In engineer-to-order industries, complexity is inevitable. Every order is custom built and must be managed as a discrete project. Precise supply chain planning is essential – but often difficult to achieve. Here’s how engineering company to the brewing sector, Krones, dramatically improved order fulfilment performance.
Founded more than 55 years ago in Germany, Krones is a well-established engineer-to-order company that produces automated equipment for use in the beverages industry. It operates five factories and employs more than 9,100 people worldwide and has a revenue of about €1.9 bn. Its products range from machines for labelling and bottling to appliances for pasteurising liquids and moulding plastics.
Each machine that it produces is unique to its customer’srequirements, and the complexity of its products varies enormously. If a customer is setting up a new bottling plant, it may require multiple machines for inspection, rinsing, filling, labelling and packing, all linked by conveyor belt. Alternatively, a customer might simply require an upgrade to a single machine. Every year, Krones undertakes around 1,500 new build projects and 6,000 product upgrades, each taking from four weeks to twelve months to complete.
At one time, the company computed its due dates primarily based on CPM (critical path) dates without fully taking into account its current workload, capacity or material availability. Consequently, it frequently found that it could not deliver on time, and this led to low customer satisfaction. To try to compensate for this problem, the company frequently experienced busy periods, because projects were scheduled without regard for capacity. During these times of high activity, Krones often had to bring in extra temporary labour or pay staff overtime. This helped to keep projects on schedule, but lowered margins. There was also an impact on staff moral, as employees got tired.
In addition, Krones tended to ‘pad out’ the duration of jobs (a standard technique used in all project based enterprises) when providing estimates to customers. As a result, however, the company’s predicted lead times for projects were unnecessarily long, which contributed to some lost business opportunities.
The company’s material procurement was typically always based on the project plans developed at the start of projects. When delays – or indeed advancements – of projects occurred, procurement plans were often not updated. Consequently, the company frequently found that it procured parts either too early, locking in capital, or too late, creating delays in the schedule.
The company realised that all of these business issues stemmed from the lack of visibility between project load, resource capacity and material availability.
Krones had already implemented an enterprise resource planning (ERP) system, which provided it with functionality for human resource management, materials management, product scheduling and production planning. However, this solution did not give the company integrated visibility between projects and their associated resources and materials. As a result, planners and schedulers within the company found it hard to manually coordinate changes when projects or materials were delayed or dates moved which happens frequently in projects.
To overcome this problem, Krones selected two solutions from i2: Enterprise Project Planner and Factory Planner. It appointed IBM to implement the solutions. i2 Enterprise Project Planner (EPP) is a planning and scheduling tool designed specifically for engineer-to-order companies. It is suited to helping companies plan, communicate and manage the execution of multiple projects in a dynamic and complex environment. i2 Factory Planner enables companies to simultaneously consider material and resource constraints to optimise factory schedules.
By implementing these two solutions, Krones aimed to create an integrated planning system, combining project, material and resource information. Through EPP, Krones has been able to create a workflow wherein projects are created and managed from initiation by sales, through engineering. Planners in operations had the forward visibility into orders coming in the future and were able to manage it through the services delivery to the customer. All employees use one central system to input new orders (sales), plan on it, and execute on it. The system would be used by all employees – from the sales team to procurement managers and factory planners – and would close the gap between long-term strategic planning and near-term execution.
Using the system, Krones is now able to plan capacity two years ahead and view materials requirements six to nine months in advance. Their planners in various divisions now have a powerful decision support tool in EPP that allows them to react to changes from strategic plans as well as disruptions to the plan. When events occur that cause projects to be delayed (or advanced), planners are now able to use EPP’s powerful what-if and problem solving capabilities to automatically assess the impact, not only on the individual project, but also on the entire division and company level. EPP allows planners from engineering, manufacturing, and services to collaborate with each other effectively, a capability that they have never had before but sorely felt the need for. They can now effectively respond to changes in requirements that are almost inevitable in engineer-to-order projects. Most importantly, planners can keep customers informed about any delays and provide actual delivery dates.
As part of the implementation process, Krones established new processes – top-down planning and bottom-up escalation. Top down planning is now used to create strategic plans in the long term that drive operational plans in the mid term, and execution schedules in the near term that are synchronised and respects all constraints. Bottom up escalation gives the individual performing the execution to communicate exceptions and deviations upstream so that adjustments can be made and the impact of the delay can be minimised. Between the two workflows, everyone in the company now has end-to-end visibility to the status of the project and the transparency to communicate. These two processes helped Krones close the loop from strategic planning to execution scheduling and has laid a strong foundation for next generation supply chain management.
Krones, with the help of i2, also defined new roles and responsibilities for employees including the creation of planners for various divisions to manage the trade off between project due dates and resource capacities. The company undertook a comprehensive education programme to explain the importance of integrated planning, and incentives were offered to encourage employees to use the system correctly.
‘By aligning people, processes and IT, we have been able to effect real change and realise great success,’ says Dr Michael Kranz, SVP information management, Krones.
The use of i2 solutions has completely transformed the way in which Krones plans and manages its projects. For the first time, the company can control the entire lifecycle of orders – from the issue of the quote to the delivery of the completed equipment – in one centralised, integrated system. The due dates calculated are realistic and achievable, and the number of on-time deliveries is increasing all the time. Krones is using i2 solutions as their main planning tools to handle: €7,5 m order intake per day; 6.000 concurrent projects; 30,000 concurrent work orders; and 175,000 jobs planned daily.
In the two years that Krones has had the i2 solutions, primarily EPP, in production, they have achieved over 20 per cent increase in throughput without practically any increase in headcount. Improved enterprise-wide visibility of projects has also led to more timely procurement and reduced resource overload, overtime and weekend shifts. Krones isfully expecting all of this to lead to cost savings and have a direct impact on the profitability of the company.
In the future, Krones plans to take advantage of some of the advanced features of i2 EPP, including the automatic calculation of buffer durations, to reduce order lead times.