005-0080A Web-enabled Agile Manufacturing System

for SMEs in Supply Chain Management

Yan Zhang and Xiaojun WangThe University of Liverpool Management School, UK

email: zhy@liverpool.ac.uk ; xiaojun.wang@liverpool.ac.uk

Abstract

SMEs are facing touch challenges from the uncertain external manufacturing environment and internal operations management. WIP and inventory cause redundancy and consume labour resources, which releases the importance of information visibility in enhancing operational performance. Large ERP system could not be affordable by SMEs, tailored and flexible models are in need in their supply chain management.

This paper outlines the integration of material flow and information flow in agile manufacturing. A web-enabled prototype system for production planning and control is proposed to achieve the goal of rationalising the supply chain. From the perspective of the agility strategy, a case study of an SME specilised in customised stainless steel products is demonstrated. Hierarchical e-category paradigms are introduced to illustrate the coding design, internal linkages and system structure. Analysis and diagnose of current process, functionality proposed unveils the typical problems and systematic solution for SMEs in their supply chains.

Keywordsagile manufacturing, supply chain management, web-enabled SME

1. Introduction

1.1 Research BackgroundSupply chain could be defined as an integrated process where business entities (up-stream suppliers, manufacturers and down-stream customers) work together in an effort to acquire raw materials, convert these raw materials into specified final products, and deliver these final products to end customers. This chain is traditionally characterised by a forward flow of materials and a backward flow of information. Supply chain management requires the conversion and movement of raw materials into final products. The challenge is to determine how to successfully accomplish this integration.

Over the last two decades, there has been increasing interest and enhancement on supply chain management by small and Medium-Sized Enterprises (SMEs). This development has become a source of competitiveness and value creation. There are two trends in the operation management. First is the strategy of integration in information technology and traditional manufacturing process, consequently large IT support systems, such as MRP (Material Requirement Planning), MRP II(Manufacturing Resource Planning) and ERP(Enterprise Resource Planning), have become popular advocation by manufacturers. Nevertheless, these systems usually lead to high cost and demanding investment in the IT infrastructure, internal training and after-sale service, which is unaffordable to SMEs. Meanwhile the system requirements from SMEs obviously are not as complex as large manufacturers’, therefore, tailored and flexible systems serve the supply chains better. On the other hand, one of the most significant paradigm shifts of supply chain management is that individual businesses no longer compete as solely autonomous entities, but rather as one node within the whole supply chains (Drucker, 1998). In this emerging competitive environment, the ultimate success of single business depends on the ability to integrate the company’s intricate network of commercial partners, including the supplier relationship management. As SMEs lacks of comprehensive management skills over changing macro environment and micro networking, systematic tools would be impetus to the management improvement.

This research is based on a project in process regarding improving the supply chain management in a Chinese SME named TD, a manufacturer specialised in stainless steel production. Including the up-streaming suppliers and low-streaming customers, most of the enterprises within the local economical industrial chain are SMEs. Working-in-Progress (WIP) and inventory cause redundancy and consume labour resources, which releases the importance of information visibility in enhancing operational performance. After decades of development, some SMEs meet the same bottlenecks, namely the introduction of modern and scientific management methodology.

1.2 Research QuestionsConstricted with the limitations of SMEs, the key variables in this supply chain research have been defined as: the economical amount of the raw materials and re-order point WIP control information visibility in the manufacturing process system access integration with suppliers auto data synchronisation, access, analysis and evaluationPriorities in research are granted on the questions below:1) How are the members in the supply chain mapping their positions? What’s the

core requirement of TD in the stages of raw material, manufacturing process and

data evaluation respectively? 2) Is the current material flow in a quick response to the changeover and fluctuation

of suppliers? What is the economical combination of the variable raw materials on the same manufacturing line?

3) What is the determination of an optimised level of WIP? Consequently what is the timing of raw material re-order? At what point with the consideration of different supply and lead time? What is the economical inventory level?

4) What metrics should be utilised to evaluate the performance of the manufacturing process, the entire supply chain, individual supplier? What would be barriers in implementation of informationisation and how to overcome?

With the consideration of initial tentative steps towards the agile manufacturing, flexible and effective model is required by the SME for an optimised utilisation of the current productive capability and labour resources.

2. Literature ReviewSahay (2003) argues that supply chain management must be conducted between enterprises, since optimising entire supply chains will require a level of information sharing and collaboration among enterprises previously unknown in most businesses. Furthermore, there has been a renewed interest in integrated systems. Advances in information support system enabled designing, implementing and controlling strategic and tactical strategies essential to delivery of integrated systems (Chandra and Kumar, 2000).

A number of researchers have shed the lights in the area of agility, supply chain and agile manufacturing. The Agility Forum has defined “agility” as the ability of an organization to thrive in a continuously changing, unpredictable business environment. Simply put, an agile firm has designed its organization, processes and products such that it can respond to changes in a useful time frame (Agility Forum, 1994). Vastag (1994) further put forward that since successful supply chain

management has become an order winner, the agility of the supply chain may determine the survival of a firm. Figure 2 is introduced by Prater (2001) to analyse supply chain agility as following. Manufacturing Agility is the ability to respond to, and create new windows of opportunities in a turbulent market environment driven by individualising customer requirements cost effectively, rapidly and continuously (Christian et al, 2001). Agile manufacturing is perceived as a vital characteristic that manufacturing companies need in order to maintain their competitive advantage in the new order of world business (Sharifi and Zhang, 2001). Parkinson (1999) argues that becoming an agile manufacturer is an exercise in managing change. Prince and Kay identified that agile manufacturing supports future business strategies designed to improve the way in which an enterprise competes in the market place (Valota et al, 2005). Maskell (2001) summarises the axioms of agile manufacturing of: everything is changing very fast and unpredictably; the market requires low volume, high quality, custom and specific products; these products have very short life-cycles and very short development and

production lead times are required; customers want to be treated as individuals

The literature on agile manufacturing has also placed considerable emphasis on the technical aspects of information systems development. Gunasekaran (1998) depicted the benefits of information systems to the agile enterprise include: enterprise-wide concurrent operations that cover all the functions of the company, agreed communications and software standards, electronic commerce on international multimedia networks and better mathematical understanding of representation methods used in design. Addressing the implications of information systems within the concept of agile manufacturing, Thoburn et al. (1999) described how information systems contribute to responsiveness as well as to corporate and organizational goals. The operation of agile enterprises requires the existence of efficient supply chains. Indeed, the availability of information across tiers facilitated by information systems may significantly improve the performance of entire supply chains. Some benefits to entire supply chains may include the reduction of pipeline inventory and supply chain cycle times as well as reducing upstream demand variation or bullwhip effect (Olhager, 2002).

3. Case study

3.1 Case Background Established in January 2004 and located in Zhejiang Province, TD is featured as limited cash flow, small manufacturing capability, fluctuated price of raw materials, changeable orders from customers, limited IT infrastructure, etc. TD produces stainless metal band (430mm) ranging from 0.28~0.8mm as customer requested. The current market of stainless steel products in China is very transparent as the fluctuation of the raw material price directly influences the finished products price.

Note: bottle-neck processesFigure 2. Workflow in TD

There are three main customers, demanding from 100~300 tons every month respectively. Averagely, there is one shipment per day, and in certain circumstance, all the customers require the delivery on the same day. There are also two suppliers. One of which provides the best raw material in the region and the price for this raw material is $35.00 per ton more expensive than the other. However, with the better raw material, the finished products perform better in quality warranty and lower waste during the production process. Furthermore, one customer requires using this raw material and shares $12.50 of the increased cost. The main processes in manufacturing includes cleaning, rolling, re-rolling, annealing, cutting, grinding, weighting and packing as shown in Figure 2. Every finished product requires 1 time first rolling, 1~ 4 times re-rolling and 1 or 2 times annealing processes according to the customer requirements. Rolling and annealing are the most important processes in the production. Normally, the two annealing machines runs 24 hours very day, and the breakdown of the machine will take at least one week to increase the temperature to the working condition. The rolling machines run more than 20 hours every day and 7 days every week except break down and 1 day of maintenance each month. Cutting divides the finished products into the width as the customers required. In order to minimize the necessary working capital, the products are cut and packed for delivery and only one-day raw material inventory is kept. Meanwhile, to smooth the production and satisfying customer demand, TD keeps large amount of WIP

FinishedProduct

Inventory

Raw Material Arrival

QA check & Weighting

Cleaning

First Rolling

Re-Rolling

Anneal require

d

Criteria met?

Cutting

Weighting &Packing

Delivery

Start

Raw Material Inventory

QA Checking

End

No

No

Yes

Yes

Machine 2&3

Machine1

Annealing

WIP Inventory 4

WIP Inventory 3

WIP Inventory 2

WIP Inventory 1

inventory.

3.2 Research Methodology and Case DiagnoseThe research methodology implemented in this study, as shown in Figure 3, was adapted from the methodology proposed by Hammant et al (1999).

Operating an integrated supply chain requires continuous information flows, which in turn help to create the best product flows. Achieving an agile-manufacturing-focused system requires processing information both accurately and in a timely manner for quick response systems. Controlling uncertainty in manufacturing processes and supplier performance are critical to effective supply chain management. Research problems have been defined in the previous 1.2.

3.3 Model proposed

3.3.1 Problem definitionThe company is currently facing some problems from its supply chain management. For example, excess WIP inventory is carried to smooth the production and satisfying customer demand. However, these inventories cost big amount of working capitals. When the production capacity increases, the excess WIP inventory will be even more significant. Figure 4 shows the knowledge-based driven mapping process where the main symptoms in TD are listed and linked to the causing problems. Then, the potential solutions are identified to resolve the problems. As indicated in the diagram,

an integrated information management is a promising solution in improving TD’s performance.

Figure 4. Problem definitions by the knowledge-based driven mapping process

3.3.2 Code DefinitionDefine the structural requirements and objectives of the codes, together with the level of detailed information have been captured. Due to different raw materials used in different products with priorities in various stages, hierarchical e-category paradigms are introduced to illustrate the coding design and internal linkages. Coding is generated after cleaning in line with the processing and treatment.

Raw material: R1, R2, R3 ……Raw material code is created according to the material, final product and priority of the order. Attributes are featured as Table 1.

Raw Materialraw material ID.descriptionsupplier IDunit pricestock level

Table 1. Attributes of raw material coding

Products: P1, P2, P3 ……As new product ID may customerised by the client mainly with the width and thinness of final product, raw material coding could be jointed to deliver a clue in

Symptoms Problems Solutions

Excess WIP

Late supplier delivery

Missing due date

Low employee morale

High inventory cost

Bottleneck

Poor Scheduling

Inadequate layout

Lack of training

Optimisation

Poor production planning

Simulation

Information management

Layout analysis

HR management

manufacturing plan. In this manner raw material would flow in a reasonable way to bring more productivity and machinery resource to urgent orders.

Productproduct IDproduct nameraw material requiredprocess requiredunit priceunit instock

Table 2. Attributes of product coding

WIP: WIP1, WIP2, WIP3, WIP4 ……WIP codes are generated followed by 1,2,3 and 4 according to the necessity and numbers of annealing, as shown in Table 3.

Main process Pre-action status and codingFirst rolling WIP 1 WIP 1 WIP 1Re-rollingAnnealing WIP

Inventory 2WIP

Inventory 2WIP

Inventory 2……Re-rolling WIP

Inventory 3Cutting WIP

Inventory 4WIP

Inventory 4WIP

Inventory 4QAWeight & Packing

Finished Product Inventory

DeliveryTable 3. Attributies of WIP coding

Table 1 is linked with Table 2 by raw material No. and product No. according to the raw material that production required. In line with the treatment procedure in manufacturing, Table 3 would be linked with Table 2, providing the timely report of that whatever level of WIP (WIP1-4) occupied at detailed amount. The inter relationship among tables is shown as Figure 5. More tables would be added in lines with the further development for the system.

Figure 5. Inter relationship

3.3.3 Data CollectionThrough a series of extensive data mining exercises of legacy, appropriate information is being retrieved regarding planning data, quality classifications and order planning requirements. Data sources from manual recording were collected for prototype development.

3.3.4 Scenario DefinitionThe scenario applications are determined to meet the objectives described at the problem definition stage. These includes supplier search for a particular raw material, production catalog or contingency when an urgent order received.

3.3.5 Prototype DevelopmentAn e-category database is developed via Microsoft Access to capture the raw material information, designed with the modules and the sub-modules of: Manufacturing Planning & Control

-- Order management-- Production scheduling (treatment procedure, production priority)

-- Working process monitoring (manufacturing planning, WIP management) -- Inventory control (raw material inventory, re-order point, finished products inventory) -- Quality management (customerisation)

Supply Chain Planning &Co-ordination -- Supplier Management (creditability, quality assurance, price, lead time) -- Logistic Planning (delivery planning)

-- Customer Relationship managementThe codification structure is supposed to enable departments such as procurement, production engineering and customer support to integrate their knowledge, ensuring that all aspects of the decision have been considered. The structure of the system is illustrated as below.

Figure 6. System structure

3.3.6 Data InputThe tooling and quality classification codes are generated from the original manual operation. The production sensitivity data, such as producing leadtime, was populated based on the company staff using historical records and knowledge. Figure 7 demonstrates the data flow in the system proposed.

3.3.7 Validation & System ImplementationThe research of this paper is under the stage of system development and data collection. System validation and implementation would be in further action.

3.4 Discussion and further researchThis research has made a contribution to operation managers in SMEs, assisting them in approaching strategic system deployment of transparency, traceability and database. Continuous job is being done in the system development, implementation and

testing.

Manufacturing System Architecture

Manufacturing Planning &

Control

Supply Chain Planning &Co-

ordination

Production planning &

scheduling

Inventory control

Supplier

Mana

geme

nt

Order

mana

geme

nt

Dem

and

mana

geme

nt

Logistic

Planning

Overall supply chain performance

Working

process

monit

oring

Standard Production Structure

Quality

mana

geme

nt

Custo

mer

Relati

onship

mana

geme

nt

Figure 7. Data flow diagram

The visualisation is valuable in capturing and sharing the implicit understanding of supply chain collaboration. The scenarios defined will ensure that there is an accurate evaluation of the supply base manufacturing capability, fully implemented allowing the managers to make informed decisions efficiently. In this manner a further underlying research would be the development of supplier bidding module.

In a long term, alliance is expected to be extended into a core group of suppliers. Multiple procurement and routing options are considered to be into the system at the time of order receipt, which allows market requirements and producing ability to be co-ordinated on a supply-chain-wide basis sharing with both up-stream and down-stream participates.

4. ConclusionToday’s manufacturing businesses are with great sensitivity and increased consciousness, focusing increasing attention to improve the production efficiency with cost effectiveness and build flexible manufacturing capability to cope with the uncertain global business environment. Agile manufacturing is becoming inevitable condition for survival and prosperity in the increasingly changing business

Order assessment

Commitment / Configuration

Order monitoring

Order management

Raw material WIP Finished product

Production planning

Delivery Scheduling

Shop floor scheduling/ monitoring

Production planning&scheduling

Quality management

Inventory management

Customers

Suppliers

Purchasing orders

Internet

Internet

Customer orders

environment. Web-enabled manufacturing systems provide great opportunities for enterprises particularly SMEs to effectively manage their internal operations and external supply chain. From their own stand and situation, SMEs are deepening the severity of need for integrating agility-orientation and web-enabled information visibility, which is regarded as impetus towards precisely controlled supply chain. The prototype proposed in this paper constitutes an exploration in this aspect and helps enterprise to bridge the gap between theory and practice, and supports their strategic and operational decision making process.

5. References

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