analyzing different positions of codp as related to

ANALYZING DIFFERENT POSITIONS OF CODP AS RELATED TO INFORMATION FLOW OF DE HEUS

7/8/2013 Surapong Chanasettakul 871218156120

Master Thesis: MST-80436 Supervisor : Dr. J.H. Trienekens Co-supervisor: Dr. C.N. Verdouw Period: September - March 2013 Department: Management Studies Group

http://www.google.nl/url?sa=i&rct=j&q=de+heus&source=images&cd=&cad=rja&docid=6nVC_1WAKvnW8M&tbnid=rTQkF4136CTtcM:&ved=0CAUQjRw&url=http://buzzybeeforum.nl/viewtopic.php?f=260&t=12235&start=15&ei=VSwvUZOjCqar0QWL8IDoBQ&psig=AFQjCNHXr8rf4XcbUL08fb_aBp-nnO4DhA&ust=1362132343989216

TABLE OF CONTENTS

ABSTRACT .............................................................................................................................. 4

CHAPTER 1: INTRODUCTION ............................................................................................. 5

1.1 Introduction ................................................................................................................................................ 5

1.2 Conceptual Research Design ................................................................................................................. 7

1.2.1 Research Objective ............................................................................................................................ 7

1.2.2 Research Question ............................................................................................................................. 7

1.2.3 Research Framework ......................................................................................................................... 8

1.3 Technical Research Design .................................................................................................................. 10

1.3.1 Research Strategy ............................................................................................................................. 10

1.3.2 Research Methodology ................................................................................................................... 10

1.4 Conceptual Framework ......................................................................................................................... 12

CHAPTER 2: FEED SUPPLY CHAIN .................................................................................. 13

2.1 Introduction .............................................................................................................................................. 13

2.2 Generic animal feed chain arrangement ............................................................................................ 14

2.3 Customer Order Decoupling points (CODPs) ................................................................................. 15

2.4 Possible CODP in the food and feed industry. ................................................................................ 17

2.5 Factors that impact CODPs positioning. ........................................................................................... 19

2.5.1 Food and feed supply chain characteristics ................................................................................ 19

2.5.2 Accidental incidents (short-term) ................................................................................................. 23

2.6 CONCEPTUAL Factors Impact Model ............................................................................................ 24

2.7 Conclusion ............................................................................................................................................... 26

CHAPTER 3: INFORMATION SYSTEM ............................................................................ 28

3.1 Introduction .............................................................................................................................................. 28

3.2 Information system structure ............................................................................................................... 29

3.2.1 State-independent ............................................................................................................................. 30

3.2.2 State-dependent ................................................................................................................................ 32

3.2.3 Decision support system ................................................................................................................. 32

3.3 Influence of factors AFFECTS on information flows. ................................................................... 34

3.3.1 Mass Customization/Modular product design on information flow of order promising . 35

3.3.2 Stock shortage on information flow of ordering process ........................................................ 38

CHAPTER 4: SUPPLY-CHAIN OPERATION REFERENCE MODEL (SCOR) .............. 41

4.1 Introduction .............................................................................................................................................. 41

4.2 Scope of SCOR Processes .................................................................................................................... 42

4.3 Levels of process detail in SCOR ....................................................................................................... 43

4.3 Overview of existing SCOR business process diagram ................................................................. 45

4.4 REFERENCE model for different production situations .............................................................. 46

4.5 Process Model for different production situations. ......................................................................... 47

CHAPTER 5: DE HEUS ......................................................................................................... 53

5.1 Introduction ........................................................................................................................................ 53

5.2 The European feed supply .................................................................................................................... 53

Analyzing different positions of CODP as related to information flow of De Heus

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5.3 Feed supply in the Netherlands ........................................................................................................... 55

5.4 De Heus Feed B.V. ................................................................................................................................ 56

5.5 The variants of customer order decoupling points within De Heus. ........................................... 58

5.6 Result & Discussion ............................................................................................................................... 60

5.6.1 Information flows relate to variant of customer order decoupling points. .......................... 60

5.6.1.1 The Information flows relate to purchasing process ............................................................. 60

5.6.1.2 The Information flows relate to the ordering process........................................................... 63

5.6.1.3 The Information flows relate to the production and production planning ....................... 65

5.6.1.4 THE Information flows relate to the system integration structure .................................... 69

5.6.1.5 The information flows that are impacted by an exceptional situation. ............................. 70

5.6.2 Modeling information flows. ......................................................................................................... 72

5.7 the Information modeling and the management of Codp .............................................................. 75

5.8 Conclusion ................................................................................................................................................. 85

APPENDICES ......................................................................................................................... 89

Appendix I: Questionnaire .......................................................................................................................... 89

Appendix II: Interview script ....................................................................................................................... 93

Appendix III: System Integration Structure ......................................................................................... 118

REFERENCES ........................................................................................................................... 119


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LIST OF FIGURES

Figure 1: Integration of demand and supply chain .............................................................................................. 6

Figure 2: Research framework ................................................................................................................................. 9

Figure 3:Conceptual framework ............................................................................................................................ 12

Figure 4 General arrangement of animal feed company in the supply chain ............................................... 14

Figure 5 Customer order decoupling point in push/pull point of view , a triangle represents a place

where an inventory is kept....................................................................................................................................... 16

Figure 6: Possible product delivery strategies relate to different customer order penetration point in

food and feed industry. ............................................................................................................................................. 17

Figure 7: A model for intermediate factors affecting the positioning of customer order decoupling

point .............................................................................................................................................................................. 24

Figure 8: A model for choosing the right production situation by using p/d ratio and relative demand

volatility proposing by olhager .............................................................................................................................. 26

Figure 9: General information system structure ................................................................................................. 30

Figure 10: The information flow of the ordering process of make-to-stock production situation which

is affected by mass customization. ........................................................................................................................ 36

Figure 11: The information flow of the ordering process of the assemble-to-order production situation

which is affected by mass customization. ............................................................................................................ 37

Figure 12: The information flow of the ordering process of the make-to-order production situation

which is affected by mass customization. ............................................................................................................ 38

Figure 13: The information flow of the ordering process impacted by stock shortage for MTS ............ 39

Figure 14: The information flow of the ordering process impacted by stock shortage for ATO ............ 40

Figure 15: the SCOR model .................................................................................................................................... 42

Figure 16: The example of the model showing the process diagram ............................................................ 45

Figure 17: The control configuration of three production strategies based on SCOR model and CODP

concept. ........................................................................................................................................................................ 46

Figure 18: Process model for make-to stock ....................................................................................................... 50

Figure 19: Process model for assemble-to-order ................................................................................................ 51

Figure 20: Process model for make to order ....................................................................................................... 52

Figure 21: The main compound feed producing countries .............................................................................. 54

Figure 22: The diagram shows raw materials used in compound feed industry in 2010 .......................... 56

Figure 23:The purchasing process for both make to stock and assemble to order. .................................... 74

Figure 24: The similarity of ordering process for make to stock and assemble to order. ......................... 78

Figure 25: The difference of production and production planning process for make to stock and

assemble to order. ...................................................................................................................................................... 79

Figure 26: Information flows when combing ordering, production and production planning process. . 80

Figure 27: The information flows of De Heus. ................................................................................................... 81

Figure 28 : Exceptional information flow that is influenced by raw material stock shortage ................. 82

Figure 29:Exceptional information flow that is influenced by the out of quality of the raw material

delivery ........................................................................................................................................................................ 83

Figure 30:Exceptional information flow that is influenced by invoicing of the raw material shipment 84

Figure 31: The three positions of the CODP and the factor that causes the CODP shifting within De

Heus .............................................................................................................................................................................. 85


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ABSTRACT

According to the competitive environment of the feed industry, the feed companies

that have the fastest response to demand volatility are order winners. In order the achieve this,

customer order decoupling point concept plays a significant role in separating the part of

production which focuses on production efficiency and the other part where the main

activities focus on fulfilling volatile consumer demands. In most literature researchers only

focus on the broad CODP concept which sometimes is regarded as too theoretical. The main

research objective of this research project is to analyze different positions of CODPs and

related information flows in a case company by modeling information models for De Heus. In

this thesis, the impact of different factors on the customer order decoupling point positioning

and how these factors have an impact on the information flows of De Heus by using business

process modeling notation and BPMN. De Heus is a company in the animal feed industry with

a global leading position. The company was originated in the Netherlands and was found in

1911. By expanding from a regional feed company to a feed conglomerate, the company has

activities in more than 45 countries around the world especially in Europe, Asia, Middle East,

Africa and Latin America. In this study the reader will see the impact of various factors on the

information flow. There are various incidental factors that can have the impact on the

information flow but there is only the stock shortage of both end products and raw material

can shift the position of CODP. This impact causes a change in the production lead time that

directly impacts the CODP positioning by shifting its backward.


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CHAPTER 1: INTRODUCTION

1.1 INTRODUCTION

At the present time, food and feed companies are operating under a complex and dynamic

environment which is caused by various driving forces, such as increasing customers’

concerns about food safety issues, increasing volatility of consumers’ demands, shorter life

cycle of product, intensity of the competitive environment and advances in information

technology (Verdouw, 2010b). These driving forces will force the entire supply chain to

corporate in order to retain the competitiveness and to gain the competitive advantage against

other competitors.

The feed chain is a part of the livestock production chain for the meat production. The chain

may comprise of suppliers, growers, meat processors, importers, exporters and retailers.

Among these stages, the main processing step is usually the transformation process which

transforms raw materials into animal feed. (Van der Vorst, 2007).

Since food and feed are considered to be perishable and time is one of the key factors to

success because price and value of these perishable products continue decreasing after a

certain time that the products are left the producers. In other words, the original good quality

product can be subjected to quality decay due to the inadequate actions of partners in the

supply chain for example the unorganized information exchange and mishandling of food

product. A lack of information exchange may lead to quality decay due to an overproduction

of products without the market demand. The products left unsold which may lead to quality

decay of finished goods. The mishandling of products like poor quality packages, poor storage

conditions can also lead to quality decay. A number of challenges for food and feed producers

need to be taken into account such as lack of forward linkage, large numbers of

intermediaries, poor transportation facility, storage condition, wastage and inadequate

information (Jacob, 2008).

As mentioned above, in order to gain competitiveness, any type of firm needs to align its

strategy with the market requirements. The customer decoupling point (CODP) is noticed as


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one of the most important factors in the design and operation of the supply chain. The CODP

is the point in the material flow where the product is tied to a specific customer order: the

variety of the CODPs are engineer-to-order (ETO), make-to-order (MTO), assemble-to-order

(ATO) and the most simplest form is make-to-stock (MTS) (Olhager, 2010). In the supply

chain, the upstream decoupling points are toward the suppliers, while those downstream

decoupling points are toward the ultimate customers.

In addition, the ultimate aim within a supply chain is to keep the material flowing from

sources to end-customers and the material needs to be moved through the supply chain as

quickly as possible in order to prevent local build-ups of inventories which will generate

additional costs to the producer. To make this happen, it is the end-customer’s demand signal

that triggers the whole supply chain (i.e. the demand driven chain) to respond by sharing the

end-customer’s demand information across the supply chain. Information technology enables

a rapid share of demand and supply data. As a consequence of integration of data, a more

accurate picture is gained about the nature of business process, market and end-customer as

shown in figure 1 (Alan Harrison, 2008).

FIGURE 1: INTEGRATION OF DEMAND AND SUPPLY CHAIN

As mentioned earlier, information technology makes the communication between

different functions within the firm or supply chain much more easy. The case company, De

Heus is selected to see the information exchange within the company between different

production situations. De Heus is a company in the animal feed industry with a global leading

position. The company was originated in the Netherlands and was found in 1911. By

expanding from a regional feed company to a feed conglomerate, the company has activities

Material flow

Information flow


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in more than 45 countries around the world especially in Europe, Asia, Middle East, Africa

and Latin America. De Heus offers various animal feeds especially for pigs, poultries, dairy

beeves and horses. The goal of this study is to look into the different variants of CODPs that

can happen within the case company, how the information and CODPs are managed, and

which information is required by the management team for different CODPs. This thesis also

gives a deep insight about the relationship between factors such as, stock shortage, product

customization that influence position of CODPs and information flows and how these factors

are related.

1.2 CONCEPTUAL RESEARCH DESIGN

The conceptual design deals with determining the subject and consists of research

objective, research framework and research questions. The main purpose of this conceptual

research design is steering which helps not only in the creation of the technical design but also

in the actual implementation of the research project.

1.2.1 RESEARCH OBJECTIVE

The research objective summarizes what is to be achieved by this study. This project is a

practical oriented research based on a case study of the Dutch animal feed company (De

Heus). Diagnostic stage of this project will focus on the background of the company. Later on,

in the design phase, models of information flow are developed in order to find the answer to

the research question, and finally, the conclusion can be made.

The research objective is as follows:

To analyze the factors that influence different positions of the customer order

decoupling point (CODP) and related information flows in a feed company by designing an

information model for De Heus.

1.2.2 RESEARCH QUESTION

In order to achieve the research objective, the main research question is derived below.

Moreover, to be able to answer the main research question, specific knowledge is required.

Therefore, sub-research questions are formulated.


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How can information modeling support management at different positions of the customer

order decoupling point?

The main research question is split up into the following sub-questions:

1. In what way the animal feed company arranges in general CODPs?

2. What are the factors that impact the positioning of CODPs?

3. What information flows are related to different CODPs?

4. How can different variants of CODP be recognized in a case company?

5. How can we model information flow related to these variants?

6. How can information modeling support the management of CODPs?

1.2.3 RESEARCH FRAMEWORK

A research framework is a schematic and visualized rough representation of all the steps to be

taken in this thesis in order to illustrate a holistic view of what will be covered in this

research. First, the literature research is conducted on several aspects. For example, the

general arrangement of animal feed company provides the holistic view of how the feed chain

arranges in general; furthermore, the different position of CODPs and logistics management

will be studied to provide how the logistics is managed around the CODP together with

information flow. Second, literature in various fields will be studied to gain more knowledge.

The literature review will give a clear insight on theoretical knowledge. Then the

consequences of the literature research are used to make a theoretical framework. The

theoretical framework depicts the different variables which are CODPs, information flows and

management of CODP and the relationship between these variable. Later on, the case

company will be introduced and the data from the company will be acquired by interviewing

the employees in the corporate IT and process integration department, ICT, production and

quality assurance of the case company. Next, the analysis of theoretical and empirical data is

made, and finally, the conclusion is given as shown in figure 2.


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Figure 2: Research framework

Literature on

animal feed

company

Literature on

CODP +Logistics

management

Literature on

Logistics

Information

Theoretical

Framework on

CODP variant

Interview people in

the company +

Company data

Business Case Analyzing

Data+ Modeling

of ff

Conclusion


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1.3 TECHNICAL RESEARCH DESIGN

The technical research design contains two sections which are research strategy and

research methodology. These aspects will provide an insight of how the research project will

be carried out (Doorewaard, 2010).

1.3.1 RESEARCH STRATEGY

The research strategy means the coherent body of decisions concerning the way in which the

researcher is going to carry out a research.

In the first part of the research phase, desk research is performed. After literature research,

insight is gained about the general arrangement of the animal feed supply chain and also the

relationship between three factors which are the position of CODP, data required by

management and the information flows.

In the second part of the research, the case of De Heus is chosen. Then employees of the

chosen company will be interviewed. The results of the first phase of this research project

which is the desk research are used as a base for the interview. The interview is conducted in

order to find in depth information and innovative ideas; therefore, open-end questions are

used with the interviewees.

1.3.2 RESEARCH METHODOLOGY

In this section, the method that used for data gathering will be discussed together with the

further explanation of why the respondent or expert within the case company is chosen.

Firstly, an open questionnaire is designed to point out the difference between production

situations among the different product variances of De Heus. The detail business processes

are indicated at level 4 of SCOR. See the example of the questionnaire in appendix 1.

Gathered data will undergo the qualitative analysis to answer the sub research question four,

five and six. These sub-research question will be ultimately answered the main objective of

this research study. The respondents for this research are the employees that are working for

De Heus. The respondents from different functions and departments within the company are

chosen. In this research, the author interviewed people from different department for example,


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corporate information technology and process integration department, Production department,

ICT department, Nutritional formulation department, purchasing department and Quality

assurance department. The chosen respondents are working in different departments. This

means that the interviewee specializes and expert in different fields and have different

perspectives of how they see the customer order decoupling point. The expert has provided a

deep insight of both information technology and the business process points of view like the

production processes (i.e. the basic operation processes like logistics and registration of sales

and documentation). The aforementioned reasons are the reason why the experts from

different departments were chosen. The experts were selected to give a clear insight of what is

really happened within De Heus and also to point out the main difference and the main

problem of different production situations. Later on, the expert will be interviewed to gather

all of the necessary information to answer the sub-research questions that were formulated. A

complete interview script of the main respondent can be found in appendix 2. After the

interview, the result of the interview will be undergone the analysis. The results from the

interview are then used to model the information flows of the company.

The result of the interview is then modeled based on the SCOR level 4 processes by using the

business process modeling notation and BPMN. Models are modeled by using Visio as a tool

for modeling. In addition, the interview also point out the factor that cause a shift in customer

order decoupling point. These are the factors that identify by De Heus employees. In order to

see how these factors have an impact on the information flow, it is important to look into the

detail of the flow of information. This qualitative research will provide a benefit in terms of a

detail case study.


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1.4 CONCEPTUAL FRAMEWORK

Conceptual framework is a research outline to present a preferred approach of thought. In

this research, the conceptual framework or theoretical framework is shown in figure 3. From

figure 3, the arrow labeled with A is a research for different factors which can impact CODP

positioning. The research information can be found in chapter two. Arrow B and D

sequentially focus on how the different CODPs affect the management of order promising

process and the decision support system between information system and management that

will be mentioned in chapter two. Arrow C concentrates on the information system and

information flows which are related to different CODPs that can be found in chapter two and

three of this report. Arrow E which is the main focus of this thesis aims to investigate the

factors which affect CODP positioning and how these factors impact on information flow.

The dot line passing through CODP to information system represent these factors that do not

directly impact the information system, but those factors affect the information system by

altering the CODPs position such that the information system need to be readjusted. The

result of this study can be found in chapter two, three and four.

FIGURE 3: CONCEPTUAL FRAMEWORK


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CHAPTER 2: FEED SUPPLY CHAIN

2.1 INTRODUCTION

In this chapter, the specific question one and two will be answered; in what way animal

feed chain arranges in general CODPs? And what are the factors that impact the positioning

of CODPs? The answer to these sub-research questions are found from literature study. The

main purpose of this chapter is to get a holistic view of the feed supply chain characteristics

and the factors that affect the CODPs. First, the meanings of supply chain and general feed

supply chain arrangement are given. Next, some characteristics of food supply chain are listed

out. Then, the concept of customer decoupling point is introduced together with the possible

CODPs in food and feed companies. Finally, the factors that impact the positioning of CODP

in animal feed companies will be discussed.

In general, if mentioning about a supply chain or a value chain, it can be defined as a

sequence of (decision making and execution) processes and (material, information and

money) flows that aim to meet final customer requirements, which take place within or

between different stages along a continuum; i.e. from production to final consumption (Van

der Vorst, 2007). Bullet points listed below are some of the characteristics of the food and

feed supply chain in general (Vlajic, 2008; Van de Vorst, 2005).

Unpredictable supplies due to weather conditions or soil conditions

Quality variation between different producers and between different lots of products

Shelf life constraints, decay of the product quality and requirement constraints

regarding product freshness (The freshness quality starts deteriorating as soon as

products leave producers.)

Unpredictable production yields

Unpredictable consumer demands

High-volume production system and capital incentive machinery

Long production throughput time, product dependent cleaning and processing time

and seasonal production.


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2.2 GENERIC ANIMAL FEED CHAIN ARRANGEMENT

In this section, the general arrangement of the feed company in the supply chain (figure 4)

is given based on research studies (Farid, 2007; Kingman, 2012c; Mulder, 2012; S et al.,

2006; C. N. Verdouw, Beulens, Trienekens, & Wolfert, 2010).

FIGURE 4 GENERAL ARRANGEMENT OF ANIMAL FEED COMPANY IN THE

SUPPLY CHAIN (FARID, 2007; KINGMAN, 2012C; MULDER, 2012; S, ET AL.,

2006; C. N. VERDOUW, ET AL., 2010).

Basic product-transformation processes in the animal feed supply chain are:

Raw material receiving: the production of animal feed consists of a mixture of

various ingredients and additives. The main ingredients in animal feed like wheat

straw or maize grain, rice bran and rice polish where all the ingredients of grain

origin. The raw materials are seasonally bought from local markets when raw

materials are cheap and plenty Apart from grains, the additional additives considered

to be micro-ingredients are added. Examples of additives are antibiotic, vitamin,

mineral, flavor and coloring agent (Farid, 2007; Kingman, 2012c, 2012e; Mulder,

2012).

Crushing: After the raw materials are weighed in the right proportion, a hammer mill

is used to crush the raw materials into the appropriate size so that the raw materials

can be further processed in the next step where the raw materials can be pelletized

effectively and smoothing (Farid, 2007; Kingman, 2012b, 2012c; Mulder, 2012; S, et

al., 2006).

Batching: batching is normally a process in the feed production which happens

between the grinding of raw materials and the mixing of the feeds. There are normally


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8-12 bins positioned over the mixer, in which different ingredients used in feed

formulation are kept (Kingman, 2012a). The ground ingredients are weighed

accurately and precisely according to the formulations. Others than the main

ingredients which are mentioned earlier, the micro-ingredients are also added for

variety of reasons. One of them is to stimulate the development of animals like in

poultry, while some ingredients are added to realize some product characteristic; e.g.

the color of an egg and the meat quality improvement for swine (Kingman, 2012a;

Mulder, 2012; S, et al., 2006).

Mixing: in the mixing process, it usually uses an automatic process and the feed

formulation is set; i.e. the measure of dosage weight for each ground material is

accomplished and controlled from the control room with a computer system. In some

companies, the traditional man power is used for the mixing step. In this production

step, the ground raw materials are mixed together according to the formulation before

continuing to the next processing step(Farid, 2007; Kingman, 2012a, 2012c).

Pelletizing: the process of pelletizing consists of forcing a soft feed through a hole in a

metal die plate to form compacted pellets which are then cut into determined size

(Kingman, 2012d). The size and shape of the final products are resulted from the

shape of the die itself. In this process, the additional liquids such as molasses or water

can be added to the mixture to improve pelletizing ability or steam may sometimes be

added into the process to partially gelatinize the starch content in the mixture and

make the mixture more stable (Kingman, 2012c, 2012d).

Storage and Distribution. There are also a number of activities involving with animal

feed along and after the transformation process including receipt, warehousing,

dispatching and transportation. Three basic distribution modes can be distinguished:

direct delivery, delivery via intermediate storage in a distribution center (DC) and

cross-docking (Kingman, 2012c; C. N. Verdouw, et al., 2010).

2.3 CUSTOMER ORDER DECOUPLING POINTS (CODPS)

The concept of customer order decoupling point becomes more important in supply chain

management because the customer order decoupling point is the point that indicates how deep

the customer order penetrates into the goods flow. From the concept of push/pull view of


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customer decoupling point, the CODP separates the part of the firm where management

decisions are decided by customer orders (pull) from the part of the firm where production

plans are planned based on demand forecasts (push) as shown in figure 5 (Trienekens, 2010;

Van de Vorst, 2005; Van der Vorst, 2007).

FIGURE 5 CUSTOMER ORDER DECOUPLING POINT IN PUSH/PULL POINT OF

VIEW , A TRIANGLE REPRESENTS A PLACE WHERE AN INVENTORY IS KEPT

(CHOPRA & MEINDL, 2010).

Downstream or the right side of the CODP that directs toward the market of the goods flow is

directly controlled by customer orders; hence, the main focus is on the lead time and

flexibility. Upstream or the left side of the CODP is toward the supplier. The material flow is

controlled by forecasting and planning, so the focus is on production efficiency and

production lead time. According to Romme, the CODP is important for the following reasons

(Romme, 1992).

o It separates order-driven activities (pull) from forecast-driven activities (push).

o It coincides with the last major stock point in the goods flow: deliveries to customers

are made from the customer order decoupling point.

o It generates the chance for upstream activities to independently optimize from

irregularities of the market demand.

o It separates two areas in which the nature of decision making is very different. For

example, if the upstream is toward the CODP, the risk of stock build-up is dominant;

whereas, if the downstream is toward the CODP, the risk of missed orders is dominant

(Romme, 1992). This example shows that these two totally different areas of decision

making need to be separated.


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2.4 POSSIBLE CODP IN THE FOOD AND FEED INDUSTRY.

The customer decoupling point (CODP) is noticed as one of the important factors in the

design and management operation in a company as mentioned earlier. According to Olhager,

there are four possibilities of production strategies according to different positions of CODP:

namely engineer-to-order (ETO), make-to-order (MTO), assemble-to-order (ATO) and the

most simplest one is make-to-stock (MTS) (Olhager, 2010). Since the characteristics of food

and feed production chains, the four possible production strategies are reduced into only three

which are make-to-stock (MTS), assemble-to-order (ATO) and make-to-order (MTO).

Engineer-to-order (ETO) rarely occurs or doesn’t exist in food and feed industry but it

possibly occurs like in the electronic industry and other industry (Nizar Abdelkafi, 2008;

Silveira, 2010). This due to in electronic industry, for some customers they want to get

involved at early designing phase of components of their products. See figure 6.

FIGURE 6: Possible product delivery strategies relate to different customer order

penetration point in food and feed industry.

Next, the environment of the three possible product delivery strategies which are make-to-

stock (MTS), assemble-to-order (ATO) and make-to-order (MTO) will be discussed.

Make-to-stock (MTS)

A make-to-stock environment offers a low range of product variety and often

associates with less expensive products (Chetan Anil Soman, 2005). At this

production situation, it is usually the point where finished goods inventories are kept

in various locations such as warehouses, distribution centers or retail stores. The

CODP is positioned after the production process. A make-to-stock environment is

suggested to be managed according to the lean principle which focuses on production


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efficiency and waste reduction (Ben Naylor, Naim, & Berry, 1999). In order to

achieve the higher service level and lean production, more attention needs to be given

to an inventory management (N. Abdelkafi, 2008; Jan Olhager, Erik Selldin, &

Wikner, 2006; T. E. Vollmann, 2005a). In food industry, this kind of production

situation can easily been seen such as in can foods, instant products and infant

formula. For these mentioning examples, the production of these products focuses on

production efficiency or lean production. Moreover, these products have a long-shelf

life so products can be produced to stock.

Assemble-to-order (ATO)

Assemble-to-order is a production situation, in which customized product

configurations are produced with standardized generic components or subassemblies.

ATO is a hybrid approach because product components are fabricated to stock and the

final assembly is made according to the customer order (Schroeder, 2007). For ATO,

the CODP is corresponding to the inventory of the generic components or

subassemblies. Customer service is controlled by this inventory of the generic

components, not by the inventory of the finished products. The success of the

assemble-to-order delivery strategy depends on the ability to combine a few

components into many different end-product configurations (Jan Olhager, et al., 2006;

T. E. Vollmann, 2005a). The example of this production situation in food industries is

in the catering service or in a fast food restaurant where customers can customize their

meals by allowing them to choose types of breads, types of vegetables and types of

drinks. This basic components or subassemblies can be combined into various end

products. This also gives alternatives to consumers. Another example is in the feed

industry where a partial amount of the raw materials is bought to stock and the end

products are combined according to customer orders.

Make-to-order (MTO)

In a make-to-order production environment, each order have been identified during or

before the production process since each job in the production process is associated

with the specific customer order (Schroeder, 2007; T. E. Vollmann, 2005b). An MTO

production situation offers a high variety of customers’ specific orders, and usually, it


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is associated with more expensive products. The production plan focuses on the order

execution and the performance measurements are order-oriented; e.g. the average

response time and the average order delay. The competitive priority is shorter delivery

lead-time. The main operation issue are capacity planning, order acceptance or

rejection and high due-date adherence (Chetan Anil Soman, 2005). Most literatures

suggested that the decoupling point of make-to-order should be placed prior to the

beginning of the production process. In other words, the product can be customized

according to the customer requirements. The decoupling point where the customer

penetrates can be the raw material inventory or even supplier (Nizar Abdelkafi, 2008;

Jan Olhager, et al., 2006). The example for this make-to-order production situation is

in the make-to-order Sailboats, a combination of custom and standard parts (Chetan

Anil Soman, 2005). For this production situation, the manufacturers might require

longer production lead time.

2.5 FACTORS THAT IMPACT CODPS POSITIONING.

This part of the research will discuss some of the significant factors that impact the

position of customer order decoupling point within food and feed companies. The factors can

be categorized into two categories; i.e. based on the food and feed supply chain characteristics

and based on accidental incidents. Firstly, the food and feed supply chain characteristics

which affect the positioning of CODP will be mentioned following by the accidental incidents

that have the impact on positioning of CODP in food and feed companies.

2.5.1 FOOD AND FEED SUPPLY CHAIN CHARACTERISTICS

As mentioned earlier about food and feed supply chain characteristics, there

are a number of factors that can impact on the position of CODP. In this research

project, the factors based on food and feed supply chain characteristics can be divided

into three sub-categories related to product, production and market characteristics

(Olhager, 2003).


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2.5.1.1 PRODUCT RELATED FACTORS

Modular Product design: this factor is usually a response by a manufacturer to

create choices for customers, and this factor moves the CODP toward the

supplier which typically relates to the assemble-to-order (ATO) product

delivery strategy (Can, 2008; Olhager, 2003). For example, customers can

personalize colors, shapes or ingredients of snack such as My M&M’s custom

candy (Mars, 2008).

Customization opportunities: the manufacturers provide a customization

opportunity or in other words, they provide a wider range of products for

customers. If the manufacturer offers a wide customization in the early stage

of production, a make-to-order (MTO) policy is necessary. In contrast, if the

customization enters at late production stage, assemble-to-order (ATO) may be

more appropriate (Olhager, 2003), while the good example of the mass

customization opportunity in food and feed industries, the good example for

this is the fast food industry. Fast food industry is a paradigm of a mass

production (MTS). Anyway, with the change in the definition of customer

where a today customer must be considered as an individual with a specific

need, the companies like Burger King, McDonald’s and Subway have been

forced to embrace the principle of mass customization in order to survive in the

market (Mok, Stutts, & Wong, 2000). If going into more details, the goal of

the mass customization is to provide a sufficient variety in products and

service so that every customer is able to purchase a customized product for a

price as near as that of a mass-produced item (Duray & Milligan, 1999). In

other words, mass customization is to exactly give customers what they want

at the price and time they want it (Duray & Milligan, 1999).

2.5.1.2 PRODUCTION RELATED FACTORS

Production lead time: this is the main factor to consider with respect to

delivery lead time. If the production lead time of the product is short, it is

possible to move the CODP toward the left side of the continuum like make-

to-order (MTO). On the other hand, if the product has a long production lead


Page 21

time, it is more appropriate to use the make-to-stock (MTS) delivery strategy.

It is suggested that the way to choose the right CODP is to use the P/D ratio.

The P/D ratio is the ratio of the production lead time to delivery lead time

(Nizar Abdelkafi, 2008; Olhager, 2003). The production lead time of animal

feed company can influence the positioning of CODP. Since feed is noticed to

be an imperishable product which has a long shelf life and short production

lead time, so it is possible that the positioning of CODP is toward MTO.

However, if there is a constraint with the efficiency of the machine that will

make the production lead time longer, the company tends to shift from MTO to

MTS (Soman, Donk, & Gaalman, 2004).

Flexibility: For any food company, the flexibility of the company is directly

related with the production lead time. For example, short setup time for the

machine is required to make the production process more flexibility. If the

production process is flexible, the position of CODP tends to move toward the

left side of the continuum that suit the production situations or delivery

strategies like assemble-to-order (ATO) and make-to-order (MTO) On the

other hand, if the production process is not flexible, make-to-stock (MTS) is a

better option (Nizar Abdelkafi, 2008). Flexibility is a significant factor which

determines an order winning company(Olhager, 2003).

The position of the bottleneck of the production process: In terms of optimal

resource utilization, it is advantageous to position the bottleneck upstream of

the CODP, so the bottleneck does not have to deal with demand volatility

(Can, 2008; Olhager, 2003). While in terms of the just-in-time principle of

waste elimination, it is better to position the bottleneck downstream of the

CODP so that the bottleneck only needs to work on the product for which the

manufacturer has a customer order (Can, 2008; Olhager, 2003).

2.5.1.3 MARKET RELATED FACTORS

Delivery lead time: this factor is the requirement set by the market that limits

how far the CODP can be positioned. The delivery lead time is also a

benchmark for production lead time improvement in order to make the delivery


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speed faster (Olhager, 2003). If the delivery lead time is short, the CODP will

move toward the supplier, while a long delivery lead time will move the CODP

toward customers (Donk, 2000). It is mentioned that in food and feed

industries, the standard product with a narrow range of variety wins on price;

whereas, the key production task is to focus on the low cost production which

is suitable for the MTS production situation. In contrast, special order products

in wide range of variety win the order base on a delivery speed and an unique

design capability; therefore, manufacturing has to meet specifications and

delivery schedules which also require high flexibility and suits the make-to-

order production situation (Hill, 2000; Olhager, 2010).

Demand volatility: this factor indicates to what extent it is reasonable to make

product to order (MTO) or to stock (MTS). Low demand volatility means that

the product can be forecast-driven and delivery strategy can be placed toward

customers like make-to-stock (MTS). However, high demand volatility makes

the demand forecasting more difficult, so the product typically need to be

produce to order (MTO). In food and feed production company, the demand

volatility is consider as a major factor that causes a bullwhip effect (Hau L

Lee, 1997). The demand of consumer in food and feed industries changes all

the time, so many food and feed companies focus on product development to

respond and fulfill consumers’ needs in order to survive in the market. This

factor also shortens the life-cycle of the product and it can be concluded that

low demand volatility of the production leads to MTS as a delivery strategy,

and the efficiency of the production process will be focused. If the demand

volatility is high, it can make the demand forecasting for food and feed

production planning harder, so make-to-order may be a better option like in

meat supply chain (Rijpkema, Vorst, & Rossi, 2010). In meat industry, they

solve the high demand volatility and a quality unconformity by producing the

product based on order. Manufacturers allow their customer to order a specific

quality of the meat that they ordered, such as, lean meat ratio and fat layer

thickness (Rijpkema, et al., 2010).

Product volume: this is a factor related to demand volatility. For a high product

volume, the demand volatility is low. Since one of the characteristics of food


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and feed industries is that the profit per unit sold is less, but if the volume is

high, more profit can be generated. For every food and feed commodity, a

demand volume of a product increases during the early stage of the product life

cycle. At some point in time, the product may be regarded as a common

commodity and the product volume becomes stable. At the end of the product

life cycle, the product volume goes down. The high product volume is known

as a characteristic of the food and feed supply chains aiming at production

efficiency, and the appropriate CODP strategy is make-to-stock (MTS).

Customer order size and frequency: This factor somehow closely relates to

product volume. Large number of customer order sizes are typically associated

with high demand volumes. Moreover, high order frequency leads to repetitive

demands making demand forecasting easier(Olhager, 2003).

2.5.2 ACCIDENTAL INCIDENTS (SHORT-TERM)

Shortage of stock: the incident of unexpected out-of-stock can impact the

positioning of CODP. The position of the CODP depends on the availability of

the products in stock. For example, for make-to-stock delivery strategy, when

an end product is not available, a quantity of the replenishment order in

production will be reserved for the customer and the CODP will move to the

left of the continuum (Giesberts & Tang, 1992). In this situation, the decision

maker should make up the decision to pay for an inventory cost or a stock-out

cost.

Product seasonal demand: Olhager mentioned that it may be uneconomical for

the manufacturer to respond to all coming demands (Donk, 2000; Olhager,

2003). As a result, the manufacturer may choose to produce some products to

stock (MTS) during the period of low demand in anticipation of peak demand.

Thereby, the plant utilization and production efficiency increase. The position

of CODP may shift between make-to-stock (MTS), make-to-order (MTO) and

assemble-to-order (ATO) depending on the seasonal demand (Donk, 2000).

Incidental factors: all kinds of coincidental factors influence the position of

CODP. For instance, the orders in the assemble-to-order (ATO) situation have


Page 24

to be cancelled when the (customer-specific) product has already been in

production. Then, the product must be reworked or discarded.

2.6 CONCEPTUAL FACTORS IMPACT MODEL

. There are many factors that can possibly impact the position of customer order

decoupling point as mentioned in section 2.5. However, these factors are interrelated as

illustrated in figure 7. This configuration was studied and modified based on Olhager model

(Olhager, 2003; T. E. Vollmann, 2005a).

Figure 7: A model for intermediate factors affecting the positioning of customer order

decoupling point

From figure 7, it can be realized that all of the factors are interrelated; for example, the

customization opportunity can interact with market expectation resulting in the delivery lead

time that the customer requires with respect to the product offering (Olhager, 2003). These


Page 25

factors can also be interpreted in terms of lead time regarding the operation which needs to be

performing at each level. The relationship between production lead time and delivery lead

time is a major determinant of the position of customer order decoupling point. It is important

to study the impacts of the interrelation between production lead time and delivery lead time

on the information flows in various production situations. Based on the literature study, two

major factors that affect the positioning of CODP are the ratio between production lead time

to delivery lead time (P/D ratio) and the relative demand volatility (Olhager, 2003). The

separation point of P/D ratio takes place at the value of one. The value is linked to the

question “whether a customer order of food and feed products can be anticipated before

production activities start or not?” If it is not possible, some production activities must be

conducted based on forecasts. It is suggested that if the P/D ratio is lower than one, the make-

to-order production situation is possible. However, if the P/D ratio is larger than one meaning

to obtain the economy of scale for the common item that can be produced by a forecast, these

items can be produced to stock. Another factor that can impact the choice of production

situation is the relative demand volatility (Olhager, 2003). It is suggested by Olhager that if

the relative demand volatility is low, some parts of the product can be produced to stock

which possibly leads to the assemble-to-order production situation. At the same time, if

relative demand volatility is very low, the make-to-stock production situation might even be

possible. This means that even the P/D allows the company to go for the make-to-order

production situation, the food company may try to go for make-to-stock since they want to

gain the economy of scale and high production efficiency (Olhager, 2003; T. E. Vollmann,

2005a). In contrast, if the relative demand volatility is high, make-to-order is a common

choice. If the P/D ratio is larger than one meaning that the product has long production lead

time which makes the make-to-order production situation impossible, the production situation

should be either assemble-to-order or make-to-stock instead. However, in the high demand

volatility situation, it makes no sense to use the make-to-stock production situation since this

can lead to excessive costs and inventories. Hence, the only remaining option is to produce a

product according to the assemble-to-order production situation, as shown in figure 8.


Page 26

Figure 8: A model for choosing the right production situation by using p/d ratio and relative

demand volatility proposing by olhager (Olhager, 2003).

Next the attention needs to be gained for the upper right corner of figure 8 where the situation

is the least desirable: the high production and delivery lead time ratio and high relative

demand volatility. The assemble-to-order in this case can be viewed as the combination of

make-to-stock before the customer order decoupling point and make-to-order after the

customer decoupling point. Therefore, it is suggest that in assemble-to-order, the production

situation should be separated into the part before the CODP where the production situation

can be done based on forecasting and the part where all of the activities are driven by

customer ordering.

2.7 CONCLUSION

The aim of this chapter is to answer specific question one and two; “in what way the

animal feed chain arranges in general CODPs?” and “what are the factors that impact the

positioning of CODPs?” For the first specific question, the general CODP of animal feed

chain can be categorized into three most common production situations which are make-to-

stock (MTS), assemble-to-order (ATO) and make-to-order (MTO) (N. Abdelkafi, 2008;

Silveira, 2010; Trienekens, 2010; Van de Vorst, 2005; Van der Vorst, 2007). For the second

specific question, there are various factors that impact the CODP positioning, but it can be

grouped into two main categories which are food and feed supply chain characteristics

(product, production and market related factors) and accidental incidents (Donk, 2000;


Page 27

Giesberts & Tang, 1992; Olhager, 2003; Paul M. J. Giesberts & Tang, 2001). The

intermediate factors: delivery lead time and production lead time are the important factors that

are worthy for studying the impact on the information flows which will be introduced in the

next chapter. Moreover, in order to choose the right production situation, Olhager suggested

to use the production lead time and delivery lead time ratio and relative demand volatility as a

potential tool as shown in figure 8 (Olhager, 2003)


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CHAPTER 3: INFORMATION SYSTEM

3.1 INTRODUCTION

In this third chapter, the specific question three will be answered; “what information

flows are related to different CODPs?” The answer to this third sub-research question is found

in literature study as mentioned in chapter 1. The aim of the third chapter is to provide a deep

insight into the relation of information flows and different CODPs. Firstly, the definition of

information system is given together with the main characteristics of the information that

makes it useful in decision making. Secondly, the general structure of information system will

be discussed, and finally, the influences of factors affecting CODP positioning on information

flow will be mentioned.

Information system can be defined as data flow management within an organization

and between its external partners in a systematic, structured and effective manner, to assist in

planning, implementing and controlling all of the involved process (Companies, 2012). If

talking about the information alone, it is considered as a key company driver because it

enables management to make decision over a broad scope crossing both functions and

companies. As mentioned earlier, information is used to make a wide variety of decisions in

the company according to Chopra as following (Chopra & Meindl, 2010);

Facility: Determining the location, the capacity and the schedule of facility require

information on the trade-offs between efficiency and flexibility, demand, exchange

rates and taxes.

Inventory: Setting the optimal inventory policy requires information that includes

demand pattern, inventory cost, stock-out cost and ordering cost.

Transportation: Deciding on transportation networks, routings, modes, shipments and

vendors requires information which includes cost, customer location and shipment

size to make a good decision.

Sourcing: Information on product price, margin quality and delivery lead time are

important in making a sourcing decision. The given sourcing decision deals with inter-

enterprise transactions, so there is a wide range of transactional information that must

be recorded in order to execute the operation


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Pricing and revenue management: To set pricing policies, one needs information on

demand; i.e. both its volume and various customer segments’ willingness to pay, as

well as many supply issues, such as the product margin, lead time and supply

availability. Using this information, a company can make an intelligent pricing

decision to improve its profitability.

Next, there are some main characteristics that information must have in order to be useful

when making a managerial decision (Chopra & Meindl, 2010).

Information must be accurate: information needs to give an actual picture of the state

of the company. It is very difficult to make a good decision without accurate

information.

Information must be accessible in a timely manner: usually, by the time accurate

information is available, it may have been out-of-date, or if it is current, it may not be

in an accessible form. In order to make a good decision, a manager needs to have up-

to-date information that is easily accessible.

Information must be of the right kind: managers or decision makers need information

that they can use. Often, companies have a large amount of information that is not

useful in making a decision. The companies must think about what kind of

information should be recorded so that valuable resources are not wasted collecting

meaningless information while significant data go unrecorded.

Information must be shared: a company can be effective only if all the stakeholders

within the company share a common view of information to make a business decision.

3.2 INFORMATION SYSTEM STRUCTURE

In general, there are different types of information system involved in a company. In

this research project, the researcher focuses on the information system dealing with

production and inventory control. In describing information systems for inventory/production

control structures, system software, a state-independent, a state-dependent and a decision

support system are distinguished (Wortmann, 1995). See figure 10. The system software is in

the core of the information system which is not a main focus of this research, so it will not be


Page 30

mentioned. Other parts of the information system structure will be discussed below together

with the effects of production situations (CODPs) on the information system.

Figure 9: General information system structure

3.2.1 STATE-INDEPENDENT

State-independent is the second layer of the information system recording all data

which does not depend on the order and the material flow (Paul M. J. Giesberts & Tang,

2001). The term “state-independent requires some elaboration: the word “state” implies both

the flow of order and the flow of materials and other resources. Therefore, the term “state-

independent” constitutes of all kinds of indirect supportive recording about products,

technologies and capacities relating to the recording of order and material planning. In other

words, it refers to the relation between bill-of-materials (BOM), product routing, capacity

type and standard lead-time (Giesberts & Tang, 1992; Wortmann, 1995). A bill-of-materials

for a product is a list of ingredients or components required for the product or the parent item,

while routing of an item is an ordered list of normative operations required for the item

manufacturing out of its components.

For make-to-stock (MTS) situation, the assortment consists of a limited number of the

end products. All of these products and all of the lower level items in the product structure of

these end products are specified in item records. Relations between items are also specified in

a single level of material (BOM). Moreover, all item routings are specified, so the sequence of

the production operations can be determined. Usually, food and feed companies have a file in

which all standard items are represented in a single record. There are several state-


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independents of the items, such as identification number and description, classification code,

commodity type, safety stock, standard lead time (SLT), reference to vender and various cost

attributes (Giesberts & Tang, 1992; Rudberg & Wikner, 2004). Moving from the MTS

production situation to the ATO or to the MTO production situation, the product and routing

data become more dependent on the customer order. This order dependent product data can be

seen as a transition from state independent to state dependent data (Wortmann, 1995).

In the assemble-to-order situation, a large variety of end products exists. Therefore,

recording of all possible end product variants per family with their product structure and

routing would result in excessive computer storage usage and considerable effort to maintain

all information. In this situation, the proposed solution is to use generic items, generic bill-of-

material and generic routing (Kern & Guerrero, 1990; Veen, 1992). A family of products with

similar possible variants of the end products is considered as one of generic items, which can

be characterized by a set of feature such as size, color and length (Giesberts & Tang, 1992).

In the MTO environment, the formal requirements for the data in the database are less

strict: these data serve as a configuring tool, and certain attributes are deliberately left blank.

This blank can be used to emphasize the fact that these attributes should receive their proper

values only when the customer order is received. Therefore, the state-independent data of the

MTO production consists of partially complete products, projects, routings and resources.

This information is called reference products and reference projects in order to highlight their

incomplete natures. The projects consist of many tasks. Each task may be decomposed into a

few activities, which may remain unknown until the beginning of a task Giesberts & Tang,

1992; Rudberg & Wikner, 2004).


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3.2.2 STATE-DEPENDENT

The third layer of information system is state-dependent. The registrations of state-

dependent information for both material flow and order flow of three production situations

which are MTS, ATO and MTO merely differ in the identification of production, stock and

order.

For the make-to-stock production situation, most of the end products are

manufactured according to a forecast. Hence, all material and order state information is

identified by using the information on the items (Giesberts & Tang, 1992).

In the assemble-to-order situation, the information of materials and orders located

upstream of the CODP are also identified by using the information on the items. However, the

order for the customer-specified variant and the resulting customer specified work-in-progress

and stock are identified by customer orders. This is essential because in this part of goods

flow, the standard items do not exist (Giesberts & Tang, 1992; Wortmann, 1995). The

specified components and bill-of-materials are produced from a generic structure. The

customer order can be monitored if materials and work orders are identified by customer

orders.

In the make-to-order environment, the detailed network and activities for work orders,

purchase orders and materials are identified by customer orders. There is an extra requirement

for the MTO production situation because the aggregate task and the aggregate network

entitle are defined. The information system needs to be able to relate the detailed activities to

the task from which the activities are derived in order to monitor the progress of the total

project at an aggregate level (Paul M. J. Giesberts & Tang, 2001).

3.2.3 DECISION SUPPORT SYSTEM

As mentioned earlier, the decision support system is a part of the information system

for various production situations Thus, the level of decision making should be differentiated

(Bertrand, Wortmann, & Wijngaard, 1990). For food and feed companies at the shop-floor

control level, work orders are released and assigned according to capacities. Afterwards, the


Page 33

progresses of the orders are observed. At the higher level, the work orders for production and

purchase orders are determined by the material planning function. On the highest level,

production and sales are coordinated (Bertrand, et al., 1990; Paul M. J. Giesberts & Tang,

2001; Veen, 1992). The variances between the make-to-stock, the assemble-to-order and the

make-to-order production situation in the requirements of decision-support information

system are mostly presented at the material planning level and at the level where the sales

department and the production department are coordinated. Therefore, this research will only

discuss these two specific levels (Paul M. J. Giesberts & Tang, 2001).

In the make-to-stock production situation, the co-ordination between production and

sales is concentrated on demand forecasting of the end products and production plan

determining with regards to the capacity availability. The customer orders are accepted based

on the current available stock (Paul M. J. Giesberts & Tang, 2001). The information system

should support the forecasting, the preparation of the production planning, the capacity check

of the production plan and the acceptance of the customer orders using an available-to-

promise logic (Everdell, 1984). In case of the feasible production plan, the material planning

can directly determine the order of the lower level items from the production plan. It is

possible because the average lead time and the constant capacity utilization are achieved (Paul

M. J. Giesberts & Tang, 2001).

The assemble-to-order production environment can be divided into a forecast-driven

part and a customer-order-driven part. For the forecast-driven part, requirements on the

decision support system of the information system are similar to the MTO production

situation. An extra requirement in the assemble-to-order situation concerns the co-ordination

of the forecasts among the sub-assembly items (T. Vollmann, Berry, & Whybark, 1997). For

the customer order-driven part, order acceptance results in the co-ordination between

production and sales. If requested order of customers is received and a specific bill-of-

materials is generated, the availability of the sub-assembly items and the assembly capacity

need to be observed such that the order is completed on time (Paul M. J. Giesberts & Tang,

2001; T. Vollmann, et al., 1997). The information system should be able to provide the time-

phased availability of each sub-assembly item used in the ordered product configuration

(Paul M. J. Giesberts & Tang, 2001). In addition, according to Giesbert & Tang (2001), the

information system must be able to check the capacity availability of the customer order-


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driven part within the production system (Everdell, 1984). The information system needs to

be capable of supporting a multi-phase final assembly scheduling and a monitoring process

of customer’s order progress (Paul M. J. Giesberts & Tang, 2001).

In the make-to-order production environment, the co-ordination between production

and sales is focused on the acceptance of customers’ projects (Bertrand, et al., 1990). After an

aggregate task network of a product is made, the aggregate network is scheduled forward by

tasks considering permitted floats within and between tasks, capacity availability and already

accepted project (Bertrand, et al., 1990; Paul M. J. Giesberts & Tang, 2001). Rescheduling of

tasks of other projects can be done as long as the due dates of those projects are not changed.

In food and feed companies, each customer’s order consists of product type, quantities and

specified product types. Furthermore, each order requires a specific delivery date. The latest

permissible end date of the last task is used to determine the due date of the project (Park,

Song, Kim, & Kim, 1999; Paul M. J. Giesberts & Tang, 2001). The decision support system

which is a section of the information system for the make-to-stock (MTO) production

situation needs to be able to support this kind of multi-project planning considering float and

available capacity (Paul M. J. Giesberts & Tang, 2001).

3.3 INFLUENCE OF FACTORS AFFECTS ON INFORMATION FLOWS.

In this section of the research, the influence of factors on the information flows is

focused. An important impact factor for De Heus will be mentioned in chapter 5. Since each

factor can influence the CODP positioning, the research also aims to investigate an influence

of these factors on information flows within the company with different CODP production

situations; namely make-to-stock (MTS), assemble-to-order (ATO) and make-to-order

(MTO). According to the literature study, there are the major factors that impact the

information flows (Dehaan, Peters, & Giesberts, 1992; Rudberg & Wikner, 2004; Silveira,

2010). In this research, the impact of mass customization and stock shortage on ordering

process will be discussed in the next section. Note that the purchasing process for all of the

production situations is not affected by these factors (Dehaan, et al., 1992; Rudberg &

Wikner, 2004; Silveira, 2010).


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3.3.1 MASS CUSTOMIZATION/MODULAR PRODUCT DESIGN ON INFORMATION

FLOW OF ORDER PROMISING

As mentioned in the previous chapter, mass customization/modular product design can

influence the information flows in term of offering the diversity to the customer’s order which

can move the CODP toward the supplier. This is typically related to assemble-to-order (ATO)

or make-to-order (MTO); however, if product variation is low, the CODP positioning will

move toward the end consumer resulting in production efficiency focus which is typically

related to make-to-stock (MTS). One of the most significant issues for the company is to be

able to give right order promises to customers and to be capable to determine the delivery date

for the customer demand that have been changed (Quante, Meyr, & Fleischmann, 2008).

Hence, the order-promising process relates to the flow of information starting from the order

inquiry from a consumer and the flow of materials that is sometimes limited by the material

availability along the supply chain. In the next section, the discussion on the effect of mass

customization on the information flow of the ordering process of three standard production

situations (MTS, ATO and MTO) will be discussed.

Make-to-stock (MTS)

The most common production situation is make-to-stock, in the MTS situation focuses

on the finished product (SCC, 2012b; Zhao & Simchi-Levi, 2005). This kind of

situation can be found in the dairy and retail industries. The production and

distribution are generally based on a forecast, and the instant delivery is expected from

the product inventory when the customer places the order inquiry. As a result, the

main focus of the information flow is on the inventory level and the inventory

availability for the quoted volume. The order confirmation is based on the availability

of the product in product inventory. The inventory will be always filled up by the

product replenishment system. In case that the customer’s order cannot be fulfilled by

the time the product inventory is replenished, the production facility will be reserved

to fulfill the customer’s order. The product inventory replenishment process is started

by the available on hand inventory and the demand forecast is made regarding the

sales and production history. The crucial information flows in the order promising

process for the make-to-stock environment are concluded in figure 10. In figure 10,


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the order promise process is a gateway to check the product availability with the

production and inform their customer whether the order is accepted or rejected.

Assemble-to-order (ATO)

The assemble-to-order production situation is the situation that the customer

decoupling point placed somewhere in between the two extreme points which are

make-to-stock (MTS) and make-to-order (MTO). This assemble-to-order production

situation will lead to a more sophisticated order-promise process. The activities of the

upstream part of the customer decoupling point (CODP) are based on a forecast as

same as in make-to-stock (MTS). In order to create a buffer of materials used to

finalize products within the production plant, the actual customer inquiries or orders

are fed into the production process. In contrast, the activities of the downstream side

are driven by the customer’s order like in the make-to-order production environment.

As a consequence, the assemble-to-order is the combination of both make-to-stock and

make-to-order in which the customer order decoupling point acts as a separator. From

Figure 10: The information flow of the ordering process of make-to-stock production situation

which is affected by mass customization.


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the order promise process perspective, the upstream part which is the MTS process

needs to make sure that the subassemblies are available as a promise, while in the

downstream section as in MTO, the production process needs to make sure that the

activities are capable to produce the product as a promise to a customer. The

information flow for the assemble-to-order production situation is summarized in

figure 11.

Make-to-order (MTO)

The ordering process of the make-to-order production environment is relatively

straight-forward. The customer decoupling point is usually maintained at the

component (raw material) level where components are acquired based on a forecast or

on a customers’ order. The process starts when the customer places an order inquiry,

and the production provides the delivery information based on the availability of the

components. The production lead time is derived from the bill-of-material (BOM)

explosion and the present load in the customer order fulfillment process. In case that

the customer order is recognized, the quoted delivery lead time is accepted by a

customer. The customer order is fed into the customer fulfillment process order as

shown in figure 12.

Figure 11: The information flow of the ordering process of the assemble-to-order production

situation which is affected by mass customization.


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3.3.2 STOCK SHORTAGE ON INFORMATION FLOW OF ORDERING PROCESS

The volatility of customer demand makes the demand forecast and the production

forecast more difficult and less accurate. Since the customer demand keeps changing, the

product life cycle is shorter and the production anticipation can be inaccurate. The incident of

unexpected stock out or shortage is likely to occur. When this incident happens, the company

has to take an action which temporarily affects the information flows of order promising so

that the customer demand can be fulfilled. Next, the impact of stock shortage for different

production situations will be discussed and the impact on the model is presented.

Make-to-stock

In the make-to-stock (MTS) production situation, the stock shortage caused by the

demand volatility has a huge impact on an order promising process; i.e. customer

service time and order fulfillment. For example, the company has to negotiate with

their customers on a delivery date (Quante, et al., 2008). One of the things which are

considered to be the main problem is the machine capacity used to manufacture food

or feed products. The major aim is to provide an alternative lever for matching

demand and supply. There are several things that the production can do to adapt the

Figure 12: The information flow of the ordering process of the make-to-order production

situation which is affected by mass customization.


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capacity level to short-term demand fluctuations including shifting unnecessary

machines or production lines, hiring temporary workers and extending regular

working hours. In case of out of stock; i.e. end products are not available to fulfill

customer’s order, the production strategies need to shift from make-to-stock to make-

to-order. Since there is no product available on in the inventory, the machine capacity

needs to be reserved to produce products based on an order. The process of order

promising impacted by the stock shortage is represented in figure 13.

Assemble-to-order

The assemble-to-order production situation which keeps inventory only for

subassemblies and assembles the end products after the demand is realized. The short

product life cycle of the finished product is the main driver for assemble-to-order. The

demand volatility increases the risk of carrying inventories for the finished products

(Zhao & Simchi-Levi, 2005). High demand fluctuation leads to the stock out of the

subassemblies. This affects the order promising process by driving the whole process

with a customer’s order. In other words, the assemble-to-order which formerly focuses

on MTO and MTS tends to shift the whole production capacity and availability to

manufacture the product base on make-to-order. Notice that this shift in production

strategies is only temporary. When the situation is back to normal, the production

Figure 13: The information flow of the ordering process impacted by stock

shortage for MTS


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retains its original production strategy. Figure 14 shows the information flows of the

ordering process when the production strategy shifts.

Make-to-order

Every food and feed production firms desire to drive their production situations

toward make-to-order since this production situation has no finished inventory or

safety stock. Therefore, the scenario with the shortage of the products is unlikely to

occur since this production strategy is driven by a customer’s order not a forecast. In

other words, in the make-to-order production strategy, the safety stock is not

considered, so there is no impact on the model. For the raw material stock, there is still

no shifting in CODP. This is because the production needs to make the raw material

according to customers’ order as in the normal situation.

Figure 14: The information flow of the ordering process impacted by stock shortage for

ATO


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CHAPTER 4: SUPPLY-CHAIN OPERATION REFERENCE MODEL

(SCOR)

4.1 INTRODUCTION

In this research, the study is based on a SCOR model. First, a definition of the SCOR

needs to be defined. The Supply-Chain Operations Reference or SCOR is a model which

provides a unique framework that links performance metrics, processes, best practices and

people into a unified structure. The framework enhances communication within both the

company and supply chain partners. Moreover, SCOR improves the effectiveness of a supply

chain especially in terms of management, technology, information and other improvement

activities relating to the supply chain (SCC, 2012b). SCOR helps to manage a basic set of

business problems through a standardized language, standardized metrics and a common

business practice which increase business changes and performance enhancement. SCOR acts

as a process reference model which integrates the concepts of a business reengineering

process, a benchmarking process and a measurement process of a cross-functional framework

(SCC, 2012a). In other words, the SCOR model is the international standard model for supply

chain management and the world’s most widely known framework for assessing and

comparing supply chain performances and their activities (SCC, 2012a). The SCOR process

reference model has been noticed as a powerful tool in the hand of management. SCOR is

organized around the five primary management processes of any firm that are Plan, Source,

Make, Deliver and Return. This research focuses on only four major management processes

which are Plan, Source, Make and Deliver as shown in figure 15. Return is not included in the

study since it is not likely to occur within food and feed companies.


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Figure 15: the SCOR model (Tolone, 2000)

4.2 SCOPE OF SCOR PROCESSES

As mentioned in the previous section, the SCOR model is based on five management

processes. In this research study, the four main management processes will be mentioned and

discussed; namely Plan, Source, Make and Deliver.

Plan

In demand /supply planning and management processes, the main focus is on the

balance of resources with the requirements and established or communicated plans for

all actors within the company (Council, 2008). Moreover, plans include supply chain

performance data, a data collection, inventory data, capital asset data, transportation

data, planning configuration data and regulatory requirement data (Council, 2008).

Source

For sourcing, schedule delivery, product receive, product verification, product transfer

and suppliers’ payments are important. In addition, the management of the business

rule to assess suppliers’ performance and data maintenance are also vital. Furthermore,

a management of the incoming product, capital assets, a supplier’s network, suppliers’

agreements, import/export requirements and supply chain source risks are included in

the SCOR as well (Council, 2008).

Make

For all production situations; namely make-to-stock, assemble-to-order and make-to-

order, these management processes consist of production scheduling activities ,

product issue, production, quality assurance, packaging, product storage, product

release and product delivery. According to the supply chain council, with the addition

of the sustainability concept to the SCOR, there is a new specification for waste


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disposal in the make process (Council, 2008; SCC, 2012b). Also, performances data,

work-in-process products (WIP), equipment’s and facilities, a transportation and the

regulation network are included in the make process.

Deliver

For delivery process, all of the order management processes from customer inquiries

and quotations to routing shipments and selecting carriers are included. Moreover, the

management of delivery business rules, finished product inventories, capital assets and

the transportation are incorporated in the delivery process (Council, 2008; SCC,

2012a, 2012b).

4.3 LEVELS OF PROCESS DETAIL IN SCOR

The three process model levels of SCOR; i.e. top level, configuration level and

process element level are involved in this study, so these three levels will be discuss in the

next section.

Level 1 : Top Level (Process type)

At the first level of SCOR, the model is based on five core management processes.

However, this study focuses on only four processes that are plan, source, make and

deliver, which can be defined as following (Council, 2008).

Plan means “a process that balances aggregated demand and supply to

develop a course of action which best meets sourcing, production and delivery

requirements”.

Source is defined as “a process that procures goods and services to meet a

plan or an actual demand”.

Make is defined as “a process that transforms product to a finished state such

that a plan and an actual demand are met”.

Delivery means “ a process that provides finished goods and services to meet

a plan or an actual demand, typically including order management,

transportation management and distribution management” (Council,

2008)(Council, 2008)(Council, 2008)(Council, 2008) .


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Level 2 : Configuration level (Process Categories)

The level 2 processes differentiate the strategies of the level 1 processes. Both the

level 2 process themselves as well as their positioning in the supply chain determines

the supply chain strategy. SCOR contains 26 level 2 processes. The example of the

Make level 2 processes such as, make-to-stock, make-to-order and engineer-to-order.

So SCOR can be perfectly linked together with the CODPs’ concept. Furthermore, in

level 2, each process can be further described by type.

o Planning: a process that aligns expected resources to meet expected demand

requirements. The planning processes include the following (Council, 2008):

Balance aggregated demand and supply

Consistent planning horizon

Generally occur at regular, periodic intervals

Can contribute to supply chain response time

o Execution: A process is triggered by a plan or a definite demand that changes

the state of material goods and contributes to order fulfillment cycle time. The

execution process is generally involved the following elements:

Scheduling and sequencing

Transforming product

Moving product to the next process

o Enable: this is the process that prepares, maintains or manages information

correlation in which planning and execution processes rely.

Level 3 : Process element level (Decompose process)

Level 3 provides detailed process element information for each level 2 process

category. Each process category consists of different element information. Therefore,

it contains different sub-categories as described according to the latest version (V.10)

of the SCOR handbook (Council, 2008; SCOR, 2012). For example, ‘Make M2 make-

to order’ consists of the following element information:

M 2.1 : Schedule production activities

M 2.2 : Issue product

M 2.3 : Produce and test


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M 2.4 : Package

M 2.5 : Product storage

M 2.6 : Release finished product to deliver

M 2.7 : Waste disposal

4.3 OVERVIEW OF EXISTING SCOR BUSINESS PROCESS DIAGRAM

In the area of production and supply chain management, business process diagrams represent

the sequence of activities and information flows of a specific business control case and a coordination

mechanism between each element. According to the SCOR model, level 3 processes can be used as the

reference building block for a basic business process diagram (Council, 2008; SCC, 2012a, 2012b;

SCOR, 2012). According to the model developed by Verdouw, the control reference configuration will

be used in this study (Verdouw, 2010a). A SCOR process diagram depicts the interaction between

level 3 processes in the SCOR model of the supply chain. The example illustrated in figure 16 zooms

into the Make-to-Stock production process. The model shows the interaction between two actors

within the supply chain which are suppliers and retailers. If focusing on the grey lane of figure 16, the

core of the process diagram representing the sequence of the sourcing activities (the SCOR level 3

processes) is presented (see the previous section). The replenishment signal triggers the information

flow among activities between a supplier and a retail store (Verdouw, 2010a). The process diagram

that includes the elements allows the visualization of the information flow between actors and the

specific activities that will later on be investigated.

Figure 16: The example of the model showing the process diagram (Verdouw, 2010a)


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Make to stock (MTS)

Source to

forecast

CODP Deliver to

order

Make to

forecast

Assemble to order (ATO)

Source to

forecast

CODP Deliver to

order

Make to

order

Make to

forecast

Make to order (MTO)

CODP Deliver to

order

Make to

order

Source to

order

S

U

P

P

L

I

E

R

C

U

S

T

O

M

E

R

Based on the SCOR model and the model developed by Verdouw, the new model has been

generated due to literature studies combining with the nature of various production situations.

Three main production situations; namely make-to-stock, assemble-to-order and make-to-

order, will be discussed in the next section (Verdouw, 2010a).

4.4 REFERENCE MODEL FOR DIFFERENT PRODUCTION SITUATIONS

In this part of the chapter, the new models are developed based on the available

reference model (Verdouw, 2010a). The developed models attempt to link the relationship

between the SCOR model and the concept of customer order decoupling point (CODP).

Together with the indication of the customer order decoupling point concept where the

inventory is defined at different positions of the different production strategies, these

developed models are also within the level 2 processes of the SCOR model (Council, 2008;

Tolone, 2000). Based on three core management processes (make, source, and deliver), the

control configuration of three production strategies are generated. See figure 17.

Figure 17: The control configuration of three production strategies based on SCOR model

and CODP concept.

In figure 17, all of three production situations and activities are separated into two parts. In

the first part, the activities are based on a forecast and another part depends on the customer’s


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order based activities. These two parts are separated by the customer order decoupling point

where the inventory is kept.

In the next section is a description of figure 17. For the make-to-stock production situation,

the level 2 of both source and make management processes are forecasting-based and the

CODP where the inventory is stored and located between make and deliver. The activities

after the decoupling point are mainly driven by the customer’s order.

In the assemble-to-order production situation, the level 2 of the source and partly of the make

activities are generally based on a forecast. The make process based on forecasting is mainly

involved in the production of sub-assemblies. The production of sub-assemblies is still based

on a previous sale data. The forecasting is used as a main tool for the production planning.

The customer order decoupling point is located between the make process. Part of the focus is

on the forecast and another part is on the order of customer. After the decoupling point, the

forecasting of sub-assemblies is assembled based on the customer’s order. Finally, the product

is delivered according to the customer’s order.

For make-to-order, there is no inventory at a focal company. Mostly, all of the activities in the

make-to-order production situation are triggered or are driven by the customer’s order. Hence,

all of the management processes; namely source, make and deliver, are entirely driven by the

customer’s order, and sometimes, the inventory is stored at the suppliers to minimize the

number of inventory and management costs along the supply chain.

4.5 PROCESS MODEL FOR DIFFERENT PRODUCTION SITUATIONS.

The process model is a very significant and useful tool for analyzing the inter-

relationship among the detailed process information of level 3 in the SCOR model. Based on

the model develop by Verdouw, the models are develop based on SCOR and the CODP

principle. All of the management processes; source, make and deliver, each management

process are linked together with the management process called ‘plan’ as shown in figure 15.

Based on this configuration, the information flows among each element of different

production situations are derived as shown in figure 18, 19 and 20


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In figure 18, the process model for make-to-stock situation, the process model is

formulated by using the data from figure 17 and process elements in level 3 of SCOR. For

source to forecast (source stock product S1 in SCOR), process elements consist of the

following; S1.1 schedule product deliveries, S1.2 receive product, S1.3 verify product, S1.4

transfer product, and S1.5 authorize supplier payment. The source-to-forecast links with the

make-to-forecast by a planning process. The planning process involves activities like making

a production plan and a material requisition and checking for inventory availability. In the

make-to-forecast process (make-to-stock M1 in SCOR), process elements include the

following; M1.1 schedule production activities, M1.2 issue product, M1.3 produce and test,

M1.4 package, M1.5 stage product, M1.6 release product to deliver and M1.7 waste disposal.

A part of the process element is linked to the planning process which is also linked to the

deliver-to-order (deliver stocked product D1 in SCOR) as shown in figure 18. The deliver-to-

order consists of the following process elements; D1.1 process inquiry and quote, D1.2

receive, enter, and validate order, D1.3 reserve inventory and determine delivery date, D1.4

consolidate orders, D1.5 build loads, D1.6 route shipments, D1.7 select carrier and rate

shipment, D1.8 receive product from source or make, D1.9 pick product, D1.10 pack product,

D1.11 load vehicle and generate shipping documents, D1.12 ship product, D.13 receive and

verify product by customer, D1.14 install product and D1.15 invoice. From figure 18, the

inventory of the finish goods is located between the make-to-forecast and delivery-to-order

according to the customer order decoupling point concept. Based on the mentioned data, the

process model for make-to-stock production strategy is created as shown in figure 18.

In figure 19, an assemble-to-order production strategy process model is formulated by

using the same principle applies to figure 18. Source-to-forecast (S1) and make-to-forecast

(M1) is the same as in figure 18. Since the production of sub-assemblies is based on forecast,

the initial procedure is the same. The difference is after the CODP where the inventory is

kept. After the inventory, sub-assemblies are assembling to generate final products based on

customers’ order. The inventory is linked to the planning which is also linked to the make-to-

order (M2). The process elements of make-to-order consist of the following; M2.1 schedule

production activities, M2.2 issue product, M2.3 produce and test, M2.4 package, M2.5 stage

finished product, and M2.6 release finished product to deliver and M2.7 waste disposal. The

make-to-order is further linked to the deliver-to-order (deliver make-to-order product D2 in


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SCOR). The deliver-to-order (D2) includes the following process elements; D2.1 process

inquiry and quote, D2.2 Receive, configure, enter and validate order, D2.3 reserve inventory

and determine delivery date, D2.4 consolidate orders, D2.5 build loads, D2.6 route shipments,

D2.7 select carriers and rate shipments, D2.8 receive product from source or make, D2.9 pick

product, D2.10 pack product, D2.11 load product and generate shipping document, D2.12

ship product, D2.13 receive verify product by customer, D2.14 install product and D2.15

invoice. The data mentioning above are used to generate the process model for assemble-to-

order. The model is used as a basis to investigate the information flow of De Heus. The

process model for assemble-to-order is shown in figure 19.

Figure 20 shows the process model for the make-to-order production strategy. The

source-to-forecast (S1) of make-to-order is the same as what is stated in make-to-stock and

assemble-to-order production strategies. For make-to-order (M2) and deliver-to-order (D2) is

compatible to what is stated in assemble-to-order production situation. The final process

model for make-to-order production strategy is shown in figure 20.


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Figure 18: Process model for make-to stock


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Figure 19: Process model for assemble-to-order


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Figure 20: Process model for make to order


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CHAPTER 5: DE HEUS

5.1 INTRODUCTION

In chapter 5, the case company will be introduced. In the first section of this chapter, the

background of the European feed sector will be discussed. Later on, the animal feed sector in

the Netherlands will be projected. Next, the case study will be selected and the background of

the chosen company will be stated. The information about their customers and what kinds of

products are produced will be given. Then, in the next section, the specific sub research

question four, five and six; namely “How can different variants of CODP be recognized in De

Heus?”, “How can we model information flow related to these variants?” and “How can

information modeling support the management of CODP?” will be analyzed and answered.

The answer to these sub-research questions will be gathered by a qualitative analysis or an

interview of people within De Heus.

5.2 THE EUROPEAN FEED SUPPLY

In general, a feed supply is always noticed as being a part of a livestock production. In

2008, according to the European livestock production, about 500 million tons of feed are

required within EU-27 (FEFAC, 2008; Pinotti, 2011). Approximately, 50 % of this amount

are roughage produced on-farm, 10% are grain produced on-farm, 10% are purchased feed

materials and 30% are industrial compound feed (Pinotti, 2011). Within the EU-27, 151

million tons of compound feed can be produced per year which is noticed to be the second

largest of the world compound feed markets as shown in figure 22 (Best, 2010; FEFAC,

2008).


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Figure 21: The main compound feed producing countries

According to the research, most of the feed crops (i.e. around 75%) are being produced within

Europe even though imported soy beans dominate the protein supplies for animal feed in EU

(FEFAC, 2008). The feeding stuffs used by EU livestock farmers consist of forages produced

on the farm and animal feed purchased from suppliers (FEFAC, 2008; Pinotti, 2011).

Similar to other sectors, the entire European food supply chain from plant breeding, feed crop

production and animal feed formulation to the production of meat is experiencing challenges

created by the competition from low cost production countries (e.g. China and African

countries). In addition, there exist many restrictions imposed by national and EU regulations

on many aspects like environmental impact, animal welfare and traceability (Lina

Bukeviciute, 2009). The regulatory restrictions imposed by the European Commission have

impact on the functioning of the market through industry regulation (e.g. urban planning

regulations and opening hours in case of the retail sector) or economy-wide provisions (e.g.

labour market regulation and competition policy) (Lina Bukeviciute, 2009). The regulatory

framework can raise the cost of the firm in operating and producing the product, which will be

passed on to customers in terms of higher prices (Lina Bukeviciute, 2009). Regulations can

also affect the cost price of the firm through directly price regulation. With all of these

aforementioned reasons, the challenging competitive environment is created for all actors in

food and feed supply chain.


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5.3 FEED SUPPLY IN THE NETHERLANDS

Dutch feed industry or feed sectors play a significant role in the production of meat, eggs

and dairy products. The animal feed emphasizes on the product quality of animal origins.

Additionally, the animal feed industry adds the extra value to the by-products of food or

beverage manufacturers. According to Nevedi, in the Dutch feed industry association, 13.6

million metric tons of compound animal feed was produced in the Netherlands in 2010

(Gengler, 2011; Nevedi, 2012a; Wattagnet, 2010). Moreover, based on the data provided by

Nevedi, there are currently 72 compound feed producers operating in the Netherlands

(Gengler, 2011). The biggest five producers responsible for approximately 60% of the total

feed production in the Netherlands are listed below (Gengler, 2011; Nevedi, 2012a).

1. Agrifirm

2. De Heus Feed

3. For Farmers

4. Hendrix UTD

5. Boerenbond Deurne

The Dutch feed industry gets its raw materials from both within the country and abroad, but

normally, a larger portion of its raw materials is from abroad. The raw material mainly

consists of plant products (e.g. grain, soy and tapioca) and by-products from food and

beverage industry (e.g. beer brewing, soybean meal, citrus pulp, potato fiber and animal fats)

as shown in figure 23 (Nevedi, 2012b). The imported raw materials are from the following

regions. Cereals mostly come from the European hinterland. Soya bean is imported from

South America. Maize products are from North America, and tapioca is from Southeast Asia.

Based on these raw materials, thousands of feed recipes are formulated.


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Figure 22: The diagram shows raw materials used in compound feed industry in

2010(NEVEDI, 2012B).

5.4 DE HEUS FEED B.V.

De Heus Feed B.V. is a private, family-owned company, and the company is also

known as an international operating company with a core business of production and

commercialization of high quality feed. De Heus Feed B.V. was founded in 1911 with many

year reputation as a regional feed company (Heus, 2012a; Nevedi, 2012b). The company

progressed to one of the biggest players in the Dutch feed industry. Since 2005, the company

has embarked on an aggressive program of international expansion. Now the company has

activities in more than 45 countries. For instance, there exist operating production facilities of

the company in Poland, Russia, Egypt, Ethiopia, South Africa and Vietnam (Gengler, 2011;

Heus, 2012a). In 2011, the company produced more than four million tonnes of feed in its

own production location. From 28 production sites of De Heus, eight production facilities are

located in the Netherlands. Moreover, the company has more than 2000 employees of which

575 people work in the Netherlands (Heus, 2012a). The head office of the company is located

in Ede. The main types of feed produced by the company are feed for cattle, feed for pig and

feed for poultry.

Next, the mission, vision and value of De Heus will be mentioned. The mission of the

company is “to secure the continuity of De Heus as a family-owned business and to realize

worldwide growth in the animal feed industry, in accordance with our vision, values and

culture and in doing so, creating agricultural development and progress wherever we are

active” (Heus, 2012b).


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Company’s vision is “to retain and build on our leading position in countries where we are

active, on the basis of our core competences. On the one hand, we aim to achieve efficiencies

through economies of scale and, on the other hand, maximize our value-added potential

through our know-how of nutrition, production and livestock breeding” (Heus, 2012b).

The value of the company includes the following (Heus, 2012b);

Involvement: the passion of our customers requires a strong commitment to their business.

Loyalty: sustainable relationships with customers and employees are the backbone of our

company.

Food safety: it is our responsibility to ensure maximum food safety.

Cooperation: the power of a relationship, an organization or a chain is located in the

quality of the cooperation between people, departments and companies.

If mentioning about company’s strategy, the company offers not only the products but also

the knowledge that they accumulate as they operating the business are provided to their

customers. For example, together with the sale person, there is always a nutritionist who gives

suggestions of how to raise the animal and what kind of feed is suitable for each specific type

of animal. This creates a win-win situation, where their customers can obtain the knowledge

gained by the company, while the company obtains revenue from their customers. By using

this strategy, the company develops a strong relationship with their customers. Their customer

relationship is stronger than that of other companies since their customers do not depend only

on the products which are produced by the company but also the knowledge which is offered

by the company. With the mentioned strategy, the company gains the competitive advantage

against other competitors within the animal feed industry.

De Heus offers a wide range of product variety in various sectors including cattle, pigs, meat

poultry, laying hens, goats, sheep, ducks and turkeys. The consumer can modify the product

based on their needs.


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5.5 THE VARIANTS OF CUSTOMER ORDER DECOUPLING POINTS WITHIN

DE HEUS.

In this section of the thesis, the variants of customer decoupling points which can be

found within the case company will be mentioned. Firstly, the variants of customer order

decoupling points occurring within the case company will be analyzed. Then the specific sub

research question five “how to model this information flow as related to these variant?” will

be answered. Finally, the last sub-research question will be discussed: “How can information

modeling support the management of CODP?”

In this part of the discussion, the answer to sub-research question four will be

answered. The variant of the customer order decoupling points that occurs within De Heus

will be discussed. De Heus has its plants in more than 10 countries, and there are differences

in product type and product quantity from country to country. For example, if considering the

Netherlands, poultry feed is the dominant product following by ruminant feed as the second

most important type of product of De Heus. On the other hand, swine feed is dominant in the

Asian countries like Vietnam. This research study only focuses on the Netherlands because

the company originates in the Netherlands. Another reason is the accessibility of the

information. The most important product category in the Netherlands is poultry feed. At lower

level of this product category, sub-products are presented. For example, in poultry feeds, sub-

products are broiler breeder feeds, broiler feeds and also feed for egg layers. The term

‘poultry feeds’ is a general term for all of the sub-products to make them more comprehensive

for the reader. According to the data from the year 2012, if considered about the proportion of

the poultry feed production in the Netherlands compared to other types of feed products, it

made up to fifty percent of the total feed production. According to the expert, the general

broilers, broiler breeders and farmers are the company main market segments and customers.

If mentioning about the customer order decoupling point, De Heus uses the combination of

two delivery strategies. According to the interview, the delivery strategies that De Heus uses

are “make-to-order” and “make-to-stock” since the company produces the product according

to a customer request, and also, the company produces the product for stock. In this thesis,

instead of using the term make-to-order, the author prefers to use the term “assemble-to-


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order”. When the detail process of the delivery strategy is looked closely, the definition of the

delivery strategy that De Heus is using fits more with the definition of assemble-to-order not

make-to-order. This is because the raw materials like maize, soya and other materials have

already been bought to stock prior to a customer’ s order receiving. After obtaining an order

from a customer, the final feed product is mixed by using the available raw materials. From

this reason and the definition given in chapter II, instead of the term ‘make-to-order’ used by

De Heus, the author would like to use the term assemble-to-order . If taking the Netherlands

as an example, most of the time, the products are assembled based on a customer’s order.

According to the expert, it is better to assemble the product based on an order so that the

product can always be delivered. At the same time, less stock is resulted. Creating an

inventory for the finished products is costly and requires a lot of space. Instead, the company

chooses to stock the product in the form of the raw materials, which can be mixed into a wide

range of end products later on. In contrast, the company chooses to produce the finished

product to stock when the products are really needed according to a demand forecast and a

production history. For example, the sub-category products of poultry and ruminant are two

major product groups that the company is willing to produce to stock. Due to both the

production history and the demand forecast, the company knows exactly that the product can

be sold. The company is unwilling to stock the products that have a low turn-over rate. The

company decides to produce the product to stock for the products that contain a high

inventory turnover rate like poultry and ruminant. Most of the times, other products are

assembled according to a customer’s order. Based on the interview, the expert even said that

in the Netherlands sometimes it is impossible to make the product to stock because almost full

production capacities are devoted to assemble the product according to customers’ orders.

Only ten to twenty percent of the leftover capacity works on producing the inventory to stock.

These make-to-stock and assemble-to-order production situations have nothing to do with the

type of the customers, but they relate to the production history and the demand forecast. In

other words, the company chooses the delivery strategy based on the demand forecast that

increases annually to support the growth of the company and products that have the high

turnover rate.


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5.6 RESULT & DISCUSSION

5.6.1 INFORMATION FLOWS RELATE TO VARIANT OF CUSTOMER ORDER

DECOUPLING POINTS.

In this research study, the author focuses on how the information flow is managed around

the customer order decoupling points. Moreover, the author also focuses on the different

delivery strategies. How the data flow can be modeled in which the fifth sub research can be

answered. The five processes of information flows will be discussed;

1. The information flows relate to the purchasing process (information flows and

interactions between the company and the suppliers). Is there any impact of the

various factors mentioned in chapter II on this information flow?

2. The information flows relate to the order processing (information flows and

interactions between the company and the customers). Is there any impact of the

various factors mentioned in chapter II on this information flows?

3. The information flows relate to the production and the production planning. Is there

any impact of the various factors mentioned in chapter II on this information flow?

4. The information flows relate to system integration structure (Information flow and

interactions between head quarter level and production plants in each country since the

Netherlands is also accounted for being part of the huge network)

5. The information flow of the company that is impacted by an exceptional situation.

5.6.1.1 THE INFORMATION FLOWS RELATE TO PURCHASING PROCESS

The information flows relating to the purchasing process start when a factory sends a

production forecast or a sale prediction to a purchasing department. That is the activity

that triggers the whole process. Next, the purchasing department will see whether it is

possible to make the contract with the suppliers or not. To determine whether it is

possible to make a contract or not, it is usually the role of purchasing department to

negotiate with the suppliers. The possibility basically depends on whether it is possible

for suppliers to supply raw materials for a certain period of time; e.g. supplying the raw


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material for four to six months with the agreement price. It always benefits the company

to sign a contract because the price of raw material is cheaper. If signing the contract is

possible, the contract is always signed. After the contract is signed, it will be registered

into the purchasing application called Milas4 and this data is shared with the production

department. Hence, the production department knows which suppliers are still available

within the contract and how long the supplier will supply the company with the agreed

raw materials. If there is no supplier in the contract anymore, the production will contact

the purchasing department for further sourcing. After the contract is registered into

Milas4, the logistics department will make a delivery schedule proposal in Milas 4. The

delivery schedule proposal is sent to supplier. Then, they have to wait for their approval

and send the approval back to the logistics department. During this stage, a negotiation

on the delivery occurs. Next, after the correct delivery schedule is confirmed, the

delivery schedule is sent to the production factory. The production will receive the raw

material delivery directly from supplier. Then the information flows will be divided into

two paths. This is due to the agreement within the contract whether the company has to

pay before the delivery or the company buys the raw materials on credit where the

payment process must be completed after the product is delivered. Two cases are

specified below.

The first case represents the payment after delivery.

First, the first case will be described.

After the Logistic department receives the delivery schedule approval from the

suppliers, the Logistics department registers the delivery schedule in Milas 4 and

the information is shared with the production department.

After the factory receives the items based on the confirmed delivery schedule

from the supplier, the received raw materials are stored. The factory needs to

enter the received items into the factory system and the purchase administration

will receive the item details passing through the ERP system.

Later on, the supplier sends an invoice to the purchase administration department

according to the sent items.


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The purchase administration department needs to register the invoice into the

system so that the data will be used by a finance department for further invoicing

process.

Finally, the purchase order will be closed.

The second case represents the payment before delivery.

The same situation happens like in the first case. After the Logistics department

receives the delivery schedule approval from the suppliers, the Logistics

department will register the delivery schedule in Milas 4. The information is

shared with the production department.

First, the supplier will send an invoice to the purchase administration department

according to the price of raw materials. After that, the invoice is registered into

the system.

The invoice will be paid by the finance department. After the payment, the

finance department will enter the detail into the ERP system before the

production receives the raw materials based on a purchase order.

After payment, the factory received the raw materials. These received raw

materials are stored as an inventory. The factory needs to enter the detail of the

received items into the factory system.

Finally, the purchase order will be closed.

When the information flow is analyzed in order to find the differences between the

purchasing processes of different production strategies (i.e. make-to-stock and assemble-

to-order), the detail processes need to be discussed. According to the research mentioned

in chapter three and four and the expert (see appendix II), there is no difference in the

purchasing procedure for both delivery strategies. If mentioning about the material

resource planning, the responsibility belongs to the purchasing department. The purchase

planning usually depends on a seasonal purchase; e.g. most of the raw materials like

maize and soya. The yearly purchase is a seasonal purchase where De Heus purchases the

raw material when it is available and cheap. This raw material will be stocked and used

throughout the year, but there are also some products that the company might not buy

them seasonally like vitamins and minerals. As mentioned earlier, the company knows


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how much to produce and how much raw materials are required. This data will be used as

a production history for the next year. For some exceptional raw material shortage, the

information flows can be affected by this exceptional shortage of raw materials. If the

shortage occurs, the production department does not have to wait for planning. In other

words, the production can purchase the items immediately for the current need from a

local market if there is no available supplier within the contract. It also depends on

whether it is a long term planning or it is a short term planning. The purchase department

has to communicate with the production.

If mentioning about the factors that have an impact on the information flows of the

purchasing process, according to the expert interview (see appendix II), there is no

impact on the information flow of the purchasing processes. For the exception situation

like when the factory urgently requires the raw material for urgent order, instead of going

through the normal procedure, the production, logistics and the purchase department will

make a phone call to speed up the processes. The best solution is found by

communicating between the head of three departments. The problem that likely occurs is

that when the factory urgently needs the product, the purchasing department needs to

make the contract with the suppliers, while the logistics department has to see the truck

schedule for the receiving items. The biggest problem within the purchasing department

is that the department has to compromise and tries to make the contract with the suppliers

which require a lot of negotiation skills. When there is an urgent purchase order due to

the shortage in raw material, the buying of raw material for urgent usage is always very

expensive. Since the price of the raw material in European market is very fluctuate, the

cost price of the final product is highly affected by the cost price of raw material.

5.6.1.2 THE INFORMATION FLOWS RELATE TO THE ORDERING PROCESS

The information flow relating to the order processing is started from incoming calls or

emails from a customer for an order to the sales department. The sales department sends a

customer’s eligibility request to the finance department for eligibility validation. The

eligibility of the customer is approved by checking his/her financial statement to see

whether he/she can afford his/her orders or not. Most of the time, the company sells the


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products on credit. In case that the customer’s order is ineligible or he/she has a tendency

of incapability to pay for the product, the financial department will send a notice back to

the sales department. Then the sales department sends the notice back to the customer to

inform the customer that the order is terminated. The reason for the eligibility validation

of the customer is to prevent the risk of receiving an order from an indebted customer. To

reduce the risk, the company prefers to check the statement of the customer in advance.

In case that the customer is eligible, the sales department will send a production request

to the production planning department. The production planning department will check

for the possibility of accepting the order and send a notice back to the sales department.

During this process, there are a lot of negotiations going on before determining a delivery

date. The sales department has to always consult with the production planning department

while negotiating with the customer. For the normal order, the company usually has a

week time to deliver the product. This also depends on how urgent the order is. Some

orders are very urgent. According to the interview, the expert gave an example of the

customer who called and ordered the product in the morning and requested the product to

be delivered in the afternoon. Normally, production planning depends on a customer

request. When an urgent order is approved, the company tries to deliver the urgent order

first and less urgent order later. The human factor is always used to evaluate this issue.

The production planning department will check for the possibility of an order fulfillment.

Later on, it will send the notice back to the sales department to give the customer a notice

whether the order is accepted or rejected. In case of a production capacity is full; the sales

department has to talk with the customer to change the delivery date. If the customer

cannot accept the offer, the order needs to be rejected, which is always being the last

option. In case if the order is accepted, the sales department will inform the customer

about his/her order together with the delivery information based on the data that the sales

department obtains from the production department. If the customer accepts the offer of

the delivery date, the sales department will receive the delivery information from the

customer, and the delivery information will be checked with the sales order. Afterwards,

the sales department will send a delivery date confirmation to the customer. Next, the

sales department will activate the invoice and will send it to the finance department for

invoice processing. Finally, the ordering process is closed. The flow of information for

production and production planning will be discussed in the next section.


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The factor that may impact the information of ordering process is the lead time, but

according to the expert interview, it is mentioned by the expert that the production lead

time is not affecting the flow of information for De Heus because the production lead

time of De Heus is very short. Furthermore, the delivery lead time also has no impact on

the flow of information. Since the production lead time is short, the product can be

directly delivered to customer after the production of the product is finished. Base on the

data analysis, it can be said that the ordering processes of make-to-stock and assemble-to-

order are sharing almost the same path. In other words, there is no significant difference

between the ordering process of make-to-stock and assemble-to-order.

5.6.1.3 THE INFORMATION FLOWS RELATE TO THE PRODUCTION AND

PRODUCTION PLANNING

This section of the thesis is divided into two sub-sections which are the information

flows relating to the production and the information flows relating to the production

planning. First, the production planning will be discussed.

The production planning level is the most important process, where the activities of

the two production strategies; namely make-to-stock and assemble-to-order, are separated

into two paths. In production planning department, it contains a production history where

the bestselling products (e.g. poultry and ruminant) can be produced to stock. After the

sales department sends a production request to the production planning department, the

production planning department will firstly check with the production department

whether the ordered products are available in the inventory. If the inventory is available,

the production planning department will make an inventory reservation within the

system. Later on, the products will be sent to the logistics department to deliver to the

customer. For an exceptional situation where the products are out of stock, the production

planning has to consult with the production department whether it is possible to produce

the product the following day. In general, the company tries to fulfill the customer order

to the fullest. However, it is possible that the company sometimes has no way out and

fails to negotiate with the customer. Hence, the company has to say no and rejecting their


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customers’ order. After the production department receives a feedback of stock

availability, the production planning department has to check for the availability of the

raw material within supply stock before making a production plan. If the production

planning department sees the possibility of scheduling the production plan (assemble-to-

order). A notice will be sent back to the sales department. In the production planning

department, after the orders have been accepted, the production planning department will

make a production plan. The master production plan is derived from all of the received

orders that have been registered into the sales registration system. The company takes the

orders which are confirmed by the customers to include in the production plan.

Sometimes, the customer orders the product, but the order has not been confirmed yet. In

this case, only the confirmed orders are used for making the master production plan. The

production planning department makes a weekly planning which derived from the master

production plan and also depending on the delivery date and the order urgency. This

production planning is sent to the production department and logistics department.

The information flow of production process starts from receiving a production plan

sent by the production planning department. For the assemble-to-order production

strategy, after the production plan is received from the production planning department,

the actual production is processed according to the steps mentioned in chapter II. After

the production, the products are delivered to the logistics department. It is mentioned by

the expert that the process is quite simple. Feed industry does not require a lot of complex

machinery, so there is usually no problem in the production process (see Chapter II). At

the same time, the production department makes a delivery report and updates the stored

inventory in the system. The bill of material (BOM) or the recipe of the products is stored

in the head quarter. For a product, the nutrient content is always the same, but the recipe

might be different. For example, if a product must contain ten percent of protein, it is the

role of the head quarter to formulate the recipe of the product with ten percent of protein

content. Although the protein content is 10% of the recipe, the final protein content of the

product may be solely made of maize or may compose of the mixture of maize and soya.

In other words, although the protein quantity is the same, the recipe may differ according

to different available raw materials. Prior the logistics department receives the product

from the production department; the product has already been determined “whether the


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product will be sent by using the third party logistic or the truck of the company”. It is

mentioned by the expert that the company usually uses his own truck to deliver the

product to the customer, but if there is a problem with the availability of the truck, the

company tends to use the third party logistics. By using either the company’s truck or the

third party logistics, the finished product can be delivered to the customer. In case of the

make-to-stock delivery strategy, after receiving the production request, the production

planning department checks for the inventory of the ordered product with the production

department whether the ordered product is available in the inventory or not. If it is not

available, the production planning needs to change the strategy from making the product

to stock to reserving the production capacity for the assemble-to-order strategy. As

mentioned earlier, if the product is available in the inventory, the inventory is reserved

and further sent to the logistics department for delivery. It is important that the delivery

date is primarily determined with the cooperation between production planning and

production department. In the step where the production planning department checks for

the availability of the inventory and derives the production plan before giving the

customer a notice of delivery date, the company uses the capacity of the machine to

indicate which machine or which plant will be assigned for the production planning

process. If the machine cannot produce and fulfill the order in one batch or the amount of

the product producing is not matching with the capacity, the company will be assigned

the work to other machine. This is because it is too costly if the production capacity is

unbalanced with the assigned order.

The next section presents some mentioned factors in chapter II that have an impact on

the information flows of the ordering process. Product customization, which allows the

customer to customize the product like addition of medication into the feed and increase

of the protein content within the product, influences the flows of information in terms of

the formulation of the production recipe. For each plant, if the order comes with the

customization, the plant needs to request for the recipe from the head quarter which is

located in the Netherlands (Holding level) because all of the formulation is stored in one

place. Then, the information of the formulation is sent back to the production for further

processes. The reason for only keeping all of the possible recipes in the database at the

head quarter is because the company operates their business in many countries, so they


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want to protect their competitive advantage by making their formulation a secret. The

company needs to deal with a large number of data which is caused by product

customization. As mentioned earlier that a product may have hundreds up to thousands

of customizations. This impact can only occur in the assemble-to-order, where it does not

occur in the make-to-stock production situation. For the make-to-stock delivery strategy,

the products are produced to stock based on production history to fulfill customers’

demands. According to the expert, the demand volatility is not a major factor that causes

a problem within De Heus. This is because the demand fluctuation in feed industry is

hardly found, so the production planning can be based on the production history and the

production volume will grow with the company expected growth. The company tends to

stock the material in the form of raw material instead of the final product. Another factor

which has a huge impact on the flow of information is stock shortage. In this case, the

shortage is found at the stock of raw materials. If the stock of raw material is out, the

production plant needs to send the information to the holding level to reformulate the

recipe as shown in the line label 5.1, 6.1, 7 and 8 in appendix 3. It is important that the

final content of nutrients needs to be the same. When the raw material stock shortage

occurs, the company and the purchasing department must cooperate to find a way out

together, for example, making a contract with a new supplier or buying the raw material

from the local market. This causes an increase in the price of raw material, but it does not

have much impact with the company since only small amount of raw materials are

purchased. This only lasts for a short term in order to retain a good relationship with their

customers. The flow of information is sent to the holding level in order to make a new

formulation using different raw materials in compensation with the shortage raw material.

According to the expert, the cost of the product will be calculated based on the cost of

raw material because other costs are usually considered as a fixed cost. The stock

shortage also has an impact on the customers due to the higher price of the final product.

When the company raises the product price, farmers stop buying the product from the

company. They will buy the product from the local market, but when the price gets back

to its own position, they buy the product of De Heus again leading to an inaccuracy in

production forecasting.


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To clarify more about the production and the production planning processes, the

product customization that the company offers to their customer changes the position of

customer order decoupling point from make-to-stock to assemble-to-order. This change

has an impact on the flow of the information of the company especially for the

information flow of the production and the production planning. For make-to-stock, the

production planning needs to check for the availability of the inventory and deals with the

inventory reservation. In contrast, the information flow of the assemble-to-order

especially in the production planning level needs to make the planning and assigns the

work to the company facilities as mentioned earlier. For other factors which are not

mentioned in this section but are mentioned in chapter II, the expert sees no impact from

those factors on the information flows of the production and production planning

processes.

5.6.1.4 THE INFORMATION FLOWS RELATE TO THE SYSTEM INTEGRATION

STRUCTURE

De Heus contains a number of production plants located internationally in various

countries, so the data needs to be aggregated in the backbone of the information system

which is called the service-oriented architecture. Information flows are related to the

system integration start from the holding level at the headquarter where all of the recipes,

data codes, labels, nutrients, units and reference values are kept. The information flows

from the headquarter are sent to the headquarter located in each country. The data are

stored in an ERP system which consists of many applications, for example, a human

resource system and a data warehouse. The specific information flows are stored within

an ERP system including recipes, article codes, labels, purchase order receipts, sale order

releases and also production lot reports. The headquarter at the country level sends the

information flows that are required by the plants located within the country including a

recipe, an article code, labels, Purchase Orders (POs), Sales Orders (SOs) and a

production request. All of the purchase and sales orders are sent from the headquarter

passing through the country headquarter and finally to the production plant. Then, De

Heus plant sends the recipe and the production request to the production control system


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for an actual production. The plant consists not only the production control system but

also a laboratory system where the quality of the raw materials to the quality of the final

products are tested. The samples are sent from the production plants to the laboratory

located in Den Bosch by the production manager. The raw materials are accepted and

used in the production line before the approval of the laboratory result. It’s the risk that

the company willing to take. Thus, the plant sends a sample code, a VT number and a lot

number to the laboratory information management system for quality assurance of raw

materials and products. Next, the production control system sends back the production lot

report; whereas, the laboratory information management system sends back the analysis

results to De Heus plant. Afterwards, the plant will send the report back to the head

quarter at the country level including the following information; Purchase Order Receipts

(PORs), Sales Order Release (SORs), lab samples and results. Finally, the country

headquarter sends the report of the production; i.e. the historic and replacement price, the

raw material consumption and the raw material stock, back to the holding level located

within the Netherlands. See the process flow in appendix 3.

5.6.1.5 THE INFORMATION FLOWS THAT ARE IMPACTED BY AN

EXCEPTIONAL SITUATION.

The information flow mentioned in section 5.6.1.1-5.6.1.3 is based on a normal

situation. Previous section has already mentioned about some factors which have an

impact on the information flow. In this section of the thesis, the author will solely

emphasize about the information flows that are impacted by an exceptional situation.

There are many factors that can impact the information flow of the company, for

example, delivery lead time, production lead time, stock shortage, product seasonal

demand, etc. According to the interview result (see appendix II), the expert was asked to

rank various factors that cause the most problem within the company. It turns out that a

raw material stock shortage is the factor that has the most impact on the information flow

of the company but there are also other factors that impact on the flow of information

including the delivery of out of quality raw materials, product return from customer and

invoicing of the raw material shipment. First, the raw material stock shortage will be

investigated. The whole information flow is triggered by the stock shortage of the raw

material. This results in an urgent request from the production planning department or


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sometimes from the production department itself. The production department receives an

urgent request and sends the purchase order to the purchasing department. For the urgent

request, the purchasing department will try to find the suppliers and sign a contract with

them. When the contact is possible to sign, the procedure goes according to the normal

process. However, if the purchasing department is unable to sign a contract with

suppliers, they send the production department a notice. The notice indicates the raw

materials, the quantities that need to be purchased and the name of the supplier.

Moreover, the price of the raw material is also given. The production department is

allowed to choose to purchase the raw material from their own choice of suppliers from a

local market. After the supplier from the local market accepts the purchase order, a

proposal of the delivery schedule will be sent to the local market suppliers. The

negotiation of the delivery date occurs during this phase. After the delivery date is agreed

by both the company and the suppliers, the ordered raw material will be delivered

directly to the production department. The invoicing process goes according to the

normal procedure.

The second factor of the exceptional situation is the delivery of out of quality raw

materials. This is happened within the company. In the normal situation, raw materials

are delivered to the company either by trucks or ships. Suppliers and De Heus have an

agreement on the specification or the requirement of the raw materials. The quality check

of the incoming raw materials is for example, the protein content, the moisture content of

maize should be around 10-12 % or the checking of Salmonella in soy that used to be an

outbreak. The quality check is done after the raw material have already been received

into the production plant. If the inspection after the delivery is not meet the requirement.

Then, the purchasing department will first negotiate with the suppliers to inform them

about the incident. The company will received the money back in term of discount. If the

raw material is way out of specification, the raw material will be fully rejected.

Invoicing of the raw material shipment is the third factor that can has an impact on the

company information flow. Some raw materials are transported to the company by ships.

The ordered quantity of raw material is indicated within the invoice. It is possible that

when the raw material arrive, the quantity is not as agreed. Sometime, the company

received a surplus or a shortage. The company will also inform the suppliers about the


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weight of the delivered raw material. In case of the surplus, the company has to pay for

the extra surplus which company received but this is rarely happened. In case of a

shortage, the company will receive a refund payment from the suppliers.

The exceptional situations of De Heus can be categorized into 2 main categories which

are the exceptional factor that has an impact on the CODP positioning and the

exceptional factors that not have an impact on the CODP positioning. The factors can be

categorized as the following according to the information given by De Heus employees.

The exceptional factor that has an impact on the CODP positioning.

o Stock shortage

The exceptional factors that not have an impact on the CODP positioning.

o Delivery of out of quality raw materials

o Invoicing for raw material shipment

5.6.2 MODELING INFORMATION FLOWS.

In this part of the thesis, the sub-research question five “How can we model

information flows related to these variants?” will be answered. The information flows

which have already been mentioned in sectioned 5.6.1 will be used to make a model. First,

the model for the purchasing processes of make-to-stock and assemble-to-order will be

given followed by the model of ordering processes. Next, the main production and the

production planning process where make-to-stock and assemble-to-order are separated in

different paths will be shown.

Based on the SCOR model mentioning in chapter 4 together with the expert interview in

section 5.6.1, the purchasing process model has been developed see the descriptions of the

detail information flows of the purchasing processes in section 5.6.1.1. Figure 23 shows

the information flow model of the purchasing process within De Heus. There is no

difference between make-to-stock and assemble-to-order for the purchasing process of the

company. They undergo the same process, no matter whether it’s a make to stock or

assemble to order. The discussion is given in chapter three and four. The factors which are

mentioned in chapter two have an impact on the information flow of the ordering process.

In addition, an exceptional situation mentioned in section 5.6.1.5 regarding the raw


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material stock shortage has an impact on the information flow of the company as well.

Figure 23 shows that the purchasing process is triggered when the factory sends a

purchasing request to the purchasing department. When the urgent raw material shortage

occurs and the purchasing department is unable to make a contract with the customer, the

information flow will change. The purchasing department will allow the production

department to purchase the raw material from the local market in case of the urgent usage

which can be seen in figure 28. The expert mentioned that the incident can happen from

time to time. Instead of passing through the procedure mentioned in figure 23, the

production and the purchasing departments will use a phone call to consult and negotiate

about the urgency of the raw material shortage as shown in figure 28. Another issue that

impacts the flows of information is the method of payment. As shown in figure 23 that the

information flow has been separated into two paths, the first path is the payment after

delivery and another is the payment before delivery. The models of the information flow s

that are affected by the out of quality of the raw material delivery and invoicing of the raw

material shipment can be found orderly in figure 29 and 30.


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Figure 23:The purchasing process for both make to stock and assemble to order.


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In section 5.6.1.2, the information flow of the ordering process is represented in figure 24.

There is no significant difference in the ordering process between make-to-stock and

assemble-to-order production strategies as well. If we discussed about the production and

production planning process which is mentioned in 5.6.1.3, there are some significant

differences. According to the qualitative face to face interview and literature study, both

confirm that the difference between the make-to-stock and assemble-to-order production

situations is in the production planning. The production planning process is the point where

the planning occurs as shown in figure 25, which is located between the production

department and the sales department as in figure 20 and figure 26. Additionally, there are

some factors impacting on the flows of information. The first factor mentioned in section

5.6.1.3 and 5.6.1.5 is the raw material stock shortage that has an impact on the information

flow in terms of sourcing of the raw material. It appears that the raw material needs to be

bought from a local market. See figure 28. Moreover, the reformulation of the recipe by

finding the compensation of raw material will increase the cost of production and decrease in

the number of customer because of the higher product price. In addition, the product

customization that allows the customer to choose what he/she exactly wants in the

formulation of the feed impacts the information flows. This is because the information needs

to be sent back from the holding level to the production facility, and this divides the

information flow at the planning level into two different paths for make-to-stock and

assemble-to-order as mentioning in section 5.6.1.3 and figure 25 and 26.

5.7 THE INFORMATION MODELING AND THE MANAGEMENT OF CODP

In this section of the thesis, the author will discuss about “how the information

modeling helps to support the management of customer order decoupling point?” It is the last

sub-research question in order to fulfill the main research objective. Based on the information

flow generated for De Heus that is mentioned in the previous section (figure 24-30), the

information flow and its relationship with CODP will be studied. From figure 27, for the

make-to-stock production strategy, an inventory of finished goods is kept after the production.

A green color inventory from the figure 27 shows a normal production situation of the make-


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to-stock delivery strategies and the information flow around the CODP which locates between

the make-to-forecast and deliver-to-order. This leads to a limited end-product variety since the

production is based on forecast. Therefore, the company produces only high demand products.

The management of CODP for the make-to-stock production of De Heus is that they only

produce products that are high in demand. In other words, the product that contains a high

inventory turn-over rate is produced. The company needs to make sure that the product can be

sold, e.g. poultry and ruminant. The disadvantage of make-to-stock is that the company needs

to take the inventory cost of finish goods resulting in a low product variety. In order to fulfill

the need of their customer and make the product more customizable, the CODP is moved

backward toward the supplier. From figure 27, a red color inventory of a raw material is a

point where the raw material is kept. This delivery strategy makes it possible for De Heus to

fulfill the various needs of their customers without stocking of finished products. The

company moves the CODP backward in order to use the available raw materials to customize

into various end-products. The shifting of the CODP from make-to-stock to assemble-to-order

of De Heus is caused by the product customization, which leads to a high inventory cost and a

risk of end product stock-out. For an exceptional situation mentioned in section 5.6.1.5, this

moves the CODP even backward toward the supplier as shown in figure 31. The raw material

stock shortage leads to a shift in the CODP. Moreover, considering the usage of the model,

the model is used to support the management by providing the clear holistic view of what is

really going on within the company and how the information involves around the CODP of

the two production strategies; namely make-to-stock and assemble-to-order. The difference

between the make-to-stock and assemble-to-order production situations is in the planning

process when the production planning receives a production request from the sales

department. The production planning department has to check whether the product is

available in the inventory or not. If it is not available, it will undergo the make-to-order

production situation as clearly shown in figure 25 and 26 in a highlighted orange box called

planning and in figure 31 where the CODP move backward. The Figure 31 summarizes the

different production strategies and the factors that influence the shifting of the CODP within

De Heus. The difference between three production situations provides an overview of how the

thing works and which information is shared and is required by which departments since each

department is focused on their own department without noticing how the information flows

are managed and shared. The model offers a clear holistic view of how each department


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functions in terms of purchase and order processes. It is a better option to give a clear

visualized explanation of what is going on between each department and which information

flows are responsible for each process. Figure 27 shows a combination of the purchasing, the

ordering, the production and the production planning processes and the interaction between

the supplier with the company and the company with the customers. Furthermore, this model

can also be used as an input of information system (programming) by giving a clear picture of

what information is required by which department and providing the inter-relationship

between each process. Moreover, this model also aids decision making of the management to

choose the application for the information system “whether it is necessary to purchase a really

expensive application, while the only basic application is already enough to fulfill the need of

information flow”.


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Figure 24: The similarity of ordering process for make to stock and assemble to order .


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Figure 25: The difference of production and production planning process for make to stock and assemble to order.


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Figure 26: Information flows when combing ordering, production and production planning process.


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Figure 27: The information flows of De Heus.


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Figure 28 : Exceptional information flow that is influenced by raw material stock shortage


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FIGURE 29:Exceptional information flow that is influenced by the out of quality of the raw material delivery


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FIGURE 30:Exceptional information flow that is influenced by invoicing of the raw material shipment

5.8 CONCLUSION

In this final section of thesis, the author wants to conclude the significant point of this study

according to the main objective which is to analyze the factors (Figure 31) that influence the different

positions of the customer order decoupling point (CODP) and related diverse of information flow within

De Heus by modeling the information flow between various functions within the company. This main

objective is answered through the main research question and six sub-research questions which have

already been answered in chapter two to chapter five.

The first sub-research question namely “In what way, animal feed company arrange in general

CODPs?” is answered in chapter two. According to the literature study, the general animal feed chain

arrangement is given considering the basic product transformation in the animal feed supply chain. The

production processes are orderly consisted of the following steps: raw material receiving, crushing,

batching, mixing, pelletizing, storage and distribution. The possible customer order decoupling points

Figure 31: The three positions of the CODP and the factor that causes the CODP shifting within De Heus


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within the feed industry are make-to-stock, assemble-to-order and make-to-order excluding engineer-to-

order.

The second sub-research question namely “what are the factors that impact the positioning of

CODPs?” is also answered in chapter two. The factors can be categorized based on the food and feed

supply chain characteristic and accidental incidents. For the food and feed supply chain characteristics,

the factors can be further categorized into three main sub-groups including product-related factors,

production-related factors and market-related factors. Product-related factors involve modular and

product design and customization opportunity. For production-related factors, the production lead time,

flexibility and position of the production process bottleneck are included in this sub-group, and finally,

the market-related factors contains delivery lead time, demand volatility, product volume and customer

order size and frequency. Accidental incidents (short-term impacts) involve shortage of stock product,

seasonal demand and incidental factors, The conceptual factors that impact the model is formulated, and

the position of the customer order decoupling point is suggested to determine by using the ratio between

production lead time and delivery lead time which has already been mentioned in chapter two.

The third sub-research question namely “what information flows are related to different

CODPs?” is answered by using literature study indicated in chapter three and chapter four. A number of

information flows are discussed. Especially in chapter three where the models of the various processes

are generated, the information flows that are related to different customer order decoupling points are

discussed. In chapter four, the business process models for three production situations (MTS, ATO, and

MTO) are developed based on the SCOR model to make a reference business model that can be used to

apply in the analysis.

The fourth sub-research question that is “How can different variants of CODP be recognized in a

case company? Is answered in chapter five where the two main CODPs which are make-to-stock and

assemble-to-order are analyzed based on the case company. The answer is obtained by doing the face to

face interview. The make-to-stock production strategy is used with the product that have a high

inventory turn-over rate like in poultry and ruminant feed. For other products, the company produces the

product using assemble-to-order production strategy. The raw materials are prior bought to stock. Final

products are then assemble according to customers’ order using the available materials.


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The fifth sub-research question namely “How can we model information flow related to these

variants? Is also answered in chapter five. In this chapter the information flows of the purchasing, the

ordering, the production and the production planning process are modeled based on the information

gathered by the interview and the reference process model which have been developed earlier with the

concept of SCOR. Moreover, the model for an exceptional situation of the raw material stock shortage is

also generated and discussed

The last sub-research question that is “How can the information modeling support the

management of CODP?” is answered in chapter five. The factors that create the shifting of the CODP

are discussed. The shifting of the make-to-stock to assemble-to-order is caused by the high inventory

cost, the product customization and the stock shortage of the finished goods. For an exceptional

situation, the temporary shifting of the CODP is caused by the raw material shortage. Figure 30 shows

the influencing of different factors on the shifting of CODP within De Heus. The lesson learns from the

study the impact of these factors on the information flow is that there are various incidental factors that

can have the impact on the information flow but the is only the stock shortage of both end products and

raw material can shift the position of CODP as shown in figure 31. This impact causes a change in the

production lead time that directly impacts the position of CODP by shifting its backward. Other

Furthermore Moreover, In terms of the information flow, the difference of make-to-stock and assemble-

to-order is in the planning process which is located between the production and the sales department that

mention in chapter five. Also, the information modeling can help to support the management in terms of

decision making and visualizing the information flows between the supplier and the company, different

business functions within the company and between the company and the customer as shown in figure

26-27 in chapter 5. The combination of information flows of De Heus is also given which combines the

whole purchasing, production, production planning and ordering information flows in order to provide

the holistic view for the management and to have a clear understanding of the overall information flows

of the company. In this study, the use of SCOR on the interaction of various information flows between

different functions within the company shows detail activities that happened in the real industry. By

using SCOR code, the model can be referred to SCOR. The limitation of this study is that it is only focus

on the animal feed industry. The impact of these factors on other industries still needs to be investigated.

The author expected that this study can apply to other industries in term of providing the detail case

study and showing how the information flows is managed around the different customer order


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decoupling points. Since stock shortage is not only found in the feed industry but also in other industry

like food industry, electronic industry as an example.


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APPENDICES

APPENDIX I: QUESTIONNAIRE


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APPENDIX II: INTERVIEW SCRIPT

DATE: 17th

Jan 2013

Name of Interviewee: Mebrate Woldegebreal

Name of Interviewer: Surapong Chanasettakul

Function: International ICT Advisors

Surapong: First I would like to introduce myself, my name is Surapong, and right now I’m study food

innovation and management at Wageningen University. I’m doing my thesis in management

study department. I study the variant of CODP within a company and how the factors

influencing the CODP which then influencing the information flows.

Mebrate: What is CODP?

Surapong: its Customer order decoupling point which later on will be discussed.

Surapong: First I want to kindly ask to introduce your company to me a little bit and what is you role

within the company

Mebrate: The Company, as you might read on our website. It’s feed producing company. It work

internationally in more than eight to nine countries and we are really grow every year to

different continent. So basically we produce feeds. Animal feeds for dairy, poultry, pigs and

ruminant all these kind of feeds and my role in this company is we have a department call

corporate IT and process integration. That means we try to integrate the IT with the processes

within the company, the production processes, the basic operation processes like logistics or

registration of sales or all this kind of documentation, everything that related to basic daily

operation and integrated with the IT system and that our department and I’m an international

ICT advisor. So I work for the department I told you.

Surapong: So I want to go further with the interview, if we talk about the products of the company what

are the most important brand


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Mebrate: I read this on your email, to be honest, they are many important products in the company but it

really differs from country to country from factory to factory. Like if you take Holland, we

have poultry products, we have ruminant, and we have pig but the proportion we produce this

in almost all the countries but the proportion are totally different. If you take Asia, we also

produce in Asia in Vietnam. The pig proportion is higher than other proportion and if you take

it for Holland, the poultry is higher than other product so I can’t really give you which product

are important to us. The entire product are really important to us but it’s depend on different

location but I will give an example at the end of the interview from South Africa for example

poultry more than other products it also differ from each branch in the country. If you take one

of our branches in Africa, you will have totally different proportion from the other branch in

the same country in South Africa because of the location because of the area is if the area is

poultry area so the poultry product will be dominant

Surapong: What if we only focus on the Netherlands itself?

Mebrate: If we are talking about the Netherlands, we have poultry priority

Surapong: and what about the second most important brand of the company

Mebrate: Ruminant, ruminant animals if we categorize them in different way even when I tell you about

poultry. We have many sub products for poultry. We have for example broiler breeders,

broiler (a chicken for slaughtering) and for the breeders are for just breeding the broiler and

the Broiler are the broiler basic products and we divided this into different classification.

When I say poultry I‘m just generalizing all including the layers for egg laying, this kind of

stuff so this is poultry in general, I’m taking it into a little bit basic products.

Surapong: and the second one is?

Mebrate: It’s the ruminant.

Surapong: If we compare the proportion of sale for poultry product how many percent of the revenue are

from the poultry focusing only in the Netherland?


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Mebrate: OK! Roughly it can go up to more than 50% of the poultry products and other will be covered

by the ruminant and other products. I’m just telling you based on the statistic from 2012. I

don’t have to figure from the rest of the years

Surapong: Which market segment is your company focusing on like for the poultry and ruminant.

Mebrate: the broiler, the breeding broiler are the main products. Broilers we called them in general

broilers and farmer and broiler breeder are our main market segment.

Surapong: Who is your biggest customer for both products like for the poultry itself and also for the

ruminant?

Mebrate: No, I can’t not give you the information but ok. For the customer you want the biggest

customer. OK, I’ll ask and give it to you. I have no direct connection to this application so I‘ll

ask the guy who are really responsible for these things and then give it to you.

Surapong: For first and second customer for both products (poultry and ruminant).

Surapong: What kind of relationship that you have with your customers whether it is individual

transaction, repeat transaction or you is forming strategic alliance with your customer?

Mebrate: Basically we have sale people who are really working at each farm. Doesn’t matter whether

it’s really big customer or not, even potential customer we visit them even now and then. And

the sale guys advise them on how to work on the farm and everything. Based on the

agreement they made there they make order to the factory, we always in contact with them.

Surapong: Is it work the same for poultry and ruminant?

Mebrate: Yes, the same for all. We have different product unit for poultry we have different responsible

people, for dairy we have another responsible people. Starting from the formulation of the

product and also to the sale

Surapong: We are coming to the customer order decoupling point (CODP) I don’t know whether you

familiar with this term or not

Mebrate: I’m not familiar with it.


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Surapong: So this is how it work, we have many different delivery strategy we have make to stock,

assemble to order and make to order but most of the time in the food companies are whether

make to stock or make to order so this CODP is like separating the activities which are based

on forecasting and the activities based on customer order.

Mebrate: so now I understand. Again it’s totally different between factory based on their size and the

capacity of the production Some of the factory for example If we take a factory in Ethiopia,

we usually produce based on the customer order and also when there’s no order we just

produce it for stock. De heus combine these two delivery strategy. We produce per customer

request and we also produce for stock. It also the same for other country as well but in South

Africa we usually used base on order. Based on order for South Africa.

Surapong: What about the Netherlands?

Mebrate: Ok. For export product, based on the order that they received on order and they place an order

and then they deliver but for the local sale I’m not sure how they produce it but I can get the

information for you. But usually we receive order so I expect they do the combination of those

two.

Surapong: but usually for the poultry feed. Are they usually make to stock right? For most of the time,

you usually produce based on customer order or you produce a then you stock it at the end and

you also need to have the inventory for it.

Mebrate: It is also depend on the forecast. If they expect really to sell some figure, they is no way for the

company that they stop producing so they will keep producing whether there’s an order or not.

So that why I told you that they do both they produce for order and they also produce for

stock. It’s both case.

Surapong: What if we compare about the proportion of make to stock and make to order

Mebrate: Most of the time make to order.

Surapong: Do you know why this CODP is chosen.


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Mebrate: I can give you only my own opinion. If you see for example of South Africa because I’m really

familiar with the South African situation. I’m going to tell you from that. If you see our

system and let’s say you want to produce something and it’s better to produce it base on order

so you can always deliver it. You don’t have to put it in the stock for a long time and its cost

money to store it and also the space. You need spaces. It’s better to deliver it like that even

also when you produce it for stock we produce the product which are really needed base on

the season. So basically they produce on order and sometime it’s not even possible to make

product for stock because you are busy producing orders. That’s also the same.

Surapong: Do you have an idea how the CODPs are managed like for the production and after sale how

the product are delivered?

Mebrate: OK! I have one process flow for you. I’ll just show you what really happened is customer calls

or send an email with an order. They received the sale order and they register it into sale and

registration system and that order is usually unconfirmed. They have to confirm it with the

production. They have to confirm it and then when it’s possible they just send the

confirmation back that they can produce. Then, the production people have to make a

planning of when to produce the product and the logistics guys also have to make a planning

for delivery. This is done in the combination with logistics because you may be able to

produce it for tomorrow but you might not be able to deliver it because they might not have

logistics. So they always have to check it between the productions, the logistics and the order

department about the possibility.

Surapong: but you say that you have the process flow?

Mebrate: Yes. I’ll show you the process flows.

Surapong: Do you have the business process flow of how the product is produced like for the poultry

feed?

Mebrate: There’s no specific for poultry feed or ruminant. They way that they are produced is the same.

I’ll give you the overall idea. This is how we process our stuffs. We have different countries

that are working for our production and we have different plant for each country so let say this


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is the Netherlands and we have plant one plant two and plant three. We use the information

flows that are coming like this is the holding level where we make the formulation and we

store our data and we send it to the country so it can produce based on the given formula.

Because the formulation is only in Holland for almost all the country except some exception.

So we send it to the country and the country will distribute to the proper plants and then they

will make the production. I’ll show you another thing. We have this kind of processes you can

ignore this. It’s a data flow but on this level you see how the orders are coming in. They

receive and make the sale orders for purchasing raw material and then they make a production

request for that. That they have to produce something and this production request is send to

the plant because usually the production request is per country level they sales order is

received. For example, a plant received an order and then they register it into the central

registration system per country level. The system is central per country level and then they

send this order to the plants.

Surapong: So this mean when the production plant received an orders the send it to central system in

each country and then it will send the production plan back to appropriate plant again?

Mebrate: It’s only the system where they log in to the country level and they set it. It is the production

level local guys who are make the ordering into the system but the system is central for all.

They just come in and register their sale at different plant then the production request is send

and then makes the production. For each production what is happening is I don’t know

whether you want to know like a production process where they put in raw material and then

they grind it. Do you want to see that?

Surapong: Yes of course.

Mebrate: I’ll pick it up later but basically the process is to give you the information. It starts by raw

material and we put them in the milling they mix them and base on the type of product that we

want to product because the product can be for example kind of crumble. It can be mashed

just mix them and the grind material will be mixed and then taken out after all addition and

the mixture. We also have product call pellet just making pellet out of it. If that’s the case,


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they mix it and they send it to the pellet press. I didn’t mean the people but it’s the production

flows which lead to this pelletizing machine and then they make the pellet out of it. They

sometime crush it again after they pellet it and that it can be crumble so we have mixer and

then pelleted if necessary we have to pellet it or crush it to make it crumble

Surapong: Do you have to dry it after coming out of the pellet press?

Mebrate: OK: it losses some moisture after that for sure but that not just for drying but it’s the process.

I’ll give you the detail later.

Surapong: If I would like to ask you to rank the following factors, delivery lead time, demand volatility,

production lead time, product customization, stock shortage, product seasonal demand. I want

to ask you to rank the top three that caused the most problem within your company. I want to

see which factors affect your company the most.

Mebrate: Basically, the demand is not seasonal in most of the time. It grows up with the growth of the

company together. Of course we consider it but it’s not a big thing. The big thing I think it’s

the Stock shortage that really. When there is a shortage we also try to make a formulation

using different raw material that’s compensating with that.

Surapong: So I think the first one will be Stock Shortage right?

Mebrate: The stock shortage is the basic thing.

Surapong: What about production lead time and delivery lead time?

Mebrate: When we talk about this, it will happen when the production is reach your maximum capacity.

And in that case we have a problem but I didn’t see that this is the problem.

Surapong: Let me show you this figure, this is based on the model that I formulated you say that most of

the time the delivery strategy of your company is make to stock right? The model has been

developed based on SCOR. I want to study the impact of factors on different CODP and

which detail process that they are affected. This is from the supplier side and this from the

customer point of view and in the middle is all the activities that happened within the


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company. So according to the data that you mention earlier, the stock shortage? Do you have

an idea which activities that are affected by this mentioned factor?

Mebrate: Basically the production and also affect our cost, the cost is high when we have a shortage in

raw material and we have to buy for more expensive prices. But we are calculated our cost

basically on the raw material expense because the other cost usually are fixed almost, the

production cost except the raw material which is going up and down that are very fluctuation

which also affecting the European market as well. If I give you an example in Ethiopia, for

example when the raw material get very expensive, when there’s a shortage the raw material

will be expensive. They have to buy within the local market which is more expensive and make

the price of the product high and the customer staying away from buying a product from us. So

sometime it really goes like this. You produce very good when you have local raw material and

the customer are happy but sometime when our product go high, they stop buying from us.

They will buy from local. When our price get back from its own position, they come back

again which also affect the production and the whole process almost

Surapong: Is there any specific process that affects the most like the planning process.

Mebrate: Yes, the planning process is affected and basically the formulation, the formulation here. I told

you. If you see on this stuff, you make a formulation here because the content of the product

always have to be the same for the same product. Whether you have a good corn or less quality

corn (Less protein content for example) but you still have to replace it with the same maize but

the content of the product need to always be the same. We have to make reformulation how

many percent of corn have to be included because the difference in raw material so that

basically affect the base mix because they have to make a new formulation and they have to

send this formulation downstream to the plant and for production. Whenever there’s a change

in raw material, it affects the base mix basically the formulation process

Surapong: So I think the formulation process is in the Planning steps that dealing with the purchasing

and other stuffs.


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Mebrate: Yes, because after this is production already so this means is somewhere around the planning

process. Of course, it affects this process as well, if you don’t have raw material you have to

change you planning to other kind of products That’s is the basically best thing that we can do.

Surapong: What about if we talk about make to stock situation? Do you think it’s going to be the same?

Mebrate: Yes of course it will affect the formulation. No matter whether you produce it for stock or

produce it directly for order. Even you product it for stock, you know that you are going to sell

it that why you are producing it. That mean you produce it base on demand because you have

raw material shortage you don’t say no that I don’t want to produce it anymore. Basically you

produce it and maybe it’s affect your sale price or your margin is depending on what decision

that you make. It can be like you say Ok there’s a shortage in this item so let me produce other

item for this week and then stock but that in case you don’t have customer needs.

Surapong: I also would like to know how you determine the delivery date for your customer.

Mebrate: I depend on customer request, for example, they can request sometime I want it for tomorrow

morning or I can also be like I want it for next week and then you make your own planning and

sale and can be delivered it on Friday. So they give you a week sometime or may be sometime

they might even say that my chicken are dying I want it for this afternoon. So you make your

own planning depending on the request which order is in the urgent now. Human factors need

to be there to evaluate this.

Surapong: Do you have to consult with the production first before you giving the delivery date?

Mebrate: Yes, especially the urgent stuff always has to be confirmed by the production.

Surapong: What happened if the production scheduled are full and production is unable to make it?

Mebrate: you just tell them to discuss with the customer to change the date of delivery to see how thing

can go. It’s just the human factor you can’t may be sometime you can’t say we deliver this one

first then we deliver the next one which is not urgent later or sometime like that. If you have no

way to move you have to talk to the customer.


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Surapong: How do you reserve the inventory for incoming customer order? Like when you produce the

product base on stock and you have to reserve the inventory for the incoming order for this

customer how do you do it.

Mebrate: Again it depends on the country situation. In the place where they produce for stock what they

do is when they received an order they check whether it’s available in the stock first. Because

they produce for stock whether it’s in stock they check. If it is in stock they say ok I’ll deliver

you and then they make a reservation in the system so it’s reserved but if it’s produce in the

country where they work directly for customer order and they produce, they have to check with

the production. That’s when the given period is really short, for example if the customer order

for tomorrow or for tonight something like that but if it’s order for like next week. They

usually register it later on usually it’s possible to produce base on customer order for this long

period of time. It depends on the length of the period of time that customer demanded.

Surapong: How do you make sure that the products are available to promise (ATP) to customer? Like

what process that are you use to dealing with it to make sure that the product is going to be

there upon the customer request?

Mebrate: It’s always possible to produce according to the customer request because we know our

customer and they give us the schedule for delivery usually. They give us like for example next

week with different date of delivery and you know what it is going to be and also base on

forecast. What is the possible product that needed base on the analysis of historic production?

Two or three week or maybe two or three month they make a forecast how many days will

produce and fore that forecast they also make the material available for production. It’s usually

possible to almost always possible to fulfill the customer request except their urgent request

they make I want immediately and they order it one hour ago and I just say I want it for now.

That’s impossible.

Surapong: I also would like to know whether you have an diagram of all the information flow of how

these things are manage how production and sale are cooperate with each other and how the

information are shared.


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Mebrate: We have ordering trace, we have the sale order and of course the order have to always come

from customers and the sale order are enter into a system and that sale order is send to the

production department so it’s from sale to the production. And then they come into the delivery

places where they make delivery. They also make it for stock sometime they delivery it from

the stock or sometime from the production. I think it’s better to send you all these because our

department we are also working processing integration department not only for the IT. It’ll

give you the data if you want.

Surapong: I have a diagram for customer inquiry process for make to stock and make to order so this is

make to stock. I want to know whether it’s how it works in the real situation. When the order

came.

Mebrate: Like what you say when this is the order that we produce for customer. Yes this is how it

works. We have a customer order.

Surapong: when the order came into the company it’s go to the order process and it goes into production

itself or is it to pass sale and marketing?

Mebrate: No. there’s an order department dealing with the order not the sale department. Usually the

sale department is doing the marketing stuff they have to communicate with the customer. In

the sale department there’s also sales guys who are appointed for different customer they are

moving around base on region of course. They make agreement of course they even sometime

agree the prices with the customer. Depending on the situation the quantities and then they

send order to here. Even from our sale order place order for customer order into our ordering

department. So the order department always received order. So this is order department. That

they say ok we receive an order from farm or personal contract and then they check whether

it’s possible with the production department or for from stock and then they reply yes or no to

the customers and then it register into the system.

Surapong: The order department is it under sale department or it’s the other department separated from

sale.

Mebrate: It’s separate


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Surapong: So the order come in and it check with the production and then they send the message back.

Mebrate: the production guy when they requested and it is possible then it is yes or from the stock. Then

we say yes we can produce it or yes we have it in the stock and base on that they start planning

once it’s possible the logistic department have to check the delivery schedule whether it’s

possible to deliver it at that period of time or not.

Surapong: What if in case of this inventory is out do they have to consult with the product replenishment

or something? How these things work within your company?

Mebrate: You mean when there is no stock? If it’s out of they also have to consult with the production

whether it’s to produce for tomorrow or not because we don’t want to say no to the customer

always. We try to produce to fulfill customer order as much as possible and if possible. But

there’s a case to say no for some reason but not that often.

Surapong: What about production forecasting is it made based on sale history or it’s done by third party?

Mebrate: not base on the sale history but based on production history. It’s can be different based on

season if you take a tropical country like the African countries seasonally you have good

grasses but some season you don’t have grasses but when the season that you have good grass

they just cut their local grass and they take our feed as well and they mix with grass in

combination. In those periods, the demand might decrease. So we have to check for the season

as well. That why we say the history production.

Surapong: for the production forecasting are you use only history production or you also use the third

party to forecast the demands.

Mebrate: No, we are doing it on our own. We have some tools to forecast this kind of things like for

example not only for production but also for purchasing raw material for example we are not

just purchase thing. We have to see what would be the production and what do we need and

based on that. Even the formulation is affected for example if you have 100 tons of some raw

materials and you say you forecast you need 200 tones then the formulation department has to

start using this 100 tones in an efficient way so that it will be efficient for the period that will


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come or they have to inform the purchase department that they need to make a new purchase so

things are always linked.

Surapong: I don’t know whether within your company do they also have assemble to order delivery

strategy? Where parts of the product are produce and then it was store in a stock and after that

you receive an order from the customer and you assemble the final product based on the

customer order and the material that you are already stock.

Mebrate: We produce pre-mix as well. We call them pre-mix and concentrate where we sell the product

to customer who makes their own feed but they want to use our pre-mix concentrate for

example and mix it with the local stuff that they want to produce with but we only produce in a

few countries this semi-product.

Surapong: but they mixed themselves right? You are not mixing it for them?

Mebrate: Yes, they mixed themselves. We are just producing the semi product or the full product and

then we sell it.

Surapong: I want to know how sale department and production department are cooperated

Mebrate: At what level you mean?

Surapong: For daily production and also at higher level that show how these two department are

cooperate because usually the sale and production they also have a problem with each other so

I want to know how this two department cooperate within your company.

Mebrate: If you asking me just for orders. I don’t see any problem, between these departments.

Surapong: usually, the production they want to produce as efficient as possible and the sale also want to

sale as much as possible.

Mebrate: when you producing more and selling more is in the interest of both of them for the production

and the sales. The sale is not existed if there’s no production and the production is also not

existed if there’s no sales.


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Surapong: There’s might be an incident which you have different variety of product and you have to

change the production so the efficiency when you produce the product decreases.

Mebrate: If like the case that you said if they have to change the product, It have to be considered with

the formulation department who have to design, the request always come from the customer

the customers want to have a product like a product which have five percent medication

including with it, then our nutrition department have to advise the customer of how it should be

done or it is not worth doing it. It can affect the animal theses kind of thing. They advised them

with the sale guys of course. The nutrition with the sale guys advising the customer first and

then they are convinced that they have to produce it then they communicate with the

production how to do it and is it possible as well and they always have to agree, yes, there’s no

way the sale place a product which the production people don’t know. So there’s always a

communication between the production and the sales and they are working for the same target.

Surapong: Do you have an idea how the information and what kind of information are shared between

the production and the sales department.

Mebrate: For example I know, they shared the information about volume of sales and the transport cost

they have to share. They have to know what transport cost will make what kind of effect on the

production. The nutritional content they have to know both and have to share knowledge on the

nutritional contents because the sale guys have to understand. What really will happen to the

nutritional value of some for example some elements go down or up and also the production so

they always communicated and see whether there’s a change in product they have to discuss it.

And they have to see what does it means to change for example protein from fifteen percent to

sixteen percent what does it means then they always make an at least email conversation so

they are always communicating almost always. And it’s the sale guys who are really close to

the production that they always discuss before they make any kind of adjustment that I told you

before they making any kind of negotiation with the customer to change the product or change

something. They always have to discuss it with the production if it’s possible.

Surapong: For this process how long will it takes?


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Mebrate: For example if they want to change their product and they want to make some additional stuff

It’s once the nutritional content is agreed if they accepted that yes they have to do it. It’s just

informing the formulation department that they have to produce it in such a way. They have to

make the recipe in such a way and then the recipe is sent may be one day or less but the

communication might take longer the communication between the sales the production and the

customer when they make an agreement you know to produce that feed and also see the

advantage and dis advantage of these kind of thing based on the nutrition.

Surapong: How long it possibly take? 3-4 days or a week or?

Mebrate: I can’t really say anything about this it’s really. It really depends on how urgent the request is

sometime the request can be like they already received some product the customer. I think it

will be good if you add five percent of something for me some medication for me because my

chicken are not strong enough or may be for example I want this medication for my chicken

because I have a problem with my chicken then they really make it quick so it really depend on

what kind of request. Or they can even take for example if it’s not really urgent they can even

say can we have an appointment with a production guy and then make an appointment for a

meeting or a discussion. If it is really an urgent is just only a phone call. They make a phone

call they make agreement and they change the product so it depends on the urgent of the

request of the customer.

Surapong: When you are receiving the order from the sale person how do you derived the master plan

from this? Do you collect all the order and then you derive the master plan at once or not?

Mebrate: What we do normally, we received order doesn’t matter it’s for tomorrow or for one month.

We received orders then we put all of it into our system the sale registration system. And then

out of that sale registration system. We take order which are confirm. You know it can be

sometime customer ordering you can I have ten tones of animal feed tomorrow but I’ll confirm

it later. It’s register in the system but they are not confirmed it will be just open but for all the

order which are confirmed we make a planning depending on the delivery date. We make a

planning and that is usually a week planning, we make a weekly planning. For next week, we

make a planning at the end of the week you make a planning for next week so you know what


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to produce for the next week based on the urgency as well. Sometime you make a planning and

you have an urgent request from somewhere then you have to change you planning again. But

you make the planning always a week.

Surapong: What about the capacity of your company how large your company can produce?

Mebrate: Totally depends on kind of factory and also, ok, One is the factory, in some factory they are

only worked eight hours, they are just working during the day, the working days but If they

really have a request they also work during the evening so the capacity is still there for the

plant to produce but the demand is not that high. It’s not pushing you to produce to maximum

limits. So still you have to check it back. For Holland for example they producing with the full

capacity that they can.

Surapong: What about the variance of the product you say that it’s based on the customer order right?

Mebrate: Usually yes.

Surapong: the variant between each product for each customer are not the same. I means the nutrition

that not the same based on the formulation on each customer upon the consumer request?

Mebrate: yes

Surapong: Do you have an idea how variance this is going to be.

Mebrate: No not really variance. Like an I can give you an example we having a formula called. I let just

take broiler breeder and you say you have standard product first. That’s the standard product.

This product is always the same whether it is in Holland or in Poland it will always be the

same. Let’s say the farmer from South Africa asks for the medication of five percent of

something and you just added this on top of the product and that is the difference. It’s not a

really big difference even five percent is too much they usually say one percent difference or

something. Usually it is the same kind of feed for the same products.

Surapong: For most of the time are the consumer using the standard product or are they willing to use

the modified based on their own.


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Mebrate: In South Africa they usually using the standard special they push it to customize feed we called

it. They want to customize it for themselves. They customize it themselves for each customer.

If you take other country, it’s almost always using the standard product.

Surapong: In South Africa that you mentioned about is it going to be any problem about product

customization over there?

Mebrate: The process is always the problem. You know if you work in the system of similar kind of

application and you have to make a customization for them because you have to use the recipe

plus something and it’s not like when I’m telling you now it’s easy and everything is related

inside. It can give you a lot of time for customizing this and it’s not easy to manage it because

instead of one product you can have may be 1000 customization. For three product you may

have like really a lot of items. So it’s not going to be easy but we do it.

Surapong: So you are modifying the recipe at the holding level that you mentioned do you have to

modify the machine for the production process?

Mebrate: No, the production process is the same. Instead of taking it out at the end you just add

something within the mixture just additional ingredient. The process is exactly the same you

just add additional ingredient into it so that you have the medication in it.

Surapong: So usually in the Netherlands and in Europe they are using the standard feed?

Mebrate: Yes, they are using the standard. And also sometime for the regulation that you can’t add

anything in Europe and it’s possible to add in Africa or you know these kind of things. It

depends on the regulation.

Surapong: How do you manage the bill of material (BOM) for most products.

Mebrate: The basic recipe always the same but as I told you the basic recipe might change based on the

raw material the content is the same. If you say we have ten percent protein broiler breeder

feeds. It’s really chose to ten percent protein but the material from which It’s made might be

different depending on the raw material you have. You can use corn for example or maize I

don’t know how you call it you use maize and soya let say for the first item and on the next


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item you say the same content but you add bread meal but the content is the same but the way

you made it might be different depending on the raw material that are available. The

availability. But what they do at the local is for the standards customize feed. Ok this is the

standard special and they plus one percent of something. This is a customization.

Surapong: and how do you manage the material and resource planning of your company.

Mebrate: We have a purchasing department doing that in contact with the production department of

course and always in contact with. The purchase planning is usually depended on the seasonal

purchase and also timely in demand purchases. The yearly purchase is seasonal purchase we

purchase the raw material when they are available and we stock them and some raw material

you have might to buy them during the production. Not exactly during the production but not

seasonally so the yearly purchase is based on forecast usually. We know how much we will to

produce and how much raw material we are will need for next year with also plus and minus

error. For some time like what I have told you we have plus and minus and we run out of stock

and this make you don’t always have to wait for planning you can purchase them immediately

for the current need. It’s depend on whether it’s a long term planning or it’s a short term the

purchase department has to communicate.

Surapong: but if like most of the time for the product that always use like maize?

Mebrate: Always seasonally bought.

Surapong: When you buy a product to store is there a lost during storage? The spoilage of the maize that

you store usually accounted for how many percent of the whole product.

Mebrate: We try to avoid that kind of problem. We use different pellet to not just put the raw material on

the ground we just put them on the pellet so that and not any of it closes to the wall. We have

our own warehouse management which use to monitor damage.

Surapong: but you are not stocking the raw material in the silo right?

Mebrate: We also store it in silo for some product we store on the ground on the pellet.


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Surapong: Like what product you store in the silo.

Mebrate: for example if you ask me about Holland. We store it in silos because we have big silo but if I

take you to any of the African country what they do is they buy in bags and then they store it

on the pellet. So they use them on the pellet and first in first out usually. We use the first in

first out kind of material usage. But we lose the moisture content during the storage and this

also affects the nutritional value and when you have ten percent of moisture it’s totally

different so we the first in first out for that.

Surapong: I also want to know how the orders have been assign to the capacity. How do you manage

that?

Mebrate: Ok. In some plant when we receive order for example we might not receive a batch. The batch

can produce 2.5 tones one batch. If you ask for example I want to1.8 tones we will not produce

this because it’s not possible for us to produce it in one batch and it will be too costly. Instead

of producing 2.5 you produce only 1.8 or 0.9 or this kind of thing. We make this kind of

planning so the customer already know how to order it and also depend on their size as well. If

they buy a bag or a pack item they can just buy you can sell 1.5 bag of feed you just sell one

bag two bags or three bags depend. We sell product in bag or we sell the product in bulk. When

the truck came and you load it in a truck so not just bag but you load it in a truck the bulk so

we the capacity is different from plant to plant some plant can only produce two point five so I

don’t know some might be able to produce to three or more.

Surapong: Let come back to this diagram again. I really want to know do you have kind of very specific

process that caused the most problem with in you company, like form sale or in production.

Mebrate: OK, for processing we might have some communication issue while working in the system we

might have some issue that people might not confirmed order or this kind of things but it’s

really technical stuff. In the processes I didn’t see any problem. I don’t know what kind of

problem you mention.

Surapong: Like when the orders come, the cooperation between the sale and the production and the

checking of the availability of the inventory something like that?


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Mebrate: It’s sometime a problem to make sure that all raw materials are available. In some country

where you don’t have a good technology, the problem that we have is that they might not even

know that it’s out of stock for some raw material. When the customer orders something and

they might say oh we don’t have this raw material anymore to produce so then they have a

problem that they have to communicate with the formulation department to make a new

formula due to the shortage and It’s happened only where there’s no sophisticated software

kind of application to know the online stock because they only know their stock within a week

or two. They have to count it and do a lot of thing and everything is manual but in the other

countries they know already you can go and see in ERP system what stock they have for each

raw material which is not a problem. That’s can be mentioned that the problem may be the raw

material and the communication that can be a problem.

Surapong: What about the logistics are you using the third party or you are doing it yourselves.

Mebrate: We use our own and also third party. Mostly for delivery we use our truck delivery feed but for

purchasing item usually I think third party logistics. The third party logistics or the supplier

themselves just deliver it whether it’s a third party or not. Some time we have to rent a truck to

bring raw material for us, usually for the feed is with our own truck if we have to deliver them.

Surapong: If we look for the process for make to stock and make to order do you see any kind of

difference in term of problem that can happen within the process?

Mebrate: Making for order for customer is the best way for me. In my opinion because you just produce

it for your customer so you don’t have to stock it and you know your demand but that will also

have the problem that may be they sometime ask you an very urgent question and urgent

supply. You really have to make some way out to deliver the feed but on the other side when

you make for stock you have the product in the stock but there’s also many disadvantages.

Surapong: It costs a lot of money.

Mebrate: Yes.


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Surapong: If you see the difference between this two that do you think is the main differences? Like the

difference for the process of how you manage it.

Mebrate: You me the two way of receiving orders.

Surapong: Yes.

Mebrate: I think, the basic difference in my opinion is if you produce it for stocks in a plant where you

don’t have too many demand that of course you produce it for stock and you sell it and also

you don’t have a consistent electric power or sometime you might have a power failure or

something like that or machine break down if all of these thing happened of course making the

product to stock is better which you can still sale even you production go down for some

reasons and also the raw material. You may not say because of raw material I can’t deliver it.

You have it in the stock and you have to make raw material available in front and for countries

where they produce to their maximum capacities. Its advantage to produce to customer order

you may not have time to make the produce the product to stock. You may be busy producing

according to customer order.

Surapong: If you say how long will it take for a normal product to be produce like from the receiving

order until you deliver to them. I want to know how long this process is.

Mebrate: They can order it a week ago and you can receive it today or tomorrow because they process

itself take only per ton as I told you a batch can produce 2.5 tones and it’s also depend on the

capacity of the type of the machine we have. Some machine in one hour they can produce a lot

of tones and there are some that can produce we few tones. So I don’t how long it takes.

Surapong: There’s a measurement from the point where they order are received and the point where the

company is being able to deliver it.

Mebrate: It’s not in days like I told you for example per order and per delivery date they ask so if he

order it one month ago and he want it for today.

Surapong: But the production lead time of your product is short right?

Mebrate: It’s short really short.


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Surapong: and how long this production process might take from the point where the raw materials go in

and later the product is come out how long this process usually takes?

Mebrate: In an hour time you can produce let me just guess the number of the capacity you can produce

like 2.5 tones an hour in a really small factory. It’s depending on how many tones that you

want to have and how many batch that you have to produce. The production lead time is not

the problem and when they order it and if you have really a lot of order to produce and when

they say I want it now it’s a problem. It’s not the production lead time itself.

Surapong: Is there anything you want to add up since my interview almost comes to an end

Mebrate: I think it would be nice to look at the figure that I’ve prepared for you.

Mebrate: Purchase department have to check first if whether we have in contract. If we have a contract or not, in

case they don’t have a contract they make a new contract. Then they negotiate with the customer and send

it to delivery system so that they can communicate we call it MILES 4 but that is only the application to

register the purchase order. If they say that it’s not possible to deliver it in the given time to make a

contract then what they do is to inform the factory to buy some amount of item for their urgent need so

the factory will be just buying and use it.

Surapong: Did the production have to consult with the purchasing department.

Mebrate: Yes, they can’t make a contract so they say ok you can purchase this raw material for needed quantity.

You can purchase it from local market and this is the price. They also send the price. They know what the

price is and then they know the quality this guy, the production guy. They received that and make a

purchase for the urgent need but that is only few raw materials that is not like corn or the raw material that

really use in bulk, in big amount.

Surapong: What kind of product that these products can be?

Mebrate: Pre-mix for example sometime usually we use small amount but you may need it very urgently so I have

to be purchase but if it is possible to make a contract then usually they make a contract for six months for

example six months consumption or a year consumption depending on what kind of raw material it is. If it

is a possibility they always make a contract. In that contract, they divide into different delivery describe

which produce we are taking. As I told you in the beginning, the logistics department has to check always


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if it is available in the contract. The contract that made by the purchase department the logistics can see

how much we can receive from the given supplier. Ok we have this quantity from this supplier so we can

deliver it tomorrow or something like that depending on the schedule. The factory received an order if it is

not possible to make a new contract and they process it and the supplier will receive an order from this or

making the contract with the purchase department if it is a big quantity. Then the rest of the process is just

checking the receipt and the way they process the order and the documentation and I can sent you this.

Surapong: This is the relationship between the factory and the supplier do you also have this with the customer as

well?

Mebrate: That what I would look for I’ll later send you.

Surapong: Since I do a lot of study and they say for the purchasing point for make to order and make to stock they

both are the same. The differences are more like the point between the factories with the customer point

of view.

Mebrate: I’ll send you the PDF of it to make it clear for you. This MILAS 4 is just the registration application.

The other I think it’s written in words. This S400 is also an application to register sale and everything it’s

what I told you there’s an application which is at the center per country and everyone communicate with

this center application. Even application communicate with this center application. This MILAS4 is

always communicating with this. This is an ERP system. Do you know ERP system? The ERP system is

depend on the countries. Different countries have different ERP system. This is for just Holland. I don’t

see other stuffs. Then send to accounting and the rest of the process. Ok I’ll give you this. The file that

I’ve given you is only in Holland. It’s different for different countries.

Mebrate: This is all application OK. This is the overall structure, we include the ERP system and human resource

system we have data warehouses like all app where we collect data from each application into central

location and this is the PCS the production control system and this is the laboratory information

management system where we manage our inventory just quality control. So you can see clearly this is

the formulation. This is made for the head quarter of our company the green one. This is the actually the

process flow let me just show you once. I have the presentation last time and I made it for that and it’s

still reusable. From the previous one do you see how the stuff flows? We the information flow coming

from the best mixed recipe and coming to this application and this application send to the countries and

then they distribute to each plant the recipe and then the plant, we have an application at the plant level

which is automatic. They just send it from the central and everything is synchronized and the production


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control we received it from here to here. Then he knows when there’s an order he can which recipe he

should select because you just select from one recipe that send from here. Then, he start producing based

on that quantity five percent of corn, five percent of soya and so on. That’s the recipe huh! Then it send

the result to the production result back up because when you produce even you say fifty percent of corn

you might not produce fifty percent of corn because there’s always discrepancies like forty nine percent

or forty nine point five percent or something like that. Whatever they use is just coming up, the result of

what they are using, the consumption report is coming up so you now know how many raw material are

used you know what is produce and then you send that information here and this information is send to

the country back to holding. This is basically how the process flow. We have this ERP system for the

registration of sale registration of purchases and this kind of thing even we don’t register them directly

here the application are communicating with this to make it central. Like Holland for example, MILAS 4

for purchase administration. But it’s communicating with the ERP system before it’s going anywhere. So

it’s here where every application will communicate and make aggregate report upward to so we have all

the information including the lab information where they check the quality of the product and the quality

of raw material and they send the information back and also to here. So I’m just going to show you

because you are interested in the production so I’ll show you this part. How we communicated between

the countries. Here’s where we have the recipe the sale order and the purchase order. This is the important

thing for you and the production request. The rest ignore them. The purchase order, the sale order and we

also have internal order for stock production. This might produce based on stock we might produce for

stock base on order or for stock. So if we say sale order (SO) we are saying for customer and when we say

internal order (IO) we produce for stock so we produce both for stock and customer order so we sent this

information and production requested what to produce to the plant as I told you so they are coming here

we have this information and this plant will have to send the information to the production then, the

production will make a production and make stock calculation how many batch is produced what is the

execution report and everything it sent to here. It also include the sample analysis and send to here and

then it communicate with the analysis application that we have the laboratory with something nutrient

protein fat and this kind of thing. In percentage in milligram or this kind of things. They send the result

back to here and the result is now up and combine with the sale order releases with the delivery because

we produce now received the recipe, we make a production and we analyze it the n we have to deliver it

to the customer. When we deliver it our truck passing by taking when everything is completed we have

the reported that we want and this report not everything is sent but you know the consolidated kind of

report. You will see from place to place there are different kind of item is moving. So what we sent is the


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production lot report, consolidated production lot report and delivery lot or sometime call them POR or

purchase order receipt. We receive the purchase or SOR is sale order release. So this are sent to here you

can see now the sale order and all of this information will go back to the Holding level which I’m not

going to show you. Ok it’s communicating with SOI. Do you remember the one with a big box with all

the architecture with the ERP system and everything. I’m just take and make it smaller so it isn’t take too

much space. Just call it ERP because the ERP have to calculate the consumption and everything based on

the lot report. It makes the consumption report and also the financial statement and invoices everything is

produce here. This will make like the consumption report based on this they make the sale forecast, the

production forecast, price forecast even the price are forecast and this are sent to the country again not

everything just the raw material consumption, sale and production forecast and price forecast. These are

sent to the holding. This is basically how the processes go. We sent the information back down and we

sent the information back. The order handling is under the ERP system and the ERP system processes

both the purchases and the sale. That are usually in this or the application which is link to the ERP system

will register the stuff and later it’s linked to this one and that’s how it goes. Hope this helps.

Surapong: Yes, it helps a lot.

Mebrate: You can always ask if you have a question. So right now I understand what you really looking for so I

can ask people and gather this all information for you and I’ll sent you all these stuff.

Surapong: Thank you for you cooperation and Thank you again for your help.


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APPENDIX III: SYSTEM INTEGRATION STRUCTURE


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