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Late po delivery confirmation in group intellect power technology limited

UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
----------------------------

NGUYEN THI THUY

LATE PO DELIVERY CONFIRMATION IN GROUP INTELLECT POWER
TECHNOLOGY LIMITED

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – 2018


UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
----------------------------

NGUYEN THI THUY

LATE PO DELIVERY CONFIRMATION IN GROUP INTELLECT POWER

TECHNOLOGY LIMITED

MASTER OF BUSINESS ADMINISTRATION
SUPERVISOR: TRAN HA MINH QUAN

Ho Chi Minh City – 2018



1. Executive summary
Recognizing that communication is more important than ever, organizations
have invested in new information technologies and raised the profile of their
communication professionals. Despite these efforts, however, an array of
factors continues to hinder effective communication in many companies.
Although this topic has received considerable attention in the literature, most of
the articles are restricted by their limited approach concerned primarily with
the effect of various methods. Manufacturing is an integrated system covering
everything from order receipt through to the product shipment (Hitomi 1991).
It covers a wide range of activities in many functional areas including planning
and design, purchasing, production, inventory, distribution, marketing and
sales.
Realising the importance of such an approach, this study proposes a model to
improve on-time response to customer through business process model
integrating two common processes involved in manufacturing planning, control
and execution cycle for MTO situations and a database for supporting various
functional applications through basic and transaction data. The proposed model
was implemented through Group Intellect Power Technology Ltd.
The rest of the paper is organised as follows. First, a review of the company
background as well as current problems that company is facing. Next, the
proposed improvement solutions are presented, followed by a section on a
systematic investigation of the on time response problems and implementation
of the solutions to overcome the problems in Group Intellect Power
Technology Ltd. Finally, research findings and conclusions are drawn.

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2. Acknowledgements
I would especially like to show my gratefulness and special thanks to my
supervisor – Dr. Tran Ha Minh Quan for all his continuous supports, advices


and instructions through the process of researching and writing this thesis.
Without his enthusiastic help, this thesis could not have been accomplished.
I also would like to show my gratitude to ISB lecturers, my colleagues at work,
my classmates at ISB for their valuable knowledge and continuous support. I
also send my sincere thankfulness to my family for their support and
encouragement throughout my years of study.

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TABLE OF CONTENTS
1.

Executive summary ............................................................................................. 1

2. Acknowledgements ................................................................................................... 2
3.

Company Background ......................................................................................... 5
3.1. Organization Structures of GIPT and FRIWO .................................................... 6

4.

Problem Identification ......................................................................................... 7
4.1. Situation Analysis ................................................................................................ 7
4.2. Symptoms ............................................................................................................ 9
Materials related ............................................................................................ 10
Engineering related ....................................................................................... 13
Production control related ............................................................................. 14
Others ............................................................................................................ 15
4.3. Central Problem ................................................................................................. 16
PO handling flow .......................................................................................... 16
4.4. Initial cause effect map ...................................................................................... 19
4.5. Potential Root Cause ......................................................................................... 20
Communication within GIPT ........................................................................ 20
Communication between GIP and FRIWO................................................... 21
4.6. Cause-effect map ............................................................................................... 22

5.

Problem Solving ................................................................................................ 23
5.1. Improve communication within GIPT ............................................................... 23
Weekly report from GIPT purchasing and engineering team ....................... 23
Weekly production schedule meeting ........................................................... 23

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Added KPI for percentage for POs without delivery dates ........................... 24
5.2. Improve communication between GIPT and FRIWO ....................................... 24
To define standard leadtime .......................................................................... 24
Weekly critical materials list ......................................................................... 25
Improvement on POT .................................................................................... 25
6.

Action plan......................................................................................................... 28

7.

Conclusion ......................................................................................................... 29

8.

Appendix I : In-Depth Interview Information ................................................... 30

9.

Reference ........................................................................................................... 49

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3. Company Background
My company name is called GIPT, Group Intellect Power Technology Ltd.
With over two decades of experience in electronic product design and
manufacturing, GIPT has become a professional provider of a wide range of
power conversion products. GIPT is also expertise in providing OEM and
ODM electronics contract manufacturing services to global customers.
With headquarters located in Hong Kong, we have three manufacturing
facilities located in Shenzhen and Dongguan, China as well as Ho Chi Minh
City, Vietnam. GIPT today has over 3,000 employees and over 43,000 square
meters of production space in Asia.
Our fully competent manufacturing and R&D teams help us face the challenge
of rapid market changes. As a specialist in power conversion products, our
R&D team is capable of developing a wide range of products including
adaptors and switching power supplies with power ranging from 1 to 3000
Watts, and transformers from low power to industrial grade. Furthermore, our
team has developed a patented transformer, which features small size but high
energy.
We also produce a wide range of consumer products, including radio
frequency, consumer electronic products, and electromechanical products.
Our missions are
-

Quality is the essence of our organization with the goal of Zero defect,

and
-

Continuously pursuing the highest quality goals with the most cost

effective and flexible solutions.
Our major customers come from all around the world, with about 50% coming
from Europe, 30% coming from America and 20% from Asia.
FRIWO is our major customer located in Germany, who contributes to about
40% of the sales revenue in 2017.
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3.1.

Organization Structures of GIPT and FRIWO

Table 1: GIPT’s Organization Structure

GIPT

Marketing
Department (MD)

Factory

Purchasing
Department (PUR)

Production Control
(PC)

Materials Control
(MC)

Production Engineer
(PE)

Table 2: Friwo’s Organization Structure

FRIWO

Order Planning

Procurement
Manager

Project Manager

Before March 2017, FRIWO’s has a local China procurement team to
communicate with China suppliers, including GIPT. After March 2017, the
organization was changed to global commodity management, where one
procurement manager will handle the same type(s) of components. Some
procurement managers are located in China, and some in Germany.

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4. Problem Identification
4.1.

Situation Analysis
The business between GIPT and FRIWO started from year 2007. GIPT acts as
a contract manufacturing company for FRIWO. FRIWO owns the design of
the products and provides Approved Vendor List (AVL) with specific prices,
minimum order quantity, delivery leadtime and shipment terms. GIPT needs to
order components based on FRIWO’s AVLs, put the components together,
perform testing, packing and ship the finished product according to FRIWO’s
shipping instruction.
During the initial period, majority business came from a few products with
stable demand. FRIWO also provides 16 weeks rolling forecast to GIPT and
updates weekly. GIPT used to be able to provide the target shipment dates for
the POs quickly before.
In the last few years, FRIWO starts to consolidate orders they placed to their
Poland factory and another China’s contract manufacturing suppliers, then
place to GIPT. As a result, FRIWO starts to put more products with smaller
order quantity and irregular demand at GIPT for production. As of 2017, there
are more than 100 active products produced in GIPT.
For every new products to be run in GIPT production, FRIWO will arrange
engineer pilot run (EPR) to confirm the design has no problem before starting
mass production. From time to time, FRIWO engineer team will modify the
design of the products also, and an engineering change notice (ECN) will be
issued to GIPT. After receiving the ECNs, GIPT also needs to perform EPR to
confirm the design changes has no problem, then to update the bill of materials
(BOM) and / or the production process.
FRIWO’s order planning team places POs to GIPT in any date of the week, and
the order status are communicated between GIPT and FRIWO through a

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weekly updated Excel summary called PO tracker (POT). FRIWO’s order
planning team will based on GIPT’s feedback to confirm her customer.

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4.2.

Symptoms
In 2017, customer starts to complaint GIPT’s marketing department taking too
long to provide feedback on when the products can be shipped. Customer is
asking for delivery confirmation within 2 week but due to various reasons,
GIPT cannot provide confirmed delivery dates for many POs. This complaint
was considerred as the big trouble when customer escalated to GIPT General
Manager and impacted on GIPT image if we cannot keep shipment
confirmation to customer and cannot adapt with any changes and requirements
from customer.
We took the PO trackers of the first week of May, Jun and July of 2017 from
the planning department for analysis. There are 43%, 31% and 37% of
unconfirmed POs in these weeks respectively. This confirms with customer’s
complaint and the percentage of unconfirmed POs are so significant that
impacts to our service performance to our customer. So we decided to go into
details and find out the root cause and to improve the situation.
Table 3: all opened POs from May 2017 to July 2017
May'17 Jun'17

Jul'17

Total POs

195

187

191

No. not confirmed POs

84

58

70

% not confirmed POs.

43%

31%

37%
(Source:GIPT)

From the PO tracker data for May, June and July, 2017, we tried to identify the
reasons which causing us unable to provide delivery confirmation to customer.
The reasons can be classified as materials related, engineering related,
production control related and others.

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Table 4: Reasons for shipment confirmation late from May 2017 to July 2017
May'17 Jun'17

Jul'17

Total POs

195

187

191

No. not confirmed POs

84

58

70

% not confirmed POs.

43%

31%

37%

New POs within 2 weeks

4

12

23

Materials related (AVL, quality etc)

38

25

33

Engineering related (BOM, EPR etc)

22

16

10

5
15

2
3

1
3

Production control (capacity, on hold
etc)
Others

(Source: Marketing Team-GIPT)
Materials related
Since GIPT has factories at both China and Vietnam but there is only one AVL
price setup. Previously all suppliers deliver the components to GIPT’s China
factory, GIPT consolidate materials from different suppliers and then deliver to
GIPT’s Vietnam factory. As more and more products are producing in GIPT’s
Vietnam factory, FRIWO would like to save the logistic cost by changing the
delivery terms from FOB GIPT’s China factory to EXW for all components.
Due to this changing of shipment terms, prices for all components need to be
revised and it take long time to communicate between FRIWO and supplier to
finalize all the updated prices.
From the graph below, we can see that over 55% of the AVL related problems
cannot be resolved within 14 days from it is reported. This explain why there

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are high percentage of POs not confirmed within 2 weeks after POs are placed
because of the AVL problems
Table 5: AVL related issues

(Source: GIPT)
Another issue is about quality. Major problems happened to customized
components like plastic housing, AC or DC wires. These suppliers are all
China suppliers as of this moment. Since these components are not
standardized and it is harder to control the dimensions and etc, and the problem
will be identified when the components are received at our factory during
incoming quality check (IQC) only, it takes long time to send back samples to
China suppliers for verification.
Starting near mid of 2017, there is a world-wide supply crisis for MLCC
capacitors and resistors. Most of the suppliers cannot deliver according to
AVL’s leadtime. Some suppliers will not commit a delivery date to GIPT.
GIPT will generally keep chasing suppliers until the components are really
needed about 2 weeks before production, then GIPT’s purchasing will discuss
with customer if they agree to spot buy from the market.
By comparing FRIWO’s requested delivery date between Jul-2016 and Jul2017, we also found that FRIWO is asking shorter and shorter delivery
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leadtime. In Jul-2016, most of the orders are requesting for 28 weeks leadtime.
However in Jul-2017, most of the orders requested leadtime was shorten to 20
weeks only.
Table 6: GIPT Lead time report

(Source: GIPT)
At the same time, the number of POs to buffer long leadtime materials is
reducing from 2016 to 2017 also. This caused GIPT even harder to provide
confirmed delivery schedule to FRIWO due to the shortage of long leadtime
components.

Table 7: Buffer for long lead time components

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(Source: GIPT)
Engineering related
For newly released products, after GIPT received product design information
from FRIWO, GIPT needs to breakdown the manufacturing process into steps
and put into a manufacturing document called manufacturing instruction (MI).
Then to conduct an engineering pilot run (EPR) to make typically 50 pcs to
FRIWO for approval. This process normally takes one to two months to
complete. In case first EPR is failed, manufacturing process or raw materials
may need to be revised. GIPT engineer can only estimate when to provide the
samples but they need to wait for confirmation from FRIWO to enable start of
production.
In case GIPT received PCN or new BOM from FRIWO, GIPT also need to
perform EPR to verify if the change affects any specification.
Before EPRs samples got approval from FRIWO, GIP purchasing cannot
purchase materials according to BOM because there are still chance for BOM
change, which results in excess materials that cannot be used.

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Production control related
After some long holidays (example, Chinese New Year or China National
Day), workers in China factory will go back to their home town. Since there
are more and more factories move to in-land China, the workers got more
choices near their home town and do not come back to work in GIPT’s factory,
or they will come back later only if they failed to find a better job. Since the
workers are not under contract, GIPT cannot get a good estimation on how
many workers will be returned after the long holiday. GIPT experienced less
than 20% workers returning to factory after CNY at 2015, and it took more
than 2 months to resume to the normal capacity. Therefore PC is very
conservative during these period and will not commit for delivery.

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Others
There are a few cases that GIPT will not be able to provide a target delivery
date or is beyond GIPT’s control.
For example, FRIWO placed some PO with a very late wanted delivery dates
(normally at the last day of the year, or at least 6 months later). The purpose of
these POs are to enable GIPT to purchase some long leadtime components
only, and GIPT will not assembly the finished good for shipment. GIPT will
not have any delivery dates for these POs.
In some situations, FRIWO placed PO but later do not have a target shipment
dates. This can be due to the order cancellation from FRIWO’s customer,
resulting an on-hold instruction for the PO.
Sometimes even if GIPT finished producing the finished goods, FRIWO may
still unable to provide a wanted shipment dates. In order to save shipment cost,
FRIWO will normally ask GIPT to ship products directly to FRIWO’s
customer. In case FRWIO still cannot look for new customer, FRIWO will ask
GIPT to hold the product without shipment. This also result in non-confirmed
delivery in POT.

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4.3.

Central Problem
PO handling flow

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After MD received POs from FRIWO, MD will input the PO details to the ERP
system.
MC will check and run materials planning two times a week to generate the
required components list to PUR. If the BOM is not properly setup, MC will
contact PE to setup the BOM.
For any new product, or if PE received any engineering change notification
(ECN), PE needs to revise the BOM before MC can run the MRP. For any new
products or engineering change, PE will need to perform an engineering pilot
run (EPR) and provide samples to customer for approval. This process can be
in terms of weeks and becomes one of the major delay.
PUR will based on the MRP result required components list to place POs to
suppliers. As most of the component suppliers are assigned by customer, in
case there are new components created, PUR need to work with customer to
determine the trading terms including unit price, minimum order quantity,
delivery location etc. The AVL information will be send rom customer to
GIPT each week. Based on history, customer usually take 4-6 weeks to resolve
the AVL problem. Therefore if the AVL information is missing, PUR cannot
place orders to components suppliers and they cannot get an estimated
component delivery schedule. This also delay the time for GIPT to confirm PO
delivery schedule to customer.
In some situations, the components may have quality issues. In these cases,
even if PUR placed POs to suppliers, they will not be able to estimate the
components delivery day.
Based on the feedbacks from suppliers, MC will prepare a missing component
list and send out to the team. When the full BOM ready is available, PC will
schedule the production and provide estimated ship out date, resulting in delay
of order confirmation.

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We can see that if there are any missing information within the flow, MD will
not be able to get the estimated ship out date and feedback to customer.
From the data of PO tracker, we found many problems from different
departments can result in unable to provide estimated delivery date. Each
departments operate independently and will report problems only when they
are asked.

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4.4.

Initial cause effect map

Lack of communication
In order to be able to reply customer with delivery dates, the process need to
collect information from different parties. Any problems arising from
customer, supplier and GIPT side can cause delay in the order confirmation
process. There are also inter-dependency between parties which require back
and forth communication before the problem can be clarified and resolved.
These problem mainly affects the availability of raw materials, which is key
part to determine the order delivery dates. These problems often happens at
new design and design changes, where changes involve components from
suppliers. The passing of technical changes information to the engineering
team also plays an important role in scheduling for production, and therefore
the delivery dates.

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4.5.

Potential Root Cause
In below chart, green arrows shows information flow between parties. When
POs are input by FRIWO Order Planning team, it takes time to pass
information to different departments and get feedback. The PO delivery dates
can only be available only when all information are available.

Communication within GIPT
There is no unified communication way between GIPT departments, and is not
tailor made for the providing POT reply to customer. MD and MC
communicates based on a weekly production plan in Excel format, where the
original purpose is to show the overall production line planning only. MD just
extract the information of column of “Scheduled production completion date”
and put into the POT. MC will leave the production date empty if they do not
know when full BOM is ready or when there are any engineering issues not
resolved.
PC and MC communicates in a weekly missing materials list in Excel, which
indicates when the full BOM will be available. In case there are any problem

20


like AVL or materials quality problems, MC will only put a remark like
“missing AVL information”, or “materials quality problem”, without input a
full BOM ready date. This leads to result that PC cannot plan for production
start date.
MC and PUR mainly communicates by emails for individual materials issues.
PC and PE also mainly communicates by emails to solve individual problems.
From there, we can tell that some kinds of reports sharing between all related
departments are needed, and in case of open issues, each parties should provide
a target completion date for the other departments to follow up.
Communication between GIP and FRIWO
Other than MD needs to communicate with FRIWO for the POT, PE and PUR
also needs to communicate with FRIWO for engineering and materials also.
They communicated with FRIWO by individual emails, and they cannot tell
which parts are more urgent and need higher priority. To improve the
situation, we need to setup a new communication channel such that the bottle
necks can be effectively feedback to other parties. In case some open issues
really cannot be resolved by the deadline, they can be easily seen by the
managements for giving further supports.

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4.6.

Cause-effect map

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