An on time delivery improvement model for manufacturing organisations

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An on-time delivery improvement
model for manufacturing organisations
M.A. Karim
a
, P. Samaranayake
b
, A.J.R. Smith
c
& S.K.
Halgamuge
c
a
School of Engineering Systems , Queensland University of
Technology , Brisbane, Queensland, Australia
b
School of Management , University of Western Sydney, Penrith
South , New South Wales, Australia
c
Department of Mechanical Engineering , University of
Melbourne , Melbourne, Victoria, Australia
Published online: 17 Apr 2009.
To cite this article: M.A. Karim , P. Samaranayake , A.J.R. Smith & S.K. Halgamuge (2010) An
on-time delivery improvement model for manufacturing organisations, International Journal of
Production Research, 48:8, 2373-2394, DOI: 10.1080/00207540802642245
To link to this article: http://dx.doi.org/10.1080/00207540802642245
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International Journal of Production Research
Vol. 48, No. 8, 15 April 2010, 2373–2394
An on-time delivery improvement model for manufacturing organisations
M.A. Karima*, P. Samaranayakeb
, A.J.R. Smithc
and S.K. Halgamugec
a
School of Engineering Systems, Queensland University of Technology, Brisbane, Queensland,
Australia; b
School of Management, University of Western Sydney, Penrith South, New South
Wales, Australia; c
Department of Mechanical Engineering, University of Melbourne,
Melbourne, Victoria, Australia
(Received 8 October 2007; final version received 16 October 2008)
The purpose of this research was to develop an on-time delivery (OTD)
improvement model for make-to-order (MTO) manufacturing organisations,
based on: (i) a business process model combining product development and
customer order management processes; and (ii) an integrated database with basic
data, transaction data and functional applications, for broader planning within
manufacturing organisations. The business process model, as part of the overall
model, was designed using event-driven process chain (EPC) methodology and
incorporated both capacity and material requirements planning functionalities for
estimating on-time delivery dates and times. The database associated with the
model defines all the data including both basic and transaction data; and links
with required functions from sales to service and field return. These functions
integrate through the database, using basic data and generate various transaction
data including sales orders with an accurate promised date, based not only on the
available stock but also on procurement and distribution times of any raw
materials from external sources. The proposed model was then implemented in
a selected manufacturing organisation. A systematic investigation was carried out
to find the major causes of OTD problems of that manufacturer, with a view to
implementing and validating the proposed model. After implementing the model
average OTD was increased from 10% to 65% in about 12 months of operation.
Keywords: on-time delivery; basic and transaction data; manufacturing organisa-
tion; business process; functional applications; case study; product quality
1. Introduction
Due to the rapid growth of technological innovation, the product life cycle of new
products is much shorter than earlier (Karim et al. 2008a). Reducing the delivery time in
these markets reduces costs and creates value (Mahmoud-Jouini et al. 2004). In today’s
highly competitive market where technological innovation and its growth are very
significant, on-time delivery is a very important aspect, among many other things, for the
success of a product.
In response to technological innovation and continuously varying customer
requirements, a shift from conventional mass production to batch production has been
accelerated in recent years (Agrawal et al. 2000). Diverse product mix, together with
minimal cycle time requirements, complicates planning, control and execution of
*Corresponding author. Email: azharul.karim@qut.edu.au
ISSN 0020–7543 print/ISSN 1366–588X online
ß 2010 Taylor & Francis
DOI: 10.1080/00207540802642245
http://www.informaworld.com
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production in manufacturing organisations, especially in MTO manufacturing environ-
ments (Vandaele et al. 2000). From the characteristics of MTO manufacturing depicted by
Hendry and Kingsman (1993) it can be assumed that the manufacturing process in MTO
manufacturers is more complex compared to others.
In typical manufacturing organisations, functional units have their own goals. As there
is no single functional unit responsible for on-time delivery, in traditional organisations
on-time delivery has received minimal attention. An important feature of the conventional
wisdom of MTO manufacturing has been that if a plant’s management wishes to achieve
good delivery performance they need to quote a long lead time. The long lead times give
them the ability to plan production effectively and achieve high levels of delivery
performance. However, it has been reported that the reverse situation occurs, namely
manufacturing plants quoting short customer lead times were, in fact, achieving much
better delivery performance than those plants that quoted long lead times (Szwejczewski
et al. 1997).
Although this topic has received considerable attention in the literature, most of the
articles are restricted by their limited approach concerned primarily with the effect of
various delivery date assignment methods. Manufacturing is an integrated system covering
everything from order receipt through to the product shipment (Hitomi 1991). It covers
a wide range of activities in many functional areas including planning and design,
purchasing, production, inventory, distribution, marketing and sales. On-time delivery or
lead time cannot be dealt with in isolation. In order to make any realistic and sustained
improvement in OTD performance, the whole manufacturing planning, control and
execution cycle and associated systems have to be taken into consideration.
Realising the importance of such an approach, this study proposes a model to improve
on-time delivery performance through a business process model integrating two common
processes involved in manufacturing planning, control and execution cycle for MTO
situations and a database for supporting various functional applications through basic and
transaction data. The proposed model was implemented using a selected manufacturing
situation.
The rest of the paper is organised as follows. First, a review of the relevant literature is
presented, followed by the research methodology adopted. Next, the proposed
improvement model is presented, followed by a section on a systematic investigation of
the OTD problems and implementation of the model to overcome the problems in
a manufacturing organisation. Finally, research findings and conclusions are drawn.
2. Review of literature
Product quality, on-time delivery and manufacturing flexibility are main competitive
factors for manufacturers today (Karim et al. 2008b). It is critical to accurately determine
and maintain delivery times and quantities of incoming customer orders.
Traditionally, material requirements planning (MRP) and manufacturing resource
planning (MRPII) are used as production planning and scheduling tools. However, Koh
and Saad (2006) have reported that MRP, MRPII or enterprise resource planning (ERP)
might be a good planning system, but they might not be a good control system. Moreover,
with the advent of just-in-time (JIT) and its focus on lead time reduction and elimination
of inventories, the use of MRP for order promising and for internal capacity planning and
control has decreased. Vandaele et al. (2000) have shown that an MRP system could not
2374 M.A. Karim et al.
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deal with capacity problems and detailed scheduling. Planning, control and execution
of modern manufacturing over a broader spectrum of manufacturing types (flow to
project-based manufacturing) across the supply chain requires an integrated approach,
based on real time data and information using an integrated system (Samaranayake and
Toncich 2007).
Vastag and Whybark (2005) have investigated the effect of successful inventory
management practices on manufacturing performance and on-time delivery.
However, they found only a weak relationship of inventory management and overall
company performance. Their study suggested that it takes more than inventory
management to achieve high levels of OTD performance. Maia and Qassim (1999)
developed an optimisation model to determine optimum inventory. Their study suggested
that material and product safety stocks must be held to prevent production being
hampered and poor delivery performance to customers. Although safety stocks reduce
costs of delayed deliveries, they significantly increase inventory costs. A recent trend in
manufacturing is to reduce inventory and deliver the right quantity on-time. If delivery
times can be accurately estimated for execution of delivery plans, the necessity for safety
stocks diminishes. Moreover, due to the high pace of technological innovations,
product design changes rapidly and consequently inventory items may become obsolete
quickly.
Selvarajah and Steiner (2006) studied the optimal batch scheduling problem in a supply
chain from the viewpoint of a single supplier who services demand for multiple products
by multiple customers. The supplier’s system was assumed to have a single stage and was
modelled by a single machine with possible set ups. A polynomial-time algorithm was
presented to minimise the sum of the total inventory holding cost and the batch delivery
cost of the supplier.
Jamal and Sarker (1993) proposed a mathematical formulation to determine an
economic manufacturing quantity and a raw material ordering policy to deliver a fixed
amount of finished products at a regular interval within the production cycle time.
The problem was simplified by assuming that a manufacturing firm orders raw material in
a fixed size and converts it into finished goods that are to be supplied to a buyer whose
demand is constant and recurs after a fixed interval of time. The annual demand of the
finished goods was thus considered known and fixed.
Zou and Li (2006) developed an events-handling process and integrated job shop
scheduling model to deal with the delivery date when events such as rush orders or
machine breakdown occur during the production process in a job shop. Koh and
Saad (2006) proposed a business model that enables diagnosis of underlying causes of
uncertainty. Data was collected by a questionnaire survey to identify the types of
underlying causes that are more likely to result in late delivery.
Vandaele et al. (2000) modelled the manufacturing system as a queuing model and used
the model to analyse and evaluate improvement schemes such as layout change, lot size
decisions and lead time estimates. They developed a finite scheduler to improve the
detailed scheduling of the shop, and they reported a significant decrease in lead time for
the manufacturer they studied.
Most of the studies dealt with localised improvements such as economic lot size,
scheduling and forecasting and inventory management, but the entire product develop-
ment process was not taken into consideration in improving on-time delivery performance.
Therefore, even though there were reductions in lead times, there was always a difference
between the planned and actual lead times (Agrawal et al. 2000). Most of the models were
International Journal of Production Research 2375
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developed considering a specific problem or a specific industry type limiting the approach
in the broader manufacturing sector. Mathematical models proposed were solved with
simplified assumptions of scheduling and supply chain systems. Wang and Sarker (2006)
argued that it is usually difficult to develop a generalised mathematical model for a real
supply chain system that incorporates all its salient features. These studies usually either
assume/select parameters corresponding to current modelling practice or for computa-
tional convenience. However, oversimplification of the lead time distribution may result
in significant underestimation of variability compared to when demand distribution is not
simplified (Hwarng et al. 2005).
Most of the studies reported above suffer from the weakness that they were not
practically investigated/implemented in a real life environment. Therefore, real life
problems in implementing these models could not be investigated. Thus, effectiveness of
the methods proposed and practical implications could not be reported.
3. Methodology
A number of researchers have discussed empirical research methodology in operations
management. Flynn et al. (1990) proposed a systematic approach to conducting empirical
research. They suggested that one method, or a combination of several data collection
methods, should be used in conjunction with the research design.
In this study, the research problem was first formulated from the literature and an
in-depth case study (Section 5). It has been suggested in the literature that case studies can
be applied to the area of theory development as well as problem solving (Eisenhardt 1989).
In general, case studies are often preferred when researchers have little control over the
event and when the focus is on a contemporary phenomenon in some real life context
(Yin 1994). The case study method was selected after careful consideration of several
issues. First, one key aim of the study is to empirically identify OTD related difficulties.
Manufacturing takes place in a complex environment. Hence, it is critical to capture the
experiences of the relevant people and the context of their actions to better understand
OTD practices and related difficulties. Case studies are particularly suitable for identifying
the difficulties. Second, as the research deals with the difficulties and challenges
manufacturers are currently facing, this research deals with a contemporary event
(Yin 1994, Cavaye 1996). Third, as this study investigates in detail the OTD practices in
its real life settings, no control over the behaviour of the organisation within the plant
is possible.
4. An on-time delivery improvement model (OTDM)
As global manufacturing is moving towards shrinking inventories, reduced vendor bases,
increased product variety and just-in-time manufacturing, the importance of setting
realisable delivery dates has grown substantially (Cheng and Gupta 1989, Lawrence 1995).
The model reported in this study was primarily designed for MTO manufacturers.
The proposed OTD improvement model (OTDM) is constituted by: (i) a comprehensive
business process model using event-driven process chain (EPC) methodology; and (ii) an
integrated database with associated applications. The business process model, as shown in
Figure 1, combines two generic business processes: product development process (PDP)
and customer order management process (COMP) (Sandoe et al. 2001) and incorporates
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Order enquiry received
Enquiry processing
Quotation created
Quotation is valid
Arrival of order with
reference to quotation
Standard order
processing
Credit checking o.k Design o.k
Rejection, sent to
customer
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is determined
Sales order entered
Material requirement
planning
Capacity requirement
planning
Sales order requirements
determined
Order confirmation
is sent
Next best delivery
is negotiated
Customer committment
is received
Order is released
Product development &
Manufacturing execution
Goods received
for delivery
Credit billing document
Product is issued
XOR
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is sent
Delivery processing
Billing doc.
processing & collect.
Event
Process/process path
Function
Legend
Logical operators
XOR
′AND′
′Excusive OR′
′OR′
Figure 1. Recommended process model for accurate estimation of delivery date combining product
development and customer order management processes across many functional departments.
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additional processes such as materials requirements planning, capacity requirements
planning, and manufacturing execution.
EPC methodology captures various business process components together to make
a process model which can provide an efficient and effective way of planning, control and
execution of all involved through materials and information flows. Key elements involved
in EPC methodology include events, functions, process paths and logical operators
(Curran et al. 1998). Events describe the occurrence of a status that in turn acts as a trigger
(e.g., order is received). Functions describe transformations from an initial status to a final
status (e.g., verify order). Process paths show the connection from or to processes
(e, g., delivery processing). Business processes are mainly cross-functional, where they span
multiple functional areas of the enterprise. A process can have many functions and each
function can have many tasks/activities within each functional area. In some of the cross-
functional processes, interactions between functions are purely sequential, where the work
is completed in one functional area before being passed on to the next. In many cases,
cross-functional processes involve reciprocal or simultaneous interactions between two or
more functional areas.
In general, PDP involves various activities across three functional areas: marketing,
design/research and development (R&D), and production. As the work progresses from an
analysis of the market to the development of a prototype, the process takes inputs from
these functional areas and generates desired outputs for both internal customer(s) and the
external customer (market). Overall, marketing activities include needs assessment, market
research and market testing. Design/R&D activities include component design, product
testing and product release. Production activities include design of the production process,
equipment design and commencing production. These activities fall into one of three
different categories: simultaneous, reciprocal and sequential. For example, most of the
activities between R&D and production are reciprocal – product testing must occur before
the start of production, but product release usually occurs later. On the other hand,
component design is an activity that typically requires inputs from both marketing and
R&D.
Similarly, the COMP, at a minimum, crosses three functional areas: sales, logistics and
finance, as the work progresses from the initial sales order to the collection of payment
from the customer. Sales activities include the original order proposal and commitment
from the customer (usually in the form of a sales order). Logistics activities include
configuration and delivery. Finance activities include credit checking, billing and payment
collection. These activities also can be categorised into one of reciprocal, parallel and
sequential. For example, credit checking is a reciprocal activity where it can be carried out
at the time of enquiry first and then later after appropriate action for ensuring the
customer pays any overdue amounts.
Although these two processes allow for reciprocal, simultaneous and parallel activities
within each one, any interaction between the two processes is limited in current
process models. However, there are manufacturing situations, in particular make-to-
order manufacturing requiring interactions between processes for improving various
performance measures such as on-time delivery performance.
Therefore, the two processes discussed above are integrated in the proposed business
process model, through appropriate relationships (links) between functional activities
across many functional areas such as marketing, R&D, production, logistics, sales and
finance, and any additional function for improving on-time delivery performance. In this
case, enquiry processing, standard order processing and delivery processing belong to the
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overall COMP process. The PDP process is represented by product configuration and
manufacturing process path, which combines product development and manufacturing
execution processes as shown in Figure 1. Further, sales order processing (Figure 1)
involves: (i) order proposal, commitment at sales functional area; (ii) configuration and
delivery planning at logistics functional area; and (iii) credit checking, billing and
collection at finance functional area. Credit checking is a reciprocal activity where the
finance will usually check credit checking again before the order delivery is planned, which
must occur before billing and collection. In the proposed model, product configuration is
a broader activity where it involves selection of major assemblies from existing product
range and/or design of new assemblies/components, depending on the specifications and
type of MTO product. Further, this directly links with product development and
manufacturing execution process after the order is released, as indicated by process paths
(Figure 1). The product development and manufacturing execution process involves
various functional activities including component design, product test, prototype release,
process and equipment design, and production order execution. Similar to standard
order processing, these activities cross R&D and production functional areas and are
of the form of simultaneous, parallel or alternative activities (Sandoe et al. 2001).
For example, production execution happens only after prototype release and completion
of process/product designs. In the proposed model, component design, at the time of sales
order processing, links with the broader product configuration and manufacturing process
for identifying new components/assemblies. The interactions between sales order
processing and product configuration and manufacturing are indicated by process paths
as shown in Figure 1.
When activities described above (simultaneous, parallel and alternative) within two
processes are combined, on-time delivery performance can be enhanced by eliminating
the need for manual interfaces between processes and estimating manufacturing and
delivery times accurately. For example, order proposal as part of the sales order process
(standard order processing) leads to sales order requirements based on customer’s product
configuration. This means that product configuration activity at the time of taking an
order is directly linked with the sales order process. Further, product configuration
directly interacts with the MRP process where ‘exploding’ the bill of materials is based on
the product structure identified by the product configuration. Also, product development
and manufacturing execution activities are directly associated with customer requirements,
where the order is released only when the customer is happy with the delivery date decided
by various activities such as checking availability of materials and resources; and/or
procurement activities and lead times in the case of out of stocks, within the customer
order management process. In order to provide these interactions between two processes,
processes and functions involved in the process model are supported by integrated data
structures and appropriate transaction data in an integrated database as part of the overall
improvement model. These basic and transaction data are stored in a central database and
are made available for the whole organisation using the integration with all the functional
applications, as shown in Figure 2.
Although the concept of integrated database and functional applications is a common
practice and is supported by many ERP systems, the proposed integrated model (Figure 2)
is a unique model for a make-to-order (MTO) manufacturing, incorporating a direct link
between product configuration of sales order processing and component design of product
development and manufacturing execution process (Figure 1). Further, another significant
difference is that the order commitment date is based on the finite capacity and material
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plans determined by simultaneous planning of materials and capacities using MRP and
capacity requirement planning (CRP) respectively, as shown in Figure 1. This is possible
due to integrated data structures, combining hierarchical bills of materials (BOMs) with
sequential operations routings using unitary structuring technique (Woxvold 1992)
allowing both hierarchical (parent-component) and sequential (component-component)
relationships between components in addition to activity precedence of critical path
methods (CPMs). As such, the proposed model incorporates a database not only with
traditional data elements but also with integrated data structures. In this regard, the
commitment activity is unique and is different from traditional sales order processing.
Another difference is that of incorporation of distribution planning in the production and
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LEGEND
Figure 2. Proposed integrated database functional applications for improving OTD.
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logistics functional module where distribution requirements planning (DRP) is based on
the finite loading of distribution resources and availability of warehouse stocks.
The proposed model presents five principles as described below. It may be noted from
development of the improvement model that valuable feedback on the reasons for OTD
problems was received from the case study described in Section 5.1.
(1) Estimate an accurate delivery date using a systematic procedure: Figure 1 shows the
recommended process model to be followed in setting the commitment date for
delivery. The proposed business process model is designed using EPC methodology
(Curran et al. 1998, Sandoe et al. 2001) and encompasses a number of events,
functions, process paths and logical operators. The events, functions and process
paths constitute both generic elements usually involved in PDP and COMP and
additional elements focusing on the on-time delivery performance. The generic
‘standard order processing’ function is initiated with an event either ‘an arrival of
order without reference to a quotation’ or ‘an arrival of order with reference to
a quotation’. This is followed by a set of events related to the sales order, before the
‘delivery processing’ process. The delivery processing is supported by many
functions including distribution requirements planning (DRP) and logistics
systems (LS). Similarly, the product development process, combined with
manufacturing execution, depending on the type of manufacturing, can involve
various functions and events. Based on the initial product configuration as part of
standard order processing, in particular with a new component/assembly involved,
component design activity within the product development process can have
a direct link for arriving at the final product configuration. This possible link is
represented by process paths as part of the process model (Figure 1). In addition to
basic functions, additional functions are incorporated. For example, the event ‘the
next best delivery date is negotiated’ is incorporated into the model for allowing
more flexibility on delivery date depending not only on availability but also on
customer requirements. This further allows process owners not only to nominate
a delivery date but also to negotiate one suitable for both the customer and the
manufacturer. This added flexibility on promising delivery date enhances the
process viability.The combined process starts and terminates with an order enquiry
received and product issued to the customer events, respectively. Apart from the
added process elements, the overall process model incorporates three main process
paths: materials resource planning (MRP), delivery processing (a combination of
DRP and logistic systems) and CRP at various levels. When these three traditional
functions for planning of materials, distribution of materials and planning of
resources are combined, the process can guarantee not only the planning of
materials but also finite loading of resources. This makes the process
comprehensive, capable of forward planning and allows the organisation to
improve on-time delivery performance through complete cycle of planning and
execution starting from procurement of raw materials to delivery of finished
product. For example, when the order enquiry is received, the process is capable of
planning the delivery of the finished product with or without raw materials in
stock. In the case of no raw materials in stock, the process plans all the
procurement and the promise date is based on the total lead time of procurement
of raw materials, manufacturing and delivery of the finished product. Further,
CRP enables finite capacity planning of resources at manufacturing and delivery,
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which in turn enhances the accuracy of the delivery promised date since the
planning is based on finite loading of resources rather than the traditional infinite
capacity loading. Both reciprocal and parallel activities are clearly identified in the
process model, which help reduce the lead time.
(2) Facilitate communication as the primary condition: the methods for achieving short
lead times reported in the literature vary, but the general method is to improve the
coordination of, and interaction and cooperation between the people and functions
of product development (Mahmoud-Jouini et al. 2004). Both formal and informal
communications are of major importance. Formation of a cross-functional team
(CFT) including managers from different departments (e.g., manufacturing,
procurement, sales) is suggested in the proposed model. Using a multidisciplinary
team approach usually results in the facilitation of good communication
throughout the project, ensuring that all relevant interrelations are taken care of.
The faster information, decision and materials can flow, the faster a manufacturer
can respond to customer orders, less time is spent ‘fighting fires’ and more time is
available for performance improvement activities. In short, it is a strategy of
teamwork to bring people together from different departments to work in
a coordinated manner to reduce the wastage of time.
(3) Focus on processes rather than on functional units: in the traditional approach, if an
organisational unit finishes its job on-time and according to specifications, it
considers that the duty of that unit has been successfully completed. However, in
modern, customer-focused, process-oriented manufacturing, completion of the
whole process has to be taken into consideration in order to reduce manufacturing
lead times. It is important to continuously consider all constraints. If all important
constraints are brought up at an early stage, it is easier to deal with difficulties as
they arise, thus saving time and money in the combined PDP and COM processes.
If there are major unknowns, it is impossible to schedule a delivery date
realistically. The proposed business process model can be implemented using an
integrated database shown in Figure 2 with functional applications so that relevant
updated (real time) data is available to the cross-functional team. This integration
of database with applications will be helpful in providing basic data, transaction
data and the information on the status of each activity and associated constraints.
Applications include materials requirements planning, production activity control,
purchasing (purchase order cycle), and distribution requirements planning and
involves many activities across key functional areas such as sales, logistics, R&D,
finance and service. Only with real time information, and with continual review
and management of information, can an organisation achieve a balance of
resources and stocks of inventory to meet planned service levels.
(4) Closer coordination with suppliers: suppliers affect delivery time, product cost,
customer service levels, product quality, and ultimate profitability (Kayis and Kara
2005). Therefore, development of close, friendly relations with suppliers is
essential. Effective relationships and coordination between the manufacturer and
their suppliers is strongly emphasised in the proposed model. It is suggested that
the manufacturer establishes a ‘supplier rating system’ using suppliers perfor-
mances on quality, timely delivery, product flexibility, price, and after sales service.
It has been proved that establishing a supplier rating system and regularly updating
it has significant influence on product quality and OTD performance improvement
(Karim et al. 2008b).
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(5) Employee involvement: employee involvement is the source of most of the valuable
ideas and suggestions for improvement in every manufacturing area (Okes and
Westcott 2001). The proposed model suggests that employees should be involved in
the process as much as possible and empowered as part of the process-oriented
organisation, they should be made aware of delivery dates and the importance of
meeting these delivery dates.
5. Implementation of the proposed improvement model
In order to propose any improvement for a manufacturing planning and control (MPC)
system, it is necessary to study the current system and practices thoroughly and identify
possible drawbacks. The proposed model was implemented in a selected manufacturing
organisation. The manufacturer ‘PCB Australia Limited (PAL)1
, was selected as it
participated in a pilot study (Karim et al. 2005) and also it agreed to fully support this
study. In the following sections the organisational context of the company is reported first
and then the implementation of the model, guidelines for its successful implementation, the
problems encountered, and the resulting benefits are presented. It should be mentioned
that the systematic investigation on the reasons of OTD problems in the case study
organisation provided significant basis for the model proposed in the previous section.
5.1 Background of the case study manufacturer
The company is an MTO manufacturer of electronic products, mainly printed circuit
boards, in Australia. Investigations revealed that on-time delivery and quality of
manufactured products were the biggest problems for this company. On-time delivery
was only 10% at the beginning of the study. Product quality level was also unsatisfactory.
In the manufacturing line, the rejection rate was generally higher than expected and batch
rejections were not uncommon. However, addressing quality problems of this
manufacturer is outside the scope of this paper; hence will not be covered in detail.
PAL measures OTD performance using on time delivery in full, which can be calculated as
the ratio of number of orders delivered on time in full (on first commitment date) to total
number of orders.
The manufacturer’s attempts to improve OTD performance involved change of
suppliers and expediting the manufacturing process. Both of these practices were costly
and had not resulted in much improvement.
5.2 Overview of product development process and customer order management process
At the initial investigation stage, the PDP and COMP of PAL and the manufacturing
history of some products were analysed. Informal interviews, personal observations, and
archival documents (inventory status of stock items, material and product information,
bills of materials, customer and supplier information, delivery performance, manufactur-
ing and field failure data, etc.) were the sources of data. The production line of the
manufacturer was regularly inspected by the researchers, and product development and
the manufacturing related activities were carefully investigated. The existing PDP and
COMP of the manufacturer is described below.
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. Design: design of products was performed by the customers. Customers designed
their own product and provided PAL with detailed design specifications
(including the required quality and reliability levels and test procedures) for
manufacturing purposes. Then, the customer manager dealt with the sales order
process, starting from order proposal.
. Sales: in PAL there was no systematic process to estimate a lead time for
a customer order. Delivery date was committed by the customer manager and
usually he agreed to the delivery date requested by the customer. Sometimes help
from the MRP was sought. However, use of MRP was not adequate and not well
developed in this company.
. Procurement: once the customer commitment was received and the order was
confirmed (with details of delivery date, quality level, price, after sales support,
warranty etc.), the design and specification details were passed on to the
manufacturing and engineering divisions. They then requested the necessary
components and the procurement department contacted the suppliers for required
components. It was observed that the traditional sequential approach to project
management was practised. For example, once an order was confirmed by the
customer manager, the engineering and manufacturing divisions studied the
design and specifications of the product to be manufactured and then requested
the purchasing department to source the necessary components. In this type of
sequential process, ‘waiting time’ is an integral and inevitable part and time taken
to complete a project is longer.
. Production and quality control: the engineering division designed the manufactur-
ing process for the specific product. It was found that the company controlled and
monitored the quality of the products throughout the production line. Quality of
the incoming components (from the suppliers) was monitored. However, the
inspection of incoming components was mostly visual and only checked for
physical damages. After the circuit board was manufactured, in-circuit test and
functional tests were carried out. However, not all product types went through
in-circuit and functional testing. Breakdown of the failures was performed if the
failure rate was more that 5%. Some customers conducted their own testing after
receiving the products from the manufacturer.
. Delivery, billing and payment: these activities were given no systematic
consideration in the current practice. As part of the proposed process model,
these activities guarantee the completion of the sales order process. Once the
product is tested and received by the distribution centre/warehouse for unrest-
ricted use, the delivery process can start, based on distribution plans. At this time,
billing and payment transactions should be carried out by the finance department,
for completing the sales order process.
. Service: customer support was performed by the service department with the help
of the quality control and manufacturing departments. If customers found that
some products were not according to their quality specification, they returned
them to the manufacturer. For some customers (mainly automotive suppliers)
the products had to be warranted for a certain period (usually three years).
If products failed in the field within the warranty period, these were sent to the
manufacturer. Faulty products were either repaired or replaced. However, these
failure records were not preserved for future reference or learning.
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5.3 Drawbacks of existing PDP and COMP
After analysing the PDP and COMP in detail, the main issues and problem areas
associated with the current practice were identified. Additional functional elements
and associated links required for overcoming these issues/problems related to OTD were
also ascertained.
It was noted from the investigation that there was a strong need for a systematic and
integrated approach to the two main activities (order proposal and order commitment)
within the functional area of sales. The order proposal should be carried out, based on the
product detailed design specifications, and generates a quotation. Once the quotation is
accepted in principle and checked against the validity, sales order requirements are
determined, based on material and capacity availability. This, in turn, leads to a more
accurate promise date, based on availability of materials, procurement proposals, planned
orders and capacity availability. Subsequently, order confirmation should be sent to the
customer, seeking the customer’s commitment. Once the customer commitment is received,
the order is confirmed and released to the procurement and production departments.
It was also observed that communication between the manufacturer and suppliers was
inadequate. Because of inadequate communication with suppliers and lack of integration
of production and purchasing activities, on several occasions suppliers delivered the wrong
components and therefore manufacturing could not be started until the correct shipment
arrived. It should be noted here that manufacturing cannot be started before the arrival of
all the required components. The company policy was not to keep a large inventory of
components because of the variety of products and frequent changes of customer design
and to reduce ‘inventory cost’. When this type of policy is implemented, the production of
the finished products largely depends on the timely delivery of the components, since
buffer inventories are reduced.
The procurement process in PAL was incomplete and required execution of the
purchase order cycle for better on-time delivery performance since sales order
requirements lead to purchasing of many raw materials. This kind of seamless integration
of activities is possible only when the MRP process is supported by real time data through
an integrated database.
It was found that there was a lack of communication between production and sales.
When an order was taken, the customer manager was unaware of the inventory level of
the components, suppliers’ capability to deliver required components, and current level
of manufacturing capability. The production line might have been rushing to meet the
deadline for other products, while the new order was being taken. The obvious
consequence was delay in timely delivery.
For many of PAL’s customers a certain level of quality had to be ensured. The
company did not perform any failure prediction or risk analysis at the beginning of
manufacturing and worked in ‘fire fighter’ mode when failures occurred. An expected
consequence of this was rework, remanufacture or repair of some products and eventually
delays in delivery. Analysis of five weeks’ manufacturing data shows that many of the
failure causes were repeated (Table 1) and not much was done to overcome these
problems.
It can be seen that OTD problems in PAL were primarily related to the drawbacks
associated with the PDP and COMP described in the previous section. It was also found
that cooperation among different departments involved in manufacturing was inadequate.
The customer manager dealt with date of delivery and most other people were either
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unaware or uninvolved in the process of setting the date. It was found that production
people were unaware of the delivery date, so there was no motivation for them to expedite
manufacturing.
5.4 Model implementation
In order to implement the proposed model, first a product was selected which frequently
suffered from delivery delays. This product had 2–3 design changes every year, so every
order was considered different. The combined PDP and COMP for this product is shown
in Figure 3(a) and associated time frame (lead time) is mapped in Figure 3(b). In these
figures, not every single step in order commitment and delivery is shown. For example,
standard order processing, which consists of several events and functions, is shown as an
integrated activity. From Figure 3(b), it can be seen that more time was spent on ‘non-
value adding’ activities such as ‘waiting’ and ‘procurement lead time’ than value
adding activities. Lead time for procurement was unnecessarily long. It was the area
where significant improvement could be made. Another area was the rework and repair of
the in-house failed products.
To reduce the manufacturing lead time, the following steps were followed according to
the principles of the OTDM:
(1) According to the suggestions in the proposed model, a ‘cross-functional team’
consisting of purchasing manager, production manager, customer manager
and quality manager was formed to coordinate all the manufacturing activities.
The customer was requested to include one member from their design team so that
a discussion can be held regarding the design details. This was because on many
occasions in the past design of the product had to be changed as it did not conform
to the manufacturing capabilities of the plant. Formation and function of the
Table 1. Failure causes of five weeks of production.
Failure cause
No. of items
failed
Proportion of
total failure
Cumulative
percentage
1 Bridging 618 50.3% 50.3%
2 Component failure 102 8.3% 58.6%
3 No solder 91 7.4% 66.0%
4 Lifted part 84 6.8% 72.8%
5 Incorrect orientation 79 6.4% 79.3%
6 Misaligned part 68 5.5% 84.8%
7 Missing component/extra component 68 5.5% 90.3%
8 Other 42 3.4% 93.7%
9 Insufficient solder 27 2.2% 95.9%
10 Tombstones 15 1.2% 97.2%
11 Solder bridge 8 0.7% 97.8%
12 Damaged component 6 0.5% 98.3%
13 Wrong component 6 0.5% 98.8%
14 Cold solder/dry joint 4 0.3% 99.1%
15 Excessive solder 4 0.3% 99.4%
16 Overhang 4 0.3% 99.8%
17 Wrong orientation 3 0.2% 100.0%
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cross-functional team helped the company overcoming drawback ‘lack of
communication between different departments’.
(2) It was decided that the commitment date to the customer should be based on
requirements planning using inventory status, production and purchasing lead
times as suggested in Figure 1 and should be agreed by the cross-functional team
formed. A database of both basic data and transaction data, integrated with
required applications was created to store all data as shown in Figure 2. It shows
the data collection points that the ‘cross-functional team’ and management seek
dates against, so that the times for actions are measured to identify where the time
is consumed. At that point of time, the proposed database was not fully developed
Order confirmation with
committed delivery date
Is the proposal
acceptable to the
customer?
Place order to suppliers
Receipt and inspection of
incoming components
N
Y
Standard order processing
Modify/negotiate
Proposal
Manufacturing (Sub-assembly)
Final assembly
QC / Inspection
Shipping
QC / Inspection/ Testing
N
Y
Is quality acceptable?
Is component quality
Y
N
acceptable?
Is quality acceptable? N
Y
Customer agreement
Enter order details to database
Standard order processing
Order confirmation
Wait
Customer agreement
Wait
run MRP
Wait
Evaluate demand
Wait
Place order to suppliers
Procurement
Receipt and Inspection
Process set up
Wait
Manufacturing
QC (visual inspection),
Final assembly
QA (visual inspection,
Shipping
lead time
Resolve shortage/
ICT testing, functional
testing- repair/replace)
Lead
Time
Wait
of incoming parts
(sub-assembly)
(Wait)
Resolving quality issues
Value added
activities
Non-value added
activities
Enter order to database
Quality
(a) (b)
Figure 3. Combined PDP and COMP process and manufacturing lead time for the selected
product: (a) manufacturing process for the selected product; and (b) original manufacturing lead
time for the selected product.
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as establishment of such a comprehensive database takes time and passes through
some learning cycles. For example, establishment of a rich field return database
takes time. However, essential data related to sales, finance and logistics was
available, which was the key information for estimating a delivery date. Following
a systematic and integrated approach in order proposal and order commitment as
suggested in the model, the major drawbacks ‘lack of a systematic and integrated
approach in order proposal and order commitment’ and ‘inefficient and incomplete
procurement process’ were overcome. A further drawback of current planning,
where MRP and CRP are sequential, is eliminated in the proposed model through
simultaneous planning of materials and resources based on enhanced data
structures in the proposed database.
(3) A supplier rating system was introduced using the past data related to the
suppliers. The rating system was formed depending on the supplier’s flexibility
(in terms of volume and product variety), lead time, component quality, after sales
service and price. This system was expected to help quickly find a supplier
depending on the requirement and priority (i.e., delivery time, price etc.). Under
the new approach, only targeted suppliers (according to the supplier rating system)
would be contacted. This step overcome PAL’s shortcoming of ‘inadequate
communication between the manufacturer and suppliers’ as introduction of
supplier rating system resulted in better and more efficient communication with
suppliers.
(4) Quality concerns of the production line were analysed. The most frequently
occurring failure causes were listed as shown in Table 1. It can be seen that only
five failure types constitute about 80% of the failures. The quality manager was
requested to pay significant attention to these top five quality concerns. The
intention was to reduce rework and repair which consumed a significant amount of
time. The analysis of failure history and implementation of a ‘quality and reliability
improvement model (QRIM)’ helped PAL to overcome the drawback ‘lack of
proper failure prediction and risk analysis at the beginning of production’.
However, as mentioned earlier, details of the quality and reliability improvement
model is outside the scope of the paper. As OTD and QRIM were implemented at
about the same time and there are some synergies, separation of the contributions
these models on quality improvement is clearly a difficulty. Since the OTD model is
principally concerned with improvement in OTD, it is logical to attribute
improvements in first-pass yield mainly to QRIM.
(5) Manufacturing people on the production line were made aware of the delivery date
of the product.
Difficulties faced: formation and operation of a cross-functional team was not an easy
task as it involved fundamental change in the working procedures and attitude towards the
product development and customer order management processes. Some of the concerns
raised in the particular organisation are:
. Once active, the responsibility of delivery failure goes to the cross-functional team
rather than individual divisions. At the beginning general feeling of the team
members (managers of different divisions) was ‘why should I take the extra
responsibility on top of the responsibility of my department?’
. Managers were worried that the function of a cross-functional team would give
‘access’ to the weaknesses of their own department, which they did not want
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to ‘disclose’. In addition, they thought if the team was too much involved in their
department’s activities, it would be some kind of ‘intervention’.
On the positive side, all managers were concerned with the OTD performance and were
keen to improve this. The managers involved were convinced that implementation of the
model might significantly improve OTD performance. As there were concerns about some
drawbacks of forming a cross-functional team and working concurrently, it was decided
to compare the advantages and disadvantages of forming a CFT in a systematic way.
As there was no established method to perform this type of comparison, a method was
proposed. First, a list of possible advantages and disadvantages of making a CFT
(for a particular product) was made. It was decided to provide weights to the advantages and
disadvantages listed. Significance (between 1 and 10) of each advantage and disadvantage
would be determined and possibility of occurrence would be estimated. The weight of each
factor would be determined by multiplying the significance of the advantage or
disadvantage and probability of it occurring. If the total weight for the advantages was
higher by a certain degree than the total weight for disadvantages, then the team would
proceed with a CFT. Weight of each of the perceived factors would be determined from the
opinions of members of the team. Mathematically the relationship can be expressed that if
the value of in Equation (1) is greater than or equal to a value agreed by the members of the
team, the team would work according to the plan:
X
ðwapaÞ
X
ðwdpdÞ , ð1Þ
where w ¼ significance of advantages and disadvantages, p ¼ probability of occurrence,
¼ a value to be agreed by the team and subscripts a and d stand for advantage and
disadvantage, respectively. Managers involved agreed that if the value of was more than
or equal to 10, they would be very convinced to go ahead with the CFT plan. Perceived
advantages and disadvantages and scores are shown in Tables 2 and 3, respectively. It can
be seen that the value was much higher than expected and eventually everybody was
convinced.
5.5 Results of implementation of the OTDM
For the targeted product, lead time was significantly reduced. From the usual 35 days,
the lead time was reduced to 22 days. The new time map achieved is shown in Figure 4.
Table 2. Advantages of CFT and their weights.
Advantages Importance Probability Weight
Improvement in on-time delivery and subsequent
business success
10 0.9 9
Improved customer satisfaction 6 0.7 4.2
Fewer communication breakdowns 5 0.6 3
Enhanced organisational learning 5 0.7 3.5
Product quality improvement 5 0.6 3
Ability to bring greater knowledge and skills together 6 0.4 2.4
Total score 25.1
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It can be seen that in the new time map, ‘run MRP’, ‘evaluate demand’ and ‘process set up’
steps are absent. MRP and demand evaluation were integrated with order processing.
As process set up started during procurement, time spent on this was significantly reduced
and was integrated with manufacturing activities. Use of the proposed model to estimate
delivery time, formation of a cross-functional team, establishment of supplier rating
system, effective communication with suppliers and use of the database integrated with
applications helped the performance of activities such as establishing details of order
enquiries into the database, order proposal with reference to quotation, credit checking
with the finance department, order commitment, running MRP, evaluating demand,
contacting suppliers, and placing orders with suppliers concurrently. This integrated
process significantly reduced the ‘waiting times’. Whilst integrated databases have been
proposed in the literature for a number of years, it is still not the practice in many
companies. This study has shown the benefit of making the effort to integrate even if only
on a limited scale.
As only the focused suppliers needed to be contacted (with the help of the supplier
rating system and procurement proposals) and suppliers were contacted right after an
order (from the customer) was received, the procurement lead time was significantly
reduced.
Some of the specific recurring failure causes on the production line were specially
targeted to minimise the delay in repairing the boards because of these failures. This also
helped to reduce time required for testing and repair.
After successful implementation of the model for the trial product, it was applied for
other products. In about 12 months of operation, average OTD in full was improved from
10% to 65%. For many products, the OTD was 100%. However, average OTD was
reduced to 65% mainly because of irregular orders and ‘one off’ orders. For new and
Table 3. Disadvantages of CFT and their weights.
Disadvantages Importance Probability Weight
Functional obsolescence- without a functional
unit, the team people may remain strongly
focused on their product and gradually fall
behind functional competence.
8 0.3 2.4
If the cross-functional team is involved in
frequent and longer meetings, there was
a risk that a respective manager will not be
able to give necessary attention to his/her
own department.
6 0.4 2.4
Risk of loosing a customer: there was a risk
that some customers would not be happy
with the new system and they might become
reluctant to agree on a longer delivery time.
9 0.20 1.8
No real power or authority to make major
decisions; so possibility of delays in
decision making
8 0.3 2.4
Possibility that a particular member would try
to dominate or control team activities and
eventually make the team ineffective.
6 0.2 1.2
Total 10.2
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irregular orders, it was difficult to plan and enforce a system. It was very encouraging that
customers were very cooperative in implementing the model. The proposed model helped
the company in negotiating a delivery date with customers more exactly. It was found that
the customers were more prepared to negotiate delivery dates at the beginning rather than
in the middle of the process when the manufacturer fails to deliver on time. Determination
of an exact delivery date at the beginning helped customers to use their resources
efficiently. As the newly formed team coordinated all the activities, using real time
information from the database the company achieved other benefits as well.
Overall benefits achieved can be listed as follows:
(1) The rate of meeting the promised delivery dates for customer orders was saliently
increased.
(2) The processing time of customer enquiries was reduced significantly.
(3) Discord between different functional departments was reduced.
(4) A quality and reliability improvement model (not reported in this paper)
together with the proposed OTDM significantly contributed to product quality
improvement. Different yields (e.g., yields at in circuit test and functional test) were
improved by 6 to 12% and customer return (of faulty products) was reduced from
2.1% to 0.89%. The OTDM also contributed to improved product quality through
the provision of an integrated database, better communication across different
O
rder confirm
ation
Wait
Custom
er agreem
ent
Procurement
Receipt and
inspection
Inspection and
Process
set up
and
start m
anufacturing
Final assem
bly
QA (visual inspection,
Shipping
lead time
esolve shortage/quality
QC (visual inspection),
ICT testing, functional
testing- repair/replace)
Lead
Time
Standard
order processing
Wait
resolving quality issues (sub-assem
bly)
incom
ing
parts
Wait
Place
order to
suppliers
Enter order details
to
database
r
Figure 4. Reduced lead time for the selected product.
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groups (particularly with suppliers), increased employee involvement and the cross-
functional team approach.
6. Conclusions
An on-time delivery improvement model has been proposed to overcome OTD-related
difficulties. The main recommendations of the model include estimation of delivery time
following a systematic process, formation of a cross-functional team consisting of
relevant managers, establishment of a comprehensive database integrated with required
applications to record all necessary data and make this available to the cross-functional
team, establishment of a supplier rating system, adoption of a concurrent approach rather
than a sequential approach and establishment of effective communication with customers
and suppliers.
The proposed model was systematically implemented in an MTO-type manufacturer.
This paper has demonstrated how OTD problems and core conflicts in a manufacturing
organisation were identified. Proposed changes to address the core problem and detailed
action plans to implement changes within the study organisation were developed. It has
been demonstrated how a team of managers from different functional departments
systematically used the guidelines provided in the model. Considerable improvement in
on-time delivery has confirmed the applicability of the model. Over one year, on-time
delivery of the company increased from 10% to 65%. Although the model was
implemented in one manufacturer in Australia, the observations are very relevant, if not
directly applicable, to other manufacturers as well, since OTD problems are persistent in
many manufacturing industries. However, each practical situation might be different and
modifications to the proposed model might be necessary. Nevertheless, the proposed
model should provide a good starting point and a useful framework.
Apart from development of a model comprising a business process model and
an integrated database for improving OTD performance, this paper demonstrates, in
quantitative terms, the benefits of implementing a well-throughout system-wide model
in its ability to minimise cycle time and improve operational efficiency.
Note
1. For reasons of confidentiality, the name of the manufacturer cannot be disclosed.
PCB Australia Limited (PAL) is a pseudonym.
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