The Challenge
A European business of a world leading industrial manufacturing company was challenged with service level issues and relatively high overhead cost.
The Sales’ side of the company including Customer Service was organised by country and sold all product lines.
The production sites were dedicated to specific product lines and the sites supplied the produced products both regionally and globally. The production capacity in the main production sites was near to fully utilised. Customer orders were produced ‘Make-to-Order’ with no specific allocation rules applied. Due to the ‘lumpiness’ of a considerable part of the business the lead times to Customers therefore varied considerably and rescheduling needed to happen regularly to satisfy ‘important’ Customers.
ESCIMCO was asked to assess the situation and make recommendations on how to improve the situation.
The Approach
ESCIMCO reviewed the production process, the related planning process and customer order acceptance process. The review identified that customer orders were accepted based on extensive interaction between Customers, Sales People, Customer Service and the Production Planners. The latter were regularly forced to adjust the production schedule for an ‘important’ Customer, causing customer orders for other Customers to be delayed.
Due to the extensive verbal and written interaction between Customer Service and the Production Planners the time Customer Service spend on handling customer orders was three times that of comparable companies.
In addition by having local Customer Service departments opportunities for synergy effects within the department were missed.
To alleviate the situation ESCIMCO proposed to put a buffer stock between the production lines and the finishing work centres. This allowed the production lines to produce mainly based on forecast, while finishing was done based on customer orders. ESCIMCO proposed a European wide accepted standardised allocation process that used standard lead times for the finishing work based on the size of the customer orders.
The standardised allocation process could be supported by the ERP-system so that unnecessary communication could be reduced to a minimum.
Additionally ESCIMCO proposed a limited number of organisation models for centralising the Customer Service department. This would avoid the currently existing functional duplication within the department.
The Results
By using the proposed solutions and embedding these in the existing but not deployed ERP-functionality several benefits were identified:
- The buffer inventory would drastically stabilise the lead times and improve the service levels to all Customers
- The buffer inventory would bear additional cost. This additional cost would be a fraction of the savings achieved by the stabilised production plan and the consequential reduction in raw material inventory
- The overhead cost could be drastically reduced, leading to a €1.4 million annual cost savings
Due to unforeseen global developments this project was halted.
