Towards a more efficient Supply Chain - Divakth.diva-portal.org › smash › get › diva2:1197603 › FULLTEXT01.pdf · regarding life and career. I feel a lot of gratitude towards

Towards a more efficient Supply Chain

A study at Bombardier Rail Control Solutions with a

focus on centralizing their Supply Chain

Jonathan Eriksson

Master of Science Thesis

Supervisor Bombardier: Bastiaan Westhoff

Supervisor KTH: Per Johansson

Examiner: Lasse Wingård

Acknowledgement Initially, I would like to thank Bombardier Rail Control Solutions who gave me the

opportunity to write this Master Thesis for them. From day one I have been treated well and

received great help regarding anything needed. There are some people who have given me

the extra help and support, which I want to direct an extra big thank to.

Bastiaan Westhoff

Firstly, I would like to thank my supervisor and manager at Bombardier Rail Control

Solutions. Bastiaan, I am so grateful that I have had the opportunity to meet, work and

develop together with you during these months. You have been a role model through your

leadership and drive and also been more helpful than I ever could have expected, both

through this thesis and on a personal level through giving me insights and priceless tips

regarding life and career. I feel a lot of gratitude towards you and I will always be grateful for

this time.

Anders Johansson

Anders, thank you for always being there and sharing your time, knowledge and expertise

with me. You have been the person I always have been able to go to and discuss all my ideas.

I feel a lot of gratitude for everything you have shared with me, and just so you know, you

are not that old.

Dan Persson

Dan, thank you for always supporting me ever since we worked together. I am very grateful

that you always are there for me in life no matter what, which this time has been regarding

your insightful tips for this thesis as well as on a personal level.

Per Johansson

Last but not least, Per who has been my supervisor from KTH. I am grateful for your support

and advices when I have been stuck. I am also thankful for your feedback and that you also

have prioritized me when needed. Thank you!

Abstract

To remain competitive in today’s business environment, companies must continuously

become more efficient and improve their business. This can be achieved through developing

and streamlining a company's Supply Chain.

Bombardier Rail Control Solutions(RCS) has grown mainly through acquisitions, however,

the acquisitions have not been integrated in a good way into their existing Supply Chain. This

has result in a decentralized Supply Chain where RCS’s different sites are using different

ERP systems. The consequence of this has led to an increased manual workload, a lack of

visibility between sites and an inefficient Supply Chain.

The goal of this project has been to identify how Bombardier RCS can develop and

streamline its Supply Chain by centralizing different parts of it, e.g. ERP systems and

different processes. To achieve this, there has been a close collaboration with Bombardier

through the project through interviews, meetings, discussions together with studying

literature. In addition, presentations have been presented continuously to ensure that the

results have followed Bombardier RCS’s goal. RCS’s historical data has also been analyzed.

Based on the above-mentioned methods, several problems have been solved and

improvement areas have been identified. Issues that have been solved include centralizing

master data and how to centralize processes at Bombardier RCS. Improvement areas include

the benefits of centralizing Bombardier RCS Supply Chain and the advantages with a central

warehouse. Bombardier RCS should also centralize their entire ERP system to enable global

MRP calculations and so on. Furthermore, it has been identified that there is an improvement

potential regarding Bombardier RCS's delivery performance, which can be solved by either

integrating RCS’s Supply Chain or/and through keeping products on stock.

The conclusion is that Bombardier RCS should centralize their Supply Chain step by step

since it is impossible to centralize everything at once. By centralizing the Supply Chain, this

can reduce manual workload, create visibility between different sites, contribute to a better

delivery performance and streamline the Supply Chain. By doing this, Bombardier RCS can

get more competitive, which can contribute to a continued strong market position in the

industry.

Key words: Supply Chain Management, ERP, MRP, MPS, Master data, Centralization, On-

Time Delivery, Supply Chain Integration, Warehouse, Inventory

Sammanfattning

För att vara konkurrenskraftig i dagens företagsklimat måste företag ständigt förbättras och

bli effektivare. Detta kan uppnås bland annat genom att utveckla och effektivisera ett företags

värdekedja.

Bombardier Rail Control Soutions (RCS) har växt framförallt genom företagsförvärv, dock

har förvärven inte integrerats på ett bra sätt in i den existerande värdekedjan. Detta har

resulterat i en decentraliserad värdekedja där RCS:s olika arbetsplatser använder olika ERP

system. Konsekvensen av detta har lett till en ökande manuell arbetsbelastning, brist på

synlighet mellan siter och en ineffektiv värdekedja.

Målsättningen med det här projektet har varit att identifiera hur Bombardier RCS kan

utveckla och effektivisera sin värdekedja genom att centralisera olika delar av den,

exempelvis ERP system och olika processer. För att uppnå detta har ett nära samarbete med

Bombardier genom projektet varit centralt med intervjuer, möten och diskussioner,

tillsammans med en litteraturstudie. Dessutom har presentationer framförts kontinuerligt för

att säkerställa att resultaten följt Bombardier RCS:s mål. RCS:s historiska data har också

analyserats.

Utifrån ovannämnda metoder har flera problem löst och förbättringsområden har identifierats.

Problem som har lösts är bland annat att centralisera RCS:s masterdata och hur man kan

centralisera processer hos Bombardier RCS. Förbättringsområden är bland annat fördelarna

med att centralisera Bombardier RCS:s värdekedja och vinsterna med ett centrallager.

Bombardier RCS bör även centralisera deras ERP-system för att möjliggöra globala MRP-

beräkningar och så vidare. Vidare har det identifierats att det finns en

förbättringspotential för Bombardier RCS:s leveransprecision som kan lösas dels med att

integrera värdekedjan (med leverantörer) eller/och lagerlägga artiklar.

Slutsatsen är att Bombardier RCS bör centralisera sin värdekedja stegvis eftersom det är

omöjligt att centralisera allt på en gång. Genom en centraliserad värdekedja kan det minimera

den manuella arbetsbelastningen, skapa visibilitet mellan olika arbetsplatser, bidra till en

bättre leveransprecision och effektivisera värdekedjan. Genom att göra detta kommer

Bombardier RCS bli mer konkurrenskraftig, vilket kommer bidra till en fortsatt stark

marknadsposition i branschen.

Nyckelord: Värdekedja, ERP, MRP, MPS, masterdata, Centralisering, Leveransprecision,

Värdekedjeintegration, Lager

Table of Contents 1 Introduction ............................................................................................................................... 1

1.1 Background ........................................................................................................................ 1

1.2 Problem Description ............................................................................................................ 1

1.3 Purpose and Objectives ........................................................................................................ 2

1.4 Research Questions ............................................................................................................. 2

1.5 Limitations ......................................................................................................................... 3

2 Methodology ............................................................................................................................. 4

2.1 Research Setting and Design ................................................................................................ 4

2.2 Literature Review ................................................................................................................ 4

2.3 Data Collection Methods...................................................................................................... 5

3 Supply Chain Management ......................................................................................................... 7

3.1 Description of Supply Chain Management ............................................................................ 7

3.2 Centralized versus Decentralized Supply Chain ..................................................................... 8

3.3 Integration of Supply Chain ............................................................................................... 10

4 Business Processes – ERP systems ............................................................................................ 11

4.1 Master Data ...................................................................................................................... 11

4.2 Master Production Scheduling (MPS) ................................................................................. 13

4.3 Material Requirements Planning (MRP) .............................................................................. 13

5 Bombardier RCS’s Supply Chain Today.................................................................................... 17

5.1 Multiple Supply Chain Sites - Meeting with Global Logistics Manager ................................. 17

5.2 Interviews and Presentations with Logistics Managers for each Region ................................. 17

6 How to Centralize Bombardier RCS’s ERP Systems .................................................................. 19

6.1 Centralized Master Data - meeting with Logistics Manager of Region North ......................... 19

6.2 How to Centralize RCS’s Master Data - Meeting and Discussion with Supply Chain Specialist

from AstraZeneca ................................................................................................................... 19

6.3 MRP Analysis and Meetings with Global Logistics Manager ............................................... 21

7 Analysis of Bombardier Historical Data (Region X) ................................................................... 23

7.1 Current Situation ............................................................................................................... 23

7.2 On-Time Delivery ............................................................................................................. 23

7.3 Direct Sales Stock Policy - Meeting with Supply Chain Specialist AstraZeneca ..................... 25

8 How to Handle the Time-Consuming Compliance Process ......................................................... 27

8.1 Current Compliance Process .............................................................................................. 27

8.2 Centralization of Compliance Process ................................................................................. 27

9 Discussion ............................................................................................................................... 29

9.1 Centralized Supply Chain with a Centralized ERP System ................................................... 29

9.2 Centralized Warehouse ...................................................................................................... 30

9.3 How to Centralize RCS’s ERP System ................................................................................ 31

9.4 Centralized Direct Sales Stock Policy ................................................................................. 32

9.5 Centralized Compliance Process ......................................................................................... 34

10 Conclusions & Recommendations ........................................................................................... 35

10.1 Conclusions .................................................................................................................... 35

10.2 Recommendations ........................................................................................................... 36

10.3 Validity........................................................................................................................... 37

10.4 Future Research ............................................................................................................... 37

11 References ............................................................................................................................. 38

Appendix .................................................................................................................................. A1

Appendix I - Interview Questions ............................................................................................ A1

1

1 Introduction

This chapter contains a description of the research area and gives insights why this project

was initiated. Further, the problem is introduced, as well as the aim of this report and its

limitations.

1.1 Background

In today’s competitive global business world, companies need to find new ways to improve

their business to remain competitive. One improvement area is a company’s Supply Chain,

which can be streamlined through evaluation and change of its design. A more efficient

Supply Chain can contribute to increased margins and gain competitive advantages (Chopra

& Meindl, 2010).

I have investigated what benefits a global company can gain by standardizing and

centralizing parts of its ERP system and Supply Chain. Through a centralized Supply Chain

companies can both reduce their total cost and make their Supply Chain more efficient. Areas

that can be improved, are for instance, material in stock, warehousing and increased

transparency.

Bombardier Transportation is one of the world’s largest companies providing rail solutions

and one of its division is RCS. RCS is a world leader in its area, which is developing,

engineering and installing signaling safety systems, products and service to enable safe and

efficient operation of rail networks and trains.

Currently, RCS has a decentralized Supply Chain divided into more than 10 sites. This

decentralization has created an inefficient Supply Chain through having multiple Enterprise

Resource Planning (ERP) systems. These together have caused a non-visibility between sites,

high manual workload and non-standardized processes in RCS.

ERP systems are used to handle data, information and communication requirements of whole

organizations and are therefore essential for a successful Supply Chain Management. The

idea of Supply Chain Management is to have a strategy to handle the flow of information,

material and services through the whole chain, from raw material suppliers to factories and

warehouses to the end customers. The ability to be able to manage the whole Supply Chain

through the introduction of ERP systems made the integration of the enterprise management

efforts a central issue for companies. (Shtub & Karni, 2010)

1.2 Problem Description

Currently, Bombardier RCS has a decentralized and scattered procurement and Supply Chain

organization in four different regions. RCS is approximately running 150 projects in 40

different countries. The main reason for the decentralized organization is because RCS has

2

grown much through acquisitions, which have not been integrated into RCS’s Supply Chain

properly. The acquisitions have instead continued working with their current systems.

RCS is both manufacturing their products in-house and outsourcing production to different

suppliers. The products that are manufactured are mainly made to order as Bombardier RCS

business is mainly based on projects. Besides the project based sales, RCS are also having an

aftermarket with direct sales (spare parts and services), though, this part of the business has

its own Supply Chain challenges as it’s a combination of make to order and make to stock.

RCS does not have a standardized direct sales policy, which has caused that their service

level and inventory is not at desired level.

Furthermore, the decentralization has caused that RCS is facing different issues, such as

having seven different ERP’s globally, scattered inventory, high manual workload (no MRP

or warehouse integration), lack of global inventory visibility, lack of process standardization

and lack of common master data. As the business and the complexity is increasing, the

current Supply Chain model is more and more under pressure.

Consequently, RCS wants to change from a decentralized procurement organization to a

centralized organization, since today’s solution with many different ERP’s and a

decentralized organization has created a scattered landscape and an inefficient Supply Chain.

1.3 Purpose and Objectives

The overall objective of this project is to define a harmonized global concept for Bombardier

RCS’s Supply Chain. This will be done through investigating how a centralized Supply Chain

and ERP landscape can streamline RCS Supply Chain and optimize their inventory and

logistic cost structure.

Though, this issue cannot be done in one shot. The goal of the research findings is that it will

be used as the foundation of how RCS can tackle previously mentioned issues regarding their

Supply Chain. The developed concepts shall also meet jointly developed requirements, which

will be based on requests from concerned employees. The concepts will help Bombardier

RCS understand and improve their business in the shape of a more centralized Supply Chain

with more transparency between the different sites as well as making their Supply Chain

more efficient.

1.4 Research Questions

The purpose is to help Bombardier RCS with above mentioned areas, which led to following

research questions:

1. How shall Bombardier RCS centralize their Supply Chain? And what benefits would

a centralized Supply Chain imply?

2. What parts of an ERP system is needed initially to optimize inventory and logistics

cost structure?

3

1.5 Limitations

● This project is delimited from evaluating which ERP system that would be best for

Bombardier RCS, due to that Bombardier RCS previously had determined SAP as

their ERP system. The report will, therefore describe some modules in SAP that could

be used to help Bombardier RCS centralize their ERP systems. In this report, the

included parts of an ERP system are master data, MPS and MRP, due to that this is

the area which Bombardier RCS requested.

● In the project, the focus has been on the logistic part of a centralization and has been

delimited from, for instance, finance, the production part and the production plants.

● The work has only focused on the pros and cons of having a centralized hub on a

high-level and not focused where to have it and how to choose a centralized

warehouse.

4

2 Methodology

This chapter presents selected methods to answer the research questions and to achieve the

purpose of this project. The method is divided into three parts: research setting and design, a

literature review and data collection methods divided into subheadings. Each of these

methods is described below.

2.1 Research Setting and Design

This master thesis project was initiated by the Global Logistics Manager at Bombardier RCS

who also has been my supervisor through this project. After the project was initiated, my

manager and I reached a joint agreement for this thesis. Thereafter, a strategy to answer the

research questions and to deliver useful insights to Bombardier RCS was developed. This

method was divided into different approaches to cover different areas.

Through this project, I was offered an office space and have been working full time at the

office to ensure fast communication which also gave the opportunity to be part of daily

meetings and discussions. The presence at Bombardier has been a huge part of the method

since it has given me a better insight of their business and what was needed for this work to

create value for Bombardier RCS.

Initially, it was important to build a relationship with the employees at RCS and get an

understanding of the organization, the processes and their Supply Chain. Through this phase,

it was realized that the approach of this thesis would change a bit with a deeper focus on

different improvements that could be achieved through a centralization. From this stage, the

research questions evolved.

After an understanding of the company was built and when the goal was identified, a

literature review was done simultaneously with the data collection, which consisted of

meetings, interviews, general discussions, introductions to RCS’s different systems and

access to different databases. This approach was used for the whole project.

2.2 Literature Review

Throughout the project, the literature has been reviewed since each phase has required

different kinds of literature. Initially, the literature review had a broad approach to get a

deeper understanding of areas as Supply Chain, ERP and how they are combined.

Thereafter, when the research questions and the aim of the report were defined, the literature

review was narrowed down to focus on the first key areas. These areas were to gain a deeper

understanding of Supply Chain, how a Centralized and Decentralized system work and their

benefits followed by how an integrated Supply Chain can be developed.

5

When the topics were identified and investigated, the literature review continued with

investigating ERP system and which parts that should be focused on in this report, which

were identified as master data, Master Production Scheduling and Master Requirement

Planning, including different planning setups for MRP.

The literature was mainly found through KTH library’s database and keywords have for

instance been: “ERP”, “Supply Chain Management”, “SAP”, “MRP”, “MPS”, “Master

Data”, “Forecasting”, “Centralization”, “Decentralization”, “Supply Chain Integration” and

combination of those.

2.3 Data Collection Methods

There have been different data collection methods in form of interviews, presentations,

meetings, general discussions, previous experiences and RCS’s tools, Data Collection and

Models.

2.3.1 Interviews

The main initial phase of the method was through conducting an introduction with the Global

Logistics Manager and interviews with the Logistics Managers of each region. Through the

interviews, the problem could be defined more precisely and the questions can be found in

Appendix I.

The completed interviews were qualitative and semi-structured, which means that questions

were used in an interview guide (see Appendix I). Since the interview was semi-structured,

questions could be adapted to the informant during the interviews and supplementary

questions could be added. (Blomkvist & Hallin, 2014)

The interviews were only used initially in this project, and instead, other data collection

methods appeared such as presentations, meetings and general discussions. The reason why I

used these methods was that they are more natural and generic.

2.3.2 Presentations, Meetings and General discussions

Bombardier RCS invited me like any other team member from day one and since then I was

at the office full time. This included participation in presentations, meetings and daily

discussions regarding the project and other topics. I have also had many presentations and

meetings where I got direct feedback on my work and its different parts. Furthermore, the

daily work has also minimized the delays in responses, since I have had the opportunity to

visit concerned person when needed to solve my problem instead of having to arrange an

interview-meeting. This has led to fast communication and problem-solving which has

reinforced the quality of the result.

6

2.3.3 Previous Experiences

This master thesis project required knowledge of many different areas within ERP, Supply

Chain and Logistics as well as Excel-skills. Thanks to previous work experience within these

areas, the learning curve was shortened.

2.3.4 RCS’s tools, Data Collection and Models

Bombardier RCS has many different tools and data they are working with daily, which I got

access to as well as instructions on how to use them. These tools and data gave me the

opportunity to look into RCS’s processes and do analyses.

Through inputs from concerned employees globally together with analyzing RCS’s historical

data some Excel-models were developed, which were: OTD-model and Forecast-model

which are shown in 7 Analysis of Bombardier Historical Data. The formulas for these

findings are not included in this report, due to that confidential data was used.

Other confidential data has also been used in form of internal calculations regarding

transportation and warehousing savings with a central warehouse.

7

3 Supply Chain Management

This chapter describes what a Supply Chain is, the difference between a centralized versus a

decentralized approach and how inventory can decrease using a central warehouse. The

chapter ends with describing how a Supply Chain can be integrated.

3.1 Description of Supply Chain Management

Supply Chain Management is the coordination of information, material and financial, within

and across companies. It is defined as a set of procedures in which several companies,

including suppliers, producers and distributors work together to produce a finished product to

the end customer. Through designing the Supply Chain network correctly, companies can

reduce cost, enhanced responsiveness and increase customer service level. It is complicated

to design a Supply Chain since it requires integration of procurement, supply, and

manufacturing processes. (Khalili-Damghania and Tajik-Khavehb, 2015)

Supply Chain Management strive to integrate all key activities in a business and coordinate

the whole Supply Chain from product development, purchase to customer support. Supply

Chain Management also involves several corporate functions to make the businesses cost-

effective and satisfy customer demand, which is shown in Figure 1 below. (Cooper et al,

1997)

Figure 1 - A Framework of Supply Chain Management (Cooper et al, 1997)

8

3.2 Centralized versus Decentralized Supply Chain

There are usually two methods for companies to make decisions for their Supply Chain,

either centralized decision making, where the decisions are made centrally at the corporate

level and the decentralized decision making where the decisions are made at business unit

level. (Li et al, 2014)

3.2.1 Decentralized System

According to Li et al (2014), a decentralized warehouse is when there are multiple

warehouses and where each warehouse is treated as a separate business unit, see Figure 2

below.

Figure 2 - Traditional Decentralized System (Shanker, 2012)

In the decentralized system, each member of each business unit is taking decisions with the

focus on their warehouse since it is treated as an individual company, where the aim is to

reduce their own inventory. Though, since each local decentralized warehouse is working

independently, it increases local control and can increase the local appearance. (Duan & Liao,

2013)

3.2.2 Centralized System

A centralized system is when a company maintains one centralized warehouse instead of

having several warehouses spread out (Li et al, 2014), see Figure 3 below. In the centralized

system, the decisions are made centrally and consider all business units of the company

together. (Duan & Liao, 2013)

9

Figure 3 - Centralized System (Shanker, 2012)

A centralized Supply Chain is more cost-effective since the decisions are made to minimize

the entire Supply Chain inventory cost instead of having decisions based on each business

unit (Duan & Liao, 2013). Furthermore, the centralized warehouse has lower costs regarding

extra rent, extra staff, maintenance of multiple locations etc. compared to a decentralized

warehouse (Haliday, 2014).

3.2.3 Warehousing Square Root Law of Inventory Management

The total amount of inventory increases in conjunction with the number of warehousing

locations. This is because the stock level needs to be higher with more warehouses to satisfy

customers, compared to only having one warehouse. (Haliday, 2014)

When companies grow, they can choose to have multiple warehouses to be closer to their

customers, which can enable a better customer service. Though, since each warehouse is at an

independent location with its own customer base, each warehouse needs its own inventory

which ties up capital in stock. (Haliday, 2014)

Instead, a company can choose to store all stock in a central warehouse, which will eliminate

the duplicated safety stock that occurs when having multiple warehouses. Though, this can

imply longer shipping times which may decrease customer satisfaction. (Haliday, 2014)

10

Through using above information, this can be summed up in Formula 1 below, which is an

estimate of how the number of warehouse locations affects a company’s overall inventory

requirements.

𝑋2 = 𝑋1 ∗ √𝑛2/𝑛1

𝑛1 = 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑥𝑖𝑠𝑡𝑖𝑛𝑔 𝑓𝑎𝑐𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑛2 = 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑢𝑡𝑢𝑟𝑒 𝑓𝑎𝑐𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑋1 = 𝑒𝑥𝑖𝑠𝑡𝑖𝑛𝑔 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝑋2 = 𝑓𝑢𝑡𝑢𝑟𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

Formula 1 - Square Root Law of Inventory Management (Haliday, 2014)

3.3 Integration of Supply Chain

An integrated Supply Chain can be defined as a process of collaboration and interaction

between companies in a Supply Chain where they work together to reach a mutually

acceptable outcome. According to He & Lai, an external integration is more powerful than an

internal integration of the Supply Chain. Two basic categories of the external integration are

the integration with suppliers and customers, meanwhile, the strategic and operational

integration can be considered as two major strategies of external integration. The operational

integration integrates interdependent processes and information flows, which helps

companies to improve efficiency and effectiveness. The strategic integration is to integrate

and create closeness in the relationship between a company and both its customers and

suppliers. This includes strategic alliances and partnerships where the partners discuss

common interests and shared visions to develop it into collective actions. Though, since the

Supply Chain integration is a complicated process, it can be hard to understand its outcome.

(He & Lai, 2012)

According to He & Lai (2012), through sharing information about key processing activities

the Supply Chain integration will be enhanced. By integrating the Supply Chain,

manufacturers can react more flexibly to customer demands, which can decrease delivery

time and reduce inventory. An integrated Supply Chain can also increase key practical

resources like improving market access by information networks and strengthening logistics

operations. (He & Lai, 2012)

11

4 Business Processes – ERP systems

This chapter describes the critical parts that are initially needed for a logistic ERP system

implementation, which are Master Data, MPS and MRP.

4.1 Master Data

Master data is the foundation of each ERP system and without correct master data, it is not

possible to control and plan an enterprise. Master data includes all important business

information, for example, business partners (customers and vendors), articles, bills of

materials and prices & conditions. All business activities such as orders, payment receipts,

transport orders and quotes refer to the master data, which make the master data a basis for all

coordination. (Kurbel, 2013)

Usually, master data is stored and remains unchanged over an extended period of time.

Within an ERP system, the master data is used and integrated in a cross-application manner,

which reduces the time needed to process business transactions. This, because the master data

in the ERP system is integrated automatically into the processes and information for the

purchasing, distribution and warehousing processes as well as operative functions and

corporate areas can be used communally. (Kappauf et al, 2011)

In the material master records, all fundamental parameters for the management of each

material are included and its use in procurement, production, distribution and warehouse

logistics. The most crucial master data for control and planning are regarding:

● parts

● product structures

● manufacturing structures

The master data for parts has a central role in manufacturing application systems since it

comprises assemblies, components, raw materials, end products and more. Hence, a part

contains all parts of the end products including all components needed to produce it. (Kurbel,

2013)

The master data for product structures displays what different parts are needed to make up a

product. They can be shown as trees, see Figure 4 below:

12

Figure 4 - Product Structure Trees (Kurbel, 2013)

The binary tree in Figure 4 can be seen as a single-level of a bill of materials (BOM). A

BOM is basically a product structure together with fundamental information about the tree’s

nodes (e.g., part master data) in a list form. In the list, each row shows a part, which is

described by part number, part name, quantity needed for the upper part and so on. Through

this, the BOM describes the structure of a component or a product. (Kurbel, 2013)

Companies are today producing different product variants, which means that the products

vary in some features. This implies that a company can sell almost the same product with an

adjustment, for instance, different engines or different color, see Figure 5 below:

Figure 5 - Products Variants X1 and X2 (Gozinto Graph) (Kurbel, 2013)

13

4.2 Master Production Scheduling (MPS)

The MPS is the expected production scheduled for independent demand items per planning

period by quantity. These independent items are products demanded by the market. The

independent items consist of different components and parts, named dependent demand

which is linked to the Material Requirement Planning, which will be described in 4.3

Material Requirement Planning (MRP). (Shtub & Karni, 2010)

MPS combines the demand for independent requirements based on customer orders and

forecast, which is shown in Figure 6 below. The MPS is linked to the MRP process and

drives it either to work orders or purchase orders. MPS is important since it includes the

trade-off, of either having make-to-stock and make-to-order and the use of inventories.

(Shtub & Karni, 2010)

Figure 6 - The Basic MRP system (Shtub & Karni, 2010)

Since MPS includes the gross requirements for independent demand items, these

requirements are broken down in the MRP into time-phased net requirements to secure

material availability. (Shtub & Karni, 2010)

4.3 Material Requirements Planning (MRP)

Companies are using MRP to ensure that materials are available for production and assembly

in quantities to allow production procedures and sales processes to be accomplished in an

accurate and timely aspect. There are three main sub-functions for MRP, which are:

- to monitor the stock of material for Production and Sales & Distribution

- to generate a procurement recommendation for Purchasing and Manufacturing

- to determine the optimal balance between the lowest possible capital lockup and the best

possible service level, in combination with low provision costs and to reduce expenses.

(Kappauf et al, 2011)

14

Usually, planning requirements are conducted for each plant, but it is possible to perform

planning requirements on the level of a location, planning area or as a supply network

planning. Included planning procedures are:

● total planning

● single-level individual planning

● multi-level individual planning

● interactive planning

● multi-level individual customer planning

● individual project planning

(Kappauf et al, 2011)

As shown in Figure 6 the MRP is based on the required materials BOM and inventory.

(Shtub & Karni, 2010) In Figure 7 below, the other principles of the MRP are shown and its

integration with production. This process can be described in following steps:

● The sales Process or Demand Management figures the Independent Requirement,

described in 4.2 Master Production Scheduling (MPS).

● The MRP creates a demand from either Externally Procured Materials or Planned

Production Orders.

Figure 7 - Material Requirement Planning Process (Kappauf et al, 2011)

• A BOM explosion of products creates the dependent requirements, which is shown in an

example in Figure 8 below. In the example, it is shown that the housing is externally

procured (purchase requisition) and the rest are in-house produced (planned order). When

a planning runs, it goes through all levels in the picture and executes a total planning

process. (Kappauf et al, 2011)

15

Figure 8 - Single- and multi-level planning (Kappauf et al, 2011)

These MRP procedures are either deterministic or consumption-based, where they for the

required quantities align existing stock, capacities and expected or confirmed stock additions.

(Kappauf et al, 2011)

4.3.1 MRP Deterministic Procedure

The deterministic material requirements planning is based on the requirements from current

and future sales:

● customer orders

● dependent requirements obtained through BOM explosion

● material reservations

● planned independent requirements

Through using the deterministic MRP a company can in general work with low safety stock

because the company know the exact required quantities. (Kappauf et al, 2011) The process is

following below steps:

1. A net requirements calculation is conducted by the MRP system where requirements

are compensated by the available stock and planned stock additions. If the required

quantity is bigger than the available and planned stock, the systems generate

procurement recommendations.

2. The system determines for each material its optimal batch size for the purchase order

or production. Thereafter the scheduling for procurement recommendation is based on

delivery dates (for purchase order) or production date (for manufacture).

3. The dependent requirements are thereafter identified for internally produced materials

are conducted through a BOM explosion.

4. Includes additional requirements for the deterministic planning process, for instance

through using a forecast calculation to compensate for excess consumption of

components in production. (Kappauf et al, 2011)

16

4.3.2 MRP Consumption-Based Procedure

The consumption-based planning is based on historical consumption. Two different methods

of using historical consumption data to forecast future consumption are:

● Reorder point procedure

A company is using a reorder point to ensure having products for their customers and

the procurement is triggered when the stock (plan stock and fixed additions) gets

below the reorder point. This point needs to be high enough to cover periods until the

products have been replaced. Otherwise, this can cause production or supply shortfalls

and therefore it might be necessary to include a safety stock in the reorder point.

(Kappauf et al, 2011)

● Forecast-based planning

The forecast-based planning conducts a forecast for future requirements which forms

the required values for the planning run. These values influence the requirement

planning directly and the forecast calculations are on regular basis, which enables that

the requirement adjusts to consumption behavior. (Kappauf et al, 2011)

Forecast Methods

Two common forecasting methods are moving averages and exponential smoothing. The

moving averages method calculates the average of the past n periods to predict the demand

for the material in the next period. Through using this data, the formula below Formula 2 can

be used with following conditions:

- k-1 = current period

- mj = demand that occurred in period j

- Vk = forecast for period k, and is the average of the n most recent actual demands

- The sum is from period k-n to k-1 (Kurbel, 2013)

𝑉𝑘 = 1

𝑛∗ ∑ 𝑚𝑗

𝑘−1

𝑗=𝑘−𝑛

Formula 2 - Moving Average (Kurbel, 2013)

Exponential smoothing instead, can be configured to weight more recent demand more than

previous demand. The formula for exponential smoothing is shown in Formula 3 below and

can be used with following conditions:

- Vk = forecast value is equal the last forecast value plus the weighted deviation of the

actual demand mk-1

- α influences the method's behavior and can be a value between 0 and 1. If α is close to

1 the forecast will be close to the actual demand in period k-1 and the opposite applies

to small α

𝑉𝑘 = 𝑉𝑘−1 + 𝛼 ∗ (𝑚𝑘−1 − 𝑣𝑘−1)

Formula 3 - Exponential Smoothing (Kurbel, 2013)

17

5 Bombardier RCS’s Supply Chain Today

In this chapter Bombardier RCS’s Supply Chain is analyzed, both through presentations with

the Global Logistics Manager and the Regional Logistics Managers from three different

regions, North, South and APAC (Asia Pacific).

5.1 Multiple Supply Chain Sites - Meeting with Global Logistics

Manager

Bombardier RCS has a decentralized Supply Chain with many different sites that have

different ERP systems, see Figure 9 below.

Figure 9 - Multiple Supply Chain Sites

Through having many different sites with different ERP systems, this has led to a scattered

inventory. Furthermore, each site is working as its own legal business unit and since each of

them is having different ERP systems, this has caused inefficiency and prevent visibility in

the Supply Chain. The different sites are also having different master data for the materials,

which reinforce the lack of visibility but also the cooperation between the sites.

5.2 Interviews and Presentations with Logistics Managers for each

Region

To understand this decentralized issue on a region basis, presentations followed by interviews

have been done with three Logistics Managers from three different regions. The interview

questions can be found in Appendix I. The regions represented were APAC (Asia-Pacific),

South (Southern Europe and Africa) and North (Northern Europe). From the presentations

and interviews, four common topics were identified that are causing inefficiency in today’s

Supply Chain. The four common topics were regarding the ERP systems, Inventories,

Warehouses and Compliance. Below you can find a summary of the main findings.

18

5.2.1 System

All the three Logistics Managers have realized that the current ERP setup is not healthy for

the company and causes a high manual workload. The Logistics Manager of APAC thought

that there is no good connection between the different systems and functions and that the

many ERP systems are causing problems for the logistic part of the organization.

Furthermore, the APAC manager mentioned that data from two different ERP systems is

needed for their region and the data from them needs to be consolidated in Excel for

reporting. The Logistics Manager of region South mentioned that all data handling is done

through Excel and explains that the different ERP systems are lacking common master data,

which causes non-visibility between each region's stock. Therefore, there is not a warehouse

integration between the different regions. According to the Logistics Manager of Region

North, it will not be possible to centralize the Supply Chain without a centralized ERP

system. A centralized ERP system would create visibility and reduce manual work, such as

master data and supplier data since it only needs to be administered in one system instead of

all the current systems. In a common ERP system, it would also be easier to transfer stock

and make the inventory management more efficient.

5.2.2 Inventory

The common problem between the different regions is that they need to reduce their physical

inventory and reduce the material in store. Region South would also like to optimize their

material flow with direct deliveries. Region North’s biggest issue regarding inventory is Last

Time Buys (LTBs), due to that they need to buy large quantities at the same time as RCS’s

products have a long lifetime (up to 30 years). This causes trapped cash which results in a bad

rotation and movements for RCS’s products.

5.2.3 Warehouse

Regarding the warehousing, both the Logistics Managers from region South and North would

prefer a centralized warehouse instead of having warehouses scattered, which creates

inefficiency. The Logistics Manager of Region North also mentioned that with a centralized

warehouse, it would create a better transparency, which for instance would ease stock

transfers. The Logistics Manager from APAC explains that their problem is to ensure that the

existing warehouses are following Bombardier’s standard guidelines. According to the

Logistics Manager of Region North, one benefit with a central warehouse would be the

savings in sharing the Minimum Order Quantities and Last Time Buys since only one

region/warehouse would have to buy these instead of four.

5.2.4 Compliance

All the Logistics Managers confirmed that they are not specialist in Trade Compliance and

that those tasks consume a lot of time. The Logistics Manager of Region South expressed that

there are possible improvements within this topic.

19

6 How to Centralize Bombardier RCS’s ERP Systems

This chapter describes which parts of RCS’s ERP system that initially needs to be

centralized, which are RCS’s master data and MRP.

6.1 Centralized Master Data - meeting with Logistics Manager of

Region North

The centralization of RCS’s master data can be divided into two areas, new products and old

products that are already in the system. The first area will be solved easily according to the

Global Logistics Manager, since new products will have the same material number in all

regions. The second area is more challenging according to the Logistics Manager of Region

North and The Global Logistics Manager, since each region has had their own material

numbers for the same products. This means that even if the different regions are selling the

same product, they are using different material number, which causes a problem for the

centralized MRP set-up. Furthermore, due to an expensive and complex homologation in

different countries on material number level, regions are not keen to change their material

numbers. Therefore, another solution is needed to tackle this problem. According to the

Logistics Manager of Region North and the Global Logistics manager, they are unsure how

to solve this problem and agree that it will be a challenge to solve the master data in SAP to

make the MRP process possible and efficient.

6.2 How to Centralize RCS’s Master Data - Meeting and Discussion

with Supply Chain Specialist from AstraZeneca

Through the meeting and discussion with the Supply Chain Specialist, two methods were

developed. One method was more complex, meanwhile, the second method was less complex

and would be easier to implement.

The first complex method would include supersession and interchangeability FFF (Form-Fit-

Function) classes in SAP. Regarding the FFF, an FFF class link a group of fully

interchangeable inventory-managed manufactured parts, see Figure 10 below.

Figure 10 - FFF- Class (SAP Documentation, 2017)

20

A problem that might occur with the FFF is that the customer might need to verify that the

correct material number has arrived, and if the materials have different material numbers on

them, that would not satisfy the safety requirements since their documentation might be

linked to another material number. The interviewee thought that this process would be too

advanced and complicated for Bombardier RCS if their master data issue was not of high

priority and was critical for the company. Furthermore, using supersession and

interchangeability FFF would require either a separate add-on or an extra module in SAP,

which would be costly and require further knowledge and competence

The second method is shown in Figure 11 below. To centralize the material number RCS

needs to have a material number centrally. To be able to convert this centralized material

number, RCS needs to do a production order (in SAP) in the centralized warehouse or unit to

change the material to each region’s material number. This region material’s BOM will

consist of the centralized material (Material A), a label for the region’s material number

(B/C/D/E) and packaging material. The production order includes re-label the product with

for instance a labeler.

It is also possible to create a disassembly production order (separate the different

components) in the central warehouse. This could happen if RCS’s customer, for instance,

cancels an order of product B in Region North and product A already has been converted to

product B through the production order. Through the disassembly production order, Product

B would be separated from Product A, which could be used again for another region. This

process can thereafter be incorporated with the MRP calculation which will be discussed

further in 6.3 MRP analysis and meetings with Global Logistics Manager.

Figure 11 - Overview of centralizing old Master Data in SAP

21

6.3 MRP Analysis and Meetings with Global Logistics Manager

As a solution for the master data issue was developed, the analysis continued with analyzing

how RCS was working with their current ERP systems and tools. Through the analysis, a

model for their MRP was developed through interviews and cooperation with the Global

Logistics Manager and a project team. To implement a centralized MRP process, RCS needs

input from different sources, which is shown in Figure 12 below. Firstly, RCS needs input

from Engineering and Project Management in terms of manufacturing BOM for the materials

and the schedules for each project. Secondly, procurement and logistics need to ensure that

the system has correct master data and that the inventory levels are correct.

Figure 12 - Project ERP Landscape

Since a solution for handling the different region’s material number was developed, shown in

6.2 How to Centralize RCS’s Master Data - Meeting and Discussion with Supply Chain

Specialist from AstraZeneca, it also needed to be adapt to an MRP environment, see Figure

13 below. The figure can be described in following steps:

1. Each Region’s material number consists of Material A, Label (B/C/D/E) and pack

material.

2. Each region’s BOM will be broken down and the MRP will calculate and sum the

dependent requirement of each component.

3. This requirement will thereafter be summed up in the Central MRP, which thereafter

will result in PO: s to the supplier.

Additionally, through keeping products at their central number as long as possible, this will

reduce tied capital and increase flexibility.

22

Figure 13 - How the centralized Master Data will be connected to the MRP

When the different input sources were defined and a solution for the master data was

developed, a more detailed MRP set-up with action was worked out, see Figure 14. This

MRP implementation shall be done in several steps. Bombardier shall:

1. Create an interface between Primavera (The Project Management Tool) and SAP for

upload of projects to SAP MPS.

2. Link together PDM (Product Data Management) with the master data in SAP.

3. Ensure correct master data is in the system, including Inventory levels.

Figure 14 - MRP Landscape

23

7 Analysis of Bombardier Historical Data (Region X)

In this chapter has the historical purchase order data and sales data for Region X’s direct

sales been analyzed. This data has been used to develop an OTD-chart. Furthermore,

interviews have been conducted to be able to develop an accurate direct sales stock policy to

meet requested demand.

7.1 Current Situation

Since RCS is a project-based company, their focus has been on their project sales and not

their direct sales. From the interviews with the Logistics Managers, it appeared that the

different regions did not reach as good On-Time Delivery (OTD) as was shown in their chart,

see result for Region X in Chart 1 below. Therefore, an analysis of RCS historical sales data

for direct sales was done through developing an OTD-model to understand RCS’s delivery

accuracy. For this, one region’s data was used to set a standard which thereafter could be

replicated.

Chart 1 - Old OTD Analysis (Used Dummy Numbers due to confidential data)

7.2 On-Time Delivery

Through analyzing Bombardier RCS’s historical purchase order data for Region X, it was

found that Bombardier RCS’s suppliers do not achieve their target, see Chart 2 below. The

Chart can be described as follows, which also applies for Chart 3:

● the Green part of the columns corresponds to the % of On-Time Delivery orders

● the Yellow part of the columns corresponds to the % of Early orders

● the Red part of the columns corresponds to the % of Late orders

● the Blue part of the columns corresponds to the % of Late orders, that have not yet

been delivered

● the black dots correspond to the number of order lines for each month

24

Chart 2 - OTD All Suppliers (Used Dummy Numbers due to confidential data)

Since Chart 2 shows that RCS’s suppliers do not deliver in time, that would imply that RCS

should not be able to deliver in time, if they do not keep products in stock. From analyzing

RCS’s historical sales for Region X, RCS’s OTD could be identified, see Chart 3 below. It is

shown that Chart 3 shows a lower OTD compared to Chart 1. Therefore, it was necessary to

investigate how this performance could be improved.

Chart 3 - OTD to customers for Region X (Used Dummy Numbers due to confidential data)

25

7.3 Direct Sales Stock Policy - Meeting with Supply Chain Specialist

AstraZeneca

According to the Supply Chain Developer from AstraZeneca, there are several factors to

consider regarding a direct sales stock policy. Firstly, it is important to understand what

products that are critical for a company’s customers and how to handle this. This can be

solved either by keeping customer critical products in stock or through having Service Level

Agreement (SLA) with customers.

Secondly, RCS should analyze how their products are selling and find patterns for them. For

instance, that could be to identify products that have continuous sales or products that

corresponds to a high percentage of the total sales. Thereafter, RCS could create a forecast

for these and one possible solution would be to use exponential smoothing. For these

forecasted products, RCS could either keep these products in stock or push warehousing to

suppliers. Then the suppliers could either keep finished goods in stock or keep components

with long lead time in stock, based on agreements with RCS.

Thirdly, RCS should develop a close cooperation with suppliers and key customers to ensure

that RCS will deliver on time. This can, for instance, be that suppliers are keeping long lead

time components in stock to reduce the overall lead time for finished goods.

7.3.1 Critical products - Interview with Manager of After Sales

Today, RCS is offering a SLA to all their customers, which ensure that their customers

systems always will work. In these agreements, RCS make sure to keep critical products in

stock for each customer. Since these agreements exist, the After Sales Manager believe that

to be able to ensure these products, the customer needs to have a SLA-agreement since these

critical products are not sold regularly. The After Sales Manager points out that it is

important that RCS’s customers with SLA get benefited. Because if RCS would ensure that

we had these products in stock anyway, customers would not use RCS’s SLA-agreement.

7.3.2 Forecasting model for continuous sales

Through analyzing the historical sales data for Region X’s direct sales, a certain number of

materials were identified that should be forecasted to reduce lead time and improve OTD.

There are two opportunities to use this forecast, either Bombardier RCS can keep these

products in stock or provide the forecast to their suppliers. RCS can thereafter let them either

build inventory on long lead time components or finished goods. Depending on what lead

times RCS want to promise their customers, they can adjust these agreements. Using forecast

can also improve bargain power with the suppliers as well as spread the demand over the year

which can smooth their suppliers’ workload.

26

The proposed main criteria to forecast a product is that the product shall be sold regularly (at

least be sold every quarter). Furthermore, other parameters that also affects the forecast is the

quantity sold and the value of the product. Since a product that is forecasted fulfils regularly

sales, this reduces the risk of keeping the products in stock and would increase the delivery

accuracy of the products. In Chart 4 below, the forecast is shown based on historical data.

The blue line from period 22, shows the actual sales during that period. The forecast below

used following parameters:

- ending the forecast 6 months after last period (month)

- the confidence interval was set at 85%

- filled missing points using interpolation

Chart 4 - Example of forecast

7.3.3 Close Cooperation with Suppliers

According to the Logistics Manager of Region North, Bombardier RCS want to reduce their

inventory level and the amount of tied-up capital. Therefore, RCS shall improve their

cooperation with their suppliers and aim to push the inventory to them. This will, of course,

cause a risk for the suppliers, which might lead to increased prices, though the After Sales

Manager does not see any problem with this if RCS can improve their delivery times. What

needs to be defined is which product that shall be kept as finished goods and for which

products long lead time components shall be kept in stock. The Logistics Manager of Region

North’s philosophy is to store materials as early as possible in the process to have the greatest

flexibility. Though, the Logistics Manager of Region North mentioned that this cooperation

with RCS different suppliers depends on the value and volume RCS is ordering. For instance,

The Logistics Manager of Region North points out that for suppliers where RCS is not a

majority customer and is ordering have long lead times products, RCS should keep an annual

demand in stock to ensure availability to RCS’s customers.

27

8 How to Handle the Time-Consuming Compliance

Process

This chapter explains how Bombardier RCS’s work with their decentralized Compliance

process and how this process has evolved through this project.

8.1 Current Compliance Process

As previously mentioned, the different Logistics Managers mentioned that the Compliance

process consumes much time and it was discovered that each region did the same work,

which is shown in Figure 15.

Figure 15 - Current Compliance Process

8.2 Centralization of Compliance Process

Through discussions with the Logistics Manager of Region North and the Global Logistics

Manager, it appeared that it is possible to centralize this process. The process is shown in

Figure 16, and the process was developed to optimize RCS’s process for collecting

documents from suppliers. The process is done in following steps:

1. Each Regional Logistics Manager will provide a list with data to a Centrally

Responsible, who will consolidate a report.

2. Thereafter, Strategic Sourcing will request this from the Suppliers.

3. Thereafter, the Suppliers will provide the documents to the Centrally Responsible

who will update this into a centralized database which will be reachable for each

region.

4. To follow up the percentage of data that has been collected, a KPI will be developed

to measure this.

28

Figure 16 - Centralized Compliance Process

29

9 Discussion

This chapter discusses the centralized approach based on the knowledge from the literature

review in combination with the insights and results from the analysis and data collection.

9.1 Centralized Supply Chain with a Centralized ERP System

Through the discussions, interviews and presentations, it appeared that there are many

reasons why Bombardier RCS should centralize and integrate their Supply Chain. As shown

in the literature, RCS should integrate their operational interdependent processes and

information flows, since they do not have that in today’s organization. The reason is that the

organization has been decentralized and each business unit has taken decisions as an

individual company and have done what is best for them, which is how a decentralized

system works according to Duan & Liao (2013).

Furthermore, according to the interviews with the Logistics Managers, RCS’s decentralized

ERP systems have caused problems such as lack of cooperation and visibility between the

different sites. It appeared that a centralized ERP system could harmonize RCS’s Supply

Chain since it could create a holistic visibility, decrease inventory and decrease manual

workload. Therefore, RCS should centralize their ERP systems from Figure 9 to a centralized

approach and have a standard ERP system which is shown in Figure 17 below.

Figure 17 - Centralized Supply Chain

30

9.2 Centralized Warehouse

From the interviews, it appeared that the Logistics Managers need to decrease their inventory

levels to increase free cash flow. Through having a centralized Supply Chain with a

Centralized Warehouse this would be possible since a centralized warehouse would decrease

tied-up material. This can be explained by using Formula 1, which will be shown in an

example. If Bombardier RCS’s would have four warehouses where each warehouse would

require 25 pieces in average of material X in safety stock to serve their customers, that would

result in 100 pieces totally. If then RCS would consolidate the inventory into one central

warehouse, the amount of inventory of X would be:

𝑋 = 100 ∗ √1/4 → 𝑋 = 50

This reduces RCS inventory by 50%.

According to Duan & Liao (2013), a centralized warehouse would also be more cost-

effective, since the decisions are made to minimize the entire Supply Chain Inventory instead

of decisions based on each business unit. Though, according to Li et al (2014), a centralized

warehouse can create delays while sending materials to a company's different branches, in

RCS’s case to their different sites. Although, from the On-Time Delivery analysis, it was

found that RCS already had delays and that their OTD could be improved.

As previous mentioned, the Logistics Managers need to decrease their stock levels as well as

improving their OTD and through a centralized approach it would be possible to improve

both. A centralized warehouse could decrease the overall stock level and still achieve the

same delivery performance through consolidating the stock in fewer warehouses shown in

3.2.3 Warehousing Square Root Law of Inventory Management. This would result in a

decreased overall stock level, but increased consolidated stock level in one warehouse

compared to the current stock level at each business unit. Therefore, this could increase the

flexibility and possibly improve the OTD.

However, there are pros and cons with both Centralized and Decentralized Warehouses.

Keeping a decentralized approach could keep the responsiveness to local customers and

imply both more flexibility and shorter lead-times. Though this is not a critical problem for

RCS, the problem is rather that the On-Time Delivery is not accurate and according to the

interviews with the Logistics Managers, they thought that a centralized warehouse with a

standard ERP system would lead to a more flexible system with better delivery performance.

Furthermore, a centralized approach with one centralized warehouse would decrease the costs

in terms of decreased transportation costs through collaborate transportations routes and

warehousing costs according to internal calculations (these can’t be presented due to

confidential data). To change the decentralized approach to a centralized could, therefore,

increase responsiveness at the same time as lowering the costs. Furthermore, according to

Haliday (2014), a centralized warehouse would lower costs regarding rent, extra staff and

maintenance of multiple locations.

31

9.3 How to Centralize RCS’s ERP System

Through a centralized ERP system, this would increase the visibility between the different

sites and ease the analysis of data and inventory levels if the master data problem gets fixed.

Though, through meetings, interviews and the literature review, the important parts of an

ERP system that is needed initially to optimize inventory and logistics cost were identified.

These were master data (the keystone for any ERP system) and an MRP system integrated

with current programs used within the organization.

9.3.1 Master Data

Both the literature study and interviews agreed on the criticality of having correct master data

to control and plan an enterprise. This is also critical for a centralized MRP process and RCS

should through their implementation and centralization focus on ensuring correct master data,

especially since different sites are using different material numbers for the same product.

Though, the issue with different material numbers for the same product will be solved by

using one of the methods in 6.2 How to Centralize RCS’s Master Data - Meeting and

Discussion with Supply Chain Specialist from AstraZeneca. Both methods should satisfy RCS

needs to be able to include the different material numbers in the master data and the MRP

setup. Though, since no other requirements were identified through the different interviews

and meetings, the re-label method is proposed due to it is more cost-efficient and less

advanced. For new materials, RCS should develop a centralized process for the creation of

new material numbers to ensure that all the different sites will use the same material number.

A centralized Supply Chin will also reduce the time needed to process business transactions,

because the data will be integrated in a cross-application manner. The maintenance of the

data will also require less time, since the master data will be the same across the company

and could be handled from one central site instead of separately at the different sites. Another

benefit is that since the master data could be handled from one site, it would reduce the

human risk due to fewer systems to handle. This will be fulfilled through having one generic

SAP-system that will have the same master data. Having a centralized master data will

contribute to a more efficient MRP setup.

9.3.2 MRP setup

The second part of how RCS should centralize their ERP system is to centralize their MRP,

which is shown in 6.3 MRP Analysis and meetings with Global Logistics Manager. Through

accomplish a centralized master data and an MRP setup this will give benefits such as:

● increased negotiating power, since the material could be ordered in larger quantities

when conducted in one system

● by placing orders centrally this could decrease the workload which would save both

time and money

● reduced inventory levels, since the MRP calculations will check current inventory

levels

● a centralized approach will make the MRP more efficient due to that stock transfers

will be possible easily

32

Basically, each site will have their requirements as shown in Figure 13 which then will be

summarized centrally in a total planning, which is aligned with what Kappauf et al (2011) are

mentioning as performing planning requirements in a supply network.

Through interviews, meetings and the literature, RCS should implement the MRP process

through following the best practice according to the literature. The importance rather lies in

how to integrate RCS’s other systems regarding their PDM system where they will store the

E-BOM and how RCS can integrate their project management tool for scheduling of projects.

Though, from meetings where IS (Information System) has participated, it has occurred that

it is possible to integrate these side tools with SAP. This together will create a more efficient

logistics flow for RCS.

9.4 Centralized Direct Sales Stock Policy

In 7 Analysis of Bombardiers RCS Historical Data (Region X), it was identified that RCS has

not focused enough on their direct sales and that they are lacking a centralized direct sales

stock policy. The reason was identified as that RCS’s direct sales stock differentiates from

the main business, which is made to order (project based sales). Though, since the regions are

not reaching desired On-Time Delivery level and that the old report is proved presenting

incorrectly, RCS shall take care of their direct sales stock issue and change their approach.

Through comparing the current OTD report in Chart 1 with the new developed one, Chart 3

it is shown that Bombardier RCS’s does not reach desired On-Time Delivery. This, is

affected by that RCS suppliers do not deliver accurately and on time, shown in Chart 2.

Thereby, a correspondence between how RCS deliver with how RCS suppliers deliver was

identified. Though, the chart for the Region X is overall worse than the supplier chart.

The root cause was identified as RCS’s Supply Chain solution is not sustainable, since the

different regions have a restriction to not keep inventory at the same time as RCS is

promising their customers shorter lead times than the actual lead time from RCS’s suppliers.

Additionally, today’s measurement is not accurate due to that different customers are having

different shipping conditions. For instance, some customers are having CIP (Carriage and

Insurance Paid) which means that the delivery date equals the date the product arrives at the

customer, meanwhile other customers mainly have the delivery date when the goods leave

RCS’s warehouse. This, of course, implies that for customers that are having CIP, a

transportation time need to be included to measure the OTD correctly.

As mentioned in 7 Analysis of Bombardiers RCS Historical Data (Region X) there are certain

options to solve this issue. RCS could either:

● keep critical products on stock or use Service Level Agreements (SLA)

● forecast products and either keep products in stock or push stock or long lead time

components to customers

● integrate their Customers and Suppliers better into their Supply Chain and adjust the

lead times

33

Through analyzing these different options, the solution is that RCS should adapt their

solution depending on each supplier and product. Furthermore, through the OTD-analysis it is

also possible to identify which suppliers that have worst On-Time Delivery, which can imply

that RCS need to have closer cooperation with those.

Though, as the Supply Chain Specialist from AstraZeneca mentioned, there are different

elements to consider when creating a direct sales stock policy. For instance, it is important to

segment the different products. The first segment that needs to take into consideration is

regarding critical products. These can, of course, be kept in stock, but as the Manager of

After Sales pointed out, this would affect RCS’s SLA’s negatively since these customers

should be prioritized and if customers without SLA would get the same service, RCS would

lose SLA contracts. Therefore, RCS should continue to have SLA for customers to ensure

critical products in stock.

The second segment of the policy would be regarding products that are sold regularly which

should also consider value and volume for the products. Depending on the supplier, these

products should either be kept in stock at RCS or at the supplier alternatively that the supplier

keeps long lead time components in stock to improve the On-Time Delivery. It depends on

RCS's relationship with each supplier. If RCS is a majority customer, RCS can request more

from the supplier compared to suppliers where RCS is a minority customer.

The third segment of this policy would be regarding products that are neither critical or sold

regularly. Therefore, these products are not as critical as previously mentioned and RCS do

not need to prioritize this third segment. Though, RCS can have a similar approach as for the

second segment but since the sales are sporadic it is not worth to keep the products in stock.

Therefore, RCS shall push suppliers to just keep long lead time components in stock.

Since RCS’s Supply chain is not integrated in a good way, the proposal would be to

investigate how this integration and collaboration could be improved. According to He & Lai

(2012), an external integration of the Supply Chain with both Suppliers and Customers could

imply in competitive advantages. Therefore, the suggestion is that RCS should begin to

increase their integration both to customers and suppliers, which could increase their OTD

and also help suppliers to plan their production as well as updating customers how their

orders are proceeding. Both He & Lai (2012) and the Logistics Manager of Region North are

mentioning strategic integration with suppliers, which should be prioritized since it can make

both RCS and their supplier reach mutual improvement.

One example to increase this integration and collaboration would be to investigate RCS’s

product BOM’s to identify which components that have long lead times. This can be further

investigated since RCS usually order more than one product, RCS can identify products that

belong to the same product family, which is shown in Figure 5 (Kurbel, 2013). Through

identifying common long lead time components, this can reinforce that the suppliers will

stock these components.

34

9.5 Centralized Compliance Process

Through centralizing RCS Supply Chain this can reduce the workload for each individual site

in different areas and one example is regarding how to collect documents from suppliers

regarding compliance. Today, RCS has a decentralized Compliance process, shown in Figure

15, but through this project, a new process was developed shown in Figure 16. This approach

is a centralized process which will reduce the time spent and collect all required documents

centrally, shown in Figure 18 below.

Figure 18 - Centralized Process

35

10 Conclusions & Recommendations

This chapter summarizes the findings of this thesis through the research questions.

Thereafter, are the proposed recommendations for Bombardier RCS presented and the

chapter ends with a validity check and proposal for future research within this area.

10.1 Conclusions

There are always risks related to changing ERP systems, both because it is costly and takes

time to implement. If all the critical parts of an implementation are not evaluated before the

implementation can a failure cause stop an organization. Therefore, it is vital to change ERP

systems step by step.

Through the literature study combined with the analysis, the conclusion is that Bombardier

shall centralize their Supply Chain regarding the logistic aspects. This, because a centralized

Supply Chain will generate benefits regarding visibility, financially, efficiency and improved

customer satisfaction.

10.1.1 How shall Bombardier RCS centralize their Supply Chain? And

what benefits would a centralized Supply Chain imply?

Bombardier RCS shall centralize their Supply Chain through a centralized warehouse and

centralize their ERP systems, in particular, their Master Data and MRP setup. Furthermore,

RCS shall develop a centralized direct sales stock policy to increase their On-Time Delivery

and also centralizes processes to reduce workload, for instance regarding Compliance. These

improvements can’t be done in one shot and should be tackled step by step as proposed in the

report. Through centralizing RCS Supply Chain, RCS will decrease their workload, reduce

inventory levels, create visibility, and to summarize, RCS will gain a more efficient Supply

Chain.

10.1.2 What parts of an ERP system is needed initially to optimize

inventory and logistics cost structure?

The parts that initially is needed to optimize RCS inventory and logistics cost structure is to

centralize and correct RCS’s master data and to centralize their MRP. This, because a correct

master data is the core of an ERP system and without an accurate master data, it will be

difficult to centralize a Supply Chain. Though, since the master data today is scattered, it is

possible to begin an implementation of the MRP setup at one site, to ensure that everything

works and thereafter replicate the process for the other sites. But to be able to finalize the

centralization it’s needed to have accurate master data.

36

10.2 Recommendations

Even though there are risks related to changing an organization, in particular, a Supply Chain

including ERP systems the recommendation is still from the literature review, interviews,

meetings and through analyzing available data, that Bombardier RCS shall work towards a

centralized Supply Chain. The recommendation can be divided into following areas:

ERP system

● Bombardier RCS shall centralize their ERP system to increase visibility and

cooperation between different sites. This shall be done in steps and not in one shot. To

ensure that it is possible to implement this setup RCS shall start with one site and

thereafter replicate the implementation to all the sites.

● Bombardier RCS shall ensure that their master data is correct and centralize it for two

segments:

○ New products shall have the same material number for all sites.

○ Old products can be centralized through proposed solution, which can be

found in Figure 11 in 6.2 How to Centralize RCS’s Master Data - Meeting and

Discussion with Supply Chain Specialist from AstraZeneca.

Warehouse

● Bombardier RCS shall incorporate a central warehouse to minimize their stock level,

increase flexibility, improve delivery times and decrease issues regarding Last Time

Buys.

Direct Sales Stock Policy

● Bombardier RCS shall integrate their Supply Chain and build healthier relationship

towards both suppliers and customers.

● Bombardier RCS shall investigate proposed segmentation for products:

○ critical products

○ products that are sold frequently

○ other products

● Bombardier RCS shall continue to offer SLA to their customers, in particular to

ensure that critical products are kept on stock.

● Bombardier RCS shall investigate the possibility to keep stock centrally for products

that are sold regularly through using developed forecast.

● Bombardier RCS shall investigate possibilities to keep long lead time components and

finished products at supplier's stock to improve delivery times.

37

10.3 Validity

● The interviews, meetings, general discussions have been of an opened structure,

which made it possible to ask follow-up questions. Though, the important is the

results from these collecting methods and not the actual questions. It is important to

filter the answers and include the core result, which has been the approach through

this project. To ensure that the answer has had a high validity, a summarize of

meetings and interviews have been sent to participating people to ensure that the

information was correct and valid.

● The mood of the employees depends on different circumstances and can affect the

answers from interviews, meetings and general discussions. Though, through daily

work at Bombardier RCS, this has been levelled out.

● In the analysis of the historical data, the model has been developed by the author in

cooperation with concerned employees to ensure that it is correct. Furthermore, the

OTD-model has been presented in detail to the Global Logistics Manager and the

Logistics Manager of Region North to ensure that the results are correct and accurate.

Though, it will be needed to evaluate it further before implementing the model.

● The other processes and models, such as how to solve the centralized master data and

the compliance process have been developed in cooperation with employees at RCS

and a Supply Chain Specialist from AstraZeneca. Though, the models that have been

developed in cooperation with RCS employees might be biased towards their interest,

though they have been developed in considering the literature, inputs from employees

combined with my own experiences and thoughts.

10.4 Future Research

Through this project, many new interesting aspects of a centralized Supply Chain has

occurred. For instance, this thesis has focused on the Supply Chain from a logistics

perspective and is not including Bombardier RCS’s production plants since it was not the

target area for this thesis. For instance, the Logistics Manager for the production plant in

Poland mentioned that 30% of used functionalities in their current ERP system are standard

meanwhile 70% are customized functions. The Logistics Manager of the production plant,

therefore, believes a centralization of the ERP systems can be tough and that SAP needs to be

functional with their tools, which would have been interesting to investigate further.

Other areas that would be interesting to investigate further would for instance be:

● Other modules related to SAP and how they could be implemented, for instance

Transportation and Global Trade Management

● How to choose where to have a centralized warehouse and what the optimum set-up

would be for RCS

38

11 References

Literature

Blomkvist, P. & Hallin, A., (2014), Metod för teknologer: Examensarbete enligt 4-

fasmodellen, Lund Studentlitteratur AB.

Chopra, S. & Meindl, P., (2010), Supply Chain Management. 4th edition, New Jersey:

Prentice Hall.

Cooper, M., Lambert, D. & Pagh J., (1997), Supply Chain Management: More Than a

New Name for Logistics, The International Journal of Logistics Management, Vol. 8 Issue: 1,

pp.1-14.

Duan Q. & Liao W., (2013), Optimization of replenishment policies for decentralized and

centralized capacitated supply chains under various demands, Int. J. Production Economics

142 194–204.

He Y., & Lai K., (2012), Supply chain integration and service oriented transformation:

Evidence from Chinese equipment manufacturers Int. J. Production Economics 135.

Khalili-Damghani, K. & Tajik-Khaveh, M., (2015), Solving a multi-objective

multi-echelon supply chain logistic design and planning problem by a goal programming

approach, International Journal of Management Science and Engineering Management, 10:4,

242-252, DOI: 10.1080/17509653.2014.975166.

Kappauf, J., Lauterbach B., & Kock, M., (2011), Logistic Core Operations with SAP -

Procurement, Production and Distribution Logistics, Springer Heidelberg Dordrecht London

New York.

Kurbel, K., (2013), Enterprise Resource Planning and Supply Chain Management -

Functions, Business Processes and Software for Manufacturing Companies, Springer

Heidelberg Dordrecht London New York.

Li W., Ahuja H., Batcha M., Jiang B. & Li F., (2014), Centralization or Decentralization,

Ireland.

Shtub, A. & Karni R., (2010), ERP The Dynamics of Supply Chain and Process Management

Second Edition, Springer New York Dordrecht Heidelberg London.

39

Websites

Haliday, S., (2014), Making Sense of the Square Root Law of Inventory Management, (2017-

11-10).

http://www.acumenfl.com/blog/making-sense-of-the-square-root-law-of-inventory-

management/

SAP Documentation, (2017), Fully Interchangeable Parts, (2017-12-08).

https://help.sap.com/saphelp_di46c2/helpdata/en/74/b86764d08811d2b4d2006094b9c9be/fra

meset.htm

Shanker, R., (2012), Strategies for Inventory Reduction in a Supply Chain, Presentation,

(2017-11-05).

https://www.slideshare.net/kimsach/5-session-5lean-supply-chain-design-cfvg-2012

A1

Appendix

Appendix I - Interview Questions

1. How does your logistic and Supply Chain work today?

2. Which are the biggest challenge you are facing in the currently Supply Chain set up?

3. Which problems are your region facing now?

4. What do you think about current ERP systems?

5. How are you working with ERP systems/Inventory/Warehouse/Compliance? And

could these areas be improved?