation...15
3. Supply chain management and the lean enterprise...17
3.1. Introduction to SCM and Lean principles...18
3.2. Squaring SCM and Lean Enterprising ...19
3.3. SCM and Lean Enterprising within Nefit ...19
3.4. Wrap-up ...20
4. Stakeholder analysis ...22
4.1. Brief history of the supply chain ...22
4.2. Stakeholders analysis ...24
4.2.1. Client and goals ...24
4.3. Other stakeholders...25
4.3.1. Production management ...25
4.3.2. Controlling and finance...25
4.3.3. Purchasing ...25
4.3.4. Logistics ...26
4.3.5. Suppliers ...26
4.3.6. Transporters...27
4.3.7. Warehousing (hub) ...27
4.3.8. Bosch Thermotechnology Group ...27
4.4. Wrap-up ...28
5. Supplier and Part characteristics...30
5.1. Supplier characteristics...30
5.2. Part characteristics...31
5.3. Wrap-up ...35
6. Performance measurement ...37
Content
7. The current state: Value Stream Mapping and Actor Activity Diagram 43
7.1. AAD and VSM ...44
7.2. Supply chain costs ...45
7.3. The performance of the current state...47
7.4. Wrap-up ...49
7.4.1. Outcome of discussion about the current state ...49
8. Future scenarios...50
8.1. Warehouse(s) run by Nefit...50
8.1.1. Initial investment and Net present value ...50
8.1.2. One warehouse ...52
8.1.3. Two warehouses...53
8.1.4. Extending the milk-runs instead of the warehouse...55
8.2. The performance of the scenarios ...56
8.3. Wrap-up ...57
9. The ideal situation; the value stream design as input for discussion ...60
10. Conclusion ...64
10.1. Perceived limitations of this research ...64
References ...70
Appendix 1 the system (the supply chain)...72
Appendix 2 Selecting relevant systems...74
Appendix 3 the workbook, CATWOE and PQR ...75
Appendix 4 Definitions of the proposed KPI’s ...78
Appendix 5 VSM Current and Future stateAppendix 6 AAD Current and Future states ...79
Appendix 6 AAD Current and Future states...80
Appendix 8 AAD current state...1
Appendix 7 Investment calculations 1 warehouse...82
Introduction
1.
I n t ro d u ct i o n
In this chapter we will provide some background on the company under research. Thereby the lean transformation and the current configuration of the supply chain are discussed. The latter is performed rather to create a decent background for this research. The third section will present the motivation for this research to be conducted. In the last section of this chapter we will present the further structure of this thesis.
1.1.
Nefit
Nefit is founded in 1897 in Nijmegen under the name of A.S.W. In 1932 it produced its first geyser with the name Fasto. Nefit self was founded in 1948 in Deventer and in 1992 the company became Nefit Fasto B.V. The company has been taken over by Boderus in 1994 and since 2004 it has become part of the Bosch Group.
Since the beginning of this century Nefit is a production company that is fully set up by the lean philosophy. In 2000 the production plant in Buinen started to implement Lean production. The reason for this change was the fact that they had to double their output without investing in an extra production facility. At this moment, 8 years later the whole production process is changed into a lean production system with a tact time of 60 seconds. In 2000 the Nefits' production system was push controlled, with a stock of 30 days and an unknown lead time. In 2008 the stock level is 6 days with barely any stock in the production plant itself. The lead time is 1 hour at this moment in Buinen and 2 hours in Deventer. The production plant in Buinen produces 10.000 products more than in 2000, at half of the floor area. The production plants have greatly changed over the years, applying 55 lean principles in production successfully. Nefit at this moment is the one of few lean links in their supply chain. Being the only lean link is not enough anymore at this time. It is no longer sufficient to be the most efficient firm; it is necessary to be part of the most efficient supply chain (Cooper, 1996). Therefore insight in the performance of the supply chain is essential to improve the performance.
2000 2008
Stock 30 days 6 days
Lead time Unknown 1 hour
Setup time 2 hours None
Output 130.000 prod/y 140.000 prod/y
floor area 6200 m2 2000 m2
First time right Unknown 98.5%
Batch size 25-200 4
Delivery reliability 90% 99,7%
Table 1 results changeover production plant Nefit Buinen
1.2.
The supply chain of Nefit
The system in this research is the supply chain of Nefit, in figure 1 the system is graphically represented in a simplistic way. The system is too complex to be described in this analysis. In this section we will explore the supply chain at the highest aggregation level.
The suppliers can be divided into 3 groups;
Introduction
2. Delivering to the hub (this supplier group can also be divided into groups according to the Nefit supplier pyramid)
3. Others who do not deliver in the right packaging and time and do not co-operate to fit into the suppliers vision of Nefit.
The supplies in the hub are delivered just in time to Nefit every 4 hours. Supplies are only delivered when a kanban is send to the hub. The kanbans used to order new parts, a 4 bin system to store parts and for large parts 7 pallets supermarkets. The kanban system is used to realize the just-in-time deliveries, so only what is used in production will be replenished within 4 hours. The kanban system is used to let suppliers meet the logistic requirements of Nefit. These logistic requirements are the following; Deliver the right quantity at the right time in the right (re-usable) packaging.
The hub is a warehouse that is used by supplier to meet the logistic requirements of Nefit. Suppliers that are unable to meet these requirements itself can use the hub. There are two other benefits of the hub. First one is that Nefit is able to apply consignment stock. This way the inventory stays legally the property of suppliers, but is reserved for Nefit. The second benefit is the scale advantages for both suppliers and Nefit.
At Nefit the supplies are delivered by an internal milk-run to the supermarkets in various sections. The first group is mostly directly stored into the supermarkets. The other small group of supplies has to be re-packed in to the right packaging and stored in a macro that also uses kanban. Products in the milk-run are delivered by daily or weekly call-offs. The milk-run is only used for suppliers within a 150 km range and the large volume parts. The frequency of the milk-run is much lower than the deliveries of the hub.
Then of course the parts and supplies are used in production. The production is controlled by a MRP system that generates prognoses based on sales forecasts. The production is planned with a fixed fence for 5 days and a fixed tact of 4 weeks. The products are produced and packed in batches of 4. After production and testing the products are prepared for transport. All final products are stored in an automated warehouse (the high rack) in Deventer. So all products made in Buinen are first transported to Deventer. If the warehouse in Deventer lacks capacity, the surplus of products is transported to a warehouse in Emmen (the overflow). The final products are then delivered to the customers, which are merely wholesalers.
Introduction
1.3.
Research motivation
Performance measurement is becoming of increasing importance to companies. It helps companies to create understanding, shapes behaviour and improves competitiveness (Fawcett and Cooper, 1998). It is also no longer sufficient to be the most efficient firm; it is necessary to be part of the most efficient supply chain (Cooper, 1996). It becomes more important to manage the supply chains due to developments in operation management such as lean and thereby an increasing competitive pressure. Therefore measuring the performance of the supply chain has become necessary in order to improve the performance of the company as well as the supply chain. In this research we will deal with supply chain performance issues within Nefit.
The goal is to achieve logistic and operational excellence in the supply chain. According to Bullinger et al. (2002); to achieve logistics excellence in such complex and highly dynamic supply networks, a profound and continuous analysis of the entire network reality is necessary. This hypothesis will be supported by three experiences:
Only something measured improves.
Only a holistic view prevents suboptimal decisions of single organizations.
Only an organization wide performance measurement provides the opportunity to share synergy. These three experiences described above are essential to the problem in this research. Nefit does not measure the performance of the supply chain at this moment hence; it is hard to measure what the results of improvements that are made. A holistic view will give stirring to the development of the supply chain. Thereby insight in the performance will give synergy in operations between supply chain partners. An example of this is the triangular relationship of Nefit with the warehouse partner and suppliers. This relationship leads to discussion about responsibilities and agreements. Insight in performance and costs will be used to develop a future state and a vision about the performance of the supply chain. We will set several performance metrics to measure the performance in the next section. At first will focus on the performance measurement process.
Setting performance measures allows examining the future state scenario’s in a balanced way. The balanced approached to performance measurement is introduced by Norton and Kaplan (1992) in the early ninetieth. The balanced scorecard (BSC) of Kaplan and Norton is based on several fundamental ideas. First of all the performance measurement system (PMS) should not be dominated by one single measurement perspective. The PMS should be aligned with the organization’s strategy (lean philosophy or supply chain management) and the PMS should be dynamic and an ever changing system to keep the alignment with the organization’s strategy. There are four basic business perspectives that should be measured – the financial perspective, the customer perspective, the internal business process perspective, and the learning and growth perspective (Kaplan and Norton, 1992).
The balanced view on performance measurement has become popular ever since its introduction. The key is to measure performance not only from financial perspective. Ittner and Lacker (1998) found three important reasons for organization to adopt non-financial performance measures.
Introduction
managerial action, (7) reflect functions, not cross-functional
processes, within a company, and (8) give inadequate consideration to difficult to quantify "intangible" assets such as intellectual capital.''
2. Competitive Pressure – competition found new ways of managing, measuring and controlling operations. 3. Outgrowth of Other Initiatives – like lean manufacturing and TQM needed more than financial data to
improve their performance
In the case of this research the first point the most important. As the conflict of interests between of stakeholders revolves mainly around costs it is important to indicate that costs are not enough to measure performance. In this case costs would give a too historical view on performance because we only can use costs that already occurred. The costs we use are the costs made in 2007. We also want to measure performance of departments and function in order to see what happens with that performance if we make future scenarios.
1.4.
Thesis structure
Research design
2.
R e s e a r c h d e s i g n a n d
m e t h o d o l o g y
In this chapter we elucidated the research design of this research. In section 2.1 and 2.2 we address the research objective question and conceptual model of this research. We briefly discuss each of the research questions and a brief description of the methodology used for each research question. In section 3.3 we will discuss the scope of this research.
2.1.
Research objective
We will recall the root definition defined in the previous section. A system used in a lean production company which presents and analysis the balanced performance of the supply chain in order to increase the performance and flexibility of the supply chain. Based on the root definition we have formulated the following objective for this research;
“The objective of this research is to determine a current state configuration by analysing the current performance of the supply chain configuration of Nefit. Element of the analysis phase is the setting of KPI’s to monitor the performance of the supply chain. Future states need to give input for the future development of the
supply chain and to control the costs in the supply chain”
It should be noted that the objective of this research is not to introduce a whole new performance measurement system within Nefit. We will develop a model that can be applied to measure supply chain performance within Nefit in order to see the consequences of the current supply chain configuration and alternative scenarios.
If we use the lean term of added value, the added value of this research will be to gain insight on the supply chain performance and see how alternative scenarios will affect that performance. The result of the research will be a current state value stream map of the supply chain. This value stream map will be the starting point of achieving improvement in the supply chain performance, the value stream design. The current state is intended to achieve conscious about the current supply chain configuration and its consequences within Nefit.
2.2.
Conceptual model and research question
Based on the previous the following main research question is proposed;
What is the performance of the current supply chain configuration of Nefit and how future alternative scenarios influence that performance?
Research design
already done the stakeholder analysis, however the outcome of this analysis is that these stakeholders also have influence on the supply chain configuration. The other three variables lead to three research questions. In figure 2 we have graphically presented the research design “the conceptual model”. The three other variables will be analysed in order to model the current supply chain and alternative scenarios.
The reasoning behind the conceptual model is as follows; supplier and part characteristics, stakeholders and the lean philosophy have influence on the supply chain configuration. The supply chain configuration along with the strategy of Nefit determines what performance measurement system is feasible in order to measure the supply chain performance. The strategy of Nefit is the lean philosophy therefore we only explore the literature on lean. We also will explore the relation of supply chain management and the lean philosophy. The conceptual model is used to answer the central question in research in a structured way.
Supplier/part characteristics supply chain performance (KPI’s) Lean Philosophy/ Supply chain management Supply chain configuration Stakeholders
Figure 2 Conceptual model The main research question is split up into three research questions:
1. How do the lean philosophy and supply chain management relate to each other and how do they influence the supply chain configuration?
Research design
models in companies that apply lean principles. We want to apply performance measurement within lean production company; therefore we will also discuss literature on performance measurement.
2. What are the interests of the several stakeholders concerning the future supply chain configurations?
We want to find the interests of the several stakeholders in this project as well as their power on in the supply chain configuration. We will conduct a stakeholder analysis in order to find the interests and influence of the stakeholders. The analysis is done by informal meetings with managers of the relevant departments and site visits to location to find out about their processes. We will determine the influence of stakeholders on the supply chain configuration.
3. What is the influence of the characteristics of the suppliers and parts on the future supply chain configurations?
The supplier characteristics played a major role in the development of the current supply chain configuration. We will therefore analysis which characteristics influenced the supply chain configuration and why. In chapter 5 we will explore the influence of the supplier and part characteristics. We will discuss both issues separately in this chapter. We will explore the characteristics by a brief history of the development of the supply chain. In order to determine the characteristics of the parts on supply chain we will use the total cost of ownership (TCO). In the total costs of ownership the suppliers give insight in the cost price of the parts they supply. Each supplier has handed in a TCO in which they indicate the part of logistic costs of the costs price; the handling, transport and storage costs. By analysing these costs we try to determine the relation between size, price and the logistic costs of the parts. The analyses are used in order to create an understanding of the influence of the part and supplier characteristics in order to see what future state scenarios are feasible. The TCO calculations are used to estimate to hidden logistic costs in the supply chain in order to complement the supply chain costs. These costs will be used in modelling the supply chain in chapter 8 and in the KPI’s proposed in chapter 6.
4. What performance metrics should be used to measure the performance of the supply chain, in order to give direction to the development of the supply chain and that is consistent with the strategy of Nefit?
In chapter 7 we will propose a model of Chan and Qi (2003) to measure supply chain performance. The model is used not only to measure performance but also to gain insight in the feasibility and desirability of the current and future state. The model proposed performance metrics for the supply chain by making use of supply chain operations reference model (SCC, 2006). We have made some small adjustments to the metrics by using metrics already used by Nefit. By using these metrics we can have more accurate data. In order to determine the performance we have collected data from Nefit. Many of the metrics were already used by Nefit, while some are new.
The performance metrics are hierarchical attached to supply chain attributes; SC reliability.
SC responsiveness. SC flexibility. SC costs.
Research design
We will use a pair-wise comparison method, analytic hierarchy process (AHP), to let four managers (the performance measurement team (PMT)) of the most important stakeholder department give their preference to the supply chain attributes. The second step is to let these managers give perfect and minimal score for the performance measures, based on the history and current score of the performance measures. The outcome of the pair-wise comparison is used to aggregate the outcome of the second step into a performance index. The performance index is a crisp number that present to performance of the current state and will be used to present the performance of the future state.
2.2.1.
The current state
In chapter 7 we will present the current state of the supply chain and will answer the first part of the central question in this research;
What is the performance of the current supply chain configuration of Nefit?
The analyses in chapter 3, 4, 5 and 6 will be used to model the supply chain. The performance is presented by the model proposed in chapter 6. However in order to create transparency about the logistic costs of Nefit we will model the supply chain and allocate the costs to the processes and activities in the models.
We will use two methods in order to model the supply chain, value stream mapping (VSM) and actor activity diagramming (AAD). VSM and AAD are both modelling tools for modelling business processes and provide a quick overview of the processes. AAD (Schaap, 20011) is very useful tool to assign actors to activities, making it possible to clarify responsibilities of the actors. AAD is related to business process re-engineering (BPR) (Davenport, 1993) and designing information systems. In this research it will be applied to assign actors to activities and carried out in the logistic process and allocating costs to them. In this way you will get a simplified form of activity based costing (ABC) and therefore see relationships between activities and cost behaviour. This analysis will then be used to model future state scenarios.
Whereas AAD is focussed on who does what in the process, VSM is a tool used in the lean philosophy. VSM basically comes down to modelling the current process in order to find ways to improve the current state to a future state, the value stream design (VSD). The VSD will be reached by conducting Kaizen activities in order to eliminate waste from the process. VSM is generally a process design with lead time and process times of the activities. It lacks the possibility to assign actors to these activities; therefore we have used AAD as well. The most common form of value stream mapping is the process model introduced by Toyota (Rother and Shook, 1999).
The AAD and VSM are used to model not only the current state but also three future scenarios. This part of the research was rather iterative. We have asked the PMT which scenarios should be explored they came up with the following scenarios;
1 warehouse run by Nefit, with consignment stock 2 warehouses run by Nefit, with consignment stock Extending the milk runs instead of the warehouse.
Research design
In chapter 8 we will present the current state of the supply chain along with the outcome of the model proposed in chapter 7. By presenting the current state combined with the results of the pair-wise comparison we can analyse what the current performance is and how the stakeholder perceive the performance of the current state.
In chapter 9 we will do basically the same as in chapter 8 only this time with possible future scenarios described above. By using the model proposed in chapter 7 we can evaluate which scenario is feasible and desirable from the stakeholders’ perspective.
2.2.2.
The future state
In chapter 9 we will used the performance measures and index to analyse three alternative scenarios. Chapter 9 will answer the second part of the central question in this research;
How future alternative scenarios influence that performance?
Centrepiece of these scenarios will be the warehouse run by Veenstra. We will explore what the consequences are of removing the warehouse run by Veenstra for the performance of the supply chain. The main issue will be to see which scenario is preferable over other for stakeholders’ perspective by using the performance index of all stakeholders involved in the model of chapter 7. Thereby we will discuss what the impact is of these scenarios on the performance measures of the model proposed in chapter 7.
2.3.
Research demarcation
Research design
Supply chain management and lean enterprising
3.
S u p p ly c h a i n m a nag e m e n t a n d
t h e l e a n e n t e r p r i s e
The goal of this research is to determine the current performance of the supply chain. The second step will be to determine the future state by comparing several possible future scenarios. In order to determine what the performance is, we should select key performance indicators that will present a balanced picture of the performance of the current and future state. We will use the Chan and Qi model for performance measurement. In figure 4 presents the area we will discuss in this chapter graphically in the conceptual model, we will answer the following question in this chapter;
How do the lean philosophy and supply chain management relate to each other and how do they influence the supply chain configuration?
In order to answer the question we need to discuss two issues, these will put the model proposed in chapter 7 in the right perspective. These issues are supply chain management and lean logistics/enterprise. These issues have to be dealt with in order to make sure that the model is applicable in a lean company. Therefore we will discuss these two issues in relation to each other. In the first two sections we will discuss the relation between lean philosophy and supply chain management and their influence on how to manage that supply chain. In section 3 we will discuss how the supply chain is managed within Nefit. In the research motivation we already discussed literature on performance measurement in general. In the wrap-up we will briefly get back on this and the influence of supply chain management and the lean philosophy on performance measurement. The latter is discussed as will discuss the fact that strategy determines the performance measures. As supply chain management and the lean philosophy are strategies towards managing the supply chain they should determine the performance measures used.
Supply chain management and lean enterprising
3.1.
Introduction to SCM and Lean principles
Supply chain management (SCM) is introduced little more than two decades and it has been developed ever since. The term “supply chain management” was typically introduced to refer to the entire supply activity of the firm (Cousins et. al, 2006). SCM takes an extended view of the more limited concepts of “operations management” and “operations strategy”. Optimize their own operation is not sufficient for companies to be competitive in today’s markets. Fundamental to the theory of supply chain management is the notion of exercising control of an identified sequence of activities from a vantage point. This vantage point is usually occupied by the firm or organization conducting the last significant transformation of the product before it reaches the consumer (through the downstream supply chain) (Lamming, 2006).
The principles of lean manufacturing have an impact on SCM. It helped to shift the focus from traditional purchasing to being a fundamental factor in strategy. Lean manufacturing focuses not only on how to optimise the production process, but also how it is constrained by supply chain activities. The introduction of lean manufacturing (Womack et al., 1990) helped shift the focus, considering not only how the production process could be optimised, but also how this was constrained by supply chain activities (Cousins et. al, 2006). Lean supply techniques were introduced including supplier tiers, collaboration, joint design and development, and supplier associations (Womack et al., 1990; Lamming, 1993; Rich and Hines, 1997).
SCM is one way to increase the performance of all activities in the supply chain. With ‘lean thinking’ the goal is to eliminate waste from the supply chain and thereby increasing the performance. Another goal is to get a stable production process with fixed periods. In practice this means having a fixed tact time for a fixed period and a fixed production plan with a fixed fence for several days. The stability of the production process brings rest to the supply chain.
Lean enterprising is an extended view of lean production. Lean logistics is often confused with lean enterprising, but it is just a part of the lean enterprise in order to synchronize the activities within the value stream. Lean logistic incorporates all operations needed to deliver goods to the customer, except making and providing service. Typical Lean logistic techniques are just-in-time (JIT) deliveries and milk-runs. The goal of applying the lean philosophy to the supply chain is to achieve a lean enterprise. In a lean enterprise the value stream or supply chain is seen as one whole entity. Womack and Jones (1994) define the lean enterprise as follows; the lean enterprise is a group of individuals, functions, and legally separate but operationally synchronized companies. The notion of the value stream defines the lean enterprise. The group's mission is collectively to analyze and focus on a value stream so that it does everything involved in supplying a good or service (from development and production to sales and maintenance) in a way that provides maximum value to the customer.
Supply chain management and lean enterprising
3.2.
Squaring SCM and Lean Enterprising
Lean enterprising does have commonalities with SCM. As both models attempt to synchronize operations between companies, tries to optimize the value delivered to the customer and takes the last link in value stream as vantage point. Lamming, (1996) found three specific features to find similarities and differences between lean logistics and SCM;
Cost transparency – in both lean enterprising and SCM sharing information is essential to improving operations between companies. Whereas lean logistic does not recognize artificial boundaries between companies, it is logical that information about costs and operations is shared between value stream partners. SCM applies techniques like open-book negotiation, which is focussed on eliminating costs by synchronizing of operations. Essential is that all parties are willing to improve and do not misuse information for own goals.
Relationship assessment – relations assessment may be known as supplier development. The essence is that the customer will assess the supplier in order to help them to improve their performance. The risk here is that the supplier may feel humility and will not cooperate. This is also the difference between SCM and lean enterprising. SCM at best will achieve a virtual enterprise, where all links in the value stream will stay anonymous and improvements of the supplier are made to improve the performance of the customer, not necessarily both partners. Lean enterprising sees the value stream as one entity, so the supply relationship is a jointly “owned” entity, with the supplier having an equally important view on its development. Still both SCM as Lean enterprising are focussed on optimizing the performance of the supply chain.
Excuses and blame – The supply chain activities are the mutual responsibility of supplier and customer. Supplier and customer have to be aware of a “mutual destiny” and therefore willing to improve. A blame and excuse culture therefore does not fit in a lean enterprise. In SCM this also is essential in order to improve, supply chain partners should not argue who’s fault it is, but on how it could be solved.
Lean enterprising and SCM thereby both prescribe that the last company in the supply chain is taking the initiative for developing the supply chain. In this case it would mean that Nefit would be the one taking that initiative. The development of the supply chain is responsibility of both suppliers and customers and they both should benefit from the developments. Lean enterprising and SCM do have many commonalities. Both theories focus on development of the supply chain by synchronising operation and co-operation with multiply stakeholders within that supply chain. SCM tools and methods could be applied within lean environment as long as they fit within the lean philosophy. Important to keep in mind is that the tool should focus on solutions rather that problems. Thereby it should facilitate transparency in order to see problems in order to solve them.
3.3.
SCM and Lean Enterprising within Nefit
Supply chain management and lean enterprising
source supplier, the b-source supplier and one new supplier. Even though some suppliers are doing business with Nefit for quite some time, this type of buyer-supplier relationship is not desirable. A long term relationship does not mean doing business for a long time, but commitment of the buyer for the next period of time. The reason for this is that the type of relationship leads toward opportunistic behaviour. Womack and Jones observed that suppliers are tempted to bid under price in order to win the competition. They know that in the long run they know more work will come out of it or they can bring up the price. In the case of heavy investments it is hard for the buyer to switch from suppliers once production is at full swing (Womack, et al., 1990). So at one hand suppliers will not co-operate in developing of their process, because they don’t know if their supplying the next year. On the other hand suppliers know that Nefit is depended of them so there is no need to improve.
Nefit uses also many different suppliers for parts. The policy is that Nefit should not become depended of one supplier, in order to protect itself from opportunistic behaviour of the supplier. This is very reasonable for Nefit to do, but it means that Nefit will need to develop relationships with many suppliers. Nefit does not have the resources to do so and therefore it is not done properly.
At this moment Nefit does some activities concerning the development of suppliers. First of all Nefit helps them in order to make use of the warehouse and kanban system. The second activity is carried out by the purchasing department. They run Bosch audits within the processes of the supplier to see where possible improvements could be made. The third activity that could be considered as supplier development is the TCO (explained in section 3.2). Bosch requires every supplier to participate in open book negation by let them hand in a TCO calculation. The current TCO is not very precise on how the cost price is calculated it only provides information on price excluding works, handling, packaging, transport and storage costs. The goal of these tools is to improve the performance of the supplier, whereas suppliers may feel that is it all just to reduce the price for Nefit.
We also want to address to what extend Nefit uses excuses and blame. At this moment suppliers get a fax when the production is stopped because of the fact that their parts aren’t available. So the focus is on whose fault it is rather than solving the problem. The same goes for quality problems, the supplier has to solve them because it is their problem. These type of processes need to change in order to come to a lean enterprise or supply chain. Logistic, production and quality problems are mutual problems for both suppliers as Nefit is this case. We want to make clear that Nefit is trying to develop their supplier, but need to take it one step further than its doing now. One of the problems that make it harder to do so is that Nefits’ organizational structure is very functional. So even within Nefit problems belong to departments rather than solving them together. We are well aware that this picture might come across to be over acted. The point is that if Nefit really wants to develop their supply chain, it should incorporate this in their strategy and do it together with supplier. This means bringing back the number of suppliers and let them know that if they are willing to invest and develop, they will have a long term relationship. Nefit also should be willing to invest in their suppliers and solve problems together. In order to do so we want to know what the current performance of the supply chain is, because only something measured improves.
3.4.
Wrap-up
Supply chain management and lean enterprising
We can conclude that SCM and Lean enterprising do have impact on the supply chain configuration. Both principles focus on improvement of processes and the development of suppliers. The vantage point in both theories is the last company that performs the last significant transformation of the product before it reaches the consumer; this company should be taking a leading role in the development of the supply chain. We have concluded Nefit uses lean principles in logistics; however it focuses less on management of the supply chain. Nefit is rather traditional in the management of suppliers. It focuses on short-term relationship by letting suppliers have price bidding every year. This type of relationship prevents continuous improvement in the supply chain along with the blame and excuses behaviour. The notion that problems within the supply chain are the mutual problem of suppliers and Nefit is essential in order to realise prevent continuous improvement in the supply chain.
Thereby only something measured can improve. The lack of transparency about the performance, costs and responsibilities prevent continuous improvement in the supply chain. The goal of this research is create transparency about logistic costs and performance. In both SCM as the lean philosophy transparency about costs is essential in order to improve. Nefit uses total costs of ownership to specify the logistic costs within the supply chain; this of course is one step in the right direction. However it should be applied in the right way. Suppliers need to get the feeling that costs savings gained by the transparency of their costs are beneficial to both parties. It should not be used to just cut costs. At this point Nefit is heading the right direction. Still it is not enough to create full transparency about all the costs and performance.
Stakeholder analysis
4.
Sta k e h o l d e r a na ly s i s
Holmberg (2000) states that system thinking is especially suited for supply chain measurement problems. System thinking refers to the many stakeholders involved in the supply chain. All these stakeholders have different interests, beliefs, values and power that they will use to protect or build their position. In this chapter we want to gain insight on the perspectives and power of the relevant stakeholders in this project. This will be done in order to give direction to the main research in this thesis. The problem with supply chain issues is that are many stakeholders involved and they all have beliefs, values, goals and interests. In figure 5 we graphically present the part of the conceptual model that will be discussed in this chapter. The research question for this chapter therefore will be:
What are the interests of the several stakeholders concerning the future supply chain configurations?
The main discussion within Nefit is about the current supply chain configuration on the supply side and the lack of insight on the performance of the supply chain. Therefore we will focus mainly on the supply side of the supply chain, rather than on the deliver side.
Supplier/part characteristics supply chain performance (KPI’s) Lean Philosophy/ Supply chain management Supply chain configuration Stakeholders
part of conceptual model discussed in this chapter
Figure 5 part of conceptual model discussed in this chapter
4.1.
Brief history of the supply chain
Stakeholder analysis
in-time deliveries, so only what is used in production will be replenished within 4 hours. This is one of the logistic requirements of Nefit. These logistic requirements are the following; Deliver the right quantity at the right time in the right (re-usable) packaging.
The overseas suppliers from Asia were of course unable to deliver the bins within every 4 hours. Therefore a warehouse was built by Veenstra in Heeg in order to let the European and Asian suppliers fit onto the production system so they could deliver JIT. For these suppliers this seems clearly logical because the transportation costs are much higher than storing full sea containers in a warehouse.
With the introduction of the warehouse the suppliers were able to supply JIT; the rest of the suppliers within mostly the Netherlands still did direct deliveries or participated in a milk-run of Nefit. The milk-run was used for all suppliers within a 150 km range from Nefit. Some suppliers used a warehouse in Veendam in order to participate in the milk-run. As the milk-run incorporated more suppliers, the supply became unsteady. Every hold-up caused the milk-run to be late, so just in time deliveries became impossible. At that point Nefit started to develop suppliers to let them make use of the hub in order to guaranty JIT and low inventories in the production. The large volume parts are still supplied by a milk-run and a small part of the suppliers used direct deliveries. The last group will eventually be eliminated. Figure 6 shows the supplier development pyramid. The pyramid represents the development of suppliers; the goal is to develop every supplier into a k-supplier. The k-suppliers are able to meet the two logistic requirements described above. In order to achieve this, suppliers make use of the hub. This is sometimes referred to be cheating the lean philosophy in order to realise JIT.
Figure 6 Supplier development pyramid
The use of the warehouse makes it possible to let suppliers fit onto the production system of Nefit (NPS); therefore it’s called a hub. Some suppliers aren’t able to deliver into the right re-usable package that Nefit prescribes and therefore let Veenstra re-package their supplies.
In this section we have discussed a brief overview of the supply chain in order to get an idea what the subject of discussion is. In the next section we will elaborate on that discussion between the relevant stakeholders.
K
P
H
D
S
N
X
(X) To be eliminated (N) No new business, supplier does
not fit in BPS and, is on a reasonable term, not willing to fit in BPS
(D) Customer determined supplier, is determined by BBT customers (K) Real BPS supplier, deliveries
are based on replenishment and packaging is ok
(S) Spare parts supplier, delivers only goods for the spare parts department
(P) No real BPS supplier, delivers not exactly according to the BPS, but the supplier has the potential and is willing to fit
in the BPS system. (H) Supplier for
Stakeholder analysis
4.2.
Stakeholders analysis
The research is conducted in a field of the organisation where there are many stakeholders involved, the supply chain. In this chapter we answer to following research question.
What are the interests of the several stakeholders concerning the future supply chain configurations?
We have conducted the stakeholder analysis in order to determine the interests and power of suppliers to influence the supply chain configuration. We have used informal meetings with all stakeholders to gain insight in their aspiration for this research and site visits to both the hub and transporters. The stakeholder analysis is used to see what the influence of the stakeholders is on the supply chain configuration. We will use the outcome of the analysis to find out what are the main issues are between stakeholders and what their power is to influence the supply chain configuration. We will shortly describe all the stakeholders. Each subsection is structured as follows; first we will discuss the function of the stakeholder within the supply chain, second we discuss their aspiration and finally we discuss the power of the stakeholders to influence decision making in this project. We will start with the client and initiator of this research.
4.2.1.
Client and goals
The supply chain project is initiated by plant managers of both production facilities of Nefit. Both plant managers are considered to be the client. The plant managers have to report to the board, this board will not have any direct influence on the project, but will be informed about the outcome of the project for further implementation of the supply chain project. They will not further be taken into account in this paper, but it’s important to notice that they want the supply chain project to be successful because.
The client’s aspirations are the nine main goals for this project. The goals are; 1. Create transparency about the supply chain costs
2. To set a blueprint for the current state of the supply chain.
3. Find performance measures to monitor the performance of the supply chain (KPI’s). 4. To measure the current performance of the supply chain.
5. To give direction to the discussion on the future supply chain strategy. 6. To set a blueprint for the future state of the supply chain.
7. To increase the performance and flexibility of the supply chain. 8. To have a 100% deliver performance.
9. The ultimate goal is to get a competitive supply chain that outperforms competing supply chain.
The problem owners in this project are Gezienus Hoving and Carel Weijand. They initiated this supply chain project and are responsible for the way the system works and the further development of the project. Their task is also to evaluate and report to the decision taker. As one of the problem owners stated; we want to most competitive supply chain rather than the most competitive company.
Stakeholder analysis
4.3.
Other stakeholders
The project spans multiple stakeholders within Nefit and the supply chain. These stakeholders all have different interests in this project. The goal of the project is to get all stakeholders behind this research and to convince the board about the future state. Therefore we will explore the interests of the other stakeholders in this research. All these stakeholder interests and views will be used to formulate a root definition. The root definition is used to formulate the research objective and questions formulated in the previous chapter. Other stakeholders in the project are the following;
4.3.1.
Production management
In the lean philosophy production is the heart of the system. The production creates the heartbeat of the system; the pace of the heartbeat is determined by the customer demand. The primary interest of the production department is to keep producing the highest quality at the lowest costs without waste. The production department is also the initiator of this project and therefore is interested to gain insight in the consequences of the logistic choices made. Production management has relatively the most power in this project. The production department along with the logistic and purchasing department has developed the current supply chain configuration. However the production department was leading in this process. Therefore we can say that the production department has a lot of influence in this project.
4.3.2.
Controlling and finance
Controlling and finance is a stakeholder that mostly provides data in this project. Of course their interest is also performance improvements. The main focus of the controlling and finance department is to control the costs the best way possible. Controlling understands the need of high quality and efficiency but this should be realized with the lowest costs possible. Controlling and finance does not have any direct power to influence the supply chain configuration. However controlling and finance is responsible for the planning and control process and therefore the budgets of the departments. In this way the controlling and finance department has some power to influence this project. The budgeting system causes managers to think within the boundaries of their own department. This way every manager wants the best performance for their department and this one of the causes of the problem in this project. The costs of the current supply chain configuration are allocated over different departments, while they think these costs should be allocated to another department. Mainly purchasing has to deal with these issues.
4.3.3.
Purchasing
Purchasing plays a large part in this project. Purchasing has to deal with an increase of the cost price of parts due to transportation and the warehouse construction. They also are responsible for communication, auditing and developing of the suppliers. Purchasing is also responsible for supplier selection. As new products are developed, a technical buyer selects suppliers that are able to produce parts according to the technical requirements. When a supplier eventually is selected to supply the parts, a commercial buyer becomes responsible for the communication and development of that supplier. The commercial buyer will have the yearly price negotiations with each supplier in order to reduce costs for Nefit.
Stakeholder analysis
reduction could serve as a handle for purchasing to justify their costs within Bosch. Purchasing does have a lot of influence on the supply chain configuration as they are responsible for supplier selection and development. Their main interest is to buy parts for the lowest price possible in order to increase their performance. This may be conflicting with the interests of other departments, such as production, because the lowest costs may be achieved with purchasing large quantities at ones and direct deliveries.
4.3.4.
Logistics
The logistic department is an important stakeholder in this project. The objective of this project is to increase the performance of the supply chain, financial as well non-financial. The goal of the logistic department is the same. They are involved in the configuration of the supply chain, but their main task is to optimize the chosen concepts and negotiation with logistic service providers. The logistic department is project based for the most part; they have to develop new concepts in order to achieve lower logistic costs. The logistic department has to incorporate the goals and interests of both the production and purchasing department.
Logistics already started a project in order to reduce the transportation costs. The objective of this project is to decrease the transport costs with 8%. Therefore logistics has great interest in this project to meet their objectives. The blueprint could incorporate their goals as well. The logistic department is focussed on optimizing the logistic concepts of Nefit. We will use the same transportation costs as in the project as part of the total logistic costs. This is important because both projects could result in different outcomes.
4.3.5.
Suppliers
Suppliers have to conform to the logistic requirements of Nefit. These logistic requirements are; the right package and just in time delivery. Suppliers that will not conform to the standards of Nefit will eventually be eliminated. Suppliers have played an important role in the configuration of the supply chain. This group is therefore a special stakeholder in this project. Suppliers have mixed opinions on the current supply chain configurations. Some suppliers are very positive while other suppliers don’t see what all the fuzz is about.
Suppliers are interested in covering the costs that are made in order to meet the logistic requirements. On the other hand they want to stay supplier and therefore have competitive price biddings. At this moment the suppliers are compensated for 2 weeks of storage in the hub. For some suppliers this is not enough to cover their costs and therefore the invoice price of the parts is raised. In fact the suppliers have the same interest as Nefit. They both want to bring down the logistic costs. However both parties have a different opinion on how to do this. Suppliers want their costs compensated, while Nefit wants suppliers to better fit onto their system in order to bring down storage and packaging costs. Therefore one of the main goals of this project should be providing an overview of what consequences are of several logistic choices, such as using the warehouse in order to let suppliers deliver just-in-time. In section 2.3 we have discuss this issue in a brief history and further explore the influence of the suppliers on the supply chain configuration. It is not the objective to decrease the profit margins of suppliers but to decrease their costs and thereby the cost price. The ultimate goal is to get a competitive supply chain that outer performs a competing supply chain.
Stakeholder analysis
of Nefit by bringing up the costs they make in order to meet the logistic requirements. In this way the purchase departments aspiration have been influenced, because they have to justify these costs. In this way the suppliers are a very important stakeholder in this project.
4.3.6.
Transporters
The goal of this project is to increase the performance of the supply chain; this goal may be conflicting with the goals of the transporters. There are five large transporters for Nefit; their goal is to gain as much as possible transports. However the goal is to decrease costs, not profit margins, by increasing the efficiency of processes. In this part, the transportation costs project mentioned in the logistics section is involved. The transporters do not have any power to change the supply chain configuration, but do have conflicting interests with those of Nefit.
4.3.7.
Warehousing (hub)
The hub is an important link in the supply chain which has gained a great deal of power of the last few years. At first a few supplier made use of the hub, however at this moment about 80% of the suppliers use it. The party that runs the warehouse (Veenstra) therefore has gain a lot of extra activities out of the warehousing done for Nefit. It has the power to determine its own transport rates for suppliers. Suppliers have to deal with the hub, because for the largest part it is the only solution. As Veenstra has a monopoly on the warehousing for Nefit, it is not interested in measuring performance of the supply chain.
Veenstra has a lot of influence on the supply chain performance and configuration. Veenstra did not do any warehousing before they got involved with Nefit and most of the current warehouse activities are executed for Nefit. Thereby they gain a lot of extra transport activities of Nefit, because they do transportation for Nefit suppliers due to the fact that these are using the warehouse. The interest of Veenstra will be to expend their activities and will certainly not cooperate in order to reduce inventory, handling or transportation. So a possible increase of the supply chain performance may be a decrease of their performance. Veenstra has a lot of power in the supply chain; suppliers merely need to use the warehouse. Veenstra will of course use this power in order to gain more activities and profits. The interest of Veenstra is therefore opposite of suppliers and Nefit. An example of this is the fact that Veenstra should provide data as input for this project, due to a lack of time and data they did not provide any data for this project. This may point to the fact that Veenstra doesn’t want any insight in performance of the supply chain
4.3.8.
Bosch Thermotechnology Group
Nefit has recently been taken over by the Bosch Thermotechnology Group (Bosch TT). Bosch TT expects all companies owned by Bosch to conform to the Bosch Standards and work methods. In this case this means that Nefit has to adopt the same processes as other Bosch companies. Bosch prescribes almost all processes, performance measures and cost structures. There is some freedom for companies to give an own interpretation of filling in each process, but they need to conform to the Bosch standards. The BOSCH Group may be changed to the way company run a process if they become a best practice, only in this way companies can change the Bosch processes to their own benefit. In this project we will need to consider the Bosch standards in order to accommodate a future benchmark, but also in order to communicate findings of this research.
Stakeholder analysis
all Bosch TT plants. A lead buyer is responsible for the prices of the parts and buying process. As parts are bought for the same price for every Bosch plant, the invoice price should be the same for all of those plants. Due to the logistic requirements of Nefit the invoice price for Nefit becomes higher. The purchase department has to justify the extra costs to the lead buyers and the central purchase department of Bosch. Bosch can therefore overrule decisions if they want, by setting target that should be achieved. This may lead to short-term decisions making instead of optimizing processes for the long-term
4.4.
Wrap-up
Most of the stakeholders are departments within Nefit. We can conclude that all of these stakeholders have the same interest in this project concerning the goal of setting a blueprint of the current state. The most important stakeholders within Nefit for this research are; controlling and finance, purchasing, logistics and production management. These stakeholders all want to know what the current logistic or supply chain performance is. So finding accommodation on the objective of this research isn’t the greatest challenge, but finding accommodation on the strategy towards the future state will be harder as well to determine how to measure the performance. The last issue may not come forward in the analysis, but it is very important. Every department has a different opinion on how the logistic performance should be measured. Every department wants to know the logistic costs and considers this to be most important performance indicator, but they all have a different view on what other KPI’s should be used.
Suppliers and part characteristics seem to have an impact on the supply chain configuration and played a major role in the history of the supply chain. Suppliers make extra costs in current supply chain configuration which leads to discussion between stakeholders.
Within Nefit the hub is also the centrepiece of discussion. The purchasing department rather uses direct deliveries rather than the hub and buys parts at the lowest costs possible, while production rather has suppliers that can provide one piece flow to the production system without the interference of a hub. Controlling and logistics are somewhere stuck in the middle of these two extremes. We can conclude that all departments agree on the notion that the hub is inevitable for now, but it is not an optimal solution.
Centrepiece of the conflict of interests between stakeholders is the hub. As we put forward in the stakeholders analysis not only within Nefit there is a conflict interests. The warehouse owner, Veenstra, has contradicting interests to those of Nefit. Veenstra of course wants to expend their activities and has no interest in transparency about the costs of the hub. The optimizing of the supply chain could mean fewer activities for them and thereby less turnover and profits.
Stakeholder analysis
decline of performance of the production department, but will improve the performance of the logistic department. This example is hypothetical and in this thesis we will try to prove if the elimination of the hub improves the overall performance of the supply chain.
Thereby the stakeholders outside Nefit will have other interests then Nefit. The transporters and warehouse partner (Logistic Service Providers, LSP) want to increase their activities for Nefit in order to gain profits. The warehouse provider thereby gains more activities from suppliers of Nefit as they make use of the warehouse. These stakeholders do not want to be eliminated from the Nefit supply chain or even more so, they want to expend their activities. So in this way they will try to influence the strategy and operation of Nefit. Lower inventories would mean less income for the warehouse provider, while Nefit should have the goal of eliminating waste and inventories from the supply chain.
The conflict of interests between the relevant stakeholders brings along several important issues; No insight in the current performance of the supply chain
No insight in the consequences of the current supply chain configuration Lack of transparency about logistic costs
The lean production principles used by Nefit The management of the supply chain
The influence of supplier and part characteristics The power of the hub (Veenstra)
Costs associated with the hub for suppliers and Nefit The triangular relation of suppliers, Nefit and Veenstra
Supplier and part characteristics
5.
S u p p l i e r a n d Pa r t
c h a ract e r i st i c s
As we have determined in the stakeholder analysis and the brief history of the development of the supply chain, suppliers and part characteristics have played an important role in the development of the supply chain. Therefore we will further explore which characteristics determine the supply chain configuration. In figure 7 we present graphically which part of the conceptual model we will discuss in this chapter. In this section we will explore the following question;
What is the influence of the supplier and part characteristics on the supply chain configuration?
We will start with influence of the supplier characteristics. In order to determine the influence of the suppliers on the supply chain configuration we will get back on the brief history of supply chain configuration presented in section 2.3. In the second part we will explore the influence of the part characteristics on the supply chain configuration.
Figure 7 part of conceptual model discussed in this chapter
