ORDER FULFILL MENT...11 Characteristics of a Lean order fulfillment process 12 Procedure and methods...

PROFITABILITY AND COMPETITIVE ADVANTAGES THROUGH LEAN ORDER FULFILLMENTA White Paper from Staufen AG

ORDER FULFILL MENT

2 WHITE PAPER: ORDER FULFILLMENT IN MECHANICAL AND PLANT ENGINEERING

3 Summary

4 Individualization forces mechanical engineers to change

4 Meeting customer expectations

4 Focus on product instead of customer as king

6 Orderfulfillmentascoreprocess

6 Definitionoftheorderfulfillmentprocess

7 Designandcomplexityoftheorderfulfillmentprocess

dependontheorderclasses

7 AssemblytoOrder(ATO)andMaketoOrder(MTO)

7 EngineertoOrder(ETO)

8 DeveloptoOrder(DTO)

9 Importanceoftheorderfulfillmentprocessforthesustainable

successofthecompany

10 Deliveryperformance

10 Costs

10 Quality

11 CharacteristicsofaLeanorderfulfillmentprocess

12 Procedure and methods for introducing a Lean

orderfulfillmentprocess

13 1. Disturbance-Free

13 2.Flow

13 3.Rhythm

13 4.Pull

14 Thedesignoftheorderfulfillmentprocessisamanagementissue

16 Leanorderfulfillmentinpractice:TheexampleofAerzen

19 Conclusion

Content

WHITE PAPER: ORDER FULFILLMENT IN MECHANICAL AND PLANT ENGINEERING 3

ThemechanicalandplantengineeringindustryinGermanyisfacingmajorchanges.The

focusisnolongerontheproductasamasterpieceofGermanengineering,butoncom-

pleteproduct/servicepackages.Whatisneededaresolutionproviderswhoknowtheir

customers'needsandprocessesinsideoutandofferthemtailor-madesolutions.

Achangethatisnoteasytomanageformechanicalandplantengineers.Especiallyas

customers are also becoming more demanding. They demand ever shorter delivery

timeswithhighdeliveryreliabilityandamaximumdegreeofindividualityandflexibility.

Asaresult,manycompaniesintheindustryfindthemselvesinaprecariousconflictof

objectives:Althoughtheywanttoaccommodatetheircustomersasmuchaspossiblein

allrespects,theystrugglewithfrictionallosses,clarificationloopsandrescheduling.The

result:Companies'processflowisstagnatingmoreandmore,andcostsarerising.At

thesametime,technicalprogressincreasesthecomplexityofproductsandprocesses.

Themainleverformeetingthechallengesaheadliesinoptimizingorderfulfillment.This

is thebackboneof plant andmechanical engineering. It determinesboth theperfor-

manceperceivedbythecustomerandthefinancialsuccessofthecompany.

Althoughitisherethatallinterfacestothecustomeraremanaged,mechanicalandplant

engineersdonottypicallyattachtoomuch importancetoorderfulfillmentprocesses.

Aself-perceptionas"ingenious inventors" insteadof"customerunderstanders" isstill

predominantincompanies.Manycompaniesarealsonotfullyresponsiblefororderful-

fillment.Rather,alackofcentralcoordinationpromotesdepartmentalandsilothinking.

This typeoforganization is thereasonwhydepartmentalobjectivesareoftensought

insteadofoveralloptimization.Frustrationisthenaccordinglyhigh,whenthe"customer

asking"looksforthecorrectpartnerinvain.

This problem can be solved by consciously designing the order fulfillment process

according to the principles of Leanmanagement. The focus here is on a consistent

orientation toward value creation from the customer's perspective, from incom-

ing orders to successful commissioning. As a result, throughput times can be re-

ducedby 20 to 35 percent anddeadlines can bemet atmore than 95 percent. This

increases customer satisfaction, customer loyalty and lowers costs, thus making a

lasting contribution to the company's success. The order fulfillment process is in-

creasingly becoming a core competence of successful mechanical and plant engi-

neers. This white paper shows what distinguishes the order fulfillment process and

thedetailsofwhichapproachesareavailabletocompanies.

Summary


Individualization forcesmechanical engineers to change

Meeting customer expectations

Customershavebecomemoredemandingandsetnewstandardsintermsofdelivery

performance.Theyseekcustomizedconsultationandproductdesignaswellasaccom-

panyingservices.

Thefocusisthereforenolongerexclusivelyonproducts,butalsoonknowledgeofcus-

tomerprocesses.Ininternationalcomparison,customersexpectmechanicalandplant

engineerstotransformintosystemandsolutionproviders.

Inordertoremaininternationallycompetitiveasacompany,thisdevelopmentmustbe

recognizedandintegratedintobusinessprocesses.Mechanicalandplantengineersare

forcedtobringtheirbusinessmodels into linewith increasedcustomerexpectations.

However, thedemandtooffer individualizedservices requiresahigh levelofprocess

competence.

Thecurrentstudy"BestStrategy2018,"forwhichmorethan200companiesweresur-

veyedbyStaufenAG,underlinestheimportanceofcustomerproximityasafactorfor

economicsuccess.Thesecompaniesareamongthetopperformerseitherintheirindus-

tryorintheirsegment.Aclearstatementfromworldmarketleaders:Customerproxim-

ityisandremainsthemostimportantfactorforsuccess(seefigurep.5).

Focus on product instead of customer as king

Until now, thinking in the field ofmechanical andplant engineeringhas beendriven

primarilybytechnology.Thefocusisonimprovingthepropertiesofanexistingproduct

inordertobringituptothecurrentstateoftheart.Withthisapproach,thecustomer's

needsoftenonlyplayarolewhenitcomestosales.

Itisthereforeimportanttoconsistentlyalignallareasofthecompanytoincreasingcus-

tomer value. This requires specific knowledgeof theprocesses and real problemsof

thecustomers.Thisistheonlywaytoofferthemtherightcombinationofproductsand

services.Thisalsoincludesqualityfeaturesandfunctionsoftheproductsaswellasthe

appropriate services.

German companies still tend to over-engineer. Whereas very complex, high-quali-

ty solutions are often important for domestic customers, this does not necessarily

alsoapplytocustomersinothermarkets.Inordertoremaincompetitiveheredespite

growingcompetition,forexamplefromAsia,standardvariantsmustalsobeoffered.

Itshouldalsobenotedthatcustomers'purchasingbehaviorisalsoundergoingchange.


Theynolongerwanttocoordinateawiderangeofsuppliersbutratherhavesolutions

fromonesource.Theyareincreasinglyresortingtointernationalprocurementnetworks.

Atthesametime,customershavebecomemoreprice-sensitive,punishdeliverydelays

moreseverelythanbefore,demandclausesonplantavailabilityorpassrisksontotheir

suppliers.Formachineandplantengineers,thisnotonlyleadstogreatercostpressure,

butalso,amongotherthings,to increasingdemandsonproductdevelopmentandall

fulfillmentprocesses.

0 % 20 % 60 % 100 %80 %40 %

Customerproximity

Product range

Innovationstrategy/capability

Corporateculture

Humanresourcespolicy

The following factors contribute to the company's success:

Industryevaluation: Mechanical and plant engineering

12% 37% 45% 6%

57% 40%

43% 40% 15%

12% 50% 35%

42% 52% 6%

veryhigh high lower none

2% 1%

0%

2%

3%


Order fulfillment as core process

Definition of the order fulfillment process

Theorderfulfillmentprocessrepresentstheentiretyofallinter-

disciplinaryproceduresandprocesses,whichareprovidedtoful-

fill concrete customerneeds in the contextof the supplyofan

industrialproductaswellastheassociatedservices.Theprocess

beginswithacustomerrequirementandincludesallengineering,

procurement, transport, productionandassemblyprocesses in

additiontothespecificationofthescopeofsupply.Itendswith

thestableoperationalreadinessofamachineorplantatthecus-

tomer'ssite.Inordertomeetcustomerneeds,itisnecessaryto

optimizethecomplexorderfulfillmentprocess.

Theprocessrunsinphases(genericstructure),butinpracticeit

isdesignedinacustommanner,dependingontheproductand

customer. It requiresasuperordinateorientation,planningand

control.

Offer&Negotiation

Orderclarification

Procurement

Assembly

Construction& Commissioning

Engineering

Manufacturing

Packaging&Shipment

Invoice

Order fulfillment is a complex sequence of of activi-

ties that are required in order to

fully process a customer order.

Productdevelopment


Design and complexity of the order fulfillment process depend on the or-der classes

Inmechanicalandplantengineering,adistinctionismadebetweendifferentor-

derclasses.Theydependonthedegreeofindividualizationoftheproduct.

Assembly to Order (ATO) and Make to Order (MTO)

Inthe"AssemblytoOrder"orderclass,productsareassembledfromvariousassemblies.

Subassembliesaremostlyproducedinstockwithoutordersandareonlyassembledac-

cordingtocustomerspecificationsafterreceivingtheorder.Whenselectingtheassem-

blies,dependenciesmayoccur.ATOenablesavarietyofdesiredandtechnicallypossible

endproducts.Duetothemodularcharacteroftheproductstructure,thedesigneffort

islowtonon-existent,dependingonthemanufacturer.MaketoOrderrepresentsanin-

creaseinthisorderclass.Here,componentsandassembliesareprocuredandproduced

to order.

Engineer to Order (ETO)

Traditionally,thedesignandmanufacturingprocessesofETOproductsareonlyinitiated

aftertheorderhasbeenreceived.Thus,ETOischaracterizedbyahighpercentageof

customer-specificpossibilitiesforcustomization.Dependingoncustomerrequirements,

componentscanbeadaptedorredesigned.Thisresults inan increasingdesigneffort

andagreaterneedforclarificationwiththecustomer.Thisalsoincreasesthecomplexity

oftheorderfulfillmentprocess.

"Order process: the process of fulfilling customer orders from the

time the customer places the order until the supplier receives pay-

ment for the service."1

1 Gabler Wirtschaftslexikon, Keyword: Auftragsabwicklung [Order fulfillment], https://wirtschaftslexikon.gabler.de/defini-

tion/auftragsbwicklung-29192/version-252805, accessed on 10/30/2018


OrderclarificationOrderclarificationOrderclarification

Develop to Order (DTO)

TheDTOorderclassfocusesonplantengineeringinthefieldofmechanicalandplant

engineering.ComparedtoETO,inadditiontodesignandmanufacturingprocesses,new

productdevelopmentsareonlyinitiatedaftertheorderhasbeenreceived.Thisresults

inveryhighcomplexityoftheorderfulfillmentprocess.DTOalsodiffersfromETOina

broaderrangeofadditionalservicepackagessuchasprocessconsulting.

Procurement

Assembly

Engineering

Manufacturing

Offer&Negotiation

Packaging&Shipment

Productdevelopment

Invoice

Manufacturing

Procurement

Packaging&Shipment

Invoice

Procurement

Productdevelopment

Assembly

Offer&Negotiation



Engineering

Engineering


Manufacturing

Productdevelopment

Packaging&Shipment

Procurement

Invoice

Offer&Negotiation

Assembly

Assembly/MaketoOrder

Engineer to Order

DeveloptoOrder

Incomingorder


Thesuccessofacompanyisdecisivelydeterminedbytheorientation,designand

organizational embedding of the order fulfillment process. The quality triangle

andthethesesbasedonitunderscoretheconnectionbetweenaLeanorderfulfill-

mentprocessandpositiverevenueandcosteffects.

"Success comes to those who can deliver the required

quantities in the required quality at competitive prices at the

times requested by the customer and make a profit."2

2 Markus H. Dahm, Aaron D. Brückner, Lean Management im Unternehmensalltag, Springer Fachmedien

Wiesbaden GmbH, 2017, p. 54 und Tobias Wille, Lean Thinking, Springer Fachmedien Wiesbaden GmbH, 2016, p. 57

Customer requirements

CostsDelivery performance

Quality

Importance of the order fulfill-ment process for the sustainable success of the company


Delivery performance

AorderfulfillmentprocessdesignedaccordingtoLeanprinciplesincreasesthedelivery

performanceperceivedbythecustomerthroughshorterdeliverytimes,increasingad-

herencetodeliverydatesandincreasedflexibility.Thisresultsinmoreintensivecustom-

erloyaltyandincreasedcustomersatisfaction,whichultimatelyincreasessalesandthe

market share.

Costs

Processflowsarecloselyalignedtotheneedsofthecustomer:Onlyanorderfulfillment

processthatisgearedtocustomerneedscanbelean,efficientandthuscost-optimized.

Companiesthataligntheirorderfulfillmentprocesswiththevaluestreaminaperfor-

mance-orientedmannerachievehigherresults,havelowerchangeandadjustmentcosts

andlessreworkontheproduct.Costscanbeforecast, influencedandallocatedmore

quicklyandtransparently.

Quality

Anorderfulfillmentprocessgearedtotheneedsofinternalandexternalcustomerscre-

atesthebasisforincreasingthevalueoftheproductsintheinterestsofthecustomer.It

thusformsanindispensablefoundationforthebusiness,suchasconsultationtailored

tothecustomer'sneeds.Thisresultsindecisiveuniquesellingpointscomparedtothe

competition-thequalityofserviceincreases.

Increased customer satisfaction leads to a closer customer relationship: Customers

becomeregularcustomers,theirrecommendationraterises,thewillingnesstoaccept

higherpricesgrows,thehitrate increases-and inreverse,acquisitionandmarketing

costsfallsustainably.


TheclassicLeanapproach,i.e.toincreasetheshareofvalueaddedandminimizewaste,

alsoappliestothealignmentanddesignoftheorderfulfillmentprocess.Valuecreation

isdefinedby the increase invalueof theproduct from thecustomer'spointof view.

Activities that increase thebenefit exclusively from themanufacturer's point of view,

butdonotdirectlyaddvalueforthecustomer,arenotvalue-addingandaretherefore

definedaswaste.

WhatcharacterizestheLeanorderfulfillmentprocess:

Uninterruptedandloop-freemethodofworking.

Clearrules,rolesandresponsibilitiesforinternal

customer-supplierrelationships;cleartransferpoints.

Transparency:Atalltimes,target/actualdeviationsinthedimensionsquality/cost/

deliveryperformancearetransparent.Progressandstatusaredefinedatalltimes.

Planability:Datesandcostscanbeplannedcorrectly.

Allactivitiesintheorderfulfillmentprocessleadtothefulfillmentof

customerrequirements,thereisanequalunderstandingofindividualareaswith

regard to standards and customer needs.

Changes in the target state and deviations from it are

immediatelycounteractedwiththerightresponse.

Resourcesareevenlyutilized.

Production and procurement meet the customer's needs

Characteristics of a Lean order fulfillment process


Procedure and methods for intro-ducing a Lean order fulfillment process

The Lean order processing process is designed ac-

cording to the Lean features

Disturbance-Free, Flow, Rhythm and Pull.

1. Disturbance-Free

» Earliestpossibleorderclarification(frontloading)

» Definingstandardsand rules

» Definedqualitygatesandqualitycriteria (inthedirectandindirectarea)

» DefinedTCR3 and interfaces

4. Pull

» Procurement strategies dependent on thedeliverytimerequirementsofthemarket

» Reduction of the order throughput timefortheapplicationofoptimal procurement strategies

2. Flow

» Continuous processing of the ordersandworkpackages

» Segmenting the orders according to theircapacity

» FIFOduringtheorderprocess » Creatingspatialproximity inthesequentialsteps

3. Rhythm

» Planningwithcoordinated capacities

» Evencontrol of orders

» Planningofindirectactivities accordingtodefinedtimeunits

» Timingandsynchronizationof activitiesintheorderfulfillmentprocess

4 CharacteristicsofLeanprocesses

3 TCR: Tasks, Competencies, Responsibilities


1. Disturbance-Free

Adisturbance-freestateischaracterizedbyalowleveloferrors.Asaresult,reworking

ormissingpartsarerare.Therearenoqueriesorcorrections.Informationaboutmate-

rialsisavailableattherighttimeintherightplacewiththerightquality.Clearrulesare

defined and implemented.Disturbance-free forms the basis for optimizing the order

fulfillmentprocess.

Themethodsforachievingdisturbance-freeincludeworktemplates,qualitygates(incl.

frontloading)andclearTCRs.

2. Flow

Thestateoftheflowisreachedwhenthereisnowaitingtimefortheinventoryofgoods

orinformationbetweenindividualwork/processsteps.ApplyingtheFIFOprincipleen-

suresthatordersdonotovertakeeachotherandareprocessedcontinuously.Defining

orderclassesenablesoptimalprocessingofordersinprocessesthatarespecificallyde-

signed for them.

3. Rhythm

Thestateisreachedwhenworkpackageswithuniformprocessingtimesresultin(oper-

ational)resourcesbeingcontinuouslyutilized.Processesaswellastheorganizationasa

wholearealignedtothisandoscillate,sotospeak,withthetakttime.

4. Pull

BasedonthethreeLeanprinciplesmentionedabove,thePullstatecorrespondstothat

ofaself-regulatingsystem.Processingofworkpackagesistriggeredbyconcreterequire-

mentsthatarisefromfollow-upprocesses.


The design of theorder fulfillment processis a management issue

The performance of the order processing process depends to a large extent on the

managementoftheemployeesandtheorientationofthesystem.Thusthedesignand

sustainableimplementationoftheprocessisamanagementissue.

Organizationandmanagementstructuresinfluencetheefficiencyandtransparencyof

performance aswell as the success of the order fulfillment process. A value stream-

orientedorganizationidentifiesitselfwithcross-divisionaldeviationmanagement.Shop

FloorManagementwithtypicalbuildingblocks,suchasroundsofregularcommunica-

tionandescalationroutinesareadditionalhelpfultoolsforleaders.

Inorderforthetoolsandmethodslistedheretoachievetheirfulleffect,astructured

management and leadership system should also be established, supported by Shop

FloorManagement.Moreandmoreleadersareusingthismethodtosetpriorities,make

decisions,empowertheiremployeesandofferthemsupport.Inotherwords:Leadership

canbeexperiencedonsiteanddirectlybytheemployees.Leaderstransferthiswayof

workingtotheirteamsthroughtheirroleasamentor.Stepbystep,thecorporateculture

undergoesnoticeablechanges.

Detailsandthestatusofordersaswellaspossibledeviationsarealwaystransparent

andareregularlythefocusofinterdisciplinaryregularcommunicationalongthevalue

stream.


07/05 07/12

07/05

Order boards offer a visualization

Orderboard

Problem-solving Measures

Orderprocessing

Deviation

Order processing

Customer MechanicalEngineeringSample

Customernumber 4711

Incoming order 06/14

Contact J. Doe

Delivery date 10/25

Responsibility H. Schmidt

Targetdeadline 06/30 10/08 10/10 10/13 10/18 10/2507/25 08/08

06/30 07/15FinaldeadlineActual


Lean order fulfillment in practice:The example of Aerzen

Aerzener Maschinenfabrik GmbH from Southern Lower Saxony is one of three wor-

ld-wide leading application specialists with regard to conveying and compression of

gases.Thefamilybusinesscelebratedits150thanniversaryin2014,buttheoutlookfor

thefuturedidnotsitwell: Increasinglyvolatilemarkets, intensified internationalcom-

petitionandnewcustomerrequirements-thesewerethechallengesthefamily-owned

companywasfacing.

Accordingtothemotto"traditionthroughchange"Aerzendecidedtomakegroundbrea-

kingchanges.Twoyearslater,thechangeprocesswasasuccessandthecompanywasfit

forthefuture.Infigures,thismeans:Theleadtime,whichisimportantforthecustomer,

decreasedbyanimpressive33percent.

Inadditiontoorderfulfillment,theprojectalsofocusedonassembly,logisticsanden-

gineering.Theparticularchallengewasthereforetoredesignallfourareasatthesame

time.Thismadeitpossibletocoordinatealltheprocessesinvolvedwitheachotherand

toalignthementirelytothetakttime.

Theheartof theprojectwasconsequentlyorder fulfillment.TodayAerzenordersare

dividedintoclassesandtheyareclockedwithstandardizedleadtimesthroughoutthe

company.Inthefuture,errorsthatcarryoverintosubsequentprocessescanbeavoided.

Atthestartoftheproject,theleadtimewasaroundthreeandahalfmonths-butonly

twoweeksofthatwasactualprocessingtime.Therestconsistedofquestions,clarifica-

tionandidletimes.


"The management is the driver of such a transforma-

tion. It must inspire leaders and employees for this

kind of project and explain it in many ways: What's

the goal of Lean and why are we doing this?"

Klaus-Hasso Heller

Managing Partner,

Aerzener Maschinenfabrik GmbH


Not only do the processes and the organization have to be right at Aerzen, but also

themanagementperformance.ThecompanythereforebeganimplementingShopFloor

Managementalongtheentireproductvaluestreamatthesametime.Thislaidthefoun-

dationforthepromptdetectionoffuturedeviations inorderfulfillmentandtheearly

resolutionofproblems.

Thelevelofsuccessisimpressive:Today'smanagersspendsignificantlymoretimeon-si-

teandcandevelopprocessessustainablyandentirelyintheinterestsoftheircustomers.

Communicationbetween theupstreamanddownstreamproduction areas also func-

tionsmuchbetterthanbefore.Employeesandmanagementthuslaidthefoundationfor

Aerzentobeabletosuccessfullyassertitselfontheworldmarketasafamilybusiness

in the future.

Results from the first pilot project:Lead time in the assembly pilot:

–40 %Technical malfunctions in the production

pilot:

–70 %Processing time in order fulfillment:

–33 %Lead time in the logistics pilot:

–75 %


ConclusionGermanmechanicalandplantmanufacturersstillpayfartoolittleattentiontothe

important aspect of order fulfillment. However, with aggressive competitors and

newdigitalbusinessmodels,thiscanquicklypayoff.Evencompaniesthatareused

tosuccessshouldalsoreinventthemselvesinthisrespect-byconsistentlyorienting

their processes and organization towards customer benefit and thus focusing on

valuecreation.

Inordertoimplementsuchaprojectsuccessfully,itrequiresaclearorientationand

consistent leadership.Allprocesseswithinthevaluestreamwith interfacestothe

customermustbeputtothetest.ALeanorderprocessingprocesscanthenbede-

signedbasedontheLeancharacteristicsofdisturbance-free,flow,rhythmandpull.

Theeffort isworth it,becauseorderfulfillment is immediatelyreflectedintheba-

lancesheet. Increasingcustomersatisfactionand loyalty formthebasis foraper-

manentlypositiverevenuesituation.Additionalcoststhatariseinthecompanyasa

resultofastagnatingprocessflowcanalsobeprevented.

Bothmechanicalandplantengineersandtheircustomersbenefitfromachievable

success,suchasthereductionofleadtimesby25to35percent,adherencetosche-

dulesatover95percentandincreasedplanningcapability.Thesimultaneouschan-

geincorporatecultureisaccompaniedbyanewunderstandingofleadership.The

consistent introduction of Shop FloorManagement creates the basis for this and

providesthenecessarytools.Asaresult,cooperationischaracterizedbyimproved

communicationandincreasedcompetenceandresponsibility.

Allof this formsthefoundationforachange inmentality inmechanicalandplant

engineeringinGermany,inwhichfulfillingcustomerwishesisnolongerperceivedas

chore,butratherasanultimatediscipline.

PUBLISHER

STAUFEN.AGConsulting.Academy.Investment

Blumenstraße5D-73257Köngen [email protected]

Beata SpitzPrincipal

[email protected]+49702480560

AUTHOR/CONTACTPERSON

INSIDE EVERY COMPANYTHERE IS AN EVEN BETTER ONE.

ABOUT STAUFEN

Inside every company there is an even better one.

With this conviction, Staufen AG has been advising and qualifying

companies and employees for more than 20 years.

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