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I
Optimization of the information flow in
Material Shortage Management
by
Karin Larsson
Master Thesis
Presented to the Royal Institute of Technology
(KTH), Stockholm, Sweden in partial
fulfilment of the requirements for the master
degree of
Design and Product Realization with
specialisation in Logistics
Federal Institute of Technology (ETH), Zürich, Switzerland
29th of February 2008
II
I
Preface This thesis report is written as a completion of my master degree of Design and Product
Realization with specialisation in logistics at the Royal Institute of Technology (KTH),
Stockholm Sweden. The project focuses on material shortage management, and is
written in association between Siemens Building Technology (SBT), Zug, Switzerland
and the Federal Institute of Technology (ETH), Zürich, Switzerland. Through the five
months of work with the master thesis I have gained a lot of knowledge within supply
chain management. I have had the opportunity to get to know a business from the
supply chain point of view, the Siemens business and the industry they are operating
within. This is valuable knowledge for my studies and my future work, as well as for
my personnel development. I am very pleased that the work I have done within SBT
has been accepted and, that parts of it already are implemented. From personnel point
of view is it of great satisfaction to experience the value of the work I have done.
Through the help and guidance I have been able to fulfil my objectives for the thesis
within the timeframe, and experienced five very interesting months. I want to address a
special thanks to my supervisor at Siemens Building Technologies (SBT), Wolfgang
Zimmermann for his invaluable help, encouragement and guidance during the whole
thesis. I also want to thank Heinrich Hertach, my second supervisor at SBT, and the
factory supply chain teams in the factories in Zug and Volketswil, for there
contributions in interviews and workshops. I want to thank my supervisors at ETH,
Josef Oehmen for his support, especially through his expertise within the field of supply
chain management and project work methodology. Through all the help and guidance I
have been able to fulfil my objectives for the thesis within the timeframe and
experienced five very interesting and instructive months. I would also like to thank
Andartis AG for letting me use the software POAcalculator for my flow analysis, and
Simon Zeier for his support during the construction of the diagrams.
Zürich, Switzerland 29.2.2008
Karin Larsson
II
III
Abstract Siemens Building Technologies (SBT) is a worldwide active enterprise with a high
customer focus, competitive prices and short delivery lead times. Material shortage has
been a known issue within SBT since the beginning of the 21st century. A more
globalized supply chain, raising customer demand and extensive collaboration with
other actors have led to an increased risk and a more vulnerable supply chain. With
increased importance of reduced capital spending and minimized assets, it turned out to
be harder to assure the availability of the material. The objectives of this thesis was to
form concepts for the material shortage management, based on calculation of the
material shortage cost and assessment of the material shortage risk factors, for the SBT
factory in Zug, Switzerland.
To fulfil the objectives the project was completed after the methodology of systems
engineering. An analysis of empirical data was executed in order to describe the current
situation of material shortage. Through the analysis a definition of material shortage
was prepared, the risk factors were assessed and the material shortage cost was
estimated. The surprising material shortage cost of 900 000 euro per year was
calculated, which correspond to one percent of the total turnover of the factory.
To reduce the material shortage cost, concepts for a material shortage management were
developed, analyzed and evaluated. A short and long term solution was formed and the
possible cost savings estimated. The first step towards a reduced material shortage cost
should be based on a excel spreadsheet with the aim to communicate the material
shortage, reduce it, and gather statistical data. Based on the statistics the long term
solution will be analyzed and evaluated again in three to six months. As a basis for the
final decision making evaluation criteria and methods have been formulated and
alternative solutions have been developed.
IV
V
Table of content
PREFACE................................................................................................................................................... I ABSTRACT ............................................................................................................................................. III TABLE OF CONTENT ............................................................................................................................V LIST OF FIGURES................................................................................................................................VII LIST OF TABLES................................................................................................................................ VIII 1. INTRODUCTION ............................................................................................................................. - 1 -
1.1 BACKGROUND FOR MASTER THESIS ......................................................................................- 1 - 1.2 OBJECTIVES OF MASTER THESIS ............................................................................................- 2 - 1.3 OUTLINE OF MASTER THESIS .................................................................................................- 3 - 1.4 STRUCTURE OF MASTER THESIS ............................................................................................- 4 -
2. COMPANY INTRODUCTION ....................................................................................................... - 6 - 2.1 SIEMENS AG...................................................................................................................................- 6 - 2.2 SIEMENS BUILDING TECHNOLOGIES ...............................................................................................- 6 -
3. METHOD........................................................................................................................................... - 9 - 3.1 SYSTEMS ENGINEERING..................................................................................................................- 9 -
3.1.1 The philosophy of Systems Engineering.............................................................................. - 10 - 3.1.2 The problem solving process............................................................................................... - 10 -
3.2 METHODS FOR SITUATION ANALYSIS ............................................................................................- 11 - 3.2.1 Information search.............................................................................................................. - 12 - 3.2.2 Information processing and illustration.............................................................................. - 14 -
3.3 METHODS FOR CONCEPT SYNTHESIS AND ANALYSIS .....................................................................- 16 - 3.4 METHODS FOR EVALUATION AND DECISION..................................................................................- 16 - 3.5 METHOD FOR IDENTIFICATION OF RISKS .......................................................................................- 17 -
4. THEORY.......................................................................................................................................... - 18 - 4.1 SUPPLY CHAIN MANAGEMENT .....................................................................................................- 18 -
4.1.1 Processes of the Supply Chain - the SCOR-model .............................................................. - 19 - 4.2 SUPPLY CHAIN RISK .....................................................................................................................- 20 -
5. SITUATION ANALYSIS ............................................................................................................... - 24 - 5.1 ANALYSIS OF MATERIAL SHORTAGE MANAGEMENT .....................................................................- 24 -
5.1.1 Material shortage management – the concept .................................................................... - 24 - 5.1.2 Material shortage risk identification .................................................................................. - 25 - 5.1.3 Material shortage risk assessment ...................................................................................... - 35 -
5.2 ANALYSIS OF THE INFORMATION FLOW ........................................................................................- 39 - 5.3 ANALYSIS OF MATERIAL SHORTAGE COST ....................................................................................- 41 - 5.4 SWOT-ANALYSIS .........................................................................................................................- 43 -
6. SOLUTION...................................................................................................................................... - 48 - 6.1 SYNTHESIS AND ANALYSIS OF THE MATERIAL SHORTAGE MANAGEMENT CONCEPT......................- 48 -
6.1.1 Optimization of the information flow .................................................................................. - 48 - 6.1.2 Concepts for the material shortage management ............................................................... - 49 - 6.1.3 Further measures of improvement ...................................................................................... - 57 -
6.2 EVALUATION OF A FUTURE MATERIAL SHORTAGE MANAGEMENT CONCEPT .................................- 60 - 6.2.1 Criteria for the material shortage concept ......................................................................... - 60 - 6.2.2 Variant evaluation and effect estimation ............................................................................ - 61 - 6.2.3 Interpretation & assessment ............................................................................................... - 62 - 6.2.4 Decision .............................................................................................................................. - 64 -
7. DISCUSSION................................................................................................................................... - 67 -
VI
8. CONCLUSIONS.............................................................................................................................. - 69 - 9. RECOMMENDATIONS FOR FUTURE RESEARCH............................................................... - 71 - LIST OF ABBREVIATIONS............................................................................................................. - 73 - LIST OF LITERATURE.................................................................................................................... - 74 - APPENDIX 1. INTERVIEWS ............................................................................................................... IX APPENDIX 2. WORKSHOPS ..............................................................................................................XII APPENDIX 3. SAP FUNCTIONS RELATED TO THE MASTER THESIS................................. XIV APPENDIX 4. ISHIKAWA DIAGRAM ............................................................................................ XVI APPENDIX 5. FAILURE MODE AND EFFECT ANALYSIS.......................................................XVII APPENDIX 6. INFORMATION FLOW MAPPING.......................................................................... XX APPENDIX 7. EXCEL SPREADSHEET FOR COMMUNICATION OF MATERIAL SHORTAGE .................................................................................................................................. XXXVII APPENDIX 8. MATERIAL SHORTAGE COST CALCULATION ......................................XXXVIII APPENDIX 9. OPTIMIZED INFORMATION FLOW MAPPING..............................................XLIII APPENDIX 10. EXCEL SHEET FOR COMMUNICATION & STATISTICS............................... LV APPENDIX 11. FINANCIAL ANALYSIS OF CONCEPTS........................................................... LVII APPENDIX 12. DESCRIPTION OF THE MATERIAL SHORTAGE TOOL ................................ LX APPENDIX 13. STRENGTH AND WEAKNESS ANALYSIS OF THE CONCEPTS................LXIV APPENDIX 14. IMPLEMENTATION PLAN AND CASH FLOW ANALYSIS.......................... LXV
VII
List of figures Figure 1 System outline for the master thesis.................................................................................... - 4 - Figure 2 Structure of the master thesis report ................................................................................... - 5 - Figure 3 Organization of Siemens AG and the allocation of sales (Siemens (a), 2008) .................. - 6 - Figure 4 Organization chart of the SBT factory in Zug (siemens (c), 2008).................................... - 8 - Figure 5 Overview of the components of systems engineering (Haberfellner, 1994)....................... - 9 - Figure 6 The problem solving cycle (Züst, 1997). ............................................................................- 11 - Figure 7 Differentiation between risk factors in order to uncover the once with the biggest influence
(Wänström, 2006) ...............................................................................................................- 15 - Figure 8 Stages of a systematic evaluation and decision making (Züst, 1997) ...............................- 16 - Figure 9 Supply chain risk tool (Harland, 2003)..............................................................................- 17 - Figure 10 Overview of the SCOR-model (level 1 – process types) (Supply Chain Council, 2008). ..- 19 - Figure 11 Current trends lead to an increased Supply Chain Risk (Ziegenbein, 2007)....................- 22 - Figure 12 Illustration of the factory supply chain, SBT factor Zug (Siemens (b), 2008) .................- 26 - Figure 13 Ishikawa diagram with the risk factors of material shortage and rise of the material
shortage cost .......................................................................................................................- 27 - Figure 14 The risk factors of material shortage, reduced due to the system outline (excl. the
information flow) ................................................................................................................- 36 - Figure 15 Assessment of the risk factors, illustrated in a differentiation matrix. The five major risk
factors of material shortage are: 1. Mistakes by managing received goods, 6. Procurement – missing, wrong or late delivery, 7. Expiring material, 8. Inventory differences and 10. Internal late deliveries. .......................................................................................................- 39 -
Figure 16 SWOT-analysis of the material shortage management within the factory supply chain at the SBT factory in Zug .............................................................................................................- 44 -
Figure 17 Overview of the material shortage communication flows, with an excel spreadsheet......- 50 -
VIII
List of tables Table 1 Calculation of the material shortage cost ......................................................................... - 43 - Table 2 KPIs for measuring the improvements of the material shortage management ............... - 59 - Table 3 Criteria for a future material shortage management concept ......................................... - 61 - Table 4 Benefit analysis of the concepts, with weighting-scale of the criteria ............................. - 62 -
- 1 -
1. Introduction
Increasing globalization, raising customer demand, shorter product lifecycle and faster
development of the information technology have resulted in a great importance of an
efficient supply chain management. Processes as sourcing, planning and controlling are
important to reach the goal of satisfying the customer demand by the minimal cost and
the minimal capital spending. To minimize the cost it is no longer efficient to only
optimize the processes within the own business, but a more extensive collaboration and
co-ordination of activities between the different actors within the supply chain are called
for. With increased collaboration follows an increased complexity and risk. To active
oppose and manage the risk is therefore very important.
Material shortage management is close related with the supply chain risk management.
The risk of material shortage is often caused by those risks that are appearing within the
supply chain. To be able to fulfil the customer demand and minimize the cost it is of
great importance that the material can be replenished undisturbed and is available at the
right place at the right time.
1.1 Background for Master Thesis
Siemens Building Technologies (SBT) is a customer focused enterprise with a delivery
lead time of two to three days. SBT has a focus on, high delivery reliability and to be
able to fulfil customer demand and keep competitive prices, it requires optimized
production processes and high capacity utilization, as well as an undisturbed material
provision.
Material shortage has been a known issue within SBT since the beginning of the 21st
century. With an increasing importance of reduced capital spending, and minimal asset,
it turned out to be harder to assure material availability, with smaller and fewer safety
stocks the whole supply chain got more vulnerable.
To manage the material shortage there was a project started in 2004 with the objectives
to define the material shortage, its causes, and how to measure and defend the material
- 2 -
shortage. The project was followed by another project in 2006 where a basis of a
material shortage tool was developed. Both projects were stopped due to short resources
and insufficient analysis to base a decision. Material shortage was still an urgent
problem to be solved and in the beginning of 2007 the initiative of a master thesis
within the field was taken.
This thesis is written as a completion of a master degree in Design and Product
Realization with specialisation in logistics. A thesis within material shortage
management gives the opportunity to get to know a business from the supply chain
view, all processes from plan and source to make and deliver. The match of the studies
and the subject of the thesis were perfect and an agreement could be reached. The
master thesis project is written in association with The Swiss Federal Institute of
Technology (ETH), Zürich and Siemens Building Technologies, Zug.
1.2 Objectives of Master Thesis
The objectives of the master thesis are derived from the content requirement given by
ETH, Zürich. These requirements are defined as follow:
A. Carry out an analysis with a systematic and scientific approach, recommended to
follow the methods of systems engineering.
B. Provide proposals for measures of improvement and a realization plan for the
implementation.
C. Recommend a plan for future actions.
Based on the content requirements and the introductory work the main objectives of the
master thesis could be defined. In agreement with SBT are the objectives defined as
follow:
1. Define the concept material shortage, uncover the influencing factors and set a
priority to these factors
2. Analyze the information flow
- Carry out an information flow mapping
- Give a proposal of an optimized information flow
- 3 -
3. Analyze the material shortage cost
- Define the contribution and the allocation of the material shortage cost
- Calculate the cost caused by material shortage
- Calculate the cost savings due to an implementation of the optimized
information flow
4. Provide proposals of measures of improvement to reduce the material shortage and
the material shortage cost
- Analyze the five major risk factors of the material shortage and provide
proposals of measure of improvements
- Calculate possible cost savings due to the implementation of the measure of
improvements
1.3 Outline of Master Thesis
The field of material shortage management is large and not every part can be analyzed
during a project of 20 weeks. An outline of the work has therefore been defined. For a
structured and focused problem solving the reality has to be limited. This has been done
according to the methodology of systems engineering, see chapter 3.1. A system is a
model of the reality, where the real conditions are abstracted and simplified. The system
outline has been defined with the following sense of the conceptions (Züst, 1997):
• System is the area where there are operations and changes possible and the
changes will lead to the fulfilment of the objectives.
• Surrounding system is the real world outside the system.
• Investigation area includes the system and the surrounding system as well as all
the relevant relations to describe the reality.
The defined system outline can be seen in figure 1.
- 4 -
Figure 1 System outline for the master thesis
The outline for the situation analysis was drawn by the factory supply chain with the
source, make and deliver processes in focus. Due to the situation analysis a narrower
outline could be created. The processes and functions where there are changes possible
were placed within the system and processes and function where there are no changes
needed or possible or there are improvements coming in a short time were placed in the
surrounding system.
1.4 Structure of Master Thesis
The structure of this master thesis report is divided in three main parts, see figure 2. The
first part is an introduction to the master thesis, where the company is introduced, the
methods used during the master thesis work are presented and the theoretical framework
is described, according to objective A. The second part contains the chapters related to
the actual master thesis task. In the situation analysis is the result from empirical study
Plan DeliverMakeSource Return
Suppliers
DC Nürnberg
Level 1 Customer
Landis + Gyr
Sales planning
Packaging and Export
PCB assembly
Final assembly
Warehouse
Production planning
Supplier management
Inventory management
Manufacturing engineering/ Development
Procurement
Inspection received goods
Quality
Order managementMaterial Master data
Transportation
Material flowInformation flow
SURROUNDING SYSTEM
SYSTEM
INVESTIGATION AREA
Plan DeliverMakeSource ReturnPlan DeliverMakeSource Return
Suppliers
DC Nürnberg
Level 1 Customer
Landis + Gyr
Sales planning
Packaging and Export
PCB assembly
Final assembly
Warehouse
Production planning
Supplier management
Inventory management
Manufacturing engineering/ Development
Procurement
Inspection received goods
Quality
Order managementMaterial Master data
Transportation
Material flowInformation flow
SURROUNDING SYSTEM
SYSTEM
INVESTIGATION AREA
- 5 -
presented and in the solution is the proposals of measures of improvement and a
realization plan for the implementation described, according to objective B. The third
part contains the reflections and conclusions of the master thesis, as well as a
recommendation of the future research, according to objective C.
Figure 2 Structure of the master thesis report
Introduction
Company introduction
Method
Theory
Situation analysis
Solution
Discussion
Conclusion
Future research
- 6 -
2. Company introduction
The aim of this chapter is to give a brief introduction to Siemens AG and Siemens
Building Technologies.
2.1 Siemens AG
Siemens AG is, since the restructuring in January 2008, divided into the three sectors
Industry, Energy and Healthcare, see figure 3. Siemens AG is a worldwide active
enterprise with a revenue of 72’448 million euro, an income of 3’909 million euro and
398’000 employees worldwide (Siemens (a), 2008; FY 2007).
Figure 3 Organization of Siemens AG and the allocation of sales (Siemens (a), 2008)
2.2 Siemens Building Technologies
Siemens Building Technology is since January 2008 a division of the sector industry,
the major of the three Siemens AG sectors. The company has its origin in the company
Landis & Gyr which was founded in 1896 in Zug, Switzerland. The main products were
Sectors
Industry • Automation &
Drives • Industrial
Solutions & Services
• Siemens Building Technology
• Transportation Systems
• OSRAM
Healthcare • Medical Solutions
Energy • Power
Generations • Power
Transmission & Distribution
Div
isio
ns
External sales of sectors excl. other operations (as of Sept. 30, 2007)
- 7 -
electricity meters, telephone inductors and phonographs. In 1998 a part of Landis & Gyr
was bought by Siemens AG and the company Siemens Building Technologies was
founded.
Today SBT has a turnover of 5’062 million euro, an income of 354 million euro and
employ 29’000 people worldwide (Siemens (a), 2008; FY 2007). They have 12 factories
located in Europe, North America and Asia, 500 branch offices and 130 distributors
worldwide. SBT is divided into five business units:
• Building Automations
• Fire Safety & Security Products
• Security Systems
• Heating, Ventilation and Air Conditioning products (HVAC)
• Electrical installation
This five business units bundles Siemens’ offerings for building security, automation
and operations both as service provider as well as a manufacturer of products and
systems, with a spectrum of products ranges from heating and ventilation systems, to
security and fire safety systems (Siemens (b), 2008). With its customer focused
business and the offering of total building solutions SBT has reached a leading market
position worldwide for the fire safety system as well as the building comfort, and a top
five market position for the electronic security systems.
The SBT headquarter is located in Zug, Switzerland, where also the lead factory is
located. The headquarter employs 1’950 people, from which 340 are employed in the
factory. The factory has a turnover of 95 million euro. It produces for the business units
building automations and HVAC products. The organization chart of the factory Zug
can be seen in figure 4.
- 8 -
Final AssemblyDepartment
Hermann Schärer
Factory ZugBenno Moser
ShippingDepartment
Fritz Keck
Repair &Configuration
Roman Süess
ProcessTechnologiesWerner Huber
Final AssemblyArea A
Kurt Muri
PCB AssemblyDepartment
Josef Birrer
THD Assembling
Ruedi Meisinger
MaterialServices
Jörg Kündig
SMD AssemblingPeter Wigger
Logistic ProcessInitialisationAlbert Bötschi
Common function Volketswil + Zug
Final AssemblyArea B
Hubert Gisler
ProcessTechnologiesMarkus Bühler
Manufacturing Engineering
Urs Fässler
TestEngineering
Thomas Niederberger
ProductionLogistics Zug
Mario Kneubühler
ProductInitialisation
Urs Fässler
Quality, Environ-ment, SecurityBruno Isenschmid
MechanicalToolshop
Martin Koch
Inspection ofReceiving GoodsBruno Isenschmid
Factory SCMWolfgang
Zimmermann
Factory SCMWolfgang
Zimmermann
Figure 4 Organization chart of the SBT factory in Zug (Siemens (c), 2008)
The factory in Zug is producing about 1’500 different products with a delivery lead time
of 2-3 days. 80 percent of the finished goods are delivered to the distribution centre
(DC) in Nürnberg. The rest of the finished good is delivered direct to the customer. The
production is located in two different buildings within the site. The assembly of the
Printed Circuit Boards (PCB) consists of the assembly of the Through Hole Devices
(THD) and the assembly of the Surface Mounted Devices (SMD). The PCB is located in
one building, and the final assembly in another, about five minutes apart. The devices
are internal transported in between.
- 9 -
3. Method
The aim of this chapter is to give an overview of the methods used during the master
thesis work, in order to make it easier for the reader to follow the analysis, the search of
solutions and the evaluation. To perform the analysis with a systematic and scientific
approach the methodology of systems engineering (SE) will be followed during the
whole master thesis work, as this is recommended by the guidelines of master thesis
work published by the institute of Logistics, Operations and Supply Chain Management
at the ETH, Zürich, Switzerland
3.1 Systems Engineering
Systems engineering is a systematically mindset and methodology for a controlled
problem solving in the area of complex socio-technical problems (Züst, 1997). The
components of the methodology are illustrated in figure 5.
Figure 5 Overview of the components of systems engineering (Haberfellner, 1994)
Techniques for project management
SE - Philosophy
Problem solving process
Process model
System thinking
System design
Project management
Techniques for system design
Problem
Solution
- 10 -
3.1.1 The philosophy of Systems Engineering
The philosophy of systems engineering consists of the system thinking and the process
model. The system thinking is one of the most important components of the systems
engineering. The sense of the system thinking is to simplify the reality, to facilitate the
illustration and the understanding of the reality. The second component of the SE-
philosophy, the process model, is explaining the top down approach of the system
analysing. A top-down approach is the method of analysing a system outgoing from a
rough overview and finishing with the detailed analysis of each subsystem, until the
entire specification is reduced to base elements.
3.1.2 The problem solving process
In centre of the methodology of systems engineering is the problem solving process.
The first component, the system design, is the concrete problem solving process. The
problem solving are done in a problem solving cycle, see figure 6. The situation
analysis, the search of a solution and the evaluation will be executed according to the
steps of the problem solving cycle.
The second component of the problem solving process, the project management,
answers all the questions about organisation and coordination of the problem solving
process.
- 11 -
Figure 6 The problem solving cycle (Züst, 1997).
3.2 Methods for situation analysis
Both inductive and deductive studies will be used for the analysis. To do conclusions
about the reality and form a theory outgoing from this conclusions, based on empirical
data, is an inductive study. A deductive study is the opposite where the theories and
hypothesis are formed outgoing from existing theories and verifies the empirical data
(Eriksson, 1997).
Sear
ch o
f obj
ectiv
e Se
arch
of s
olut
ion
Sele
ctio
n
INITIATION
SITUATION ANALYSIS
Stringent objectives
FORMULATION OF OBJECTIVES
CONCEPT SYNTHESIS and ANALYSIS
EVALUATION
DECISION
Primary solution oriented view
Primary objective oriented view
Non stringent objectives
Alternative solutions and criteria for evaluation
Proposals and recommendations
- 12 -
As there is only a little material available within the material shortage management the
inductive study, of gathering and analyze the empirical data, is the major part of the
situation analysis. A theoretical framework can be formed through gathering
information about related subjects.
3.2.1 Information search
The search of information will be accomplished through an empirical study and a
literature study.
Empirical study
To get a better comprehension of the current situation within a short time frame the
empirical study in form of interviews are of great importance. There are semi structured
and structured interviews (Kvale, 1996). Semi structured interviews in one hour
sessions, in a relaxed environment will be used. The interviews will be conducted
outgoing from open answer questions where discussions around the questions can be
held. Not everybody can be interviewed, but a selection of about ten to fifteen people
will be prepared in cooperation with Mr. Wolfgang Zimmermann, see appendix 1. The
interviews will be held during the first month of the project. The aim of the interviews is
to map the initial situation.
As a complement to the interviews workshops will be held. The purpose of the
workshop is to:
• Get feedback of the results from the interviews.
• Create a feeling of influence among the employees. The acceptance of the final
suggested solution is important and this will be more lightly to achieve if the
concerned can take part in the process.
• Use the experience of the employees to search for a solution.
• Increase the cross functional cooperation within SBT
• Introduce the use of methods like brainstorming and FMEA.
- 13 -
There will be three workshops executed during the project, with about ten participants
each time. The two first workshops will be executed during the situation analysis, while
the last will be executed during the search of a solution. A program for each workshop
will be prepared, but flexibility considers as important during the performance, see
appendix 2. In that way the author can improve her understanding, the employees can
feel relaxed and a feeling of influence among them can be created.
Both interviews and workshops will be carefully prepared. Invitations to the interviews
will be sent out per e-mail some of days in advance. A summary of the interviews will
be written directly after each interview to assure that no information will be forgotten.
The invitation for the workshops will be sent out at least one week in advance together
with the agenda and a power point presentation with an introduction to the workshop. In
this way all the participants can prepare for the workshop. The documentation during
the workshop will be done in cooperation with the participants during the workshop and
will afterward be summarized.
Literature study
A literature study of theory related to material shortage management will be conducted.
There is almost no theory available about material shortage management, but fields as
supply chain management and supply chain risk are close related with material shortage
management. The study of the internal documentation related to material shortage
management will correspond to one part of the literature study. The literature study will
be performed parallel during the whole situation analysis, but mainly during the
beginning of the analysis.
Relevant articles will be searched for in article databases e.g. FiDOR1, Google Scholar,
Science Direct and Springer Link. The books will most likely be lent from the ETH
Library, Zürich, Switzerland.
1 FIDOR is a Siemens internal database, for books and articles.
- 14 -
3.2.2 Information processing and illustration
To be able to analyse the information gathered through the empirical and literature
study are there methods needed for the processing and illustration of the information.
Flow chart diagram
A flow chart diagram is a graphical analysis method to analyze and illustrate processes,
flows, interfaces and relations. A flow chart diagram can be built up hierarchic, with
father and child processes. The top-down approach will be used, an analysis method
where the analysis begins on a rough level, with the context diagram and goes into
detail in the child diagrams (Meyer, 2005). The methodology of the flow chart diagrams
will be used for the information flow analysis and the material shortage cost analysis.
The software POAdesigner will be used to construct the flow chart diagrams.
Ishikawa diagram
An Ishikawa diagram is a method of for the search and illustration of causes of a certain
problem (also called cause and effect diagram). It is considered as one of the basic tools
of quality management. The causes are often based around certain categories and for
manufacturing are normally the categories Equipment, Process, People, Materials,
Environment, and Management used (Brassard, 1994). The aim of the use of the
Ishikawa diagram is to discover all the causes of material shortage and the raise of the
material shortage cost and illustrate the relations in between them.
Failure Mode and Effect Analysis
The Failure Mode and Effect Analysis (FMEA) is a structured approach for the
designation, the estimation, the weighting, and the valuation of risks and targeted
avoidance of the failure (Below, 2000). The FMEA should be performed in groups of
four to six, with optional participants and to simplify the process should an oppressed
form be prepared (Fritz, 2007). The aim of the analysis is to set priority to the risk
factors of the material shortage, by using the experience of the employees, and to
introduce the method.
- 15 -
Priority matrix
In order to develop the right measures to reduce the material shortage and the material
shortage cost it is important to distinguish those variables that have a high impact on the
material shortage cost from those which have a low impact. Further the once with a high
probability can be distinguished from those with a low probability. To illustrate the
differentiation a priority matrix is used, see figure 7.
Figure 7 Differentiation between risk factors in order to uncover the once with the major
influence (Wänström, 2006)
SWOT-analysis
In order to identify strength, weaknesses, opportunities and threats, the logic of the
SWOT-analysis will be used. The strength and weaknesses analysis is a comparison of
the actual situation with the ideal situation. The opportunities and threats describe the
possible future influences from the surrounding system.
High
High
Low
High impact &
low probability
High impact &
high probability
Low impact &
high probability
Low impact &
high probability
Probability that material shortage will appear
The
pote
ntia
l im
pact
of m
ater
ial s
horta
ge
- 16 -
3.3 Methods for concept synthesis and analysis
The objective of the concept synthesis and analysis is to generate solutions that fulfil the
objectives. To develop the concepts different creativity techniques will be used.
Brainstorming is an intuitive technique designed to generate a large number of ideas
(Haberfellner, 1994). The brainstorming will be performed in team during the last
workshop.
3.4 Methods for evaluation and decision
The evaluation will follow the evaluation methodology of systems engineering, see
figure 8.
Figure 8 Stages of a systematic evaluation and decision making (Züst, 1997)
Based on the analysis, the theory, and the objectives, evaluation criteria for the material
shortage management concept will be defined. The evaluation will be based on a
strength and weakness analysis of each concept and a benefit analysis. The strength and
weakness analysis is a qualitative comparison of the concepts and the benefit analysis
will be performed for the quantitative comparison of the concepts. A benefit analysis is
Define evaluation frame and criteria
Specific information search
Variant evaluation Effect estimation
Interpretation &
assessment
Decision
- 17 -
weighting-scale approach for decision making. Each criterion is given a weighting-scale
according to its importance. The concepts are graded after their fulfilment of the
criteria. The weighting-scale and the grading are multiplied and all the factors are
summed up for the total grade (Specker, 2001).
3.5 Method for identification of risks
To identify, assess and manage risks a supply chain risk tool can be used. The tool is
divided into boxes, see figure 9. Each box corresponds to one step in the process of
identifying and preventing the risk.
Figure 9 Supply chain risk tool (Harland, 2003).
The aim of the use of the supply chain tool is to apply a method for identifying and
preventing supply chain risk, to identify and prevent the material shortage risk. By using
a structured method of identifying the risks there is a higher contingency that all the
risks will be identified.
Map supply chain
Identify risk and its current location - type - potential loss
Asess risk - likelihood of occurence - likely triggers
Manage risk
Form collaborative supply chain risk strategy
Implement supply chain risk strategy
INITIATION
- 18 -
4. Theory
In this chapter the theory, relevant for this thesis, will be described. The aim of the
chapter is to give some basics knowledge within the topic of the thesis. This will make
it easier for the reader to understand and follow the analysis, the solutions and the
evaluation.
4.1 Supply Chain Management
This first part of the theory will give a description of the relevant basics of Supply
Chain Management (SCM). Supply chain management is the process of planning,
implementing and controlling the functions of the supply chain as efficient as possible.
It comprises all movements and storages of the materials from raw material to finished
product from point-of-origin to point-of-consumption. The concept supply chain
management was established in the early 1980s. Ever since has there been an increasing
interest in the concept to improve performance across the entire industrial logistic
network and hence, over these two decades, supply chain management has become a
standard part of the business literature and research agendas. The concept of the SCM
was emergence of sources like the increasing globalization, outsourcing and progresses
in the information technology. This enabled organizations to establish solid
collaborative supply networks in which each specialized business partner focused on
only a few key strategic activities. (Hieber, 2002; Larsson, 2006).
There are plenty of definitions of supply chain management. If the supply chain is seen
as collaboration or a network definition of SCM reads:
“Supply Chain Management is the coordination of strategic and long-term cooperation
among co-makers in the total logistics network for the development and production of
products, both in production and procurement and in product and process innovation.
Each co-maker is active within its own area of core competence. The choice of co-
maker is made with chief importance according to its potential towards realization of
short lead time.” (Schönsleben, 2004)
- 19 -
4.1.1 Processes of the Supply Chain - the SCOR-model
The supply chain (SC) has five core processes; plan, source, make, deliver and return.
There are several models of describing the processes. One of the most spread models is
the Supply Chain Operations Reference Model (SCOR), which Siemens as well as SBT
refer to when defining and describing their supply chain management.
The SCOR-model was developed in the US in 1996 to give a consolidated
understanding about the SC processes. It was developed by several representatives from
industry companies, today known as the Supply Chain Council, which is an independent
not-for-profit corporation. The model has been continuing enhanced since 1996 and the
latest version is the eighth (Mack, 2007).
A process reference model integrates the concepts of business process reengineering,
benchmarking and process measurement into a cross-functional framework. A reference
process model gives standardized descriptions of the management processes as well as a
framework of the relationships among the standard processes. It also includes standard
metrics to measure the process performance, management practices that produce best-
in-class performances and standard alignment to features and functionality. The SCOR
model is based on five core management processes plan, source, make, deliver and
return, see figure 10.
Figure 10 Overview of the SCOR-model (level 1 – process types) (Supply Chain Council, 2008).
- 20 -
The SCOR-model has three levels;
• Level 1 - Process types
• Level 2 - Process categories
• Level 3 - Decompose processes
There is also a fourth level, implementation, but that is not in scope of the SCOR-
model.
The top level (level 1) defines the scope and content of the SCOR-model.
Plan Balancing the total demand with the supply to develop a course of action
which best meets the requirements of sourcing, production and delivery.
Source Processes linked to procurement of goods to meet planned or actual
demand, as well as identify and select supply source.
Make Processes linked to transformation of material to a product to meet planned
or actual demand, also including production planning and engineering of
the products.
Deliver Provide finished goods to meet planned or actual demand, like processes as
warehouse, order and distribution management.
Return Processes connected to the returning and receiving returned products for
any reason.
The second level describes the process categories and is the configuration level, where
the core processes are differenced in process types; planning, execution and enable. The
bottom level (level 3), decompose processes, describe each of this processes more
detailed (Supply-Chain Council, 2006; Ziegenbein, 2007).
4.2 Supply Chain Risk
The trend of the Supply Chain Management has in the last years moved in the direction
of more impending cost savings, due to the increased competition between the
companies and the enlarged orientation towards shareholder value. This leads to a
reduction of suppliers and resources, centralized production and distribution, and
decreased assets within the whole supply chain. The reserve capacity in the whole value
- 21 -
adding chain is dramatically reduced and this leads to an increased vulnerability against
unexpected disturbances (Ziegenbein, 2007).
The definition of the supply chain reads:
“Supply Chain Risks are risks related to the logistics activities in companies’ flows of
material and information. Hence it is only a constrained part of business risk. But on the
other hand, the supply chain perspective also implies a perspective not only of your own
company but on a chain of at least three entities: customers, suppliers, and sub-
suppliers.” (Norrman, 2003)
The changing supply chain management has led to a transformed composition of the
risk portfolio. Besides the “traditional risk”, new risks emerge from sources that are
often related to close cooperation. The drivers that cause the emergence of the new risks
has been identified (Jüttner, 2005):
• Globalisation of supply chains
• Reduction of inventory holdings
• Centralised distribution
• Reduction of supplier base
• Outsourcing
• Centralised production
A summary of the current trend of increased supply chain risk can be seen in figure 11.
- 22 -
Figure 11 Current trends lead to an increased Supply Chain Risk (Ziegenbein, 2007)
The globalisation has led to a wider spread of the SC-partners, suppliers and customers.
Cultural differences and differences in the political environment are appearing in the
daily business for many companies. Material and products has to be sent long distances
and pass many borders. At the same time is the customer demand getting more and
more dynamic and short delivery lead times are required.
The increased cooperation within the supply chain makes the companies more and more
dependent on each other. The number of suppliers is reduced with benefit of better
relations. Certain functions are outsourced to gain a higher degree of experience. The
reduced number of suppliers, or in extreme case single sourcing, can increase the SC
risk tremendously.
There are several examples from the reality where the supply chain risk has shown
devastating effects even tough the breakdown might be several steps further back in the
supply chain. To manage this increasing supply chain risk, more companies are
considering the importance of having a process where this risk can be systemized
Challenge: Supply Chain Risks
Trends in the SCM • Fragmentation of the SC • Globalization of the value
adding • Centralization of the sites • Reduction of no. of supplier,
assets, capacity etc. • “Just-in-time, time-critical
planning
Raised vulnerability of the material & information flow
Trends in the surroundings • Abbreviation of the product
lifecycle • Dynamic sampling of the
demand • Decreased loyalty given by the
customer • Dynamic capital markets • Natural disaster, terrorism Increased uncertainty & raised
requirements on the SCM
- 23 -
identified, evaluated and controlled. A systemized management of the supply chain risk
do lead to a long and effective competitive advantage, something that many companies
are getting aware of (Kersten, 2006).
- 24 -
5. Situation analysis
The aim of this chapter is to analyze the present material shortage management within
SBT. The situation analysis follows the methodology from chapter 3.1 and 3.2.
5.1 Analysis of material shortage management
This chapter correspond to the first objective of the master thesis, see chapter 1.2. The
concept material shortage management will first be discussed, followed by a risk
identification and assessment. An assessment has to be done in order to be able to
choose suitable management actions for the identified risk factors (Hallikas, 2004). The
risk identification is done according the methodology in chapter 3.5.
5.1.1 Material shortage management – the concept
Material shortage has been a known issue within Siemens Building Technologies since
the beginning of the 21st century. With an increasing globalisation of the supply chain,
aspiration against lean production2, with high flexibility and little reserve capacity, and
still be able to keep competitive prices and fulfil the customer demand, it became harder
to assure the material to be available at the right place at the right time. The entire
supply chain got more vulnerable. As there is only a little documentation available
about the current material shortage stand, within the factory Zug, the situation analysis
was mainly based on the empirical data.
To establish a concept for the material shortage management there was a project started
in 2004. This project was part of the ZMIF project, see appendix 3, with the aim to
develop a tool to improve the demand order oriented replenishment and the managing of
the production orders. The objectives of the material shortage management project were
to define the information flow, the processes and the responsibility in case of material
2 The concept of lean production is defined by the minimization of all required resources for various activities of a company. The lean thinking includes identifying waste, all non-value-adding activities in the supply chain. (Schönsleben, 2004)
- 25 -
shortage. The causes of material shortage and their sources should be identified and for
the causes of material shortage the suitable measures and processes should be
established, for the controlling of the material shortage. Another project within material
shortage management was realized by Mr. Heinrich Hertach in 2006. In this project was
the basis for a tool of registration and communication of material shortage developed.
The tool should have been used as an application in the SAP. None of these two projects
were accomplished due to short resources and insufficient analysis to base a decision
upon.
The expression material shortage is widely known within the factory Zug, but it was
quickly noticed that there was no uniform definition of the expression. To be able to
manage the material shortage within the factory supply chain it is important with a
uniform understanding of the expression. From the empirical study, see appendix 1 and
2, and consultation with Mr. Wolfgang Zimmermann could a definition of material
shortage be prepared:
“Material shortage is a lack of material at any point in the factory supply
chain that causes a disturbance in the planned order scheduling.”
A material shortage can be caused both by an internal and an external source. The
understanding of a material shortage among many of the employees has been a lack of
material due to an external source, like e.g. a late delivery. To be able to manage the
material shortage and assess the risks the whole factory supply chain has to be
considered, internal as external.
5.1.2 Material shortage risk identification
The risk identification is a fundamental phase of the risk management practice. Through
identifying the risk it is possible to make the decision makers conscious about the
events and the phenomena that cause uncertainty (Hallikas, 2004). It can be hard to
identify all the risk as the events often can be dependent of each other and it is a chain
of events that causes the risk. To identify the risks that cause a material shortage, within
SBT, the factory supply chain has been analyzed, see figure 12.
- 26 -
Receiving
Goods
-
Supplier CustomerProcess
Ramp
Nürnberg-
PCB Assembly Department(SMD & THD Technologie)
Final Assembly Department(12 Assembly Lines)
Stock
Com
ponents
Components
-Stock
Placing
Board
Soldering
Testing
- - -
To Order 30%
ZMIF B
G
ZMIF
Exeptions
Log. Center Nürnberg
To Stock 70%
Stock
OEM
Assembling
Final-
F unctionTesting
-
PackingShipping
-
Stock
El. Boards
InspectionElectr. Parts
Inspe ction
Mech. Parts
ZMIF = Info Tool for Production Control
Figure 12 Illustration of the factory supply chain, SBT factor Zug (Siemens (b), 2008)
The analysis has been performed with the make process in focus i.e. all steps from the
scheduling of production activities and supplying material to production, control and
packaging of goods and transportation to the stock. The make process are differenced in
three processes; make-to-stock, make-to-order and engineer-to-order. 70 percent of all
products are make-to-stock production, 30 percent make-to-order and in case of
exception is there an engineer-to-order production. The production is controlled with a
ZMIF system, see appendix 3. The make process are characterized by the lean thinking,
the focus on the reduction or elimination of waste (Christopher, 2006), customer
demand oriented production, high flexibility and optimal batch size.
The material shortage risk assessment is based on the information gathered through
interviews and workshops, see appendix 1 and 2. A lot of the information has also been
provided by the supervisor Mr. Wolfgang Zimmermann. The risk factors have been
arranged in an Ishikawa diagram to visualize the source of the factor and illustrate the
relations between them. The Ishikawa diagram can be seen in figure 13 and more
detailed in appendix 4.
- 27 -
Long procurement timeMissing/Wrong/late deliveries
Insufficient resources
Machine problem/breakdown
ForecastIncorrect sales planning
Incorrect production planning
Insufficient master dataIncorrect bill of material
Incorrect delivery lead timeIncorrect scrap factor
Material shortage/Rise of material
shortage cost
ManagementProcess Materials
Equipment People Environment Cause Effect
Supplier relations
Deficient material management
Warehouse controlled by different systems
Engineering change situation
Mistakes by managing receivedgoods
ZMIF scheduling
Demand
Raise of demand
Demand lumpinessDemand uncertainity
Order conditions given by customer
Customer service requirement
Procured material
Increased lead time
Expiring material
Insufficient quality
Procurement
Incorrect sting sampling
Internal late deliveries
Inventory differencesNo access to materialGood in transporation
Unplanned stock transferOccupied by another line/factory
INFORMATION FLOW
Robust products & stabil processes
Missing Kanban cardSupplier-Kanban
Intern Kanban
Incorrect lead time
Missing retrograde booking of material
Wrong/missing Software
EmployeesEquipment Production of the wrong assembly
Use of the wrong material
Wrong planning pre-work of THD components
Clarifications Strategic Procurement
Order event
Long procurement timeMissing/Wrong/late deliveries
Insufficient resources
Machine problem/breakdown
ForecastIncorrect sales planning
Incorrect production planning
Insufficient master dataIncorrect bill of material
Incorrect delivery lead timeIncorrect scrap factor
Material shortage/Rise of material
shortage cost
ManagementProcess Materials
Equipment People Environment Cause Effect
Supplier relations
Deficient material management
Warehouse controlled by different systems
Engineering change situation
Mistakes by managing receivedgoods
ZMIF scheduling
Demand
Raise of demand
Demand lumpinessDemand uncertainity
Order conditions given by customer
Customer service requirement
Procured material
Increased lead time
Expiring material
Insufficient quality
Procurement
Incorrect sting sampling
Internal late deliveries
Inventory differencesNo access to materialGood in transporation
Unplanned stock transferOccupied by another line/factory
INFORMATION FLOW
Robust products & stabil processes
Missing Kanban cardSupplier-Kanban
Intern Kanban
Incorrect lead time
Missing retrograde booking of material
Wrong/missing Software
EmployeesEquipment Production of the wrong assembly
Use of the wrong material
Wrong planning pre-work of THD components
Clarifications Strategic Procurement
Order event
Figure 13 Ishikawa diagram with the risk factors of material shortage and rise of the material
shortage cost
Equipment related risk factors
The equipment related risk factors are the factors related to the compulsory resources in
the production processes.
The production processes in both the PCB and the final assembly are highly
automatized, but that is more or less where the similarities between the production sites
end. The final assembly has a very pleasant situation with a high spare capacity and
high flexibility. In the PCB assembly, consisting of the SMD and the THD assembly, is
the situation the opposite with the limit of capacity almost reached. The SMD assembly
is the most critical process with long setup times, no capacity reserve, low utilization
degree and low degree of flexibility. There is a major risk of material shortage caused
by the insufficient resources in the PCB assembly. The low capacity causes a risk of
material shortage due to the risks of breakdown, no optimal batch sizes or additional
setup time, causing delayed assemblies. An unplanned process breakdown is something
that is always a risk, but in the final assembly the lost production can be recovered, due
to the flexibility and the spare capacity.
- 28 -
People related risk factors
The human factor is always a risk within the factory supply chain. A manual process
does always carry a certain degree of risk. The human being is not faultless, and
therefore has to be considered as one of the causes of the increased risk of material
shortage.
SBT introduce about 30 new products to the market every year, about 200-300 products
including the variants. Theses situations are covered by the term engineering change,
which is a broad range of situations, from an administrative change to a complete
changeover to a new product family (Wänström, 2006). There is a clear process defined
for the engineering change situation, but it does anyhow cause a risk of material
shortage. The phase-in and phase-out of products are the engineering change situations
that causes the major, as these processes are very complex, and a lot of know-how is
needed to a achieve a smooth changeover.
There are several manual processes within the production chain. The process for
incoming goods is more or less manual executed. The motivation for the manual
process is that the goods are delivered in different packages and quantities and with
different labelling. The material has to be repacked and relabelled, before it is
dispatched to the warehouse, a process that is difficult to automatize. The manual
handling of the incoming goods are a risk of material shortage, due to the risk of
mistakes by manual processes. The process of taking the material from the stock in the
production is another manual process that does entail a risk of material shortage. The
material that has been consumed has to be registered in the system manual. This is often
done after the production process has been finished, retrograde registration, as the
quantity used is first known then. If the retrograde registration is forgotten the risk of
material shortage, due to the inventory differences, increases.
The production of assemblies and preassemblies are controlled by the ZMIF system, see
appendix 3. The production control is executed by the employees at each line, based on
the data generated by the ZMIF system. The purpose of the decentralized production
control is to reach an optimal production, with high flexibility and optimal batch sizes.
A relative free production planning together with production in optimal batch sizes can
- 29 -
cause an unplanned use of material, material that might be needed for another assembly
or product that has to be produced urgent. The ZMIF scheduling is therefore a risk
factor of material shortage.
The replenishment of parts and subassemblies is often controlled through Kanban3
loops. It can happen that a Kanban card gets lost, which is very devastating for the
material replenishment. If the missing card is not discovered it does impact the material
shortage and the later in the chain it is discovered the worse is the effect.
Environment related risk factors
As the factory supply chain is analyzed the environment related risk factors are seen as
risks caused by the customer.
In general there is a seasonal fluctuation in the customer demand, with the exception of
the phase-in and phase-out products, where the demand can be very lumpy. How the
demand affects the material shortage is closely related with the planning. Currently
there is no information how the demand planning affects the material shortage, but it is
clear that the influence is considerable. If a good forecast is given, and followed by the
customer it eases the planning, as well the replenishment of the material. Two of the
most important customers for the factory in Zug are Buffalo Groove and Landis + Gyr.
The increased demand from Buffalo Groove was in the business year 2007 almost 100
percent and from Landis+Gyr almost 40 percent (Moser, 2007). Increased demand like
these does complicate the material replenishment and an increased demand is a major
risk factor of material shortage. The link between the demand and the customer relations
is strong. A good customer relation does ease the communication and the demand
forecast delivered by customer has an increased trustworthy. As the factory mainly
deliver to the distribution centre in Nürnberg the main part of customer management are
centrally controlled for SBT global.
3 Kanban is a simple technique for stochastic materials management, with the aim to work as quickly as possible with small batch sizes and small buffer storages. The production is controlled by kanban cards. The kanban card has the purpose to identify the contents and release the order. A kanban loop contains one or more bins and every time a bin is empty a production order is released. The batch size is controlled by the size of the bin. (Schönsleben, 2004)
- 30 -
Process related risk factors
The process related risk factors are all the risks related to the processes needed to
control the supply chain, as e.g. processes related to the source and make. To avoid
material shortage it is important to have robust product and stabile processes. An
example is the process engineering change situation, like phase-in and phase-out of
products. Even though there is a clear defined process this situation often leads to a
material shortage.
The process of the demand planning is a current issue within the factory supply chain.
The demand plan process generates forecast figures which are the basis for the planning
of the product demand. The quality of the demand plan is vital for efficient sales and
sourcing processes. Demand plan figures that are too high cause high amounts of tied up
capital and low forecast figures cause a increased production cost of the delivered
products, or unfulfilled customer orders. To achieve a good quality of the demand plan,
all market insights of the regions and the global product perspective are used to generate
a realistic forecast. The demand plan is processed yearly for a budget oriented planning
and quarterly for a more detailed planning. The accuracy of the demand planning has a
high impact of the material shortage. Due to the missing quantification of the accuracy
of the planning it is difficult to estimate the impact, but from the interviews it was
evident that there is a doubt in the forecast accuracy among the employees, and that it
does affect the material shortage.
The master data, comprised of all order-independent business objects (Schönsleben,
2004), is an important part of the supporting process. It includes information about e.g.
suppliers, materials, products, customers, and employees. Incorrect master data can
have a high impact on the material shortage, depending on what master data it is. Master
data like bill of material and scrap factor does impact the planning of procurement and
production. A correct scrap factor is important both for the procurement of material and
to avoid inventory difference. The scrap factor is updated yearly. The accuracy of the
scrap factor is not measured, and it is therefore hard to estimate the consequences. A
delivery lead time lower than the actual time registered in the system can cause material
shortage, due to minimum asset levels. An incorrect supplier can cause a catastrophe if
there is no second source available.
- 31 -
The replenishment of small THD and SMD component is done in kanban loops. The
planning of the kanban loops, including number of bins and sizes of the bins, are
complicated due to the pre work of the components. These components have to be
shaped in variants to fit in different assemblies. Each component has numerous variants,
but each variant of one component has the same material number. The demand of each
variant is therefore impossible to foresee. An incorrect planning of the kanban loop
leads to a risk of material shortage.
Materials related risk factors
Producing 1’500 different products with a delivery lead time of 2-3 days assume an
efficient material replenishment. The factory has a range of about 7500 materials
ordered from about 700 suppliers. The delivery capability given by the suppliers are 92
percent4, where six percent are delivered to early (Räder, 2007; FY 06/07). The delivery
lead time is in average 55 days and varies between one to 280 days. The long
procurement times together with the uncertain forecast makes the risk of material
shortage due to procured material high.
The quality of the procured material is also a risk factor. The quality test of the
purchased material today is made with “Reduced controlled testing”, which means that
there are only random tests executed. Materials from some suppliers are one hundred
percent tested, while materials from other suppliers are not tested at all. Most of the
materials are tested with sting sampling. Through improved relationship with the
suppliers the trend goes towards less quality testing. The supplier reject is less than one
percent (Räder, 2007; FY 06/07), but there are cases where the complete delivery has an
insufficient quality. This happens seldom but has a high impact on the material shortage
if it occurs.
The high numbers of procured materials introduce a risk of material shortage due to
expiring material. There is a clear process defined for the managing expiring material.
The major risk of material shortage occurs if the expiring material is late proclaimed by
supplier or the information about the expiring material is available, but not 4 Calculated from the first delivery date confirmed by the supplier, i.e. if the delivery date is advanced and confirmed by the supplier, but the delivery is delayed due to the last confirmed date, the delivery capability is still 100 percent.
- 32 -
communicated within the factory supply chain. If the expiring material is late
proclaimed, there is no second source or/and the procurement time is long it can cause a
real problem. Another aspect where the expiring material causes a risk of material
shortage is in the case when “a last buy” of the material has to be done. The supplier
proclaims the expiration and SBT buys and stores the material, in a quantity covering
the demand until the material can be replaces. Due to the uncertain forecast the quantity
of the last buy is hard to calculate and a too small quantity cause a risk of material
shortage.
Inventory differences are a problem that causes many difficulties within factory. An
inventory difference is a variation of the amount of material in the system compared to
the reality. As long as the variation is positive it does not impact the material shortage,
but as soon it is negative the risk of material shortage increases. The major problem
with the inventory differences is in the SMD assembly. The lack of capacity gives rise
to an optimal use the machines. When the production is scheduled a production order
can be produced only if there is enough material according to availability test, the
ZVER function, see appendix 3. If the material is available, according to the availability
test the machine is setup. The missing material is first discovered when the material is
gathered and due to the lack of material the planned production order can not be started
or fulfilled. Due to this the machine has to be shut down and setup again, and important
time has been lost. The reasons of inventory differences are many, but some can be
mentioned; insufficient warehouse management, inaccurate amount of delivered goods,
retrograde booking and the scrap factor.
There are several locations of the storages within the factory. When the material arrives
it is first transferred through the entrance for incoming goods, the inspection of
receiving goods and ending in the central warehouse. From the central warehouse is the
material distributed to the local stocks. The transfer from the good receipt to the local
stock takes approximately 1.9 days. If the material is urgent a message about express
material is sent to the incoming goods and the material can be available at the local
stock within some hours (Interview, Isenschmid, 2008). The material is first available
for the production when it reaches the local stock. There are therefore cases of material
shortage where the material is available within the site, but it is on the wrong place and
- 33 -
is not visible for the production. This kind of “false material shortage” does increase the
material shortage cost due to the time consumption needed to sort it out. Another type
of “false material shortage” is when the material is occupied of another machine. In the
PCB assembly are there components delivered on rolls. During the production process
are the rolls attached to the machines and the components are assembled direct from the
rolls. If there is one or only few rolls available these can be occupied by another
process. The material is available according to the system, but unavailable in the reality
and this is first discovered when the material is gathered.
The risk of material shortage due to internal late deliveries is major and causes a lot of
problems. The risk of internal late deliveries due to material shortage is increased by all
the risks of material shortage that appear in the supply chain, before the final assembly.
The risk of internal late deliveries are close related to many of the risk factors discussed
in this chapter and will therefore not be further discussed.
Management related risk factors
An insufficient warehouse management system causes a major risk of material shortage
due to the risk of inventory differences. The additional effort needed for inventories and
search of material causes an unplanned cost. The current warehouse management
within the factory Zug is insufficient. When the material is received it is booked in the
SAP system. The warehouse transactions within the PCB assembly are controlled by a
Kardex system, an external warehouse management system not linked with the SAP
system. The warehouse transactions in the final assembly are controlled by a user
developed MS Access database. An intelligent interface between the warehouse
controlling systems and the SAP system is missing, and the continuing updating of the
information is therefore missing. Due to the missing continuing updating of information
is there a major risk of inventory differences increasing the risk of material shortage.
SBT is a customer focused business with a wide product range and short delivery lead
times. To be able to fulfil the customer demand and keep the competitive prices the
procurement process is very important. The reliability of the procurement process is
highly dependent on the customer relations. With approximately 7’000 different
materials to procure and long procurement time, and in addition an uncertain planning,
- 34 -
the supplier relation can be the deciding factor if a material shortage can be solved or
not. SBT is currently developing there customer relations, but there are still a long way
to go before the goal is reached.
If there is a change in e.g. delivery lead time, price of material, or an expiring material
this problem must be sorted out by the Global Procurement Logistics (GPL) before the
material can be purchased. The process of GPL does often take some time and when the
material can be normal procured again the time left until the material is needed can be
shorter than the delivery lead time and this lead to an enhanced risk of material
shortage.
Information Flow
Communication can be defined as the process of interaction. It is the act of passing
information and the process by which meanings are exchanged so as to produce
understanding (Wikipedia, 2008). The communication and the exchange of information
are essential parts of the daily business and a prerequisite to achieve a factory with a
uniform vision and successful cross-factory cooperation.
During the empirical study it was clear that one of the major problems related to
material shortage was the deficient exchange of information, a problem that occurs daily
and increase the risk of material shortage significantly. Such an essential thing as the
PCB and the final assembly located in two different buildings complicates the
communication considerable. The information about a material shortage or a risk of
material shortage is often available, but not communicated to those that might need the
information. The knowledge that the information is available, but not communicated
weakens the relations between the departments. There is no structured process for
information sharing. It is sometimes done by phone, sometimes by e-mail, sometimes
by meetings and discussions or sometimes not at all. The risk of material shortage raise
due to the missing information flow, but what is even more important is the material
shortage cost. A lot of the cost comes from all the work that has to be done
unnecessarily, due to the reason that the information was not where it was suppose to
be. The major risk of material shortage due to the insufficient information flow is the
reason why this thesis is focused on an information flow optimization.
- 35 -
5.1.3 Material shortage risk assessment
In order to find the appropriate concept of the material shortage management it is
important to distinguish those variables that have a high impact on the material shortage
cost from those which have a low impact. Further the once with a high probability can
be distinguished from those with a low probability. The risk of material shortage due to
the insufficient information flow will be excluded from the assessment, as this is the
main field of the master thesis. The information flow will be separately analyzed in
chapter 5.2.
Before the assessment could be done the identified risk factors, see figure 13, were
reduced outgoing from the system outline, see figure 1. Only the risk factors where
there are improvements possible within the master thesis were assessed. The risk factors
in reduced form can be seen in figure 14.
- 36 -
Figure 14 The risk factors of material shortage, reduced due to the system outline (excl. the
information flow)
SOURCE R
ISK
FA
CTO
RS
Equipment
People
1. Mistakes by managing received goods
2. Missing retrograde booking
3. ZMIF-scheduling a. Production of the
wrong assembly b. Use of the wrong
material
4. Missing Kanban-card
a. Supplier-Kanban b. Intern-Kanban
Process
5. Insufficient master data
a. Incorrect bill of material
b. Incorrect delivery lead time
c. Incorrect scrap factor d. Incorrect lead time
Environment
Management
11. Deficient material management
a. Warehouse controlled by different systems
Materials
6. Procurement a. Missing/wrong/ late
delivery
7. Expiring material
8. Inventory differences
9. No access to material
a. Unplanned stock transfer
b. Occupied by another line/factory
10. Internal late deliveries
- 37 -
Projects in progress
As mentioned in chapter 1.3 the fields where there are improvements coming within the
close future will be excluded from system. There are currently projects running within
the supply chain management. The project currently running within the factory supply
chain will be described shortly.
• The Sourcing Logistics Framework project (SLF):
An efficient sourcing logistics is the prerequisite for low inventories, which
corresponding positive effects on capital, and the scrapping and the warehousing
cost. Definition and implementation of standards for the sourcing logistics is the aim
of the SLF project and to thereby generate financial benefits for the company. The
SLF comprises standard sourcing models inclusive selection criteria; material,
information and value flow and milestones and metrics in the sourcing process
(Siemens (d), 2008). The new business model, Vendor Managed Inventory (VMI) is
a part if the SLF project. The VMI is a two-way exchange of information to create a
close relationship with the supplier and create an optimized supply chain for both
parts. It is a focus on giving the supplier the responsibility of the supply of the
material. The supplier will be provided with certain information and takes full
responsibility for maintaining an agreed inventory of the material. VMI makes it
less likely that there will be stock out, at the same time as the stock levels can be
reduced. SBT has implemented the VMI with their suppliers since autumn 2006.
• Demand planning project:
To improve the accuracy of the demand planning and increase the measurability of
the accuracy of the demand planning is there a demand planning project. The aim of
the project is to find an application for the improvement of demand planning. An
improved demand plan decreases the risk of material shortage.
• Capacity project in PCB assembly:
The capacity problem in the PCB assembly is a daily subject discussed within the
factory supply chain. The bottleneck of the whole factory is appearing in the SMD
assembly. A project has been started with the aim to increase the capacity and the
utilization degree of the machines in the PCB.
- 38 -
• Project to improve the phase-in and phase-out process:
The phase-in and phase out of products are a very complex process, which need a lot
of experience to handle. To be able to smooth the process a project has been started.
The project is driven by the department of manufacturing engineering and the aim is
to review the current phase-in/phase-out process.
Assessment of risk factors
For the assessments of the risk it appears that there are two main questions to be
answered (Harlan, 2003):
• How likely is it that an event will occur?
• What is the significance of the consequence and losses?
There are no statistics available to answer those questions. The solution was to use the
experience of the employees. During two workshops was the assessment done with the
method FMEA, see chapter 3.1.1. As the FMEA is a time consuming method the risk
factors were limited through a pre-selection. The result from the FMEA can be seen in
appendix 5 and the results are illustrated in a differentiation matrix, see figure 15.
Through the assessment was the five major risks of material shortage identified; internal
late deliveries, inventory differences, procurement-missing, wrong or late delivery,
mistakes by managing received goods and expiring material. According to the fourth
objective, see chapter 1.2, will these five risks be further analyzed and proposals of
measures of improvements will be provided.
- 39 -
Figure 15 Assessment of the risk factors, illustrated in a differentiation matrix. The five major risk
factors of material shortage are: 1. Mistakes by managing received goods, 6.
Procurement – missing, wrong or late delivery, 7. Expiring material, 8. Inventory
differences and 10. Internal late deliveries.
5.2 Analysis of the information flow
This chapter correspond to the second objective, see chapter 1.2. The aim of this chapter
is to identify the current information flow, its bottlenecks and structure. The exchange
of information is an essential part of the daily business and a prerequisite to achieve a
factory with a uniform vision and successful cross-factory cooperation.
There are several examples, happened lately, from the factory where it is visible that
there is a clear and perspicuous information flow missing. A current example, where the
missing information had dreadful consequences, can be found in the PCB assembly.
The production process began in the SMD assembly where the circuit boards where
High
High
Low Probability that material shortage will appear
The potential impact of m
aterial shortage
7
5d
5c
1
6
5a
9
5b
10
8
The
pote
ntia
l im
pact
of m
ater
ial s
horta
ge
- 40 -
completely assembled. They were passed on to the THD assembly in hoppers. When
they were going to be assembled with the THDs a material shortage was discovered and
the process could not be accomplished. Due to the lack of room and hoppers, the boards
had to be taken out of the hoppers, put into boxes and transferred to the warehouse. This
caused a lot of extra material handling and use of the SMD machines that could have
been used for a more important order. This kind of mistakes is devastating due to the
lack of capacity. With a clear and perspicuous information flow where the material
shortage in the next process would have been visible, the first process would not have
been started and the problem would not have been occurred.
The information flow analysis was done according to the methodology of flow chart
diagrams, see chapter 3.2.2. The initialization of the information flow mapping was
done during the first workshop, see appendix 2. To get a fair picture of the information
flow, continuing feedback was given by chosen employees during the whole
development process. The information flow mapping can be seen in appendix 6.
There were three types of information flows identified:
• When the material shortage is discovered in the incoming goods or inspection of
received goods, see appendix 6, figure A6.6.
• When the material shortage is discovered in the in the production i.e. in SMD, THD
or final assembly, see appendix 6, figure A6.7.
• When the material shortage is discovered by the material planner in the department
for sourcing and production logistics, see appendix 6, figure A6.8.
The information flow has two significances:
• All the information goes through a material planner in the department for sourcing
and production logistics, see appendix 6, figure A6.3.
• There is no information communicated between the different entities of the factory
supply chain, see appendix 6, figure A6.3.
There is no clear description the material shortage communication. Due to that is there
never a guarantee that the information about the material shortage is communicated. As
the PCB assembly is running both day and night shifts and the administration
departments is only working day shift it is difficult to assure that the information about
- 41 -
the material shortage discovered during the night does reach the sourcing and
production logistics.
Between the SMD assembly and the sourcing and production logistics is there a tool
available to simplify the communication of material shortage. The tool is based on an
excel spreadsheet where the material shortage can be registered, see appendix 7. Each
material planner in the sourcing and production logistics is controlling the spreadsheet
at least once every day. When there is a material shortage it is solved according to the
process in appendix 6, figure 6.8. When the solution is found it is registered in the
spreadsheet and the SMD assembly are able to observe when the material will be
available and can improve the controlling of the production according to this
information.
The avoidance of material shortage is a part of the daily business for the department of
Sourcing and production logistics. There are applications available in the SAP system,
e.g. MD04 and ZRW0, see appendix 3. The applications are used daily to prevent the
material shortage. If a risk of material shortage appears the required actions has to be
performed in order to avoid the material shortage.
The analysis of the information flow has given a good overview of the problem with the
information flow, but also and the general problems of material shortage, and based on
this analysis will it be possible to optimize the information flow according to second
objective, see chapter 1.2.
5.3 Analysis of material shortage cost
This chapter correspond to the third objective, see chapter 1.2. The aim of this chapter is
to identify and calculate the costs related to the material shortage.
The essential loss factors from the companies’ point of view are often the financial
consequences like costs, but there are also other consequences to consider. According to
Harland (2003) there are five different types of losses to consider:
- 42 -
• Financial loss
• Performance loss
• Physical loss
• Social loss
• Time loss
The outline for the cost analysis was drawn by financial, performance and time loss, all
losses translated into costs in euro. The cost analysis was done outgoing from the flow
chart of the information flow, see appendix 6. The cost analysis is based on interviews
and collection of the few statistics available related to material shortage cost:
• Information about additional material cost due to by-pass supplier
• Excel spreadsheet used between SMD assembly and sourcing and production
logistics
• Data about quality of procured material (Bogdanovic, 2007)
The assumptions of the cost was done through estimations of the quantity of material
shortage per year, the cost for each process to manage the material shortage and the time
invested by the employees to solve the material shortage.
To be able to calculate the cost some general assumptions had to be done. Due to the
delimitation, the material shortage consists of:
• Additional effort for employees due to material shortage in the production
departments, the sourcing and production logistics, the global procurement logistics
and the inspection of received goods.
• Additional material costs (e.g. due to by-pass suppliers)
• Time and performance loss in the production due to downtime in the process
The calculations were done for each department separately. The tool POAcalculator was
used for the calculations. Further descriptions of the cost calculations can be seen in
appendix 8.
The total cost of material shortage is about 881’500 euro excluded the cost of
preventing the material shortage, which is additionally 72’000 euro. The allocation of
the cost can be seen in table 1. The SBT factory in Zug has a yearly turnover of 95
- 43 -
million euro, and the material shortage cost account for almost one percent of the
turnover.
DepartmentTime (h)
Cost (€/h) Cost (€)
Allocation of cost
1. Cost due to additional work effort (cost of daily business excl.) 503'250 € 57% Inspection of receiving goods 500 75 € 37'500 € PCB-assembly SMD-assembly 440 75 € 33'000 € THD-assembly 110 75 € 8'250 € Final assembly 2'800 75 € 210'000 € Sourcing and production logistics 115'000 € Cost of daily business avoiding material shortage 960 75 € 72'000 € 8% Global procurement logistics 2'400 75 € 180'000 €2. Cost due to additional material cost 310'000 € 35%3. Cost due to time and perfomance loss 440 155 € 68'200 € 8%Total material shortage cost 881'450 € 100%
See figure A8.1
Table 1 Calculation of the material shortage cost
5.4 SWOT-analysis
The situation analysis is completed with a SWOT-analysis, see chapter 3.2.2. The aim
of the SWOT-analysis is to find the significant strength and weaknesses of the analyzed
system in actual state and the opportunity and threats coming from the surrounding
system in the future. With these characteristics indentified is it possible to develop
measures to (Züst, 1997):
• Establish the strength and use the opportunities
• Establish the strength and minimize the threats
• Eliminate the weaknesses and use the opportunities
• Eliminate the weaknesses and minimize the threats
The result of the SWOT-analysis can be seen in figure 16.
- 44 -
Layout planning
Resources/capacity Forecast process
Asset management Less quality control of received goods
Customer service requirements Global sourcing
Closer cooperation with suppliers Changing Supply Chain Management Market situation
Capacity & flexibility PCB-assembly Capacity utilization PCB-assembly
Inventory management Plant layout
Procurement lead time Number of engineering change
situations Information flow & communication Understanding of width of problem
Machine handling Change management
Manual processes Documentation
Capacity & flexibility final assembly Quality thinking Flexible production Flexible processes Experienced employees Machines
Helpful Harmful Sy
ste
m
Surr
ou
nd
ing
sy
ste
m
Threats Opportunities
Weaknesses Strength
Figure 16 SWOT-analysis of the material shortage management within the factory supply chain at
the SBT factory in Zug
Strength of the system
One of the most characteristic strength of the system is the capacity and flexibility of
the final assembly. There are more resources available than needed and a breakdown
can easy be mitigated by additional work hours. The constant quality thinking is
strength. SBT is producing products where the requirement is more or less one hundred
percent quality assurance, something that each employee tries to influence to fulfil. The
flexibility of the employees as well as the flexibility of the processes is another
important strength, which is a requisite to be able to handle the complex processes and
problems that are appearing within SBT. The experienced employees are a strength
within the same field. Due to the experience of many of the employees many problems
- 45 -
can be solved fast and efficient. In both parts of the factory are there robust machines,
mostly running without breakdowns, which is a great strength.
Weaknesses of the system
The most characteristic weaknesses of the system are the capacity, flexibility and
utilization degree of the PCB assembly, something that affects the material shortage
tremendously. The inventory management is another weakness that affects the daily
work for many employees. The plant layout, that the PCB and final assembly are
located in two different buildings, is another weakness. This makes the lead time longer,
reduces the overview and complicates the communication. The long average
procurement lead time is a weakness both when it comes to material shortage and the
business in general. The engineering change situations lead to material shortage
problems, due to high the number of situation. There is clear process defined
engineering change situation, but the processes can not handle the number of situations.
The main theme of this master thesis, the information flow and communication has to
be mentioned as one of weaknesses. Another close related weakness is the
understanding of the width of the problem of material shortage. Everybody is aware of
the problem, but sees only his/her part of the problem. The global view is missing. The
machine robustness is mentioned as a strength, but the handling of the machines is a
weakness, which might explain the low utilization degree. The change management or
rather the speed of the change management is a weakness of the machines in the PCB
assembly. It is hard to implement new systems and processes in a company with the size
as SBT. A flexible process is strength, but flexibility does also very often mean manual
processes. A manual process is a potential source of errors and mistakes. The
documentation is a weakness and especially within the material shortage. It is known
that it is a problem, but there is no documentation that shows the width of the problem
or what costs the problem causes.
- 46 -
Opportunities in the surrounding system
SBT is currently developing the cooperation with their suppliers, as a part of the SLF
project. The cooperation leads to a lower material shortage risk for SBT as the supplier
guarantee a certain quality and material availability. This is an opportunity that SBT
might be able to use in order to decrease the material shortage cost. SBT is currently
within a changing phase. During the end of 2007 was the CEO concept changed
according to the new Siemens structure. Within the factory Zug is also the supply chain
management under changes, with a supply chain manager hired in the beginning of
2007. There is a development towards an internal as well as external smoothen supply
chain and this is a chance of reducing the material shortage. SBT are operating in a
market where there are continuing development needed. To be able to satisfy the market
demand is there a continuing work running to adapt the company strategies and
products to fit the market. With a good market adaptation SBT can avoid to produce the
wrong products and their number of products can be reduced. With a lower number of
products it is easier to avoid material shortage.
Threats in the surrounding system
SBT will face several threats in the future if they will not do any changes. They have a
non optimal layout, with their production divided in two different buildings, as well as a
lack of room in the PCB assembly. If the demand keeps on increasing the space will
very soon be too small to keep the PCB assembly as it is today. A lack of room will be a
possible risk of increasing the material shortage cost. There is a project running to
increase the capacity, but if the problem is not solved fast enough it might cause an
immense risk of material shortage. SBT has currently problems with the quality of the
forecast, something that does affect the material shortage a lot. They are aware of the
problem, but if there is no changes the quality of the forecast it might be hard to
improve the material shortage situation. SBT is a customer focused business and if they
can not longer keep there short delivery lead time they might lose a lot. Asset
management is a big trend at the moment. The assets should be reduced in order to
decrease the capital tied up. The factory has a demand from the global SBT to reduce
their assets, but the measures to reduce the assets are locally developed. The assets have
to be optimized not only minimized and if this is not done in the right way there is a
- 47 -
major risk that the material shortage will increase. Closer cooperation with the suppliers
on one hand is an opportunity to reduce the risk, but on the other hand it might be a
threat as the quality controls are reduced. SBT has already today reduced their quality
control and if the quality question is not correct handled it might be a major source of
material shortage. With a customer focus business where the customer is “king” the
customer itself might be a threat. If the customer gets to much freedom it might be
difficult to fulfil their demands. The last threat is the trend towards a more global
sourcing. The global sourcing can be an opportunity if it is managed in the right way,
but if not it is a big threat affecting the material shortage.
- 48 -
6. Solution
The aim of this chapter is to develop and evaluate solutions, to fulfil the objectives of
the thesis. The results of the concept synthesis and analysis, and the evaluation will be
presented. An overview of the developed concepts of material shortage management for
SBT will be given. The concepts will be developed and analyzed based on the situation
analysis and evaluated from the defined criteria.
6.1 Synthesis and analysis of the material shortage management concept
The main task of this thesis is to optimize the information flow of the material shortage
and the first part of this chapter will handle this task, according to the second objective.
The second part of this chapter will handle both the second and the fourth objective, see
chapter 1.2, where measures will be developed in order improve the information flow
and to decrease the risk of material shortage.
6.1.1 Optimization of the information flow
In this chapter an illustration of the optimized information flow will be presented. It is
important that the material shortage is perspicuous within the whole factory supply
chain, from the entrance of the incoming goods to the export of the goods. For this is an
efficient information sharing needed. There are several ways to improve the information
flow. As a basis for an improved information flow an optimized information flow has
been developed with the methods of flow chart diagrams. The optimization of the
information flow has been developed outgoing from the current flow, identified in the
situation analysis, see chapter 5.2. The flow chart diagram has been developed with the
tool POAdesigner and can be seen in appendix 9. The processes and flows that might be
able automatize have been identified and an efficient way of sharing the information has
been found.
- 49 -
The optimized information flow has several significances, see appendix 9, figure A9.3:
• The condition of the material shortage can be measured, through the possibility to
gather statistics
• There is a direct communication of the information between the entities of the
factory supply chain, which makes the information sharing more efficient and assure
that the information will reach its object
• The information about the current material shortage situation is available, and
uncomplicated to find and admit.
• Several processes can be automized, which decrease the work effort needed to solve
the material shortage.
• An efficient information flow is reached, as only a part of the material shortage
information goes through the department of sourcing and production logistics.
• The optimized information flow paves the way for a decentralized material shortage
solving.
The desire is to find a material shortage concept that accomplishes this ideal
representation of the information flow as exceedingly as possible.
6.1.2 Concepts for the material shortage management
This chapter handles the development of a concept for the management of the material
shortage, both due to improved information flow and decreased risk of material
shortage. The concepts have been developed in cooperation with the employees of the
factory supply chain. The employees had the opportunity to express their conception of
an improved material shortage management during interviews. During the last
workshops a short brainstorming was held with the purpose to generate ideas about the
material shortage management concept. In this chapter will the concepts generated be
presented and further discussed.
- 50 -
Excel based solution of material shortage
There is an Excel spreadsheet used today to communicate the material shortage between
the SMD assembly and the sourcing and production logistics, see chapter 5.2. The
proposal is to further develop this spreadsheet, in order to be able use it between all the
concerned departments and for two-way communication, see figure 17.
Figure 17 Overview of the material shortage communication flows, with an excel spreadsheet
As there has been no statistics gathered about material shortage earlier and the causes of
material shortage is still relative unknown, it is important that there will be statistics
gathered. The further development of the spreadsheet wills therefore a part for statistics.
By developing a combined concept for both the communication of material shortage
and the gathering of statistics, the development, implementation and education can be
faster and simpler. It is important very important to make the spreadsheet as user-
friendly as possible to make easy to understand and fast to fill out. The spreadsheet can
be developed both in MS Access and MS Excel, but as there is already a basis of a
spreadsheet developed in MS Excel, the recommendation is to do the further
development, based on this spreadsheet, in MS Excel. To expand the already existing
spreadsheet will need neither effort nor time, and the implementation will be fast and
simple.
Sourcing & Production
Logistic
THD assembly
SMD assembly
Final assembly
Incoming goods
Identification of received
goods
- 51 -
There has been a proposal of a possible design of the spreadsheet developed in MS
Excel, see appendix 10. The spreadsheet is divided into two parts; one to be filled out
by the discoverer and the other to be filled out by the problem analyst. Both parts of the
spreadsheet have one fraction for the information about the material shortage and one
for the statistics. To facilitate the fill in of the statistics, there has been selection lists
prepared to select from.
The Excel spreadsheet should be available on a central drive, which all factory Zug
members with computer access can entry. The spreadsheet can be downloaded from the
drive either to read or to make changes in. In this way each person, interesting in the
current material shortage situation can get the information through this spreadsheet.
The investment needed to develop and implement the Excel spreadsheet is negligible.
The operating cost can be estimated to one hundred hours of work effort the first year
and a little less the second year, see appendix 11.
Material shortage tool
During the empirical study it was clear that there are several employees within the
factory supply chain, which are convinced, that the optimal solution for a material
shortage management concept is a material shortage tool. There is already a base for a
material shortage tool developed and this has been used as a base for the synthesis of
this concept.
The exciting concept is a tool integrated in the SAP system and has the following
functions (Hertach, 2006):
• Manual registration of data for material shortage quantity
• Manual registration of data for received material quantity
• Automatically acquisition and handling of data for material shortage quantities,
where the available material is too low
• SAP platform where the material shortage balance is accounted
• Status indication of the material shortage case handling
- 52 -
To fulfil the criteria for a material shortage management concept there are further
requirements of the functions of the material shortage tool:
• Systematic dispatching of the material shortage case depending on the material or
assembly
• Compile statistics about material shortage
• Indication of critical material or early warning system
• Classification of the material shortage
• Automatically rescheduling of orders, when the available material is too little, as
long as the rescheduling does not exceed the customer order date
• Indication of “out of material”
The function description of the material shortage tool can be seen in appendix 12.
The basic function of the material shortage tool is the registration of the material
shortage and the solution, as well as an overview of the current material shortage
situation. A manual registration of the material shortage is made as soon as it is
discovered. The material or assembly number is manual registered as well as the
production order and the description and statistics of the case. The rest of the necessary
data is automatically generated. An automatically generated message is sent to the
responsible problem analyst, either in the sourcing and production logistics or the PCB
assembly. The problem analyst can be decided from the material or assembly number.
The data about the material shortage case is stored on a platform to be visible. The
actions taken by the problem analyst are automatically registered in an agenda. Through
this agenda the discoverer can follow the procedure of the work. As soon as a solution is
found it is registered by the problem analyst on the platform and an automatically
generated e-mail is sent back to the discoverer.
The additional functions of the material shortage tool will be further described to
increase the understanding of the further development of the existing concept of a
material shortage tool. The statistics gathering function is important to be able to find
the major risk factors of material shortage and to be able to counteract these risks. The
statistics includes information about the material, as quantity of shortage, supplier of the
material, and how often the same material has caused a material shortage. The statistics
- 53 -
also includes information about the cases of material shortage, the reason of the
shortage, the effort needed to solve the shortage and the additional material cost. The
statistics are partly automatically generated e.g. the information about the material and
supplier, and one part to be filled in manual by both the discoverer and the problem
analyst,
The indication critical of material is one of the most important functions of the tool, as
this is a part of the prevention of the material shortage. When a risk of a material
shortage is discovered, especially caused by procurement such as late deliveries or
insufficient quality, it is known that this later might lead to a material shortage. When
the material problem is discovered the available stock is compared to the demand until
the next delivery, and if the safety stock level will be undercut during this period the
material is marked as a critical material. This notation indicates that the material only is
allowed to use for customer production orders or to keep the stock level above the vmin
(see appendix 1). No overproduction is allowed. In these cases an optimal material use
is to be preferred before an optimal production control. A classification of the grade of
critical situation is an advice. The notation of the critical material should favourable be
built in the tools used for the daily control of the production, at the moment the ZVER.
The function for indication of critical material can also be used to communicate a risk of
a material shortage between the PCB and the final assembly. A lack of capacity or
missing material in the PCB assembly can lead to a delayed internal delivery. In the
cases when the production planning is interrupt in the PCB assembly, the assemblies
affected should be marked as critical material. Through this the final assembly have the
possibility to avoid a real material shortage due to the warning, which signals to use the
assemblies only for customer production orders or to keep the stock level above the
vmin (see appendix 1).
The classification of the material shortage is an important function to the priority set to
the events of material shortage, to know which event that has to be handled first. The
classification is done in several steps. The first classification is done manually by the
discoverer and/or the problem analyst with his/her know-how and experience as a basis.
This classification is combined with an automatically generated classification. The
parameters that decide the automatically generated classification are:
- 54 -
• Single or multiple use
• Demand until next planned delivery
• Location for discovering the material shortage
• Delivery lead time
• Second source - Yes/No
• Delivery lead time second source
Each parameter is weighted after its importance and from the manual and automatically
classification a priority list of the material shortage is generated.
The rescheduling of the production orders is today prepared manual, requiring quite a
lot of effort. This process can be automatized as far as the customer is not affected. The
material shortage tool should include a function where the demand is automatically
compared to the available material. If the demand is higher than the available stock the
production orders are rescheduled automatically. As soon as the planned production
date is exceeding the customer order delivery date the rescheduling has to be done
manual. In these cases an automatically generated e-mail should be sent to the
responsible material planner.
The indication of “out of material” is a function important to avoid double work. When
the material shortage is discovered and registered, the missing material or assembly is
marked. If there is another assembly or product that cannot be produced due to the same
shortage this material/assembly has not to be registered in the system. The production
controller sees directly that the material shortage is already discovered and can easily
control the status of the case and adapt the production plan.
The material shortage tool has a development and implementation time of six months to
one year. The needed investment is about 90’000-180’000 euro. The operative cost will
mainly be caused by support of the tool, but also for the extra effort needed in the
beginning before the employees get used to the system. The estimation of the operating
cost is about half a man-year the first and will decrease with about fifty percent to the
second year, see appendix 11.
- 55 -
Material shortage management specialist
A concept that has been taken from the SBT factory in Berlin is the concept of hiring a
material shortage specialist, with the responsibility to manage the material shortage.
Material shortage is a very complex problem. If every problem is different it is difficult
to form a tool that is dynamic enough to be able to handle all these problems. To hire a
specialist is a very dynamic solution. The tasks of the material shortage specialist are to:
• Structure the work process of material shortage
• Control the material shortage management
• Control the progress of material shortage management
• Gather statistics about material shortage
• Develop a future concept for the material shortage management
Before a material shortage specialist can be hired a clear work description has to be
formulated. The outcome of this concept is highly dependent on finding a qualified
candidate, as the material shortage is a very complex problem. The specialist must
therefore have the right know-how. This concept is possible to combine with another
concept as e.g. the material shortage tool or the excel spreadsheet.
The development and implementation time for the concept is about three months,
mainly needed for the recruitment process. The investment cost is negligible. The
operating cost of a material shortage specialist is the cost of one man year,
approximately 120’000 euro, see appendix 11.
Standardized warehouse management system
A warehouse management system (WMS) is a part of the supply chain management
with the aim to control the movement and storage of materials within the warehouse and
the processes supporting the warehouse like shipping receiving and picking
(Inventoryops, 2008). SBT has a WMS used in the warehouse for final goods, handling
20 percent of the finished goods. The warehouses in the PCB and final assembly are
today controlled by systems with no continuing information updating with the SAP
system. The inventory differences are one of the major risks of material shortage and
insufficient warehouse management is one of the major sources. Through implementing
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a factory standardized warehouse management system the inventory differences can be
reduced as well as the material shortage. The already available WMS system can be
further developed and adapted to fit the whole factory. The outcome of a factory
standardized warehouse management system is less inventory differences, less effort
needed for inventories and less manual processes.
The development and implementation of a warehouse management system is a large
project and the time needed is estimated to one to two years, with an investment cost of
100’000 to 200’000 euro. The operating cost of the system is negligible, as the
operating cost of a new system can be compare to the current system, see appendix 11.
Extension of already available tools
There are many applications used in the SAP system today. To avoid an increasing
complexity of the SAP system there is always a desire to keep the number of
applications low. To introduce another application might be confusing and complicated
for the employees and due to that, lower improvements of the material shortage
management than expected. Another concept is therefore to develop a material shortage
management tool based on one of the applications already used within the daily
business. Some proposals how this can be done has been developed.
• Availability test for several process steps – extension of the SAP application ZVER,
see appendix 1: The ZVER is used to control the availability of the material. The
availability control is today done for each process separately. The process is started
if there is no material shortage, independent of the material status for next process.
In the PCB assembly is a break in the process chain a raise of the risk of material
shortage, due to the lack of resources and room. If there is a break due to material
shortage the assemblies have to wait between the processes until the material is
available and occupy important room. This risk can be eliminated through a
performance of the availability test for several process steps at one time.
• Notification of material shortage in the ZMIF, see appendix 1: The events of
material shortage are oft linked to each other. As soon as a material shortage is
discovered, this material or assembly should be marked with red, as well as all the
assemblies and products, which has this material or assembly included in the bill of
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material. In this way it is possible, for everybody using the ZMIF, to see that there is
a material shortage. A material shortage report should be attached to the material
data, to inform about the status about the material shortage and when and how it will
be solved. All the products that might be affected due to a shortage of the assemblies
including the material should be marked with yellow, which indicates to use the
assemblies only for production orders or to keep the stock level above the vmin, see
appendix 1.
This concept has to be further analyzed before the development can start. The
development and implementation can take approximately six months to one year, with
an investment cost of about the same magnitude as the material shortage tool, 90’000 to
180’000 euro. The estimative operative cost is about fifty percent of the operative cost
for the concept of the material shortage tool, see appendix 11.
6.1.3 Further measures of improvement
This chapter will handle the development of further measures to decrease the risk of
material shortage and the material shortage cost. The measures can be used in addition
to the developed concepts and will therefore not be evaluated.
Reduce/simplify manual processes
A manual process within the factory supply chain does always carry a certain degree of
risk of mistakes. By the incoming goods is there problems appearing due to the several
manual processes and the human factor. There are several measures to reduce this risk.
• Clear guidelines given to the suppliers, how to pack, label, and deliver the material,
in order to simplify the process. In this way the material can be transferred to the
warehouse without any repacking, remarking or controlling. This does not only
reduce the risk of handling mistakes, but does also speed up the receipts process.
• Automatize the process of incoming goods to eliminate the handling mistakes.
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The manual processes do also cause inventory differences leading to a risk of material
shortage. When material is taken out of the stock it is not booked out of the system until
after the production processes, to know exactly how much that has been consumed. This
is called retrograde booking of material use. This method is mostly used for small SMD
and THD components where the use can be hard to calculate beforehand. If the
retrograde booking is forgotten this further or later does cause an inventory difference.
This problem can be solved either by always book the material beforehand, when it is
taken out of stock, or by including a material booking function in the WMS. When the
material is taken from the stock it is reserved, and this status will be retained until the
exact amount is confirmed after the production process is ended.
Communication of material shortage via flat screens
There are several ways to communicate the material shortage, through telephone, e-mail
or direct contact. All of these do need an effort and it is never a guarantee that all the
information is communicated. The instrument for the information sharing must
therefore be considered. A reliable instrument for communication of the material
shortage is flat screens. When information about material shortage is available, the data
is evaluated and the significant numbers and figures are presented on flat screens. This
gives the employees a good overview of the material shortage situation without using
time and effort to search for the information. With flat screens on selected places within
the site presenting the right material shortage information it is not only a way to
communicate the information, but also a way to make the employees aware about the
material shortage. The awareness among the employees itself might have a positive
effect on the material shortage. To be able to use the flat screens in an efficient way a
method of evaluating the material shortage information has to be found.
The time needed before the flat screens can be implemented is highly dependent on the
concept chosen for the future material shortage management. When the material
shortage management concept is implemented and the needed information about
material shortage is available, will about 3 months be needed to implement the flat
screens. There are about ten screens needed and this will cause an investment of 30’000
euro, including software for developing the number and figures to illustrate the material
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shortage. The operative cost of the flat screens can be estimated to 5’000 euro per year,
see appendix 11.
Measurability of the material shortage
To be able to establish the improvement of the material shortage situation indication
factors must be measured. Key performance indicators (KPIs) are finical and non-
financial metrics to define measure and progress of an organization. KPIs are often used
to value activities difficult to measure, such as satisfaction, engagement and service
(About.com, 2008).
For success by using KPIs the following requirements have to be fulfilled:
• There must be clear goals and performance requirements for the material shortage
management defined
• A quantitative or qualitative measurement of the results must be able to execute in
order to compare with the set goals
To measure the material shortage management improvements KPIs has been monitored.
The monitored KPIs have to be specific, measurable, achievable, result-oriented and
time bound, which forms the acronym of SMART. The monitored KPIs can be seen in
table 2.
Category KPI Dimension
Material shortage cost Material costMaterial cost divided by the planned material cost
Material availability by ZVER
All opened orders without having a material shortage divided through all opened orders.
Inventory differences
All orders loaded at the mashines without a material shortage divided by all loaded orders
Material shortage risk
Table 2 KPIs for measuring the improvements of the material shortage management
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To be able to use the KPIs, methods for discovering the needed data has to be
developed.
6.2 Evaluation of a future material shortage management concept
The evaluation is based on the theory and analysis of the current situation. The
evaluation will follow the evaluation methodology of systems engineering, see chapter
3.4. In the first section the defined criteria will be presented, in the second section will
the evaluation of the concepts be presented and finally the decision making, used as a
basis of the recommendation of continuing work, will be presented.
6.2.1 Criteria for the material shortage concept
The criteria to fulfil for a future material shortage management concept are derived
from the situation analysis, requirement setting and the system delimitation. The criteria
will be used as a guide when the concepts are evaluated. The main criteria of the
material shortage management concept are to reduce the material shortage cost and
decrease the risk of material shortage. All the criteria are presented in table 3.
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Categories of criteria Characteristics of criteria Dimension of criteriaReduced risk It is a wish that the new material
shortage concept reduces the risk of material shortage.
Measurability The new concept should offer a possibility to measure the condition of the material shortage, in terms of cost and quantity.
Flexibility As there are a lot of changes within the supply chain management it is important that the concept is dynamic and can be adapted to changing requirements.
User-friendliness The solution will be used by people at all levels and should therefore be easy to understand, but also easy to use as the time consumption has to be low, not to increase the effort by material shortage.
Information flow It is a must that the new material shortage management concept accelerate the information flow
Short term impact The material shortage situation is quite critical at the moment and it is therefore important that the material shortage management concept brings a quick a change.
Return on Investment There is a wish to get a return on the investment in as a short time as possible
Development and implementation time
As the material shortage situation is critical it is important that the development and implementation time is short
Cost reduction The concept must reduce the material shortage cost
Financial criterion
General criterion
Table 3 Criteria for a future material shortage management concept
6.2.2 Variant evaluation and effect estimation
This chapter presents the evaluation of the six concepts. Each concept has been
evaluated after the criteria defined, see table 2. In order to identify strength and
weaknesses of each concept a strength and weakness analysis has been performed, see
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appendix 13. A benefit analysis has been performed for the quantitative comparison of
the concepts, see table 4.
We
igh
t (1
-10
)
Reduced material shortage risk 8 2 17 7 53 4 34 7 58 1 10
Internal late deliveries 10 3 30 8 80 5 50 5 50 0 0
Procurement: wrong/ missing/late delivery 8 3 24 5 40 0 0 0 0 4 32
Mistakes by managing received goods 6 0 0 0 0 0 0 7 42 0 0
Inventory differences 9 0 0 5 45 4 36 10 90 0 0
Expiring material 5 0 0 0 0 4 20 0 0 0 0
Measurability 5 7 35 7 35 5 25 2 10 4 20
Flexibility 6 2 12 1 6 10 60 3 18 1 6
User-friendliness 6 7 42 4 24 9 54 5 30 6 36
Information flow 8 5 40 9 72 4 32 0 0 7 56
Short term impact 5 10 50 1 5 7 35 4 20 1 5
Development and implementation time 5 10 50 5 25 8 40 2 10 5 25
Return on Investment 8 10 80 4 32 0 0 7 56 5 40
Cost reduction 10 4 40 7 70 6 60 9 90 6 60
Sum (Grade) 420 487 446 474 290
Ranking 4 1 3 2 5
CONCEPT
Mat
eria
l sh
ort
age
too
l
Exte
nsi
on
of
avai
lab
le
tool
Mat
eria
l Sh
ort
age
Man
agem
ent
spec
ialis
t
War
ehou
se
man
agm
ent
syst
em
Exce
l sp
read
shee
t
Table 4 Benefit analysis of the concepts, with weighting-scale of the criteria
The weighting-scale has been prepared based on the FMEA-analysis and discussions
with Mr. Wolfgang Zimmermann. The grading is based on management judgements,
also prepared in cooperation with Mr Zimmermann. The grading of the criteria short
term impact, development and implementation time, return on investment and cost
reduction have been based on a financial analysis of the concepts, see appendix 11.
6.2.3 Interpretation & assessment
Due to the evaluation figures each of the concepts can be assessed. Each concept will be
assessed individually and based upon these individual assessments a decision can be
formed.
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Excel spreadsheet
The concept of an excel spreadsheet obtained the fourth highest score in the benefit
analysis. The strength of the concept is the fast return on investment, see appendix 11,
and the short development and implementation time. Due to the short development and
implementation time the improvements can be reached in a very short time. The concept
is also very user friendly as the employees is already familiar with the concept. In the
long term perspective the concept will not lead to any major cost reductions or
reduction of the material shortage risk, but the concept is good as a first improvement of
the material shortage.
Material shortage tool
The material shortage tool obtained the highest score in the benefit analysis. There is a
large cost reduction possible due to an implementation of the material shortage tool, but
a high investment is required, the development and implementation time is long and the
break even point of the investment will not be reached until after at least three years, see
appendix 11. The major strengths of the material shortage tool are the improvement of
the information flow and the reduced risk of the material shortage, which are the main
criteria for a future concept to fulfil. The material shortage tool will not be very flexible.
If the material shortage situation will adapt, there will be quite a lot of effort needed to
change the concept. The user friendliness of the tool will be possible to impact,
depending on the interface used and the training process.
Material shortage management specialist
The concept of a material shortage management specialist obtained the third highest
score of the benefit analysis. This concept has one major drawback, the return on
investment. Due to the high operative cost the investment will never be paid back, see
appendix 11. To implement this concept a higher potential of cost savings must be
found. The concept can be used as a short term solution as the development and
implementation time is rather short and the return on investment can be reached due to a
long term improvement implemented by the specialist, still running when he/she has
ended his/her employment. The major strength of the concept is the flexibility, which is
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very important if the material shortage situation will change in the future. A major
weakness of the problem is to foresee the improvement of the material shortage
situation, as the outcome of this concept is highly dependent on finding a qualified
candidate.
Warehouse management system
The concept of a warehouse management system obtained the second highest score in
the benefit analysis. To develop and implement a warehouse management system takes
quite a long time, but the time for the return on the investment is rather short, see
appendix 11. This concept will mainly reduce the material shortage cost and risk, due to
reduction of the risk of mistakes by managing received goods, inventory differences and
internal late deliveries. The main strength of this concept is the reduction the risk of
material shortage. It is a concept which is difficult to adapt if the material shortage
situation changes, but on the other hand a warehouse management system does not only
bring a benefit within the material shortage. The daily work of the warehouse and
production members will be improved, which leads to a non quantifiable profit.
Extension of available tool
The concept of an extension of available tools obtained the lowest score in the benefit
analysis. This should be interpret with a certain caution as this concept is the one least
developed. With a further development of the concept it should be able to reach the
same score as the material shortage tool. The major advantage of the concept is the user
friendliness, and this criterion should not be underestimated. It is difficult to make any
further evaluation of the concept as it has to be further developed.
6.2.4 Decision
In this chapter a decision to form a future material shortage management concept on
will be presented. The decision-making is divided into two parts, a decision for a short
term solution and a decision for a long term solution.
- 65 -
Short term solution
There is an urgent change needed within the material shortage and due to this are the
main criteria for a short term solution a short development and implementation time,
and a high short term impact. These criteria are best fulfilled by the concept of an Excel
spreadsheet or a material shortage specialist, see table 4. The later concept needs a
rather high investment, due to the high operative cost, and this implies a risk of a
negative cash flow. Due to that is the decision to implement the excel spreadsheet as a
short term solution.
The excel spreadsheet is only seen as one step in the direction of a new material
shortage management concept. This will give an improvement of the communication, a
small reduction of the material shortage cost and the material shortage risk, but also a
statistics about the material shortage situation to use as a basis for the evaluation of the
final material shortage management concept. Before the excel spreadsheet can be
implemented a last finish has to be done on the developed proposal, see appendix 10.
The time for the development and implementation, including the registration of the
spreadsheet on a central drive, testing and training will take approximately one week.
Long term solution
Outgoing from the benefit analysis is the material shortage tool the best concept for the
material shortage management. This concept will decrease the material shortage cost as
well as the material shortage risk. A further development of the concept is needed
before it can be implemented. Before the development starts it is recommended to wait
for the outcome of the excel spreadsheet. From the statistics gained, the evaluation is
possible to approve as well as the calculated material shortage cost, and the assessed
risks. The decision can than be based on a more certain analysis and evaluation.
In addition to the material shortage tool flat screens can be used to communicate the
material shortage. A finical analysis of the concept, see appendix 11, shows that a rather
small investment is needed, and that return on the investment is reached in
approximately six years. The development and implantation time is rather short.
- 66 -
The flat screens is mainly a concept to communicate the material shortage, but it might
also lead to reduced material shortage risk due to internal late deliveries and
procurement problems. With the improved information flow and awareness about the
material shortage it might be easier to counteract a real material shortage. If it occurs
that the material shortage no longer has to be announced the screens can be used to
advertise other important issues. The investment will therefore never be useless
independent of what happens in the future.
An illustration of the future work for the next three years, and a cash flow analysis has
been executed of for the implementation of:
1. Excel spreadsheet
2. Material shortage tool
3. Flat screens
It has to be remembered that the cash flow is based on estimated data, but it illustrates a
possible cash flow. The analysis can be seen in appendix 14. According to the cash flow
analysis the return of investment will be reached within three years, with a fast rising
profit after the third year.
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7. Discussion
The aim of this chapter is to discuss the methods and strategies used for the analysis as
well as the obtained results. Through the discussion the reader can achieve a better
understanding about the complexity of the thesis and the difficulties that has been
encountered during the work.
The master thesis work has been supervised by Mr. Wolfgang Zimmermann. During the
whole project has a clear guidance been given by Mr. Zimmermann, which has
furthered the trouble-free proceeding of the work. Clear directions and objectives for the
project were given from the beginning. That in addition with the clear guidelines to use
the methodology of systems engineering made the start of the project very smooth and
successful. Due to the many interviews that could be executed early in the project an
excellent understanding about the problem was gained and a plan of the work procedure
could be formed.
The situation analysis was the major part of the thesis. The little documentation
available within the field of material shortage made it difficult to form a theoretical
framework to base the analysis upon, but a reasonably framework could be formed
thanks to the documentation within related subjects, like supply chain management and
supply chain risk management. The work was complicated through the non-existent
documentation and statistics about the material shortage within the factory. To approve
the assessment of the risk factors and the material shortage cost calculation it would
have been helpful if a structured statistical data gathering had been accomplish during
the beginning of the thesis work. This would not only have improved the situation
analysis, but also the development of solution and evaluation.
Due to the missing verification of the estimated material shortage cost and assessed
material shortage risk factors, was it difficult to evaluate the different concepts
developed, to calculate the possible cost savings and to give a clear recommendation for
the future. If the data would have been able to verify, the recommendations would have
been clearer, and the quality of the work and the satisfaction would have been even
higher. The final decision is rather left to be done in three to six month, when more
statistics are available to approve the calculation and assessments, than to base a
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decision upon uncertain data. However is the satisfaction with the results already high,
and it is visible that improvements will be reached even if only a small part of the
solution is possible to implement today.
The friendliness and helpfulness among the members of the factory supply chain has
improved the procedure of the work significant. The cooperation with the employees
has been thriving in the daily work, as well as during interviews and workshops. Due to
the close cooperation new and innovative concepts for a material shortage management
have been able to develop and analyze. Due to the close cooperation the author might
have been influenced by the opinion of certain employees in her work. A lot of the
information and instruction in the situation analysis as well as the solution search and
evaluation has been supported and confirmed by Mr. Zimmermann and the author might
have been particularly affected by his opinion.
During the whole thesis all the communication has been done in German, except during
the official presentations and the conversations with the supervisor Mr. Wolfgang
Zimmermann. The language differences have complicated the work, as it is harder to
express and understand in foreign language. A lot of the information in the situation
analysis is based on the interviews. They were all accomplished in German. A summary
were always written directly after each interview, but as this summary were written in
English it was never sent to the interview partner for a confirmation. There is a risks
that the author might have made false interpretations of the information, but the risk is
reduced due to the close distance to the employees and close cooperation with Mr.
Zimmermann and other members of the factory supply chain. If there were any
uncertainty, the interview partner could always be called on again, or someone else in
the near could be consulted.
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8. Conclusions
The aim of this chapter is to make the most important statements about the master
thesis, and present the conclusions from carrying out this investigation. The objectives
of the thesis were presented in the introduction, see chapter 1.2. In this chapter there
will be presented how each of this objectives have been fulfilled.
When this project was started five months ago, there was no clear definition of the
conception material shortage and the causes were relative unknown. A definition has
been prepared, see chapter 5.1.1, and the causes have been uncovered and assessed, see
chapter 5.1.2, according to the first objective. The definition and assessment is
important, but what has been even more important is that a cross-functional discussion
that has been going ahead. To prepare a definition and assess the causes everybody had
to begin think about his/her understanding and experience of material shortage, and
together they had to agree upon one definition and assessment. During this project has a
wider view and a major understanding of the problem material shortage been reached.
The factory supply chain is now unified upon one definition and understanding of the
conception material shortage
The information flow was successfully analyzed, see chapter 5.2, according to the
second objective. The conclusion about the information flow is that it is complex and
many of the processes are dependent on the experienced employees, and it will therefore
be difficult to reach an optimized information flow. Improvements are possible though,
but they have to be reached step by step.
One of the major questions within SBT before the thesis was commenced was how
much costs the material shortage causes. The question could be answered, according to
the third objective, and the answer was quite astounding, see chapter 5.3. The material
shortage causes a cost of 900 000 euro per year, one percent of the total turnover, which
is a considerable cost. Due to the missing statistics and documentation this number
cannot be approved, but it gives a feeling about the size of the cost. The conclusion
reached is that the material shortage is a big source for unplanned costs within SBT.
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The uncovering of the risk factors of material shortage gave a great number of risk
factors. Measures of improvements have been given for the five major risks. The
conclusion that has been made is that the risk factors are close related. A decrease of
one risk factor might increase or decrease another one. To impact the risk factors one by
one is therefore not recommended. The material shortage has to be observed as a
uniform problem and with the KPIs as a measurement of the improvement.
There can be one conclusion made about the general material shortage work within
SBT. There is a clear process needed for the documentation of information related to
material shortage. The experience among the employees is high and to assure that the
information they are carrying will not get lost when they leave the company it has to be
documented.
The conclusion shows that the objectives have been fulfilled, both the content
requirements given by ETH, Zürich, Switzerland, as well as the ones defined in
agreement with SBT.
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9. Recommendations for future research
This master thesis report gives a representation of the current material shortage situation
within SBT. The general depiction of the material shortage was missing before this
project and that was the main reason why the earlier material shortage projects never
have been accomplished. It is very important that the research of the material shortage
management will continue this time. To encourage the further research of the material
shortage management, recommendations for the research have been formulated.
A decision of a solution for a material shortage concept was formed from the solution
synthesis and the evaluation, see appendix 14. This decision is based on the data
generated during the master thesis work. This data has not been able to approve and due
to that is the recommendation to reconsider the decision when statistical data is
available. If the Excel spreadsheet is implemented within the next month, the gap of
missing statistics can be filled within three to four months.
Before it is finally decided that the material shortage tool is going to be developed the
advice is to evaluate the concepts explained in the thesis, as well as new ideas, again.
The same evaluation matrix can be used, see table 4, with adjusted weighting factors.
The evaluation criteria might also have to be adjusted. The development of SBT and the
factory supply chain management has to be considered in the final decision making.
SBT is in a phase of changes and when processes and strategies are changed the need of
the material shortage management might change. The chosen concept has to be useful
and profitable both today and in the long run.
Some milestones can be formed for the future research of the material shortage
management:
• Statistical measurement and evaluation of statistical data
• Definition of criteria for the material shortage management concept
• Evaluation and decision of material shortage management concept
• Development and implementation of material shortage management concept
• Development of methods to discover the data needed for the calculation of KPIs
• Regular control of the improvements of the material shortage through the KPIs
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• Development of a process for structured documentation of the material shortage
information
• Continuing improvement of material shortage management.
To assure that the material shortage management research will continue, it is
recommended to find someone responsible for the research, who regular makes
following up of the improvements of the research.
This thesis has given a basis for the future research of the material shortage. The factory
supply chain court is aware of the problem and desire to find a long term solution of the
problem. As the material shortage cost is now known, it is most likely that the research
this time will continue, and hopefully can a solution of the material shortage be found,
from a proposal given in this thesis or founded by someone else.
- 73 -
List of abbreviations
DC Distribution Centre
ETH The Swiss Federal Institute of Technology
FMEA Failure Mode and Effect Analysis
GPL Global Procurement Logistics
HVAC Heating, Ventilation and Air conditioning Products
KTH The Royal Institute of Technology
KPI Key performance indicator
PCB Printed Circuit Board
SBT Siemens Building Technologies
SC Supply Chain
SCM Supply Chain Management
SCOR Supply Chain Operation Reference
SE Systems Engineering
SLF Sourcing Logistics Framework
SMD Surface Mounted Device
THD Through Hole Device
VMI Vendor Managed Inventory
WMS Warehouse Management System
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Siemens (a), Siemens AG group presentation 2008,
https://cpps.eps.siemens.com/irj/portal/ep/public/en/global-
02/?deeplink=https://gip1.eps.siemens.com/news/en/heute/2007/12/index/cn_20071228
_ufolien_en.htm, downloaded 01.02.2008
Siemens (b), BT group presentation 2008,
https://intranet10.sbt.siemens.com/about_bt/?languagecode=en, downloaded 2008-02-
01
Siemens (c), http://intranet.sbt.siemens.com/manufacturing/document/ppt.org_factory_
Zug_070101.ppt, downloaded 01.02.2008
Siemens (d), Method/tool: Sourcing Logistics Framework, internal documentation
Siemens Building Technologies, February 2008.
Schönsleben, P. (2004). Integral logistics management: planning and control of
comprehensive supply chains (2nd edition), St.Lucie Press, United States of America
Specker, A. (2001). Modellierung von Informationssystemen – Ein metodischer
Leitfaden zur Projektabwickling (2nd edition), vdf Hochschulverlag AG, ETH, Zürich,
Switzerland.
Ziegenbein, A. (2007). Supply Chain Risiken: Identifikation, Bewertung und Steurung,
vdf Hochschulverlag AG, ETH Zürich, Switzerland.
Züst, R. (1997). Einstieg ins Systems Engineering (3rd edition), Verlag Industrielle
Organisation, Zürich, Switzerland.
Supply Chain Council (2008). Supply-Chain Operations Reference-model (version 8.0),
www.supply-chain.org, downloaded 31.01.2008.
Wikipedia, http://en.wikipedia.org/wiki/Communication, downloaded 15.02.2008.
- 77 -
Wänström, C./Lind, F./Winthertidh, O. (2006). Creating a model to facilitate the
allocation of materials planning resources in engineering change situation,
International Journal of Production Research, Vol.44, No. 18-19, pp. 3775-3796.
- 78 -
IX
Appendix 1. Interviews All the interviews were accomplished during the first month of the master thesis work.
The interviews were accomplished in German, the mother tongue of the interview
partners. German was used in order to create a relaxed mood and increase the possibility
for the interview partner to express the opinion. A questionnaire were prepared as a
basis for the interviews, but the interviews were accomplished more as discussion as an
interview, discussing the themes coming up. The interviews were held in sessions of 30
minutes to 1.5 hour.
These were the basis questions for the interviews:
• Where can material shortage appear (from your point of view)?
• What are the reasons?
• What is done today?
• Is there potential for improvement, in that case how and where?
• Is there a source of failure that is not considered today?
• Which errors occur most often?
• When an error is discovered, what is done?
- How das the process run?
- Who is the leader?
- Who is involved?
- What are the working recourses?
- How does the communication work?
- What is documented?
• How big is the cost for the material shortage in your area (estimation)?
• Is it possible to estimate the cost for the whole factory?
• Which problems in the field of material shortage would you like to improve, to
bring the most for you?
• Do you have ideas for improvement?
• If these ideas would be implemented, what would the cost saving be?
• What do you think about the tools that are available today in the field of material
shortage? Are you satisfied or is there potential for improvement?
X
• How does the asset management affect the material shortage? If it causes more
material shortage what could a solution be (not bigger stocks)?
• How do you think that the vendor managed inventory (VMI) will affect the material
shortage?
The interview partners are listed followed by the e-mail, date for the interview and the
function of the partner.
1. Nico Stefanizzi ([email protected]), 03.10.2007
Responsible for Production and Sourcing Logistics, Volketswil
2. Bruno Isenschmid ([email protected]), 03.10.2007 Quality, Environment & Security and Inspection of receiving goods, Zug
3. Hermann Schärer ([email protected]), 03.10.2007 Manager Final Assembly Department. Zug
4. Benno Moser ([email protected]), 04.10.2007
Head Factory Zug
5. David Joho (david.joho@siemens .com), 04.10.2007 Logistic Process Initialization (Zug & Volketswil), earlier member of the PCB Assembly Department
6. Mario Kneubühler ([email protected]), 05.10.2007 Responsible of Sourcing and Production Logistics, Zug
7. Hugo Bischof ([email protected]), 08.10.2007 Distribution Logistic, Volketswil
8. Susy Schöni ([email protected]), 08.10.2007 Operative Procurement (Sourcing and Production Logistics), Volketswil
9. Tihomir Bevanda ([email protected]), 10.10.2007
Strategis procurement (Global Procurement Logistics), Zug
10. Urs Fässler ([email protected]), 10.10.2007 Manager Manufacturing Engineering, Zug
11. Andreas Räder ([email protected]), 30.10.2007
Global Quality Manager,all SBT factories Quality, Environment & Security and Inspection of receiving goods, Volketswil
XI
12. Reto Weber ([email protected]), 07.11.2007 HVP Stammhaus Controlling, Zug
13. Theophil Peter ([email protected]), 08.11.2007
Operative Procurement (Sourcing and Production Logistics), Zug
XII
Appendix 2. Workshops During the master thesis work was three workshops held. The agenda and the
participants of each workshop are presented.
Workshop 1, 09.11.2007 List of participants:
• Albert Bötschi Manager Logistic Process Initialization • Benno Moser Head factory Zug • Bruno Isenschmid Manager Quality, Environment & Security and
Inspection of receiving goods • David Joho Logistic Process Initialization • Heinrich Hertach Logistic Process Initialization • Hubert Gisler; Manager Assembly area B final assembly • Josef Birrer Manager PCB Assembly department • Jörg Kündig PCB Assembly • Josef Schönenberger PCB Assembly • Ralf Leschke Final assembly • Reto Weber HVP Stammhaus Controlling Zug • Theophil Peter Sourcing and Production Logistics • Wolfgang Zimmermann Supply Chain Manager Agenda of the workshop
• Introduction of the master student and the master thesis • Brainstorming material shortage risk factors • Priority set of risk factors and analysis of available material shortage tools with
FMEA • Cause and effect mapping in order to find the material shortage information flow Workshop 2, 28.11.2007 List of participants:
• Albert Bötschi Manager Logistic Process Initialization • Bruno Isenschmid Manager Quality, Environment & Security and
Inspection of receiving goods • David Joho Logistic Process Initialization • Heinrich Hertach Logistic Process Initialization • Hubert Gisler; Manager Assembly area B final assembly • Josef Birrer Manager PCB Assembly department • Jörg Kündig PCB Assembly • Josef Schönenberger PCB Assembly
XIII
• Ralf Leschke Final assembly • Theophil Peter Sourcing and Production Logistics • Wolfgang Zimmermann Supply Chain Manager Agenda of the workshop:
• Priority setting of the material shortage risk factors and analysis of available tools with FMEA
• Optimization of the material shortage information flow • Analysis of the material shortage cost, cost factors and the allocation Workshop 3, 07.01.2008 List of participants:
• Albert Bötschi Manager Logistic Process Initialization • Bruno Isenschmid Manager Quality, Environment & Security and
Inspection of receiving goods • Benno Moser Head factory Zug • Herman Schärer Manager final assembly • Josef Birrer Manager PCB Assembly department • Mario Kneubühler Sourcing and Production Logistics • Wolfgang Zimmermann Supply Chain Manager Agenda of the workshop:
• Presentation of current stand of the master thesis • Brainstorming and discussion of solutions for a material shortage management
concept
XIV
Appendix 3. SAP functions related to the master thesis SAP is the world's leading provider of business software, delivering products and
services that imporove the business innovation for their customers. Siemens Building
technologies is using the system SAP R/3, where “R” stands for real-time and ”3”
relates to a 3 tier client-server architecture (database layer, application layer and
presentation layer). The system has five major enterprise applications: enterprise
resource planning, customer relationship management, product lifecycle management,
supply chain management and supplier relationship management.
For the SAP enterprise resource planning system Siemens has developed own
applications. Applications relevant for the understanding of the master thesis will be
shortly described in this appendix.
Production information system ZMIF
The ZMIF is an application developed for the daily production planning within SBT.
For the factory in Zug is it used for 95 percent of all production planning (goal to
achieve in March 2008). The products and assemblies are either produced to stock or to
order. For the production to stock is the requirement to keep the available stock between
vmin (minimal stock level) and vmax (maximal stock level) level. These levels are
based on the actual demand. The production orders in the ZMIF are a sum of both the
assemblies and products produced to order and to stock, but the ones that is a real
customer order has a higher priority. The production is planned for each shift by the
operating employees at each line. In the beginning of the shift the operator starts the
ZMIF. In the system he/she chooses to priority according to the different filters, in order
to find the most critical production orders. The production has to act either when there
is a real customer order or the stock level is approaching the vmin. With this type of
planning the production can run with optimized batch sizes and the flexibility is
improved after the lean production concept.
XV
Availability test with ZVER
When the production of a product or assembly is decided the material availability has to
be tested before the production can be approved. This is done with the function ZVER.
If the material is available the message “No material shortage found” appears on the
screen and the planned production order can proceed. If there is a material shortage, it is
visible in the ZVER what material is missing and how much that is available. Oft can a
part of the planned production order proceed and this selection is done according to the
priority set with the filter function in the ZMIF. When the production order can not be
fulfilled the order is placed in a failure list and the order has to be planned to a later date
when the material is available.
Application for the daily business of Sourcing & Production Logistics
The department Sourcing and Production Logistics has the responsibility of the
operative procurement of material. In the daily business of the material planner the
material procurement has to be planned and control. The SAP system is used for the
procurement planning and to control the procurement is the application MD04 used.
With the MD04 application the material planner can control the procurement through
the identification of exceptional cases. Through filtering of the material data the critical
cases, where there is too little ordered, can be identified and controlled. In this way a
material shortage can be avoided.
The SAP application ZRW0 is used in order to foresee the material shortage. A
selection of available functions of the application is listed:
• Where do I have an emergency
• Where have I ordered to little
• Where have I ordered to much
• Primary demand to low
The two first functions have a close relation to the material shortage, as this is where the
material planner has the possibility to foresee the material shortage. The aim of the
functions is good, but the warning is drawn up to late and the material shortage can not
be prevented.
XVI
Appendix 4. Ishikawa diagram
Long
pro
cure
men
ttim
eM
issi
ng/W
rong
/late
deliv
erie
s
Insu
ffici
entr
esou
rces
Mac
hine
prob
lem
/bre
akdo
wn
Fore
cast
Inco
rrec
tsal
espl
anni
ngIn
corr
ectp
rodu
ctio
npl
anni
ng
Insu
ffici
entm
aste
rdat
aIn
corr
ectb
illof
mat
eria
lIn
corr
ectd
eliv
ery
lead
time
Inco
rrec
tscr
apfa
ctor
Mat
eria
l sho
rtage
/R
ise o
f mat
eria
l sh
orta
ge c
ost
Ma
na
ge
me
nt
Pro
cess
Ma
teri
als
Eq
uip
me
nt
Pe
op
leE
nvi
ron
me
nt
Cau
seEf
fect
Supp
lierr
elat
ions
Def
icie
ntm
ater
ial m
anag
emen
t
War
ehou
se c
ontr
olle
d by
di
ffere
nt sy
stem
s
Engi
neer
ing
chan
gesit
uatio
n
Mis
take
sby
man
agin
gre
ceiv
edgo
ods
ZMIF
sche
dulin
g
Dem
and
Rais
e of
dem
and
Dem
and
lum
pine
ssD
eman
dun
cert
aini
ty
Ord
er c
ondi
tions
give
nby
cust
omer
Cus
tom
erse
rvic
ere
quire
men
t
Proc
ured
mat
eria
l
Incr
ease
dle
adtim
e
Expi
ring
mat
eria
l
Insu
ffici
entq
ualit
y
Proc
urem
ent
Inco
rrec
tstin
gsa
mpl
ing
Inte
rnal
late
deliv
erie
s
Inve
ntor
ydi
ffere
nces
No
acce
ssto
mat
eria
lG
ood
in tr
ansp
orat
ion
Unp
lann
edsto
ck tr
ansf
erO
ccup
ied
by a
noth
erlin
e/fa
ctor
y
INFO
RM
AT
ION
FL
OW
Robu
st p
rodu
cts
& st
abil
proc
esse
s
Mis
sing
Kan
ban
card
Supp
lier-
Kan
ban
Inte
rn K
anba
n
Inco
rrec
tlea
dtim
e
Mis
sing
retro
grad
e bo
okin
g of
mat
eria
l
Wro
ng/m
issin
gSo
ftwar
e
Empl
oyee
sEq
uipm
ent
Prod
uctio
n of
the
wron
g as
sem
bly
Use
of t
he w
rong
mat
eria
l
Wro
ng p
lann
ing
pre-
wor
k of
TH
D c
ompo
nent
s
Cla
rific
atio
nsSt
rate
gic
Proc
urem
ent
Ord
er e
vent
Long
pro
cure
men
ttim
eM
issi
ng/W
rong
/late
deliv
erie
s
Insu
ffici
entr
esou
rces
Mac
hine
prob
lem
/bre
akdo
wn
Fore
cast
Inco
rrec
tsal
espl
anni
ngIn
corr
ectp
rodu
ctio
npl
anni
ng
Insu
ffici
entm
aste
rdat
aIn
corr
ectb
illof
mat
eria
lIn
corr
ectd
eliv
ery
lead
time
Inco
rrec
tscr
apfa
ctor
Mat
eria
l sho
rtage
/R
ise o
f mat
eria
l sh
orta
ge c
ost
Ma
na
ge
me
nt
Pro
cess
Ma
teri
als
Eq
uip
me
nt
Pe
op
leE
nvi
ron
me
nt
Cau
seEf
fect
Supp
lierr
elat
ions
Def
icie
ntm
ater
ial m
anag
emen
t
War
ehou
se c
ontr
olle
d by
di
ffere
nt sy
stem
s
Engi
neer
ing
chan
gesit
uatio
n
Mis
take
sby
man
agin
gre
ceiv
edgo
ods
ZMIF
sche
dulin
g
Dem
and
Rais
e of
dem
and
Dem
and
lum
pine
ssD
eman
dun
cert
aini
ty
Ord
er c
ondi
tions
give
nby
cust
omer
Cus
tom
erse
rvic
ere
quire
men
t
Proc
ured
mat
eria
l
Incr
ease
dle
adtim
e
Expi
ring
mat
eria
l
Insu
ffici
entq
ualit
y
Proc
urem
ent
Inco
rrec
tstin
gsa
mpl
ing
Inte
rnal
late
deliv
erie
s
Inve
ntor
ydi
ffere
nces
No
acce
ssto
mat
eria
lG
ood
in tr
ansp
orat
ion
Unp
lann
edsto
ck tr
ansf
erO
ccup
ied
by a
noth
erlin
e/fa
ctor
y
INFO
RM
AT
ION
FL
OW
Robu
st p
rodu
cts
& st
abil
proc
esse
s
Mis
sing
Kan
ban
card
Supp
lier-
Kan
ban
Inte
rn K
anba
n
Inco
rrec
tlea
dtim
e
Mis
sing
retro
grad
e bo
okin
g of
mat
eria
l
Wro
ng/m
issin
gSo
ftwar
e
Empl
oyee
sEq
uipm
ent
Prod
uctio
n of
the
wron
g as
sem
bly
Use
of t
he w
rong
mat
eria
l
Wro
ng p
lann
ing
pre-
wor
k of
TH
D c
ompo
nent
s
Cla
rific
atio
nsSt
rate
gic
Proc
urem
ent
Ord
er e
vent
XVII
Appendix 5. Failure Mode and Effect Analysis
No. Failure Mode Effect of Failure Current control P S D R CommentReceipt controlDunning
Inventory differences
Bar code
2 Missing retrograde booking
3a ZMIF-scheduling: Production of the wrong assembly
3b ZMIF-scheduling: Use of the wrong material
4 Missing Kanban cardInsufficient master data:
Inventory differences
Inventory differences
incorrect bill of For customer: + no impact - problem
P.R.A.
7
No data due to pre-selection
Mistakes by managing received goods
Material wrong placed into 6
No data due to pre-selection
7
More effort with differences
No data due to pre-selection
No data due to pre-selection
1
294
3 8 5 120
5a
Mistakes by assembling
The principle of "4 Eyes"
R=PxSxD: Priority of risk High<= 1000 Moderate<= 250 Low <= 125 None = 1
P: Probability of occurrences Improbable 1 Very low 2 - 3 Low 4 - 6 Moderate 7 - 8 High 9 -10
S: Seriousness of failure Barely noticeable 1 Unimportant failure 2 - 3 Moderate failure 4 - 6 Big failure 7 - 8 Very big failure 9 -10
D: Likelihood that defect reach customer Unlikely 1 Very low 2 - 3 Low 4 - 6 Moderate 7 - 8 High 9 -10
XVIII
No. Failure Mode Effect of Failure Current control P S D R CommentInsufficient master data:
Delayed good arrival Express delivery 6 4 3 72
incorrect delivery lead time
Material shortage in PCB-assembly
"100%" confirmation of orderMaterial shortage excel-file SMD-Sourcing & Production Logistics (one-way only)
Material shortage in final-assembly
Missing (final-assembly) 3 8 8 192
5c Insufficient master data: incorrect scrap factor
Inventory differences
Inventory
4 9 9 324
Basis for calculation is erroneous
Missing4 5 1 20
5d Insufficient master data: incorrect lead time
Material is delivered to late to the final-assemblyWrong planning data
6 Procurement - Missing/wrong/
PCB-assembly no material
Verify available asset 5 4 6 120 Safety stock
late deliveries Final-assembly no pre-assemblies
SAP-ZMB1DC SAP-ZRW0 6 7 6 252 Extra effort in PCB-
assembly (GAP)
Production logistics SAP 7 4 2 56
Binding of resources in Sourcing & production logistics
7
Expiring material Material no longer available-early proclamation
Material proclamation process 6 4 3 72
Material no longer available- late proclamation
4 8 9 288
5 2 70
*Is only a little used
5b
P.R.A.
5 7 2106
Work plan*
7
XIX
No. Failure Mode Effect of Failure Current control P S D R Comment8 Inventory
differencesMaterial shortage in PCB-assembly
Inventory3 9 6 162
Material shortage in final-assembly
3 9 8 216
Delivery problems 2 9 10 180
Material shortage discovered in Sourcing & Prod. Log.
5 8 3 120
Additional asset*
No material shortage, but increased liquidation cost.
9 No access to material
Production disturbance PCB-assembly
Missing4 4 2 32
Productivity
Production disturbance final-assembly
Missing2 3 2 12
Possible to avoid
10 Internal late deliveries
PCB-assembly unable to produce
SAP-MD046 6 6 216
Final-assembly unable to produce - delivery problems
SAP-ZMIF
8 7 7 392
11 Deficient material management: warehouse controlled by different systems
No data due to pre-selection
P.R.A.
XX
Appendix 6. Information flow mapping The information flow mapping is presented in eight flow chart diagrams. The relations
of the diagrams can be seen in figure A6.1.
Figure A6.1. The hierarchy of the information flow model.
The flow charts can be seen in figure A6.2 – A6.9.
Discovered in goods receipts & inspection (4.1)
Context diagram (1)
Inspection of receiving goods(3.1)
Factory supply chain (2)
PCB assembly (3.3) Sourcing & Production Logistics (3.2)
Discovered in production (4.2)
Discovered sourcing & production logistics (4.3)
XXI
Figure A6.2. The top level (context diagram (1), see figure A6.1) of the information flow mapping. The information flow of the factory supply chain is analyzed and the environment is the suppliers, the customers and the supporting SAP system. There
are four main group of customers, Landis+Gyr, level 1 customers, OEM customers and the distribution centre in Nürnberg.
XXII
XXIII
Figure A6.3. The second level of the information flow mapping, the factory supply chain (2), see figure A6.1. The material flow is the bold, black flow and the information flow is the dotted, coloured lines. The information flow has two significances;
all the information goes through the department of Sourcing and production logistics and there is no direct information flow between the functions of the factory supply chain.
XXIV
XXV
Figure A6.4. The information flow of the goods receipts & inspection (3.1), see figure A6.1. The material flow is the black, bold lines and the information flow is the coloured, dotted lines. When there is quality problem is the decisions about how to
sort the problem out done direct in the department.
XXVI
XXVII
Figu
re A
6.5.
Th
e in
form
atio
n flo
w in
the
Sour
cing
& P
rodu
ctio
n Lo
gist
ics (
3.2)
, see
figu
re A
6.1.
The
info
rmat
ion
flow
is d
ivid
ed in
to th
ree
case
s; m
ater
ial s
hort
age
is d
isco
vere
d in
the
good
s rec
eipt
s & q
ualit
y in
spec
tion
(bro
wn,
dot
ted
line)
, mat
eria
l sho
rtag
e is
dis
cove
red
in th
e pr
oduc
tion
(vio
let,
dotte
d lin
e) a
nd
mat
eria
l sho
rtag
e is
dis
cove
red
in a
dvan
ce (b
lue,
dot
ted
line)
.
XXVIII
XXIX
Figure A6.6. The information flow in the PCB-assembly (3.3), see figure A6.1. All the information of material shortage is sent to the sourcing & production logistics via phone call or e-mail. There are cases where the information is not
communicated at all as it is forgotten. There is no direct communication of the material shortage between the two producing entities of the PCB-assembly.
XXX
XXXI
Figure A6.7. The information flow in the Sourcing & Production Logistics if the material shortage is discovered in the Goods receipts & quality inspection (4.1), see figure A6.1. The cases where there is a material shortage due to quality or
identification problem cause the department rather low effort.
XXXII
XXXIII
Figure A6.8. The information flow in the Sourcing & Production Logistics if the material shortage is discovered in the production (4.2), see figure A6.1. This case of material shortage causes the department quite a lot of effort and is also time
consuming.
XXXIV
XXXV
Figure A6.9. The information flow in the Sourcing & Production Logistics if the material shortage is discovered in advance (4.3), see figure A6.1. This information flow is counted to the daily business of the department. One of the most important
tasks of the department is to avoid the material shortage to break through to the production.
XXXVI
XXXVII
Appendix 7. Excel spreadsheet for communication of material shortage (existing)
Im QMMenge
Im QMTermin
Am LagerMenge
Am LagerTermin
Warum FM, Bemerkungen Verf. Ausw.
Layout - Aend. Neuer Index G
3762 2008-02-20
Datum Erf. Fehlmat. Fauf Betr. BG / ASNLin. Disp NeuerL-Term.
NeueMenge
30.01.2008 BUT 7450201690 ZMIF 17958 1 HK 2008-02-29 500004.02.2008 BUT 443176420 30274666 466848306 1 KE ? 260005.02.2008 ROL 7450207300 ZMIF 7466809586 2 RK 22.02.08 2800007.02.2008 ROL 7450206200 ZMIF Div. 1 SA 21.02.08 510002008-02-13 BUT 27954 ZMIF 17956 SMD 3 HK2008-02-13 BUT 452514890 ZMIF 17957 SMD 3 HK 28.02.08 90002008-02-15 ReM 7476500030 30274274 7462011040 5 DG 27.02.08 25002008-02-18 BUT 7450204710 30276211 466845176 3 KE 25.02.08 4502008-02-20 BUT 7450206200 ZMIF 7466803286 12008-02-20 BUT 7450206200 ZMIF 7466803326 12008-02-20 BUT 7450206200 ZMIF 7466804110 12008-02-20 BUT 7450206200 ZMIF 466847896 2
XXXVIII
Appendix 8. Material shortage cost calculation The material shortage cost consists of:
• Additional effort for employees due to material shortage. (The analysis includes the
production departments, the sourcing & production logistics, the global procurement
logistics, and the inspection of receiving goods.)
• Additional material costs (e.g. due to by-pass suppliers)
• Time and performance loss in the production due to downtime in the process
The cost of the resources is based on following data:
• One man-hour: 75 euro
• One man-year: 220 days or 1800 hours
• One hour downtime in the SMD assembly: 155 euro
Costs due to additional work effort
Inspection of receiving goods
The data for the calculation were collected through interviews with the manager of the
inspection of receiving goods, Bruno Isenschmid. There are two types of quality
complaints; F2 and Q2. The F2 remarks are the problems discovered in the good
receipts test and the Q2 remarks are the problems discovered in the production. The
number of F2 remarks leading to material shortage can be estimated to those remarks
where the material has to be returned. Q2 remarks do always lead to a material shortage
as the problem is discovered to late to have time to act. This assumption gives 140 cases
of material shortage due to F2 remarks and 120 cases due to Q2 remarks (Bogdanovic,
2007). A F2 shortage takes one hour to solve while a Q2 shortage takes three hours to
solve. The calculation can be seen in table A8.1.
PCB assembly
For the SMD assembly the data was collected through an interview with Thomas
Bucher, member of the SMD assembly. He estimared the time effort pro case and
number of cases pro week. Statistics were also gathered for one month to approve the
estimation. For the THD assembly the data for the calculations were collected through
an interview with Josef Schönenberger, member of the THD assembly, where a similar
XXXIX
estimation was done. In the SMD assembly is there about two cases of material shortage
per day and each case takes one hour, in total 440 hours per year. In the THD assembly
is there about one case pro day and each case takes half an hour to solve, in total 110
hours per year.
Final assembly
The data for the calculations were given by the manager of the final assembly
department, Hermann Schärer. The work effort per year was estimated through the
estimation of the work effort per day for each employee. This estimation was done by
each employee of the assembly segment A. The same effort was estimated for the
assembly segment B. The total effort is about 1,6 man-year. The calculation can be seen
in table A8.1.
Sourcing and production logistics
The calculations are done for two different cases of material shortage; when the material
shortage is discovered in the inspection of receiving goods and when it is discovered in
the production. The data used for the calculations were collected through interviews
with several employees within the department of souricing and production logistics. The
estimations were done outgoing from the information flow mapping, where the time
needed for each process was estimated. The results of the estimation and the
calculations can be seen in table A8.1 and figure A8.1.
The time effort used for solving the material shortage in advance is not included in the
cost, as this task is a part of the daily business of the department. The cost has been
calculated anyway to show the dimension of this cost. The work is done daily and the
yearly time is approximately 80 hours per material planner. The department consists of
12 employees. The calculation can be seen in table A8.1.
Global procurement logistics
The work effort of global procurement logistics (GPL) was estimated through the
estimation of the work effort for each employee of one entity of GPL, the entity for
XL
electronically parts. This effort was doubled to get the total effort. The calculation can
be seen in table A8.1.
Cost due to additional material cost
The additional material cost is registered by the sourcing and production logistics and
the global procurement logistics. The statistics given by sourcing and production
logistics are not complete, but correspond to approximately one third of the total cost.
The statistics shows a cost of 103 000 euro, times three makes 310 000 euro.
Cost due to time and performance loss
The time and performance loss due to machine downtime has the most noticeable affect
in the SMD assembly. This cost is therefore excluded in the calculation for all the other
departments. For each case of material shortage in the SMD assembly is there a
machine downtime of one hour and there are about two cases per day, in total 440 hours
per year. The calculation can be seen in table A8.1.
DepartmentTime (h)
Cost (€/h) Cost (€)
Allocation of cost
1. Cost due to additional work effort (cost of daily business excl.) 503'250 € 57% Inspection of receiving goods 500 75 € 37'500 € PCB-assembly SMD-assembly 440 75 € 33'000 € THD-assembly 110 75 € 8'250 € Final assembly 2'800 75 € 210'000 € Sourcing and production logistics 115'000 € Cost of daily business avoiding material shortage 960 75 € 72'000 € 8% Global procurement logistics 2'400 75 € 180'000 €2. Cost due to additional material cost 310'000 € 35%3. Cost due to time and perfomance loss 440 155 € 68'200 € 8%Total material shortage cost 881'450 € 100%
See figure A8.1
Table A8.1. Calculations of the material shortage cost
XLI
Figure A8.1. The calculation of the material shortage cost in the Sourcing and production logistics due to additional work effort. The cost is calculated outgoing from the effort needed for each process of the solving of the material shortage.
XLII
XLIII
Appendix 9. Optimized information flow mapping The optimized information flow mapping is presented in six flow chart diagrams. The
relations of the diagrams can be seen in figure A9.1.
Figure A9.1. The hierarchy of the optimized information flow model.
The flow charts can be seen in figure A9.2 - A9.6.
Context diagram (1)
Inspection of receiving goods (3.3)
Factory supply chain (2)
PCB assembly (3.1) Sourcing &
Production Logistics (3.4)
Final assembly (3.2)
XLIV
XLV
Figure A9.2. Context diagram (1) , see figure A9.1, of the optimized information flow. The bold, black flow is the material flow and the dotted flow is the information flow. The red flow is what has to be manual communicated and the green flow can
be automized
XLVI
XLVII
Figure A9.3. The information flow on the factory supply chain level (2, see figure A9.1). The bold, black flow is the material flow and the dotted flow is the information flow. The red flow is what has to be manual communicated and the green flow
can be automized. The purple processes are the two most significant part of the model. The upper one is the process of keeping statistics about the material shortage. The lower one is the process of solving the material shortage. Not all
information goes through this process, but a lot of information is sent direct between the entities of the factory supply chain.
XLVIII
XLIX
Figure A9.4. The information flow within the PCB-assembly (3.1), see figure A9.1. The bold, black flow is the material flow and the dotted flow is the information flow. The red flow is what has to be manual communicated and the green flow can be
automized.
L
LI
Figure A9.5. The information flow within the final assembly (3.2), see figure A9.1. The bold, black flow is the material flow and the dotted flow is the information flow. The red flow is what has to be manual communicated and the green flow can be
automized.
LII
LIII
Figure A9.5. The information flow of the identification of receiving goods (3.3), see figure A9.1. The bold, black flow is the material flow and the dotted flow is the information flow. The red flow is what has to be manual communicated and the green
flow can be automized.
Figure A9.6 The information flow within the sourcing and production logistics (3.4), see figure A9.1. The bold, black flow is the material flow and the dotted flow is the information flow. The red flow is what has to be manual communicated and the
green flow can be automized.
LIV
LV
Appendix 10. Concept: Excel spreadsheet
The excel spreadsheet is divided into two parts. The blue part is to be filled out by the
person discovering the material shortage, see table A10.1.
Dep. NameProduction
order
STATISTICSMATERIAL SHORTAGETo be filled out by the discoverer
Discoverer
Date MaterialLineConcerned assemblies
Additional effort
[min/h]
Machine breakdown time [min/h] Reason for material shortage
Table A10.1. Part of excel sheet to be filled out by the person discovering the material shortage. The
left part contains the information about the material shortage and the right part the
statistics.
The pink part of the excel spreadsheet is to be filled out by the person solving the
material shortage, see table A10.2.
Dep. Name Supplier
In inspection or in stock
(quantity)Quantity delivered
Material available
(delivery date)Date
SolutionSolver
To be filled out by the problem analyst
Additional effort [min/h]
Additional material
cost Reason for material shortage
MATERIAL SHORTAGE STATISTICS
Table A10.2. Part of excel sheet to be filled out by the person solving the material shortage. The left
part contains the information about the material shortage and the right part the
statistics.
To make it easier to fill in the statistics lists to select from are prepared, see table A10.3.
Fifteenth different reasons can be chosen from and nine different time periods. The
same selection lists are used both for the discoverer and the problem analyst
LVI
Table A10.3. Selection lists for filling in the statistics.
1 <10 min2 10-20 min3 20-30 min4 30-45 min5 45-60 min6 1-1.5 h7 1.5-2 h8 2-3 h9 >3 h
Short command for time
1 Insufficient quality2 Wrong delivery 3 Missing/late delivery4 Incorrect delivery lead time5 Inventory differences6 Incorrect lead time7 Raise of demand/ forecast is to low8 Capacity problem9 Engineering change situation
10 Phase-in/phase-out11 Technical problem in process/Process breakdown12 Problem with Kanban13 Internal late delivery14 Material in wrong stock15 Unknown
Select list for possible reasons
LVII
Appendix 11. Financial analysis of concepts
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LVIII
ROI Excel spreadsheet
0
20000
40000
60000
80000
100000
1 2 3
Year
Euro
s InvestmentCost savings
Figure A11.1. Return on investment (ROI) of the concept Excel spreadsheet.
ROI Material shortage tool
0
50000
100000
150000
200000
250000
300000
1 2 3
Year
Euro
s InvestmentCost savings
Figure A11.2. Return on investment (ROI) of the concept material shortage tool
ROI Material shortage m anagm ent specialis t
0 €
50'000 €
100'000 €
150'000 €
200'000 €
250'000 €
300'000 €
350'000 €
400'000 €
1 2 3Y ear
Investment
Cost savings
Figure A11.3. Return on investment (ROI) of the concept material shortage management specialist
LIX
ROI Warehouse management system
0 €
50'000 €
100'000 €
150'000 €
200'000 €
250'000 €
1 2 3
Year
Euro
s InvestmentCost savings
Figure A11.4. Return on investment (ROI) of the concept warehouse management system
ROI Extension of available tools
0
50000
100000
150000
200000
250000
1 2 3
Year
Euro
s InvestmentCost savings*
Figure A11.5. Return on investment (ROI) of the concept extension of available tools
ROI Flat screens
0
10000
20000
30000
40000
50000
60000
70000
1 2 3 4 5 6
Year
Euro
s InvestmentCost savings
Figure A11.6. Return on investment (ROI) of the concept flat screens
LX
Appendix 12. Concept: material shortage tool
Figure A12.1. Sequence diagram describing the function of the material shortage tool
LXI
Figure A12.2. Flow chart diagram 1.1: Sequence diagram of the material shortage solving with the
material shortage tool within the Sourcing and production logistics.
LXII
Figure A12.3. Flow chart diagram 1.2: Sequence diagram of the material shortage solving with the
material shortage tool within the PCB assembly.
For the understanding of the material shortage the directions given in figure A12.1 will be explained. Description 1 (D1) Registration of manual data (discoverer): • Material number • Assembly number • Description of material shortage • Classification • Statistics Description 2 (D2) Automatically generation of data: • Entry date • Discoverer • Department • Responsible material planner • Responsible product manager • Classification
LXIII
• Asset in incoming goods and inspection of received goods - amount • Asset in other warehouse locations - amount • Planned delivery – amount and date Description 3 (D3) Registration of manual data (problem analyst): • Status material shortage • Statistics Description 4 (D4) Automatically generation of data: • Date for status change • Administrator • Rescheduled order date • Indication critical material • Indication out of material Outgoing from this data can reports and e-mails about the material shortage be formed in order to communicate and prevent the material shortage.
LXIV
Appendix 13. Strength and weakness analysis of the concepts
Neg
ativ
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siti
ve
Neg
ativ
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siti
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al
Use
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ien
dlin
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avai
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Neg
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ve
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Use
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ess
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ater
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ol
LXV
Appendix 14. Implementation plan and cash flow analysis
TimeMeasure Mar Apr May June July Aug Sept OctImplementation of Excel spreadsheet
Excel based spreadsheet in run
Evaluation of results
Evaluation and decision about final material shortage conceptDevelopment of material shortage toolImplementation of material shortage tool
Material shortage tool running
Develoment of flat screens conceptImplementation of flat screen concept
Flat screens concept running
Investment cost 0 € 0 € 0 € 10'000 € 10'000 € 10'000 € 10'000 € 10'000 €
Operating cost 625 € 625 € 625 € 625 € 625 € 625 € 625 € 625 €
Cost reduction 0 € 2'000 € 3'000 € 3'000 € 3'000 € 5'000 € 5'000 € 5'000 €
Cumulative total cost 625 € 1'250 € 1'875 € 12'500 € 23'125 € 33'750 € 44'375 € 55'000 €
Cumulative cost reduction 0 € 2'000 € 5'000 € 8'000 € 11'000 € 16'000 € 21'000 € 26'000 €
Cash flow -625 € 750 € 3'125 € -4'500 € -12'125 € -17'750 € -23'375 € -29'000 €
2008
Time 2011Measure Nov Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-JunImplementation of Excel spreadsheet
Excel based spreadsheet in run
Evaluation of results
Evaluation and decision about final material shortage conceptDevelopment of material shortage toolImplementation of material shortage tool
Material shortage tool running
Develoment of flat screens conceptImplementation of flat screen concept
Flat screens concept running
Investment cost 10'000 € 10'000 € 130'000 € 0 € 0 € 0 € 0 €
Operating cost 625 € 625 € 0 € 2'500 € 2'500 € 2'500 € 2'500 €
Cost reduction 5'000 € 5'000 € 40'000 € 50'000 € 60'000 € 75'000 € 75'000 €
Cumulative Total cost 65'625 € 76'250 € 206'250 € 208'750 € 211'250 € 213'750 € 216'250 €
Cumulative cost reduction 31'000 € 36'000 € 76'000 € 126'000 € 186'000 € 261'000 € 336'000 €
Cash flow -34'625 € -40'250 € -130'250 € -82'750 € -25'250 € 47'250 € 119'750 €
2008 2009 2010