BUS606: Operations and Supply Chain Management

The company is a Danish equipment manufacturer holding a market-leader position. With production in twelve countries and a global sales presence, it is working from a strong international base. Every year since 2000, the company has acquired two to three companies, and has furthermore been signalling a change in mindset from the earlier ideology of making everything in-house to joint ventures and acquisitions. Some of the newly acquired firms still control their own R&D agenda, while others are fully integrated. The pace of acquisition has quickened recently on par with the restructuring of their main product's market characterized by increased concentration, and firms moving from component to system suppliers, adding more competencies. When referring to product development, an executive talks about a "Centrally driven, global approach - with a local presence". Denmark has the strategic vision and remains in firm control through corporate functions, but business units have their own budget and latitude to select projects and allocate resources.

The company has developed proprietary product and process technology built on the understanding and the nurturing of the interaction between production, product development (PD), and its technology center (TC). Being responsible for technology development and establishment of production lines, the technology center needs to coordinate its activities with its two customers, namely Production and Product Development (PD). Production has already been offshored, and with PD moving out of Denmark, it makes sense that TCs follow customers in their global expansion. Consequently, local TCs have already opened in Hungary and China, and a new site is planned in Mexico/USA. Cooperation between foreign units is limited to brief collaboration on assignments and sharing of patents. However, there is a shared agenda at a higher level in relation to operations in different market segments. Although R&D manpower in China is growing fast, they have not launched any product range of their own yet, and are solely supporting central development activities. It is expected, however, that future responsibilities of developing specific products will be taken over by the Chinese. A focus on the Americas is also needed, as the group is relatively weak here, where the company introduced some product ranges over 50 years ago, but can only claim less than a 10% share of the market. In time, each "Triangle" (TC/Production/PD) will grow increasingly independent and specialized, replicating best practices, but developing its own particularities, compatible with local cultures and markets. TC Denmark, which designs production equipment for all factories, including testers and tools, is to remain the lead factory for the next few decades. Electrical parts of testers, for instance, are manufactured in the Netherlands, mechanical parts are purchased in Denmark, and assembly takes places in Denmark. TC Hungary provides more capacity and cost reduction in the tester area, supplying spare parts, IT support, or any competencies needed around the tester area. Similarly, TC China focuses on tools with 7-8 people building documentation on the tool and automation equipment areas. The operations started with a small base, but are expected to grow rapidly. The global organization is nurtured through a positive iterative process by gradually increasing the level of complexity of tasks. For example, both China and Hungary have cast-iron mechanical construction units that are routinely assigned tasks by the project manager in Denmark. These parallel activities in Denmark and abroad will continue until it makes sense to move key competencies abroad.

As part of the overall globalization strategy, a production line was transferred from Denmark to a green field site in the Americas where a future triangle was intended to be. In spite of ample previous experience and a corporate focus on developing an organizational transfer capability, this project was challenging in a number of ways. First of all, the production line consisted of proprietary technologies, which had been amended in Denmark over a long period of time with very little documentation. In Denmark, semi- and unskilled people were operating the line with a wide delegation of autonomy for solving problems, while support staff, including skilled set-up fitters along with an engineering team, was supporting the line at disturbances, for maintenance, and for malfunctions, in addition to a more elaborate division of labor that was planned for the receiving unit. Secondly, this was seen as a test where the company was navigating in unknown territory with regard to location, to the approach, and to the scale of initial operations.

Preparation for the transfer was intense and focused on establishing a robust working template of the manufacturing process. The existing level of documentation was limited and did not reflect the historical modifications of the manufacturing process; for this reason, the work to capture and standardize the process was comprehensive and lasted for more than half a year. The company was able to maintain high motivation among employees in the dispatching unit during the preparation. The receiving context was assessed in an intensive investigation of its capacity to absorb the line, but was not involved in the transfer. The transfer itself was planned as a Big Bang exercise, where everything was packed and air-lifted to its destination in order to ensure minimum down-time. The line was delivered as a turn-key solution, and onsite initial training was structured and supported by the sending organization. This support team included very experienced operators and set-up fitters. The team was pulled back after four weeks of intensive training. They witnessed a capacity of the new organization for operating the line and an eagerness to prove itself. Later, project management found that they had underestimated the difficulties of transferring tacit knowledge about disturbances, malfunctions, and non-normal operation. This called for much more education and training than expected. Incorporating corporate DNA was seen as a key to success at the new site, which was planned to be secured through the internal training program with senior management attending as well as through a strong pull from an internal customer. It soon became clear that this was difficult to install in the immature organizational unit. Having spent a year with ramp-up at the new site, it was realized that drastic means had to be undertaken, and local management was replaced by experienced internal people with a strong focus on establishing flow-oriented capabilities, after which performance slowly started to pick up.

The acquisition of new production sites and fast growth of new markets have required the tight coordination of production and supply chain activities. At the same time, the rate of introducing new products has been moderate. This explains the location of the company in the lower left cell in figure 3.

The establishment of new production facilities in the Americas has revealed the close interrelationship between production sites, the central production technology center, and the predominant tacit nature of the production knowledge.

Awareness of the "Triangle" (TC/Production/PD) that mirrors some of the strategic roles of supply chains has been useful for planning a globalization trajectory. It appears to take place in waves, with operations first, followed by establishing a local production engineering capability, and a present effort to bring about phases of product development at regional centers.

Similarly, the structure of operations and supply chains has evolved from a star configuration, with the Danish headquarters in the center, to a complex network with regional nodes holding competence centers in various areas.