THE ROYAL INSTITUTE OF TECHNOLOGY(KTH)

Lean Production & Sustainable SupplyChains in the Fast Moving Consumer

Goods Industry

by

Per Bondeson & Stefan Liss

A thesis submitted in partial fulfillment for thedegree Bachelor of science in management and engineering

May 2016

Abstract

The Fast Moving Consumer Goods (FMCG) industry consists of a large part of our daily

purchases making it to an important industry for the society.

Within every industry, operational control and supply chains are important success fac-

tors regarding efficiency and profitability. Lately, much attention towards sustainability

within the industry has been given, due to environmental and to ethical concerns. The

whole industry will be forced to undergo major changes in order to remain and to become

sustainable. Therefore, operational control and supply chains need to be effective and

sustainable in order to sustain this transformation.

In this project, an investigation regarding if Lean production and sustainable supply

chains can apply to the FMCG industry is conducted. Difficulties with achieving lev-

elled production and factors to attend to in order to become sustainable will be addressed.

A literature review about Lean management and sustainable supply chains will be pre-

sented. Furthermore, two case studies will be conducted at two beverage companies

where a comparison between theory and reality will be conducted.

We found that many of the Toyota Production System (TPS) principles can be hard

to implement in the FMCG industry. Therefore, Lean production is not easily obtained

within the FMCG industry. Specifically, we found that beverage companies have difficul-

ties obtaining levelled production and implementing production levelling tools suggested

in TPS.

We found that measures conducted in order to level production mainly focus on opti-

mization of internal processes and shortening of lead times upstream. Work to obtain

control over demand management has been done on order to facilitate levelling of the

production. Therefore, work to be conducted in order accomplish demand management

is suggested as a recommendation in this report. This recommendation contains factors

such as: order placement, lead times pricing and campaigns. Several factors suggested in

Sustainable Supply Chain Management literature in order to obtain sustainable supply

chains were found in our case studies. We found that information exchange between

customer and producer is not optimal. Furthermore, we found that high standards re-

garding suppliers generally result in that only large suppliers can meet these standards.

Thus, making it harder to influence aspects regarding sustainability among suppliers.

In closing, the FMCG industry have potential to achieve sustainable supply chains, but

some factors remain to be improved.

Sammanfattning

Fast Moving Consumer Goods (FMCG) industrin utgör de produkter som konsumeras

på daglig basis, vilket gör den till en viktig industri för konsumtionssamhället i stort.

Inom alla industrier utgör styrning av interna processer och försörjningskedjor viktiga

framgångsfaktorer gällandes effektivitet och lönsamhet. Senaste tiden har det riktats

mycket uppmärksamhet mot hållbarhets- och etiska aspekter inom hela industrin. Många

intressenter menar på att alla industrier måste ändras för att industrin som helhet ska

överleva och bli hållbar. Därför måste interna processer och försörjningskedjor anpassas

för att stödja transformationen mot hållbarhet.

I detta projekt undersöks ifall Lean produktion och hållbara försörjningskedjor kan an-

passas till FMCG industrin. Vi kommer särskilt diskutera de svårigheter som finns med

att uppnå utjämnat produktionsflöde och faktorer som är viktiga att åtgärda för att

erhålla hållbarhet inom förädlingskedjan. En litteraturstudie kring Lean och hållbara

försörjningskedjor kommer att utföras. Vidare kommer två fallstudier på två dryck-

esföretag att genomföras där en jämförelse mellan teori och verklighet kommer ligga till

grund för våra slutsatser.

De upptäckter vi gjorde under arbetet var att många av de fundamentala Lean-principer

(TPS) som Toyota introducerar är svåra att uppnå inom FMCG-industrin. Mer specifikt

fann vi i våra fallstudier att uppnå ett jämnt produktionsflöde tillhör en av de största

svårigheterna inom dryckesindustrin. Vi upptäckte att det arbete som utförts för att up-

pnå ett jämnt produktionsflöde mestadels fokuserade på att förbättra interna processer

och ledtider uppströms i försörjningskedajan. Arbete kring att kontrollera efterfrågan i

syfte att utjämna produktionen har gjorts. I rapporten föreslås områden att undersöka

för att bättre styra efterfrågan i form av en rekommendation. Denna rekomendation

innehåller faktorer som: orderingång, prisättning av leverans och kampanjer. Flertalet

av de hållbarhetsfaktorer som läggs fram i litteraturen kring hur man erhåller hållbara

försörjningskedjor återfanns i våra fallstudier. Vi fann att faktorer som informationsut-

byte mellan kund och producent inte är optimalt. Vidare utgör höga krav på leverantörer

att generellt sett stora leverantörer blir de enda som möter uppsatta krav. Detta försvårar

möjligheter att påverka leverantören. I detta fall, påverkan kring hållbarhetsaspekter.

FMCG industrin har stora möjligheter att erhålla hållbara försörjningskedjor, men några

faktorer återstår att förbättra. Dessa faktorer kommer diskuteras i rapporten.

ii

Acknowledgements

We would like to thank Per Johansson and Sven Antvik for an outstanding job as our

advisers. Furthermore we would like to thank the representatives from Coca-Cola En-

terprises and Spendrups who helped us during interviews.

iii

Contents

Abbreviations vi

1 Introduction 11.1 Operational Control and Supply Chains . . . . . . . . . . . . . . . . . . . 11.2 Fast Moving Consumer Goods Industry . . . . . . . . . . . . . . . . . . . 21.3 Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.4 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.5 Problem Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.6 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.7 Critical Review of the Methodology . . . . . . . . . . . . . . . . . . . . . . 51.8 Delimitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2 Literature Review 62.1 Lean Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.2 Toyota Production Systems . . . . . . . . . . . . . . . . . . . . . . . . . . 62.3 Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3 About Coca-Cola Enterprises &Spendrups 163.1 Coca-Cola Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163.2 Spendrups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

4 Analysis & Discussion 224.1 Lean Principles in the FMCG Industry . . . . . . . . . . . . . . . . . . . . 224.2 Lean Management at CCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 244.3 Using the Framework at Coca-Cola Enterprises . . . . . . . . . . . . . . . 254.4 Lean Management at Spendrups . . . . . . . . . . . . . . . . . . . . . . . 274.5 Using the Framework at Spendrups . . . . . . . . . . . . . . . . . . . . . . 29

5 Conclusions 315.1 Lean in the FMCG Industry . . . . . . . . . . . . . . . . . . . . . . . . . . 315.2 SSM in the FMCG Industry . . . . . . . . . . . . . . . . . . . . . . . . . . 335.3 Recommendation: How to Accomplish Lean production . . . . . . . . . . 345.4 Future Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355.5 Limitations in our Conclusions . . . . . . . . . . . . . . . . . . . . . . . . 35

Bibliography 36

iv

Contents v

Appendix 39.1 Interview Questions-Lean . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.2 Interview Questions-Supply Chain . . . . . . . . . . . . . . . . . . . . . . 41

Abbreviations

CSR Corporate Social Responsibilities

FMCG Fast Moving Consumer Goods

KPI Key Performance Indicator

SCM Supply Chain Management

SSCM Sustainable Supply Chain Management

SSM Sustainable Supply Management

TPS Toyota Production System

CCE Coca Cola Enterprises

vi

1. Introduction

This chapter will present an introduction towards this project and why this area is impor-

tant to be investigated. First off, an introduction about the development of operational

control and supply chain will be conducted followed by a review of the Fast Moving Con-

sumer Goods (FMCG) industry. A description of the importance of operational control

and supply chains and why these areas are especially important within FMCG industry

are presented. In closing, the objective, purpose, problem definition, methodology and

delimitation of this project is presented.

1.1 Operational Control and Supply Chains

The need for operational control within the production has been crucial for success ever

since the industrial revolution. In its inception, internal manufacturing efficiency on the

shop floor was largely sufficient for successful operations. However, as the globalization

took place, competition was increased among companies. Today companies need to be

competitive in many areas, such as quality, delivery, cost efficiency, and flexibility, and

must therefore plan and control their operations accordingly.[1]

Nowadays, it is insufficient for companies only to focus on internal operations. Companies

are forced to find new ways to improve their operations and to look beyond the walls of

the factory. Thus, it is increasingly important to look at supply chains since competition

is changing from between companies to between supply chains.[2]

There is no doubt that to be a competitive company on the market both operational

control and control over the supply chain is important. Furthermore, as society develops

in a time when environmental, limited resources and social concerns are being more

frequently addressed, companies will face new challenges to improve and control their

production and supply chains accordingly.[2]

1

Introduction

Increasing customer awareness of their personal environmental impact and a desire to be

environmentally friendly has led to the acceptance to pay more for green (e.g. environ-

mental friendly) products.[3] Reputation related to sustainability is now a major concern

that companies must deal with.[2] Despite being challenging for companies to manage

profitability, environmental and social aspects, the outcome can increase a competitive

advantage. If companies exceed accepted standards and can generate business oppor-

tunities with other companies (suppliers, competitors or customers) who value these

principles, the competitive advantage is achieved.

It is currently important for companies to integrate sustainability issues in their Supply

Chain Management. Ageron et al. highlight that upstream partners, and more pre-

cisely, suppliers, are frequently the most concerned with environmental preoccupations.[2]

Therefore, the focus on effective and sustainable supply chains will be inevitable aspects

for companies in order to be competitive on the market, regardless to the type of industry

the focal company belongs to.[2]

Improving production and gaining operational control is broadly speaking about locating

waste and removing it.[4] By controlling waste, companies can lower production costs

and environmental impact.[2] The many dimensions of waste will be discussed in section

2.2.

Supply chains on the other hand are mainly improved and transformed into sustainable

supply chains by collaborating with suppliers, upstreams and downstreams.[2]

1.2 Fast Moving Consumer Goods Industry

FMCG are products that are sold quickly at relatively low cost. The FMCG industry

can be categorised into three major segments: food, beverage, and household. It is part

of the business to business category, and customers are typically retailers through whom

goods are sold to consumers. The industry is characterized by few customers compared

to producers, leading to fierce price competition. Producers are therefore forced to focus

on cost reduction and furthermore many FMCG companies emphasise the short term

gains of getting stock costs down.[5]

Soft drinks are generally categorized as a FMCG and have a relatively short shelf life.

The beverage industry refers companies that produces drinks, in particular ready to

drink beverages. Therefore, the beverage industry is part of the FMCG industry. There

2

Introduction

has been little apparent long-term change in the nature of its core products, such as beer

and carbonated soft drinks. Barriers to entry are considered low, making the industry

very competitive.[6]

The major issues within the FMCG industry are forecast accuracy, seasonal shifts in

demand and supplier reliability. Forecast difficulties are a problem throughout the whole

industry. Supplier reliability can often be differentiated and is not as much of a general

problem as the forecast difficulty. Forecast difficulties in the beverage industry are due

to the consumer’s decision to purchase. Typically this is done on the spot and is not

planned ahead. A reason that the market demand is seasonal, is due to the nature of

the product.[5] These issues, even if they may vary from company to company, makes it

difficult to achieve levelled demand, a key prerequisite for production levelling. There-

fore, the need for effective supply chains and effective production is crucial in order to

compensate for uneven demand and hence uneven production. Effective supply chains

and effective production are mainly needed in order to deliver what is demanded by

customers when it is demanded. If the supply chains and production is well designed

and managed, it constitutes a competitive advantage.[2]

The supply chain within the beverage industry is characterized by a series of exchanges

from the suppliers of ingredients and material to the brewery, to the distributor, to the

retailer, and to the consumer.[7] Thus, making the supply chain complex upstreams and

downstreams. Furthermore, Business Insider UK argues that it is a dramatic time to be

in the world of beverages. Being a customer-driven industry with fast changing customer

demand and preferences, the beverage industry is in need of effective supply chains and

production in order to meet customer expectations.[8]

To summarize the introduction, this paper will address and include:

• Operational control and how it can be achieved within production.

• The role of the supply chain in order to become a competitive company and how

a sustainable supply chain can be obtained.

• A case study in the beverage industry, where the above mentioned factors are

analyzed.

3

Introduction

1.3 Objective

Our objective is to recommend how the beverage industry can work with Lean man-

agement in order to obtain Lean production. Furthermore the objective is to deliver a

conclusion regarding sustainable supply management (SSM) within the beverage indus-

try.

1.4 Purpose

The main purpose with this project is to investigate how the FMCG industry is working

with Lean management in order to achieve production efficiency.

A second purpose is to understand how the FMCG industry works with sustainability

by investigating the design of the supply chain.

1.5 Problem Definition

Our major research question is:

How can the FMCG industry minimize waste and achieve sustainable production?

This could further be divided into two sub research questions:

1. How can the FMCG industry work with Toyota Production System (TPS) principles

in order to minimize waste?

2. How can the FMCG industry obtain sustainable supply chain (SSC)?

The research questions will be answered in chapter five.

1.6 Methodology

In order to accomplish the purpose of the project a literature review and case studies at

Coca Cola Enterprises (CCE) and Spendrups was performed.

The literature review contained scientific publications and books within the area of Lean

management and supply chain management (SCM). By reviewing important literature

a wide knowledge base was obtained which was used to perform a qualitative study.

4

Introduction

To widen perspective and get a better understanding of the theoretical framework pre-

sented in the literature and to get a company’s point of view, case studies were undertaken

at CCE and Spendrups. Both beverage companies. Observations and semi-structured

interviews were the fundamental sources of information during the case studies. The in-

terviewees were both operators and managers, which gave a more complete picture of the

organization. By visiting the production line we obtained a practical understanding of

the supply chain and activities performed there. These observations and interviews were

later on the basis of the analysis and facilitated the comparison between the theoretical

framework and the reality.

1.7 Critical Review of the Methodology

The FMCG industry consists of three large subsections: food, beverage, and household.

We only conducted case studies at beverage companies. Therefore, the applicability of

our findings to the entire FMCG industry could be questioned. We argue in chapter five

why our findings are applicable for the entire FMCG industry.

1.8 Delimitation

We will focus on the first seven principles of TPS when analyzing operational control in

our case studies, thus leaving principles eight to fourteen without further discussion or

analysis.

We will not consider details within the life cycle assessment when looking at environ-

mental impact of the CCE and Spendrups supply chain. We will rather focus on general

guidelines proposed in the literature when analyzing the supply chain downstream and

upstreams.

The case study will only focus on CCE’s factory in Jordbro (Sweden) and Spendrups

factory in Grangesberg (Sweden) when analysing both the operations within the produc-

tion and the supply chain. Observations regarding internal operations will be conducted

on the production line “S5” (the can line) at Jordbro.

5

2. Literature Review

In this chapter we will review relevant theory in order to accomplish the purpose of

this project. The chapter will primarily discuss Lean management and secondly discuss

Supply Chain Management.

2.1 Lean Management

Lean is a production paradigm that primarily developed from the automotive industry.

Lean is the western name given to TPS.[5] Lean could arguably be considered a consis-

tent concept comprising Just In Time (JIT) practices, resource reduction, improvement

strategies, defects control, standardization and scientific management techniques. How-

ever, it is hard to formulate a clear definition that captures all the elements of Lean and

integrate the various goals proposed in published literature.[9] The general opinion that

the purpose of Lean is to reduce waste does not seem to be consistent with all authors,

although J.Pettersen et al. argue for this.[9]

2.2 Toyota Production Systems

TPS is Toyota’s way of managing their production and was mainly founded by Taiichi

Ohno during the early twentieth century. Lean production mainly consists of methods

and tools found in TPS. If TPS is correctly implemented in all parts of the organization,

a Lean organization is obtained.[10] As the figure below show, TPS is built upon an

underlying philosophy of long term thinking, followed by principles within processes.

In the top we find employees and partners, and finally the continuous improvements in

order to become a learning organization. TPS is divided into four categories (see figure

2.1) and within the categories there are 14 principles. Principles concerning processes,

principle one to seven will be discussed below.

6

Literature review

Advantages with a successful implementation of TPS is cost reduction. Cost reduction is

due to increased quality (i.e. fewer defects), reduced inventory, improved customer service

and shortened order cycle time. In addition, improved manufacturing and supply chain

visibility, improved manufacturing and supply chain flexibility, improved operational

performance, increased operational capacity, shortened product development time, and

workplace safety and cleanliness.[5]

Figure 2.1: The Toyota Way model. [10]

2.2.1 Category 1: Long Term Thinking

The first principle states that decisions ought to be based on long term thinking, even

though it is at the expense of short term economical goals. This principle forms the

fundamental philosophy that Toyota is built upon and is a part within every business

unit. The Toyota Way is about giving employees, customers and the society an increased

value by focusing on purposes beyond short term profits and reward a few amount of

people.[10]

7

Literature review

2.2.2 Category 2: Right Process Delivers Right Results

In this category we find the seven principles that are used to improve manufacturing

processes and routines in order to develop products. Not all principles are concrete

tools, some are more of a conceptual kind. But TPS suggests several tools in order to

achieve the desired results that the concepts suggest. Below these principles, concepts

and tools will be presented.

2.2.2.1 Principle 2: Continuous Process Flows

Create continuous process flows that highlights problems. A common metaphor to ex-

plain this is the Japanese lake. If you lower the water level (lower stock level), problems

and inefficiency will surge to the surface. This is because stock functions as a buffer

that compensates for inefficiency in the production. Since you have time to correct the

problem without risking the flow to be disturbed, you can use the material from the

stock.[10] If the inventory were to be removed, problems and inefficiency would need to

be dealt with immediately in order to have a continuous production flow. This leads

to continuous improvements (Kaizen) and shortening of lead times. In short, inside the

inventory lies hidden problems and inefficiency. Flow is defined as the process needed

to deliver a product from the moment a customer places an order until it is delivered.

Everything from obtaining raw materials, to produce the product, and finally to deliver

the product to the customer. This flow ought to be as fast as possible and only consist

of value adding activities.

TPS focuses on reducing all kinds of waste and remove non value adding activities. TPS

categorises all kinds of waste in to three categories: Muda, Muri, Mura.[10] Muri and

Mura will be discussed in Heijunka (see 2.2.2.4) and below follows a description of Muda.

8

Literature review

2.2.2.2 Muda: Eight Types of Waste

Muda consists of eight non value adding types of waste and these activities ought to

be eliminated.[10] The eight types wastes are presented in figure 2.2 and the wastes

overproduction and unnecessary inventory will be discussed more in detail below.

Figure 2.2: Eight types of waste [11]

Overproduction is viewed as the most serious waste as it discourages a smooth flow

of goods or services and is likely to prevent quality and productivity. Overproduction

also tends to lead to excessive lead and storage times. As a result defects may not be

detected as normal. Products may worsen, which means that the consumer will end up

with a degenerated product. To overcome this, companies can implement Kanban or

pull system.

Unnecessary Inventory leads to a number of strategic drawbacks and negatively influences

operations.[4] Such as increasing lead time and delay the process to identify problems. In

addition, unnecessary inventory create significant storage costs, extensive rework when

problem arises and lower the competitiveness of the organization. This can be corrected

by reducing the inventory.

9

Literature review

2.2.2.3 Principle 3: Excess Production

Excess production occurs when more goods than demanded are being produced, leading

to overproduction. Pull-based production is a fundamental aspect in order to produce on

customer demand. To achieve a pull-based system Kanban can be used. Kanban means

“card”, “sign” and indicates that the stations in front sends a signal to the stations before

that more material is wanted. Therefore material is "pulled" through the production.

The opposite of pull-based production is push-based. It means that products being

produced without a specific demand and the products are being "pushed" through the

factory in to the inventory.[10]

Within the TPS, JIT is an important concept. JIT refers to the manufacturing and

conveyance of only what is needed, in the amount needed and in time when needed. To

accomplish JIT production it presupposes levelled production (Heijunka) and is built

upon the two basic operating principles of the pull system: continuous flow processing

and Takt Time.[12]

2.2.2.4 Principle 4: Heijunka

Heijunka is the overall levelling in the production schedule of the variety and volume

of items produced in given time periods.[13] This is a prerequisite for JIT production.

Advantages with Heijunka are:

• Flexibility to produce what customers wants and when they want it.

• Decrease risk of unsold goods

• Balanced utilization of machines and employees

• Balanced demand on processes upstreams and on suppliers

If customer orders varies a lot over time it can be hard to achieve pull-based production.

The two wastes Muri and Mura are typically increased by uneven production. Muri and

Mura will be discussed below.

Muri : to overburden people, machines and equipment: When overloading people, risk of

quality and security problems arise. Overloading machines and equipment increases the

risk of breakdown.

10

Literature review

Mura: present when irregularities occur. Variations within production volumes, produc-

tion occupancy demands machines and people to be on stand by (e.g. ready to maximal

production capacity even though the average workload is less than that).

Heijunka is important in order to eliminate Muri and Mura. Womack claims that many

organizations focuses on Muda (see 2.2.2.2) and forgets Muri and Mura. And in many

companies Mura is present while trying to “make the numbers” at the end of reporting

periods. This leads to sales writing to many orders resulting in equipment and employees

to work too hard as the finish line approaches which creates the “overburden” of Muri.

Thus, Mura creates Muri that undercuts previous efforts to eliminate Muda. In closing,

Mura and Muri are therefore the root causes of Muda in many organizations, see figure

2.3.[14]

Figure 2.3: Mura-Muri-Muda [11]

2.2.2.5 Principle 5: Jidoka

Jidoka is a method to design quality in to the product by stopping the process when

problems being encountered. It suggests a culture where you stop the process when

problems being faced, and solve these problems immediately so that the quality is as-

sured. It consists of two parts. The first part is about detecting problems and the second

part is about understanding the problems.

The first part, Poka-Yoke, is the low-cost highly reliable devices or innovations that

detect abnormal situations before they occur in a production process. They can be used

in work-stations in order to eliminate mistakes and failures. The second part is to solver

problems. TPS suggests that Gentsi Genbutshu (go see for yourself) is the most effective

11

Literature review

tool in order to analyze the situation. While at site, the method to ask why five times is

a highly effective way of finding the root cause of the problem.[10]

2.2.2.6 Principle 6: Kaizen

Kaizen is the concept of continuous improvements. In order to achieve Kaizen, tasks

ought to be standardized. Use stable, repetitive methods in order to sustain predictabil-

ity, timing and regularity of the process. This enables a pull-based system. By acquire

knowledge about a process it is possible to standardize it with the best known work

methods. By doing so it enables continuous improvements.[10]

2.2.2.7 Principle 7: Visual Control & 5S

Control processes visually so that no problems remain hidden. Use simple indicators

that helps staff to determine if they work according to standard or not. Use 5S in order

to keep the factory clean.[10] Below 5S is presented in a bullet list.

• Sort - rarely used articles from frequently used

• Structure - organize and mark each object’s position

• Clean - keep it clean

• Standardise - create rules for the above three themes.

• Create a habit - follow ups

Figure 2.4: The first seven principles of TPS [11]

12

Literature review

2.3 Supply Chain Management

Supply Chain Management (SCM) is referred to as the management of design, plan-

ning, execution, controlling and monitoring of supply chain activities. Supply chain is

the system of organizations, people, information, activities, and resources involved in

transporting a product from supplier to customer.[15]

SCM’s objective is to create net value, build a competitive infrastructure, synchronize

supply with demand, and measure performance globally. In addition, SCM plays a central

role in regulating the product flow, cash flow and information flow between supplier,

producer and customer.[16]

The idea with SCM is to make sure focal companies relate the customer’s need in the

processes of making the goods by connecting the focal company to the consumer. Fol-

lowing this procedure, the focal company can make sure that all activities that are used

in the production create value for the consumer. This exercise show where savings can

be made and how the whole supply chain can be more responsive to sudden changes in

consumer demand.[17]

Figure 2.5: Visual figure explaining technical terms regarding supply chain [11]

2.3.1 Sustainable Supply Chain Management

Sustainable Supply Chain Management (SSCM) involves integrating financially and en-

vironmentally viable practices into the complete supply chain life cycle. It includes activ-

ities such as product design and development, material selection, manufacturing, pack-

aging, transportation, warehousing, distribution, consumption, return and disposal.[2]

The core perspective of what consumers find interesting, is shifting towards environ-

mental and social standards.[3] In addition, Ageron et al. states that without including

13

Literature review

SSCM practices it is impossible for any focal company to improve their partner’s sustain-

able responsibility upstream and downstream. Therefore, sustainability is an important

concern to integrate in focal companies’ strategies.[2]

In order to achieve a permanent sustainability, focal companies require to build and

influence relationship beyond their own borders. These relationships with partners, plays

a major role in the sustainable supply chain and customer satisfaction.[2] Further in the

report we will address the partners of the upstream part as suppliers and divide the

downstream part as customer and consumers. See figure 2.5.

Ageron et al., develop a framework for Sustainable Supply Management (SSM), which

contains of seven “building blocks” that will characterize SSM. (1) reasons for SSM, (2)

performance criteria employed for SSM, (3) greening supply chains, (4) characteristics of

suppliers, (5) managerial approaches for SSM, (6) barriers for SSM and (7) benefits and

motivation for SSM.[2] See figure 2.6.

Figure 2.6: Framework for SSM [11]

Ageron et al. find that the framework centers around companies development of influenc-

ing their suppliers’ involvement in evolving and managing a sustainable business.[2] In

other words; focal companies should manage their SCM in order to make sure that their

suppliers get involved in developing and managing a sustainable business. In addition,

Ageron et al. find that the seven building blocks developed in the framework are used

to identify supporting conditions and critical success factors for SSM in order to achieve

suppliers sustainable business.[2]

14

Literature review

To summarize, see bullets and figure 2.7:

• SSM is refereed to the development within the supply chain from a managerial

perspective. Results in SSCM

• SSCM will influence suppliers and their involvement in evolving and managing a

sustainable business.

• Sustainable business is achieved by following the building blocks of the framework

Thus, a sustainable supply chain will be obtained when supporting conditions and critical

success factors for SSM are integrated in the focal company. This integration is important

since focal companies rule or govern the supply chain, provide the direct contact to the

customer, and design the product or service offered.[18]

Figure 2.7: Sustainable management within the supply chain [11]

15

3. About Coca-Cola Enterprises &

Spendrups

In this chapter we will introduce Coca-Cola Enterprises (CCE), Spendrups and sum-

marize all interviews held at both companies. Interview questions are enclosed in the

Appendix.

3.1 Coca-Cola Enterprises

Coca-Cola Company is one of the largest beverage companies in the world. CCE is the

marketer, producer, and distributor of Coca-Cola Company products. CCE is active in

eight territories in Europe and supply beverage to 170 millions Europeans every day. [19]

We conducted our case study at CCE’s factory in Jordbro (Sweden). Jordbro produce

over one million litres of soft drinks every day, that are distributed all over Sweden. [20]

The following subsections will summarize the interviews with CCE.

3.1.1 Lean Management at CCE

CCE is a publicly traded company. In order to meet stockowners expectations, there

are high demands regarding financial performance. CCE consider themselves as good at

minimizing waste of raw materials, daily monitoring and involvement of employees.

CCE has consciously worked with the implementation of TPS principles for eight to ten

years. Usually TPS principles and tools are modified in order to better fit with the

organization. CCE’s customers demand a 24-48 hours delivery service and CCE have

a large product portfolio to offer. Lead times upstream are approximately three weeks

and downstream one to two days. In order to be able to deliver this CCE holds a ten

day of finished goods inventory that function as a safety buffer. Forecasts based on

16

About Coca-Cola Enterprises & Spendrups

historical data, customer orders and weather predictions are used in order to create an

accurate production forecast. Resulting in a production plan. The actual production

plan is updated daily. If the forecast mismatch the actual demand and if there is no

space in the plant inventory, rental storage is used. CCE is working with simulation

tools in order to level the production regarding articles (SKU-stock keeping units) and

that the amount of setups/changeovers (e.g. when machines are set to produce a specific

product) in production per week are kept the same. Production is push-based but the

production plan is set correspondingly to the forecast in order to obtain as pull-based

production as possible.

CCE, like other beverage companies, face seasonal demand variations. Maintenance

is preferably done during low demand seasons and during high demand seasons the

production is only stopped temporarily for “quick-fixes”. Root causes of problems are

therefore not necessarily investigated during high demand seasons. High demand seasons

are also facing problems with insufficient production capacity. While low demand seasons

face problems with spare capacity. In order to adjust the capacity, CCE is increasing

and decreasing the number of shifts within the production. Work assignments are also

different. During low demand seasons operators are focusing on maintenance, cleaning

and education whilst during high demand seasons operators are focusing on production.

Tasks are generally standardized in order to make execution easier and employees are

encouraged to participate in improving standards in their area of responsibility.

Volume is an important key performance indicator (KPI) for beverage companies. In

order to obtain the premium promotion spaces in supermarkets, campaigns are necessary.

Therefore, campaigns are an important part of the strategy in order to increase volumes.

CCE sales division do yearly preliminary plans with customers in order to decide when

and which campaigns ought to be held during the year. Campaign information is usually

disclosed with the production division eight weeks before the campaign. Campaigns

sometimes create problems for the production, regarding capacity.

Delivery service varies from customer to customer. Some customers demand 24 hours

delivery service and delivery five times a week and others 48 hours delivery service once a

week. CCE does not have any volume discounts nor do CCE offer different prices on lead

times. Some customers agree on lower prices for products with short expiry date. The

interviewee claimed that orders disclosed in advance would simplify production planning.

Especially orders on specific articles (not specified here). Furthermore, it would simplify

17

About Coca-Cola Enterprises & Spendrups

production levelling if customers that rarely order but when they do, they order large

quantities, would accept customized delivery lead times.

3.1.2 Supply Chain Management at CCE

CCE’s purchase department is the agency that is responsible so that suppliers linked to

CCE meet the agreed requirement. The interviewee we met with worked with suppliers

that distribute machinery to the manufacturing plant, this unit is part of the purchase

department. The interviewee’s unit had about 15 suppliers. Three of them are suppliers

that constitutes a part of CCE’s long-term program (see 3.1.3).

CCE segment their customers in two different types; supermarkets and other (e.g. pizze-

ria business). The activity of the two customer types is divided 60% to 40%, supermarkets

stand for the bigger part. Delivery within Stockholm is guaranteed within 24 hours and

customers in other parts of Sweden get their delivery within 48 hours. Supermarkets are

able to order through electronic data interchange (EDI). EDI is a software that makes

the process manageable, structured, reduces cost, increases processing speed, reduces

errors and improves relationships between focal companies and customers.

3.1.3 Sustainable Supply Management at CCE

CCE has intentionally worked with sustainability within the supply chain and is aware

that it creates advantages in the long run. For example, CCE works to achieve a high

rank at the Dow Jones Sustainability Indices in order to preserve market shares. There-

fore, strategies to show awareness and responsibility are essential with such a powerful

trademark.

CCE is particular in their process of choosing suppliers. It does not matter if the sup-

plier is linked to raw material or machinery. The process of evaluating the supplier is the

same. However, the vision with all supplier partnerships, is aimed to create advantages

in a long-term perspective, by linking them to the long-term program. The strategy to

achieve this is centered around a platform called EcoVadis. By using this platform, CCE

can arrange performance reviews with their suppliers. It will also give CCE a guarantee

that the suppliers will preserve the sustainability goals that were agreed upon. In ad-

dition, EcoVadis are working to support focal companies to improve their performance

18

About Coca-Cola Enterprises & Spendrups

and decrease the costs associated with the monitoring of suppliers’ corporate social re-

sponsibility (CSR). Thus, lowering the threshold and making it easier to implement SSM

practices.

3.2 Spendrups

Spendrups was founded in 1897 and has been active on the Swedish market since then.

Today, Spendrups produce and distribute 400 millions liters of strong and soft drinks

(with and without alcohol) every year.[21]

We conducted our case study at the factory in Grangesberg (Sweden), which stand for

the largest part of what is produced each year at Spendrups.[21]

The following three subsections will summarize the interviews with Spendrups.

3.2.1 Lean Management at Spendrups

Spendrups is a family owned company and is not publicly registered. Spendrups has an

internal rate of approximately 20%, which places high demands on investments since the

opportunity cost is high. Therefore, decisions are generally based on long term thinking.

Spendrups has not consciously worked with the implementation of TPS principles, but

the interviewees knew about the Lean and TPS and insinuated that some TPS principles

were implemented. Spendrups has a large product portfolio and customers demand 24

hours delivery service. Currently Spendrups has approximately 16 days of finished goods

inventory.

Lately there has been given much attention towards shortening of lead times upstream

in order to compensate for poor forecast accuracy and that customers demands 24 hours

delivery service. Today, the main part of the production is pull-based, and fully achieved

pull-based production is the aim. In reality, however, production occasionally is push-

based, based on forecasts. Spendrups has strong variations in demand. Except shortening

of lead times, sizing of production capacity is a major issue. During low demand seasons

Spendrups work with maintenance and educating employees. During low demand seasons

there is spare production capacity and the number of shifts are decreased. Maintenance

during low demand seasons is a crucial preparation for high demand seasons. If carelessly

managed, machinery and employees will be worn out during the high demand seasons.

19

About Coca-Cola Enterprises & Spendrups

During high demand seasons there are problems with insufficient capacity. Therefore,

inventory in order to compensate for this is necessary. The number of shifts are also set

to match a 24 hours production.

Campaigns are an important part of Spendrups business. In order to obtain shelf-space

in stores, beverage companies need to focus on volume. There also exists premium shelf-

space in supermarkets, and to be promoted campaigns are necessary. Since there are

high fixed costs in the beverage industry, there is very low variable cost when increasing

production volume due to campaigns. Therefore, campaigns constitute an important fac-

tor and do not economically damage the financial situation but it does increase volumes

produced.

Delivery lead times demanded vary from customer to customer. Supermarkets generally

demand faster delivery than restaurants. Restaurants on the other hand demand pos-

sibilities to change the order close to delivery. Spendrups does not offer any discounts

if customers place orders in advance, agrees on longer lead times or buys products that

have been in inventory for a while. Historically, volume per customer was an important

KPI and there existed volume discount for customers. This has changed and currently

contribution margins are the operative KPI and the discount does not exist. Spendrups

is working to achieve better insight to customers purchasing planning. In turn, suppliers

are also working to obtain better insight in to customers’ order planning. Spendrups

believes that collaboration is a better way to plan and level production than to price

lead times, order placements and so forth differently.

3.2.2 Supply Chain Management at Spendrups

Spendrups is using about 50 suppliers in order to supply their production with raw

materials. Spendrups state there are only a few suppliers in Europe that can deal with

their order volume and deliver within 24 hours. Their current suppliers have a high

delivery dependability and wants to be geographically close to Spendrups. For instance,

Seisa (a French company) built storage facilities in a nearby town to Grangesberg only

to be able to deliver within 24 hours.

Spendrups segment their customers into five different groups. The five customer groups

are: supermarkets, restaurants, export, strong-drinks (Systembolaget) and other (e.g.

pizzeria businesses). The volume sold to the customer is evenly divided between super-

markets and restaurants. The behavior pattern between the five groups is very similar.

20

About Coca-Cola Enterprises & Spendrups

All customers expect a delivery time between 24 - 48 hours. Customers also want the

drinks to be rather newly produced (e.g. depending on soft or strong drink the expiry

date is between 16 - 52 weeks).

Supermarkets are one of the biggest customer groups and Spendrups has a vision to work

closer with this customer group. Spendrups argue that an exchange of data is essential

in order to better predict the consumer demand. For instance, there has been a trend in

the last 5 - 10 years for supermarkets to build their own storage, and store the ordered

inventory at these facilities. This inventory is then distributed further down the supply

chain, causing a shift in seasonal fluctuation. Thereby, a bull-whip effect is caused in the

supply chain. Thus, without exchanging data within the supply chain, the supply chain

will still be vulnerable and fluctuation frequency will remain high.

3.2.3 Sustainable Supply Management at Spendrups

Spendrups process when choosing a supplier is very standardized. The process centers

around a form that suppliers complete. It is a comprehensive evaluation of suppliers and

their business. A completed form will give information, about operational and strate-

gical perspectives, concerning major issues (e.g. waste reduction, achieving ISO 14001

certification etc.) suppliers have and how they deal with these issues. The main reason

why this is done, is because Spendrups wants to protect their costs before concluding

partnership with suppliers.

Spendrups vision is that sustainability should go hand in hand with the finances. How-

ever, Spendrups high internal rate makes it hard to justify unprofitable investments.

Thus, Spendrups sometimes let the financial aspects take charge.

21

4. Analysis & Discussion

In this chapter we will investigate and compare theory about Lean management and SSM

with findings during our case studies. The Lean management focus will be on processes.

The focus on SSM will be related to the framework that Ageron et al. developed.

4.1 Lean Principles in the FMCG Industry

Aljundi and Ankrah argued that TPS could be implemented in the FMCG industry, due

to that the same types of waste found in the automotive industry were found in the

FMCG industry. However, differences in the nature of business between the automotive

and FMCG industries demand a customised approach towards implementation of TPS.

Furthermore, Aljundi and Ankrah conclude that several of the eight types of wastes found

in the FMCG industries studied were attributed to the nature of business. In contrast

to the automotive industry, where the wastes appear due to miss managed operations,

the wastes appear naturally in the FMCG industry. Thus, making the wastes harder to

remove.[5]

Many of the visualisation and process improvement tools (5S, Poke Yoke, value stream

mapping and Kaizen) are suitable in the FMCG industry. While JIT and production

levelling tools are found to actually end up generating more waste. Therefore, TPS tools

should not be applied blindly and without consideration in the FMCG industry. [5]

The major difference between the automotive industry and the FMCG industry, is the

long setup and change over time in the production. Therefore, FMCG industry tend to

produce in large batches, which is contradictory according to what TPS advocates. In

addition to high volume production, product variability is high in FMCG manufacturing.

This is due to the demand to cover a large product portfolio in order to keep up with

the competition.[5]

22

Analysis & Discussion

There are four fundamental preconditions needed to be fulfilled in order to implement

TPS completely. The most pressing precondition is production levelling. In the bever-

age industry forecast accuracy (due high demand variations) and supplier reliability are

the major issues. Making production levelling tools difficult to implement. In order to

accomplish Heijunka the ability to level demand must be possible. A prerequisite for

a company to level its production, is a levelled market demand and a satisfying order

management. A stable demand over time is not currently the reality of FMCG industry

and FMCG companies have to keep inventory in order to manage variations. Thus the

TPS principles of JIT, low inventory and pull production are not applicable nor pos-

sible to achieve in the FMCG industry during prevailing circumstances. Furthermore,

Aljundi and Ankrah stated that three other preconditions needed to be aligned in organi-

zations in order to implement TPS. Without further explanation, the three prerequisites

for successful TPS implementation are: Top management support, the design of the

organization structure and employees capabilities, see figure 4.1.[5]

Figure 4.1: Lean organizations [11]

Companies within the FMCG industry share the same characteristics regarding customer

demand. While automotive customers would be willing to wait for several days to pur-

chase a car, a FMCG consumer would not be willing to wait for more than a few minutes

for its desired product. If the demanded product would not be in store the consumer

would simply buy the next available brand on the shelf.[5]

The automotive industry generally can wait for their customer orders prior to making

their final production plans on the assembly line. While most FMCG producers have no

choice but to rely heavily on sales forecasts based on historical trends in order to precede

its customers and not loose market shares.[5]

23

Analysis & Discussion

A change of mindset regarding the way business is done in FMCG industry would

be needed in order to implement production levelling tools and thus obtaining Lean

production.[5]

4.2 Lean Management at CCE

CCE in Jordbro is working with TPS within the production. Many tools and methods are

implemented and employees are being educated in TPS principles. Even though many

tools and principles have been implemented there are some fundamental issues at CCE

that compromises a complete TPS implementation. The first issue is long term thinking.

CCE often make uses of campaigns in order to obtain premium space in stores. Volume

sold is important in order to keep market shares and provide financial numbers to show

stock owners. This causes problems in the production that later will be discussed, and it

also indicates that the fundamental principle (long term thinking) of TPS is not a part

of CCEs organization.

The second TPS principle, continuous flow process, argues that inventory should be

removed so that problems and inefficiency are being located. This is also a prerequisite

for Kaizen. Unnecessary inventory and overproduction are also considered to be Muda.

Therefore, inventory is not a part of TPS, inventory is ideally kept low or non existing.

CCE have approximately ten days of finished goods inventory. There are various reason

for this, such as long lead times and customer demand on 24 hours delivery guarantee.

Although, the existence of inventory compromises another fundamental TPS principle:

the continuous flow process and removal of inventory.

Excess production, the third TPS principle, occurs when goods not demanded are being

produced thus exercising push-based production. Because of CCE’s long lead times

(three weeks), pull-based production on customer order is not possible. Therefore, CCE

is forced to produce to stock and thus lacking an additional TPS principle.

In order to achieve JIT production firstly levelled production (Heijunka) must be ob-

tained. It is important to achieve because the origin of Mura and therefore Muri and

Muda arises as a consequence from uneven production.[14] Production unreliability is a

frequent problem when TPS has to be installed. The problems occur because unreliabil-

ity leads to variability in processing times and consumption, which must be compensated

by inventory buffers.[22] As discussed above, levelled production is the biggest challenge

24

Analysis & Discussion

in the FMCG industry due to the nature of its business. CCE experiences the same

problem with levelled production. Even if they use forecast algorithms and close follow

ups of production plans, there exists variations in volume. Thus, another fundamen-

tal TPS principle is not met. Another issue worth mentioning is the uneven staffing

occurring during summer months. Many of the regular employees go on vacation and

temporary employees take there place. Levelling of competence over time could arguably

be considered a Heijunka problem as well.

The fifth principle, Jidoka, is a method in order to design quality in to the product.

This is mainly achieved through instantaneous problem solving when problems being

encountered. At CCE they have developed a certain process when problems being de-

tected. Firstly they have Poka-Yoke, devices that detect abnormal situations before they

burst in to problems. Examples are seamer tests and other sensors that ensures quality

standards. Furthermore, Gentsi Gentbutshu is present as operator and team leaders are

located close to the production line and always investigated problems on spot. Five Whys

is also an implemented method, used in order to understand the root cause of a problem.

Jidoka could therefore be considered an implemented and functioning principle.

Continuous improvements, or Kaizen, is present in CCEs organization. CCE work with

standardization of repetitive methods and encourage employees to suggest improvements.

Therefore, Kaizen is considered an achieved TPS principle within CCE.

The tool 5S is also implemented in the CCE. Rarely used articles are removed, standard-

ization is used, every object has its marked position, cleaning is a part of the everyday

business and there are close and scheduled follow ups. Therefore, 5S is considered an

implemented TPS principle.

4.3 Using the Framework at Coca-Cola Enterprises

Reasons for SSM. Ageron et al. find in their empirical study that there are two differ-

ent main topics that describes what main incentives/factors that force pursuing SSM.

These subjects can be categorized as either external or internal. The external factors

include governing requirements, the nature of the business, competitor and stakeholder’s

actions. Internal factors include top management vision, customer demand and sup-

plier’s sustainable initiatives. Regardless for what underlying factor existing in favor for

implementation of SSM, dealing with environmental issues can lead to the gain of new

25

Analysis & Discussion

customers, competitive advantage, to economic benefits, sustainable capabilities etc.[2]

CCE has an internal incentive to pursue SSM. By creating a new position at the pur-

chase department, CCE was able to adapt EcoVadis to its organization. EcoVadis is a

software, which contains of a list of all suppliers that CCE works with. Every supplier

receives a score card and is used to evaluate the suppliers on a monthly basis. EcoVadis

overall score of the supplier is a score between 1 and 100. This score reflects CSR perfor-

mance of CCE’s supplier on more than 21 CSR indicators grouped in 4 themes. Thus,

CCE demonstrates their commitment to working with suppliers that recognise the need

to measure their environmental impacts.

Performance criteria for SSM and Greening supply chains. Ageron et al. determined

that performance criteria should include objectives such as quality, price, reliability, ser-

vice rate, delivery performance and flexibility in order to support SSM. Collaboration

within the supply chain improves manufacturing performance. Exchange of mutual infor-

mation, good understanding of each other responsibilities will create a rich collaborative

context and improve environmental performance. The authors define greening supply

chain as the management of handling material flow along the value chain throughout

different phases. Such as waste reduction, packaging material reduction, Lean manage-

ment, production facilities etc.[2] CCE uses five broad-based performance terms (later

referred to as objects) when evaluating a supplier. These five objects are quality, service,

cost and value, innovation and CSR. All objects contain several KPIs (3–6 depending on

object). First, each object is calculated as a weighted average of the KPIs within that

object (these KPIs are weighted differently depending on its importance). This gives

a score between 1-100. Secondly, all these measured objects will compile into a total

average, leading to a capital score. This score is used to keep track on the supplier and

is evaluated on a monthly basis. However, the supplier can get a better score if they

provide an official document showing a reduction of their carbon footprint in comparison

with previous years. Moreover, if the supplier provide brief details of where in their value

chain this reduction has occurred and what processes/initiatives have been employed to

achieve this reduction. A higher score will be obtained. Thus, giving CCE a collaborative

context in order to obtain a greening supply chain.

26

Analysis & Discussion

Characteristics of Suppliers. Ageron et al. state that a vision with direct and transparent

strategic plans can influence suppliers commitment for sustainable supply management.

That is the primary factor, but a close secondary factor are abilities as geographical

location and company size. [2] When asking CCE, the interviewee ranked a strategic

supplier over a non-strategic supplier. As mentioned earlier CCE is a West-European

company and our interviewee stated that CCE want supplier to be close to this geo-

graphical location. However, the size of the supplier was not decisive.

Barriers for SSM. The biggest barrier for CCE to pursue SSM, is the fact that compared

with their suppliers CCE is rather small on the market. Leading to limitation on how

much CCE can influence its suppliers. However, CCE is so particular when choosing

suppliers that there are only certain suppliers experienced enough too be able to meet

CCE’s demands. Thus, generating a unsustainable design on one of the core mechanism

in the supply chain.

Benefits and Motivation of SSM. Ageron et al. find that the major benefits of SSM

are customer satisfaction, suppliers’ innovation capacity, quality, trust, etc. In addition,

by collaborating with their suppliers on greening supply chains an expected indulgence

from suppliers’ capabilities to innovate in sustainable issues will be achieved by focal

companies. [2] Our interviewee thinks that the crucial factor why CCE pursue SSM, is

the fact that the perception of CCE is the image of a business giant with an American

culture. Therefore, it is highly motivated to change this image, in order to be on the

forefront and well developed in questions regarding CSR.

To summarize, CCE proves to utilize some of the major benefits in order to achieve SSM.

4.4 Lean Management at Spendrups

Spendrups does not work with TPS principles consciously. The interviewees knew of

TPS but had no explicit strategy to implement it. During the interview we found out

that some tools and mindset were similar to TPS principles, and that some isolated tools

had been adopted.

The first principle of long term thinking during decision making is fundamental at

Spendrups. Since Spendrups is not at the stock market, their decision making differs

from publicly traded companies because Spendrups does not act in the interest of the

stock owners. Spendrups uses campaigns in order obtain premium shelf space and not

27

Analysis & Discussion

to loose market shares. Decisions are mainly based on long term gains rather than short

term earnings, but campaigns creates a conflict with this principle.

Continuous flow processes argues that inventory ought to be kept low or non-existing.

As discussed above a continuous flow is difficult to obtain in the FMCG industry and

due to the nature of its business FMCG companies are forced to keep some inventory.

Spendrups have approximately 16 days of finished goods inventory. Even if Spendrups

has shortened its lead times to two days upstream, it is necessary to keep stock. This is

due to seasonal variations, a large product portfolio and 24 hours delivery service. The

existence of inventory states a discrepancy between the reality at Spendrups and TPS’s

continuous flows. Thus, the second TPS principle is not completely implemented.

Spendrups is using forecast software and plans the production few days in advance.

Spendrups is mainly practicing push-based production due to lead times upstream that

do not correspond to the demanded lead times downstream. Thus, the third principle,

excess production, is not accomplished since Spendrups produces to stock.

Levelled production is difficult to achieve in the FMCG industry. Seasonal demand

variations, the nature of the product and limited capacity in the factory as contributing

factors makes Heijunka difficult. Spendrups has worked with shortening of lead times, in

order to make more accurate production plans and thus be able to smooth out production

more evenly over time. Inevitably, Spendrups need to increase production during high

demand and therefore Heijunka is not fully accomplished.

Jidoka and Kaizen are partially implemented, but not in the meaning of TPS principles,

rather their conceptual meaning. There exists action plans that are used when prob-

lems being encountered. Gentsi Gentbutsu is used, many supervisors are present at the

factory floor during production and five whys is frequently used. Spendrups works with

standardization of repetitive operations, but do not consciously exercise Kaizen. During

seasons when demand is low there is more time given to reflection and learning than dur-

ing high demand seasons. Therefore, these principles have potential to be implemented

consciously but currently Spendrups is not. Furthermore, the principles could be said to

work better during low demand seasons than high demand seasons.

5S is implemented, but the interviewees have focused on implementing parts that they

find useful. It could therefore be questionable if 5S is implemented, but rather considered

partially implemented.

28

Analysis & Discussion

4.5 Using the Framework at Spendrups

Reasons for SSM. Ageron et al. state that there are two different main topics that

describe what main factors that force pursuing SSM. These factors can be categorized as

either external or internal. Internal drivers are mainly related with organizational factors

such as top management vision.[2] The reasons why Spendrups had such standardized

working procedure was mainly because they wanted to protect their own costs before

concluding partnership with suppliers. Thus, a clear top management motive.

Performance criteria for SSM. Ageron et al. find in their study that suppliers play a

major role in SSCM. Therefore, using the right performance criteria for their selection

is very important. They determined that performance criteria should include objec-

tives such as quality, price, reliability, service rate, delivery performance and flexibility.

These criteria are appropriate to support the sustainability of upstream supply chains.[2]

Spendrups states that the price has been a main cause for a long time, but factors such as

quality and delivery are equally important. All of these factors are investigated through

a supplier form. Spendrups stresses that no one without these performance criteria get

through that, so called, filter.

Greening supply chains. Ageron et al. define greening supply as, the management

of handling material flow along the value chain throughout different phases. Such as

waste reduction, packaging material reduction, lean management, production facilities

and achieving ISO 14001 certification. With the argument that corporate and social

sustainability issues must be taken into account when formulating strategies, tactics

and operational policies for SSM.[2] The interviewees explained that Spendrups measure

their supplier on ISO standardization, work towards reduction of waste and CO2. This

is evaluated with the same supplier form stated above. Thus, challenging their suppliers

to achieve greening supply chains.

Characteristics of suppliers. Ageron et al. state that a vision with direct and transparent

strategic plans can influence suppliers commitment for sustainable supply management.

That is the primary factor, but a close secondary factor are abilities as geographical

location and company size.[2] Spendrups main criteria explaining the character of the

supplier, was if they were able to deliver withing 24 hours. But they stated that there

are not that many suppliers that are capable of meeting Spendrups requirements overall.

Therefore, making it likely that suppliers getting through the filter are centred around

29

Analysis & Discussion

visions and strategic plans. However, Spendrups feels that it is a smaller actor compared

to its suppliers. Thus, making it hard for Spendrups to influence its suppliers.

Barriers for SSM. When implementing change into an organization, resistance is in-

evitable. It is important to identify barriers within the organization, supplier firm or

other stakeholders.[2] The biggest barrier for Spendrups is to work closer with its sup-

pliers because Spendrups is a smaller company compared to its suppliers in most cases.

Therefore, making it harder to influence the suppliers. However, since Spendrups is so

strict (i.e. Spendrups will not tolerate a supplier with low standards) with its supplier-

filter. Thus, Spendrups will not be able to influence supplier that are bigger than them-

selves, and Spendrups will not get in to a partnership with supplier with low standards.

Benefits and motivation of SSM. Ageron et al. state that understanding benefits of

motivation for sustainability in supply management is crucial for organizational compet-

itiveness in terms of price, quality, dependability, flexibility and responsiveness. Benefits

are in this case customer satisfaction, quality, innovation, trust, managing supply risk,

fill rate, optimal inventory, flexibility, lead time and cost control.[2] Spendrups is aware

that there is a lot of benefits that can be achieved while working closer to its suppliers.

However, Spendrups has knowledge that there is a lot of development cost while working

upstream.

30

5. Conclusions

This chapter we will present a conclusion regarding if TPS is possible in the FMCG

industry. Factors needed to be attended in order to become Lean will be disclosed.

In addition, our two research questions will be answered. Firstly, aspects that FMCG

companies ought to consider in order to minimize waste will be addressed. Secondly, a

conclusion of how FMCG industry works with sustainability within the supply chain will

be presented. Furthermore, this chapter contains a recommendation of how the FMCG

industry can work in order to become Lean and suggested future work needed to be

conducted is presented.

5.1 Lean in the FMCG Industry

We conclude that companies in the FMCG industry tend to have difficulties in obtaining

Lean organizations. To such arguments and claims, the proponents of Lean respond

that whilst many companies claim to be Lean, they are in fact only implementing a set

of Lean tools (often TPS principles) without considering Lean as a complete system.[5]

As we clarified in chapter two, a Lean organization is obtained when a successful TPS

implementation is completed, see figure 5.1. According to Liker this explains why many

companies think they are Lean, but are not in reality. These companies do not implement

the complete model, and this also explains why many Lean implementations fail.[5] There

is therefore a difference between Lean production and Lean organization. The production

is a part of the organization. Thus, the production may be Lean, but not necessarily the

whole organization.

In our case studies we found that neither CCE nor Spendrups are Lean. They lack many

aspects and TPS principles, especially those regarding production levelling. Furthermore,

CCE that is publicly registered tend to base its decision on short term goals while

Spendrups who is privately owned tend to base its decision on long term goals. Therefore,

31

Conclusions

Figure 5.1: TPS and Lean organization [11]

arguably there is a significant factor regarding company ownership structure and how

well the first TPS principle is implemented.

The nature of the product makes it difficult to achieve a levelled production. Shorter

lead times to customers than from suppliers to producer, large product portfolios forces

FMCG companies to keep a large finished goods inventory. Furthermore, seasonal de-

mand variations and campaigns complicates levelled production. Thus, TPS principles

such as continuous process flows, excess production and Heijunka are not easily imple-

mented. While principles like Kaizen, Jidoka and 5S are found to be implemented in

both of our case studies. As Aljundi and Ankrah found in their article, these principles

generally are fit for the FMCG industry.[5]

One of our research questions was to investigate how TPS can be used in order to

minimize waste. Our conclusions will be disclosed below. Muda, is waste defined as non

value adding activities during production- It is waste that tend to have and impact on

financial statements. Thus, companies generally strive to minimize Muda. As Womack

suggested in his article, in order to minimize waste (Muda), firstly Mura and Muri need to

be reduced. In order to reduce Mura and Muri, levelled demand and levelled production

need to be obtained. Uneven demand and uneven production are fundamental problems

within FMCG industry. They need to be attended in order to minimize Muda and to be

able to implement all TPS principles and thus obtain a Lean organization. In short, the

purpose of TPS is to minimize waste [9], but levelled demand and levelled production

need to be fulfilled before feasible TPS implementation.

In the literature we found that authors suggest two measures to optimize in order to level

production, internal (e.g supply chain and operational control) and external (e.g control

the demand).[5] In our case studies we found that CCE and Spendrups work with four

32

Conclusions

internal areas in order to meet customer demand regrading lead times and the requested

orders. Firstly they work with shortening of lead times to customers and suppliers.

Furthermore, they work with forecasts, simulations and inventory optimization.

This facilitates production planning and therefore production levelling. Interestingly, we

only found one external factor used in order to level demand: campaigns. Campaigns

are in turn usually constructed together with customers and constructed to fit consumer

demand rather than a tool to level demand. Thus, CCE and Spendrups work more

with operational control and improvements within the supply chain in order to level

production than to level demand in order to level production, see figure 5.2.

Figure 5.2: Conclusion to level production [11]

To summarize, if the FMCG industry should become Lean, production levelling would

need to improve. Aspects to consider in order to accomplish production levelling are

operational control, SSM and demand management. Operational control and SSM has

already come a long way in their development, but demand management is lagging

behind.

5.2 SSM in the FMCG Industry

First off, we answer the second research question mentioned in section 1.5 as: a sus-

tainable supply chain will be obtained when supporting conditions and critical success

factors for SSM are integrated in the focal company.

We also found that both CCE and Spendrups are familiar to rethink, adapt and imple-

ment several of the the supporting conditions and critical success factors for SSM that

Ageron et al. find in their framework. However, a mutual dilemma for both companies

are that their high standard when choosing a supplier, attract suppliers that are bigger

companies than CCE and Spendrups.

33

Conclusions

Therefore, CCE and Spendrups have little leverage making it harder to influence and

collaborate on a strategic level. Ageron et al. find that the size of the supplier is not

a significant requirement in order to achieve SSM.[2] Due to this, we recommend the

FMCG industry to pursue smaller scale suppliers, so that collaboration on a strategic

level can be reached as well, in order to create a stronger relationship.

The FMCG industry also have a problem with being too reserved about sharing infor-

mation within the supply chain. The case study proved that the exchange of information

in several processes within the supply chain can be a problem. We conclude that the

responsibility for this is shared among all stakeholders within the supply chain. Without

exchanging information the supply chain will still be vulnerable and fluctuations will

remain in a high frequency. Therefore, a continuum in uneven production will abide.

5.3 Recommendation: How to Accomplish Lean production

We recommend that companies within the FMCG industry ought to strive to achieve

better demand management.

As shown in the conclusion (see 5.1) aspects to consider in order to accomplish production

levelling are operational control, supply chain management and demand management.

Operational control and supply chain management are already usually considered within

companies in the FMCG industry. Therefore, we recommend that companies strive to

achieve better demand management.

Factors to consider within demand management could be:

• Different prices on order placement. Offer lower prices the more in advance the

order is submitted.

• Different prices on delivery lead times (i.e. lower prices on slower delivery)

• Campaigns that facilitate and support a levelled production, rather than support

consumer demand. Corporation between sales division and production division

internally.

Thus, facilitating production levelling and thereby facilitating a full TPS implementation

in order to obtain a Lean organization.

34

Conclusions

5.4 Future Work

To be done in order to achieve levelled production, implement TPS and work with SSCM

to obtain SSC. The first two items in the list concerns work regarding TPS and the last

two concerns work regarding SSCM.

• In order to achieve better production planning a corporation between the sales

division and production division inside the company could be investigated

• Appoint a commission in order to investigate if differentiated pricing on delivery

lead times and order placements would have an impact on customer behavior

• Producers ought to strive to better corporation with suppliers and customers re-

garding sharing data of orders, sales and inventory. By achieving more transparency

every stakeholder in the chain would gain benefits concerning production planning

• Investigate what incentives focal companies within the FMCG industry propose

in order to make suppliers and customers willing to exchange information, visions

and strategic plans

5.5 Limitations in our Conclusions

Our case studies only concerned beverage companies, why it could be questioned if

our results are applicable for the whole FMCG industry. Aljundi and Ankrah showed

that the production difficulties in the FMCG industry are similar through out the hole

industry. Hence, we chose to treat our case studies as representative for the whole

FMCG industry. Although we adopted a qualitative research approach and treated our

case studies as blanket, the limitation of generalizing the findings to the whole industry

is problematic. Future research in order to validate our findings, could be to conduct

more comprehensive case studies.

35

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38

Appendix

.1 Interview Questions-Lean

• How long have you deliberately worked with lean?

• Which tools would you suggest that you manage well?

.1.1 Category 1-Philosophy

• Would you say that you base your decisions on long term goals?

.1.2 Category 2- Right Process Delivers Right Results

• How do you work in order to detect problems within the production?

• Do you have a lot of finished goods inventory?

• Are you working with JIT?

• Are your production pull-based?

• Are you working with Kanban?

• Do you have a levelled production?

• If you experience a production breakdown, what do you do?

• Would it be possible for you to use Andon?

• How do you work in order to achieve continuous improvements?

.1.3 Production Levelling

• Are you currently working with production levelling deliberately?

39

Appendix

.1.3.1 Seasonal Demand

• Do you sense seasonal demand variations?

• How do you handle these?

• Do you experience that machinery breakdown more often during high demand

seasons?

• Does staff need to work harder during high demand seasons?

• What activates are performed when low demand seasons is present?

.1.3.2 Campaigns

• How are you working with campaigns?

• Why are they important?

• Who decides which campaign and when it should take place?

.1.3.3 Forecasts and Production Planning

• How much do you trust your forecast tools?

• How do you forecast tools work?

• How long lead times do you have downstream and upstream?

• How does your production planning work?

.1.3.4 Delivery Service

• What is your lead-time to customer?

• Do customers need to pay more if faster delivery is required?

• Would orders in advance simplify production planning?

• Are they offered to pay less if longer lead times are fine?

• Do customers require the beverage to be newly produced?

• Would customers agree to a lower price for short date products?

40

Appendix

.2 Interview Questions-Supply Chain

.2.1 Supply Chain

• How many suppliers do you have that supply you with raw materials?

• How do you segment your customer?

• How long would it take for you to produce X(random number) cans, when if you

are all out of raw material?

.2.2 Framework

• Is your process when choosing a supplier standardized?

• What are your main reasons for this standardisation?

• What are the main performance criteria you go after when choosing a supplier?

• Are you well aware of your suppliers sustainable issues?

• Are you aware what type of character (e.g. Strategic, non-strategic, geographically

close, size on firm) your supplier have?

• What are the main barriers, working closer to your suppliers?

• What are the main benefits and motivation, working closer to your suppliers?

• Do you think that you establish a sustainable supply chain? Why, why not?

41